Court Opinion

ID: 3200023
Source: CourtListenerOpinion
Date Created: 2016-05-03 19:00:36.234966+00
Date Added: 2024-06-11T14:50:20.789579
License: Public Domain

NOT PRECEDENTIAL

                       UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT
                                 _____________

                                      No. 15-1996
                                     _____________

                    In re: NATIONAL MEDICAL IMAGING, LLC,
                                               Debtor

                              ASHLAND FUNDING LLC,
                                              Appellant
                                  _____________

                     On Appeal from the United States District Court
                         for the Eastern District of Pennsylvania
                     (E.D. Pa. Nos. 2-14-cv-03968 & 2-14-cv-03969)
                        District Judge: Honorable Cynthia M. Rufe
                                     ______________

                      Submitted Under Third Circuit L.A.R. 34.1(a)
                                  January 28, 2016
                                  ______________

           Before: VANASKIE, SHWARTZ, and RESTREPO, Circuit Judges

                                   (Filed: May 3, 2016)
                                       ___________

                                        OPINION*
                                       ___________

VANASKIE, Circuit Judge.

       Appellant Ashland Funding LLC appeals the District Court’s judgment affirming

the Bankruptcy Court’s dismissal of Ashland’s involuntary bankruptcy petition against

       *
        This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7
does not constitute binding precedent.
Appellees National Medical Imaging (“NMI”) and National Medical Imaging Holdings

(“NMI Holdings”). The District Court concluded that the doctrine of collateral estoppel

precluded Ashland from re-litigating issues that the Bankruptcy Court for the Southern

District of Florida had previously resolved against Ashland when it dismissed an

involuntary petition filed against Maury Rosenberg, the managing member of NMI and

NMI Holdings. For the reasons discussed below, we agree that the petition here presents

identical issues to those addressed in the Southern District of Florida case, and that

Ashland was a participant in those proceedings. Accordingly, we will affirm the

judgment of the District Court.

                                             I.

       NMI and NMI Holdings are affiliated with limited partnerships (“NMI LPs”) that

operate diagnostic imaging centers. The NMI LPs entered into leases with DVI Financial

Services, Inc. in order to finance the purchase of their equipment. The leases were

secured by a limited guaranty of Maury Rosenberg and an additional guaranty by NMI

and NMI Holdings. DVI Financial transferred some of the leases to a related entity, DVI

Funding, LLC, and securitized and assigned the remaining leases to other various DVI

entities. DVI Funding subsequently entered into a Loan and Security agreement under

which it pledged the leases as collateral to investors, with U.S. Bank serving as trustee

and DVI Financial acting as servicer. After DVI Financial filed for bankruptcy, it

transferred its rights as servicer to Lyon Financial Services, an affiliate of U.S. Bank.

       In December 2003, Lyon filed a confession of judgment action against Rosenberg,

NMI, and NMI Holdings alleging that the NMI LPs had defaulted on their leases. In

                                              2
March 2005, several DVI entities, including DVI Funding, filed involuntary bankruptcy

petitions against NMI and NMI Holdings. This led to a comprehensive settlement

agreement entered into on August 12, 2005 by Rosenberg, NMI, NMI Holdings, and

Lyon—which was acting as servicer for DVI Funding and the other DVI entities under

their agreements with U.S. Bank and as agent for U.S. Bank. Pursuant to the settlement

agreement: (1) the involuntary bankruptcy petitions and confession of judgment actions

were dismissed; (2) Lyon restructured the repayment obligations of the NMI LPs and

released NMI and NMI Holdings from all claims except those arising from the settlement

agreement; (3) Rosenberg executed a new limited guaranty in favor of Lyon in the

approximate amount of $7.5 million (“Rosenberg Guaranty”); (4) NMI and NMI

Holdings executed a new unconditional guaranty for approximately $15 million (“NMI

Guaranty”); and (5) Rosenberg, NMI, and NMI Holdings executed confessions of

judgment in favor of Lyon. Effectively, the settlement agreement eliminated the

obligations previously owed to the DVI entities by the NMI LPs, which had been

guaranteed by NMI and Rosenberg, by consolidating them into a single obligation owed

in favor of a single creditor, Lyon, as the agent for U.S. Bank, with NMI and Rosenberg

serving as guarantors of the consolidated obligation.

       On March 2, 2007, DVI Funding transferred its interests in the leases to Ashland.

The interests that Ashland acquired from DVI Funding were subject to the settlement

agreement.

       In November 2008, DVI Funding—despite having no remaining interests in the

leases—and five other DVI entities filed involuntary bankruptcy petitions against NMI,

                                            3
NMI Holdings, and Rosenberg in the Bankruptcy Court for the Eastern District of

Pennsylvania. Rosenberg filed a motion to dismiss the first amended involuntary petition

and to transfer venue to the Bankruptcy Court for the Southern District of Florida, where

Rosenberg resided. The proceedings against Rosenberg were subsequently transferred to

that district. The bankruptcy proceedings against NMI and NMI Holdings, however,

remained in the Eastern District of Pennsylvania.

                    A. Rosenberg Bankruptcy Proceedings in Florida

       Rosenberg's motion to dismiss remained pending after the transfer of venue and

the Bankruptcy Court scheduled a hearing for April 20, 2009. Thereafter, without

seeking leave from the Bankruptcy Court, the creditors filed a second amended petition

that substituted Ashland as a petitioning creditor in place of DVI Funding. Rosenberg

then moved to strike the second amended petition on the ground that it had been filed

without leave of court.

       After conducting the hearing on the motion to dismiss, which Ashland participated

in, the Bankruptcy Court granted Rosenberg’s motion to dismiss the first amended

petition and denied as moot Rosenberg’s motion to strike the second amended petition

that substituted Ashland as a petitioning creditor. See In re Rosenberg, 414 B.R. 826

(Bankr. S.D. Fla. 2009) (Rosenberg I). Despite the fact that Ashland was not listed as a

petitioning creditor on the first amended petition, the Bankruptcy Court made three

holdings that are relevant here that explicitly addressed Ashland: (1) Ashland was not a

creditor of Rosenberg because it was not a beneficiary of the Rosenberg Guaranty, which

ran in favor of only Lyon as part of the consolidation of obligations effected by the 2005

                                             4
settlement, id. at 840–41; (2) Ashland was not a real party in interest because it and the

other DVI petitioners “were nothing more than pass-through entities to facilitate the

securitization transactions,” id. at 842; and (3) Lyon was Rosenberg’s only creditor

because the settlement agreement constituted a novation that substituted a single

obligation to Lyon, as servicer and agent for U.S. Bank, in place of Rosenberg’s

previous obligations to the DVI entities, including DVI Funding, Ashland’s predecessor-

in-interest, id. at 844.1 In other words, neither Ashland nor the DVI entities had any right

to assert claims against Rosenberg based on his guaranty; that right belonged solely to

Lyon.

        Ashland and the other petitioning creditors collectively moved for rehearing, and

when that proved unsuccessful, filed a notice of appeal to the District Court for the

Southern District of Florida. On September 27, 2011, the District Court affirmed the

Bankruptcy Court’s holdings that Ashland was not a creditor of Rosenberg, was not a real

party in interest, and the 2005 settlement agreement constituted a novation that replaced

Rosenberg’s previous obligation to the DVI entities with a single obligation to Lyon, as

servicer and agent to the trustee, U.S. Bank. See DVI Receivables, XIV, LLC v.

Rosenberg, No. 10-CIV-24347 (S.D. Fla. Sept. 27, 2011) (Rosenberg II). The District

Court concluded:

        1
         The Bankruptcy Court made one other finding that explicitly concerned
Ashland. It found that the claims of Ashland and the DVI entities were contingent and
subject to a bona fide dispute such that they did not have standing under 11 U.S.C. §
303(b) to file a petition for involuntary bankruptcy against Rosenberg. Id. at 844–47.

                                             5
                 Ultimately, what this appeal comes down to is the fact that
                 the petitioning creditors are nothing more than pass-through
                 entities created for a limited purpose to complete a series of
                 complex securitization transactions. They have no pecuniary
                 interest, they do not receive any cash flow from the Master
                 Leases, and they assigned all rights they may have had to the
                 Trustee.

(App. 530.) The Eleventh Circuit issued a per curiam opinion affirming Rosenberg II in

full on July 6, 2012. See In re Rosenberg, 472 F. App’x 890 (11th Cir. 2012) (Rosenberg

III).2

             B. NMI Bankruptcy Proceedings in the Eastern District of Pennsylvania

         After Rosenberg I was issued, the Bankruptcy Court for the Eastern District of

Pennsylvania dismissed the petitions against NMI and NMI Holdings, concluding that the

real party in interest and novation holdings of Rosenberg I should be given collateral

estoppel effect. After Rosenberg II and III affirmed these holdings, the Bankruptcy Court

denied the motions for reconsideration filed on behalf of the DVI entities and Ashland.

The petitioning creditors, including Ashland, then filed notices of appeal to the District

Court for the Eastern District of Pennsylvania.

         Concluding that the issues presented by the NMI guaranty were identical to the

issues adjudicated in Rosenberg I and II, the District Court affirmed the Bankruptcy

         2
         While the appeal to the Eleventh Circuit was pending, Rosenberg pursued a
sanctions claim against the petitioning creditors, including Ashland, in a separate
adversary proceeding pursuant to 11 U.S.C. § 303(i). On March 26, 2012, the Florida
Bankruptcy Court entered an order holding that § 303(i) was only applicable against
petitioning creditors who had their involuntary petitions dismissed by the Bankruptcy
Court. Accordingly, the Bankruptcy Court dismissed Ashland as a party to the adversary
proceeding because Ashland was not listed as a petitioning creditor on the petition the
Bankruptcy Court dismissed.
                                               6
Court’s dismissal of the involuntary petitions against NMI and NMI Holdings under the

doctrine of collateral estoppel. Specifically, it concluded that, like the Rosenberg

guaranty, the “NMI guaranty creates an obligation only to Lyon.” (App. 28.) Thus, the

DVI entities and Ashland lacked standing to present involuntary bankruptcy petitions

against NMI and NMI Holdings. In holding that Ashland was bound by the Florida

judgment, the District Court rejected Ashland’s contention that it had not been a party to

the Florida proceedings. This timely appeal followed.3

                                               II.

       The Bankruptcy Court had jurisdiction under 28 U.S.C. § 1334. The District

Court had jurisdiction to review the final order of the Bankruptcy Court under 28 U.S.C.

§ 158(a). We have appellate jurisdiction over the District Court’s final order under 28

U.S.C. § 158(d) and § 1291. We exercise plenary review over the District Court’s

determinations “[b]ecause the District Court sat as an appellate court, reviewing an order

of the Bankruptcy Court.” In re Bocchino, 794 F.3d 376, 379 (3d Cir. 2015) (internal

quotation marks omitted). Therefore, we review legal determinations de novo and factual

determinations for clear error. Id. at 380.

                                              A.

       Collateral estoppel, or issue preclusion, “bars successive litigation of an issue of

fact or law actually litigated and resolved in a valid court determination essential to the

prior judgment, even if the issue recurs in the context of a different claim.” Taylor v.

       3
        Both the DVI entities and Ashland appealed. The DVI entities, however,
voluntarily dismissed their appeal, leaving Ashland as the only remaining Appellant.
                                              7
Sturgell, 553 U.S. 880, 892 (2008) (internal quotation marks omitted). In order for

collateral estoppel to apply, the following four elements must be satisfied: “(1) the

identical issue was previously adjudicated; (2) the issue was actually litigated; (3) the

previous determination was necessary to the decision; and (4) the party being precluded

from relitigating the issue was fully represented in the prior action.” Howard Hess

Dental Labs. Inc. v. Dentsply Int’l, Inc., 602 F.3d 237, 247–48 (3d Cir. 2010) (quoting

Szehinskyj v. Att’y Gen., 432 F.3d 253, 255 (3d Cir. 2005)). Here, Ashland contends that

it was not fully represented in the Rosenberg bankruptcy proceedings because it was not a

party to those proceedings or in privity with a party. Additionally, Ashland asserts that

the issues are not identical because the Rosenberg bankruptcy proceedings centered on

the Rosenberg Guaranty, whereas these proceedings focus on the NMI Guaranty.

Therefore, Ashland argues that the District Court erred in giving collateral estoppel effect

to the real party in interest and novation holdings from Rosenberg I and II.

                                             B.

       In order to be considered a party for collateral estoppel purposes, “a person must

be subjected to the jurisdiction of the court by being served, appearing in court, or

participating in the litigation.” Kunkel’s Estate v. United States, 689 F.2d 408, 421 (3d

Cir. 1982). Collateral estoppel will also apply to a person who is not a formal party to the

litigation, if such person had “the opportunity to present proofs and argument” in the

previous litigation. Taylor, 553 U.S. at 895 (quoting Restatement (Second) of Judgments

§ 39, cmt. a (1980)). Additionally, collateral estoppel will apply to a nonparty to a prior

suit “when the nonparty is in privity with someone who was a party to the prior suit.”

                                              8
Nationwide Mut. Fire Ins. Co. v. George V. Hamilton, Inc., 571 F.3d 299, 310 (3d Cir.

2009); see also Taylor, 553 U.S. at 894.

       Ashland contends that it was not a party to the Rosenberg bankruptcy proceedings

because it was not listed as a petitioning creditor on the first amended involuntary

petition that Rosenberg I dismissed. The District Court disagreed and concluded that

Ashland was a party to both Rosenberg I and II.4 As the District Court explained:

              During the Rosenberg bankruptcy proceedings, it is clear that
              Ashland had the opportunity to be heard on the merits of its
              claims and that all parties, including Ashland, proceeded on
              the understanding that Ashland was a party to Rosenberg I.
              Counsel appeared and argued on Ashland’s behalf and
              Rosenberg’s counsel responded to Ashland’s claims. Upon
              consideration of Ashland’s claims and Rosenberg’s
              responses, Rosenberg I made detailed rulings on the merits of
              Ashland’s claims. Ashland then had the opportunity to re-
              litigate the merits of its claims by moving for re-hearing and
              filing a notice of appeal. In sum, Ashland had its day in court
              in the Florida Bankruptcy Court and is bound by Rosenberg I.

(App. 20.)

       We concur with the District Court’s analysis. In the Rosenberg I proceedings,

Ashland retained counsel who appeared at the hearing on the motion to dismiss and made

arguments on Ashland’s behalf. The Bankruptcy Court subsequently reached holdings

regarding Ashland that were supported by detailed analyses. See Rosenberg I, 414 B.R.

       4
         Ashland did not file a notice of appeal of Rosenberg II to the Eleventh Circuit.
Nonetheless, the finality of a lower court’s judgment for collateral estoppel purposes
cannot be defeated by electing to forgo an appeal. See United States v. Munsingwear,
Inc., 340 U.S. 36, 39 (1950) (“Concededly the judgment in the first suit would be binding
in the subsequent ones if an appeal, though available, had not been taken or perfected.”);
see also 18A Charles Alan Wright et al., Federal Practice & Procedure § 4433 (1981)
(“[P]reclusion cannot be defeated by electing to forgo an available opportunity to
appeal.”).
                                             9
at 840–44. Following this ruling, Ashland moved for reconsideration and, following a

denial of that motion, filed a notice of appeal to the District Court for the Southern

District of Florida. The District Court in Rosenberg II, which affirmed the two holdings

at issue here, explicitly stated that Ashland was a party to the appeal. (App. 520.)

       It is clear that in both Rosenberg I and II Ashland appeared in court, participated

in the litigation, and had the opportunity to present proofs and argument. See Taylor, 553

U.S. at 895; Kunkel’s Estate, 689 F.2d at 421. Because Ashland was a party fully

represented in the Rosenberg bankruptcy proceedings, we need not reach the question of

whether Ashland was in privity with a party to those proceedings.5

                                             C.

       Issues are identical for collateral estoppel purposes where “the issues presented by

[the current] litigation are in substance the same as those resolved” in the previous

litigation. Montana v. United States, 440 U.S. 147, 155 (1979). In other words, “identity

of issue is established by showing that the same general legal rules govern both cases and

that the facts of both cases are indistinguishable as measured by those rules.” Suppan v.

Dadonna, 203 F.3d 228, 233 (3d Cir. 2000) (quoting 18 Charles Alan Wright et al.,

Federal Practice & Procedure § 4425 (1981)). Accordingly, the facts of the two cases

do not need to be identical so long as any factual differences have no “legal significance”

       5
          We also reject, as did the District Court, Ashland’s contention that the Florida
Bankruptcy Court’s dismissal of Rosenberg’s § 303(i) sanction claim against Ashland
proves that Ashland was not a party to the Rosenberg bankruptcy proceedings. As
explained above, although Ashland may not have been listed as a petitioning creditor on
the first amended involuntary petition, Ashland appeared in court, participated in the
litigation, had the opportunity to present proofs and arguments, and was a party to
Rosenberg II. See Taylor, 553 U.S. at 895; Kunkel’s Estate, 689 F.2d at 421.
                                             10
in “resolving the issues presented in both cases.” United States v. Stauffer Chem. Co.,

464 U.S. 165, 172 (1984).

       Ashland argues that the identity of issues element is not satisfied here because the

real party in interest and novation holdings of Rosenberg I and II were based on the fact

that the Rosenberg Guaranty created an obligation to Lyon. Ashland maintains that this

bankruptcy proceeding is based, not on the Rosenberg Guaranty, but on the NMI

Guaranty. According to Ashland, the NMI Guaranty creates an obligation to Ashland,

making the difference between the two guaranties material and of “legal significance.”

       The interpretation of the NMI Guaranty is governed by Pennsylvania law due to a

choice of law clause. Under Pennsylvania law, “as a general matter, interpretation of a

written agreement is a task to be performed by the court rather than a jury.” Am. Eagle

Outfitters v. Lyle & Scott Ltd., 584 F.3d 575, 587 (3d Cir. 2009) (citing Gonzalez v. U.S.

Steel Corp., 398 A.2d 1378, 1385 (Pa. 1979)). “[W]hen interpreting the language of a

contract, th[e] Court’s goal is to ascertain the intent of the parties and give it effect.”

TruServ Corp. v. Morgan’s Tool & Supply Co., 39 A.3d 253, 260 (Pa. 2012). To

determine the intent of the parties, “a writing must be interpreted as a whole, giving

effect to all its provisions.” Atl. Richfield Co. v. Razumic, 390 A.2d 736, 739 (Pa. 1978);

see also Lesko v. Frankford Hosp.-Bucks Cty., 15 A.3d 337, 342 (Pa. 2011).

       Ashland’s argument is premised on a textual difference between Section 2 of the

Rosenberg and NMI Guaranties. In the Rosenberg Guaranty, Section 2 states that the

Guarantor “guarantees the full and prompt payment when due . . . the sums identified as

the ‘Guaranteed Amount’ for each Modified Lease on the attached Exhibit ‘A’ to

                                               11
[Lyon].” (App. 191.) (emphasis added.) Conversely, the NMI Guaranty states that the

Guarantors “guarantee the full and prompt payment when due . . . the sums identified as

the ‘Guaranteed Amount’ for each Modified Lease on the attached Schedule ‘A’ due by

the respective Lessee in favor of the respective Lessor.” (App. 197.) (emphasis added.)

Ashland contends that this difference evidences an intent to create a different beneficiary

in the NMI Guaranty. Ashland maintains that as successor in interest to DVI Funding,

which is a named Lessor, it is an intended beneficiary under the NMI Guaranty.

       We disagree. Instead, we conclude, as did the District Court, that the parties

intended the NMI Guaranty to create an obligation to Lyon that was identical in all

material respects to the Rosenberg Guaranty. Notably, the Rosenberg Guaranty is a

limited guaranty under which Rosenberg guaranteed a limited, specific amount. On the

other hand, the amount owed under the NMI Guaranty is measured in terms of the

remaining obligations the NMI LPs owed its lessors on the amortized leases. Section 2 in

each guaranty relates to payment of the “sums” due to Lyon and, therefore the textual

difference Ashland relies upon in Section 2 appears to be caused by the different methods

of calculating the amount owed under each guaranty. It does not, however, signify an

intent to create different beneficiaries of the NMI and Rosenberg Guaranties.

       Moreover, when each guaranty is viewed in its entirety and in the context of the

2005 settlement agreement, it becomes clear that the parties intended both the Rosenberg

Guaranty and the NMI Guaranty to owe an obligation only to Lyon. First, the majority of

the wording in the NMI and Rosenberg Guaranties is identical, with only small

grammatical differences caused by the fact that the NMI Guaranty has two guarantors

                                            12
while the Rosenberg Guaranty has one. Second, identical sections in both guaranties

grant Lyon the sole power to demand payment of the guaranty, establish that Lyon is the

party who will receive all payments under the guaranty, and grant Lyon the sole power to

release, waive, or compromise any obligation owed under each guaranty. Finally, each

guaranty contains an identical provision providing that the guarantors shall execute a

confession of judgment in “the amount owed the Agent,” i.e., Lyon. (App. 194, 200.)

       Because both the Rosenberg Guaranty and the NMI Guaranty create an obligation

only to Lyon, the slight difference in verbiage upon which Ashland relies is immaterial

and of no “legal significance.” Accordingly, the issues in this proceeding are identical to

issues litigated in Rosenberg I and II, and the District Court correctly gave collateral

estoppel effect to the real party in interest and novation holdings from those proceedings.6

                                               III.

       For the forgoing reasons, we will affirm the District Court’s judgment of March

25, 2015.

       6
         Ashland also raised the argument that the novation holding should not be given
collateral estoppel effect because Rosenberg II did not reach this holding. We concur
with the District Court, however, that Ashland waived this argument by not raising it
before the Bankruptcy Court for the Eastern District of Pennsylvania. See In re Kaiser
Grp. Int’l Inc., 399 F.3d 558, 565 (3d Cir. 2005) (“[W]hen a party fails to raise an issue
in the bankruptcy court, the issue is waived and may not be considered by the district
court on appeal.”). In any event, Ashland’s argument is without merit because Rosenberg
II did affirm the novation holding of Rosenberg I. See App. 527. (“This Court believes
the Bankruptcy Court was thorough, fair, and correct as to all but one discrete issue[,
relating to the contingent nature of the claim.]”); App. 531 (“[T]his Court affirms the
decision on three grounds . . . .”) (emphasis added).
                                             13