IN RE: J & S PROPERTIES, LLC, Debtor PHOENICIAN MEDITERRANEAN VILLA, LLC, Appellant
LISA M. SWOPE, Esquire, Trustee of the Bankruptcy Estate of J & S Properties, LLC; JAMES FOCHT; J & S PROPERTIES, LLC
May 23, 2017
Appeal from the United States District Court for the Western
District of Pennsylvania (D.C. No. 3-15-cv-00268) District
Judge: Honorable Kim R. Gibson
B. Sheats [Argued] Frank Gale Bails Murcko & Pocrass
Attorney for Plaintiff-Appellant
L. Byer, Duane Morris, Andrew R. Sperl [Argued], Duane
Attorneys for Defendant-Appellee
J. Giacometti, Flaster Greenberg, Gary F. Seitz Gellert,
Scali Busenkell Attorneys for Amicus-Appellee National
Association of Bankruptcy Trustees
William G. Schwab Attorneys for Amicus-Appellee Third Circuit
Before: HARDIMAN, ROTH, and FISHER, Circuit Judges.
OPINION OF THE COURT
HARDIMAN, Circuit Judge.
bankruptcy trustee sometimes must act quickly to safeguard
property of the estate. In this case, Chapter 7 Trustee Lisa
Swope took control of a commercial leasehold possessed by
Phoenician Mediterranean Villa, LLC in a building owned by
the debtor. Phoenician requested equitable relief to regain
possession of its leasehold, claiming that Swope violated the
law when she accepted the key to locks that had been changed.
The United States Bankruptcy Court for the Western District
of Pennsylvania denied the relief sought by Phoenician,
holding that Swope was qualifiedly immune from suit. The
District Court affirmed and Phoenician filed this appeal.
question presented is whether qualified immunity applies to
discretionary actions taken by a trustee to preserve the
bankruptcy estate's assets, and whether that immunity
protects Trustee Swope's conduct in this case. We will
affirm because Swope exercised reasonable care under the
circumstances and did not violate clearly established law.
S Properties, LLC filed a Chapter 7 petition in the
Bankruptcy Court on July 10, 2013. Attorney Lisa Swope was
appointed as Chapter 7 Trustee of the estate. The
estate's largest asset was a building located in Altoona,
Pennsylvania, in which Phoenician was a lessee and previously
operated a restaurant. In re J & S Props., LLC,
545 B.R. 91, 94 (Bankr. W.D. Pa. 2015). Pursuant to a court
order dated November 5, 2013, Swope rejected Phoenician's
lease to facilitate a sale of the property. Although
Phoenician was not operating the restaurant at that time, its
tenancy had not expired. After the lease was rejected,
Phoenician attempted to remove personal property from the
restaurant, but Swope objected because the Bankruptcy Court
had not determined ownership of the contents of the
restaurant, although Phoenician claimed to own all of it.
learning from J & S's principal, James Focht, that
the restaurant had been shut down, that Phoenician had
cancelled its insurance on the premises, and that heating the
property could be an issue with an "anticipated arctic
blast, " Swope met at the property with Phoenician's
principal, Husam Obeid, along with his counsel and a
contractor on January 3, 2014. Id. At that meeting,
Obeid gave Swope a key to the premises and the contractor
recommended that the thermostat be set to at least
"sixty degrees Fahrenheit to prevent the pipes from
freezing." Phoenician Mediterranean Villa, LLC v.
Swope, 554 B.R. 747, 750-51 (W.D. Pa. 2016).
Unfortunately, Obeid did not heed this advice, the pipes
burst, and the property was flooded on January 13, 2014.
Obeid contacted a disaster restoration company, but they
apparently refused to work on the property "because
there were problems with insurance coverage, the relationship
between the parties was acrimonious, and no one agreed to
provide the company with a lien." Id. at 751.
According to Trustee Swope, Obeid and Focht "did not
trust each other" and had previously tried to hurt each
other's businesses. Id. at 750. It was in this
context that Swope set about to protect, or "adequately
preserve, " the largest asset of the bankruptcy
asked for another meeting on January 15, 2014 to assess the
damage to the property and discuss the status of the
building's insurance. Obeid and his counsel did not show
up, asking that the meeting be rescheduled and held without
Focht; Swope declined the request "[g]iven the urgent
nature of the situation." In re J & S
Props., 545 B.R. at 95. Swope tried to inspect the
premises but discovered the key Obeid had given her did not
open the locked interior door to the building. Focht then
"had the locks changed and provided Trustee Swope with
the key" on January 16. Phoenician Mediterranean
Villa, 554 B.R. at 751. Swope claimed in an email to
Phoenician that in accepting control of the building, she was
attempting to preserve the assets to the best of her ability.
On the same day, Swope filed an emergency motion asking the
Bankruptcy Court to grant her immediate possession of the
property and its contents. In the meantime, she retained the
"sole key" and thus control of the premises, and
subsequently provided both parties with only "supervised
access" to the property. Id.
filed a complaint in equity to "regain possession of the
premises, " and the Bankruptcy Court conducted an
emergency hearing on January 24, 2014. Phoenician Br.
After the hearing, at which Swope testified, the Court denied
Phoenician's requests for an injunction and temporary
restraining order on January 27. During the hearing, the
Bankruptcy Court noted that "the trustee has possession,
custody and control of the property, " and opined that
Swope is "protected by the automatic stay, " which
precludes Phoenician from interfering with the property in
any way. App. 399. And on February 7, 2014, the Bankruptcy
Court ordered that Phoenician and J & S and their
associates "are prohibited from entering into or upon
the [Estate] Property without the express authorization of
the Trustee, or further order from this Court." Order of
Court Granting First Commonwealth Bank Relief from Stay
(hereinafter "Feb. 7, 2014 Order"), Bankruptcy No.
13-70512-JAD, ECF No. 113, at ¶¶ 7-8 (Bankr. W.D.
Pa. Feb. 7, 2014).
complaint, Phoenician also sued Swope under 42 U.S.C. §
1983 for wrongful eviction, claiming violations of its Fourth
and Fourteenth Amendment rights. Swope moved to dismiss this
suit based on quasi-judicial immunity. On September 30, 2015,
the Bankruptcy Court granted Swope's motion to dismiss
the complaint against her, though because the Court looked to
additional briefing and other hearings, the Court evaluated
the motion under a summary judgment standard. See In re J
& S Props., 545 B.R. at 95. It ultimately found that
"no genuine dispute of material fact exists as to
whether the Trustee exercised her business judgment as to the
steps she deemed necessary to protect Estate Property, "
and thus Swope was entitled to immunity. Id. at 96.
27, 2016, the District Court affirmed the Bankruptcy
Court's order granting Swope's motion to dismiss. The
District Court found that Swope was "entitled to
qualified immunity" and that she did not engage in any
wrongful or ultra vires conduct since she "took
appropriate action to administer and preserve the Estate
Property" in accordance "with her duties as the
trustee." Phoenician Mediterranean Villa, 554
B.R. at 756-57.
filed this timely appeal.
Bankruptcy Court had jurisdiction under 28 U.S.C. §
157(a). The District Court exercised jurisdiction under 28
U.S.C. § 158(a). We have appellate jurisdiction under 28
U.S.C. § 158(d). Like the District Court, we review the
Bankruptcy Court's legal determinations de novo and its
factual findings for clear error. In re VistaCare Grp.,
LLC, 678 F.3d 218, 224 (3d Cir. 2012). A factual finding
is clearly erroneous only if we are "left with the
definite and firm conviction that a mistake has been
committed." In re W.R. Grace & Co., 729
F.3d 311, 319 n.14 (3d Cir. 2013) (citation omitted).
principal issue on appeal is whether Swope is immune from
Phoenician's suit complaining of actions she took between
January 16, 2014 and February 7, 2014. The Bankruptcy
Court held that Swope is entitled to qualified immunity
because she acted within her statutory duties and the
District Court agreed, finding Swope did not violate clearly
established law. We reach the ...