Thomas v. City of Phila. (In re Thomas)

626 B.R. 804

IN RE: Milton THOMAS, Debtor.

Milton Thomas, Plaintiff,

v.City of Philadelphia, The School District of Philadelphia, Defendants.

Bky. No. 04-10175 ELF

Adv. No. 19-043 ELF

United States Bankruptcy Court, E.D. Pennsylvania.

Signed March 25, 2021

MEMORANDUM

ERIC L. FRANK, U.S. BANKRUPTCY JUDGE

I. INTRODUCTION

In 2013, in Adv. No. 13-29 ("the Prior Adversary"), involving the same parties who are presently before the court, I issued an Opinion that began as follows:

It is the hope of every chapter 13 bankruptcy debtor that the completion of his or her chapter 13 plan will solve, once and for all, the debt problems that drove the debtor into bankruptcy. Unfortunately, it does not always work out that way.

In re Thomas, 497 B.R. 188, 190 (Bankr. E.D. Pa. 2013) (" Thomas I").

The adversary proceeding now before the court ("the Present Adversary") is further evidence that completion of a chapter 13 plan does not always resolve the underlying disputes between a debtor and his or her creditors.

The Present Adversary represents the Debtor's continued quest to hold the City of Philadelphia (the "City") liable for what he claims were unlawful, post-bankruptcy collection actions against him and his property.¹

In Thomas I, the Debtor asserted that, after completion of his chapter 13 case, the City violated the terms of his confirmed plan and the automatic stay in connection with one (1) of the three (3) properties he owned when the bankruptcy case was commenced. Following a hearing, I dismissed the Debtor's claims against the City and other defendants.

The Debtor has returned to this court (after two (2) trips to both the U.S. District Court ("the District Court") and the Third Circuit Court of Appeals) with the same essential complaint raised in Thomas I – that the City harmed him by pursuing its claims post-discharge. This time, the Debtor's attack is based on his contention that the City violated the discharge injunction through its post-bankruptcy collection actions. And, his present complaint relates to the two (2) other properties he owned when he filed this bankruptcy case in 2004.

Before the court is the City's Motion for Summary Judgment ("the Motion").

After consideration of the Motion and the Debtor's response, I will grant the Motion on the following grounds:

• with respect to the first of the two (2) properties involved, no violation of the discharge injunction occurred because the City's liens passed through the bankruptcy unaffected, leaving the City free to enforce its lien rights under applicable nonbankruptcy law;

• with respect to the second property, while the Debtor's confirmed plan purported to avoid the City's prepetition liens, the plan did not bind the City due to the Debtor's failure to provide the City with adequate notice of his chapter 13 plan and, in any event, under the legal standards that must be satisfied to hold a party in contempt, the City had an objectively reasonable basis to believe that its conduct was permissible and therefore, cannot be held in contempt.

II. PROCEDURAL AND FACTUAL HISTORY

The procedural and factual history leading up to the present adversary proceeding is lengthy. To place the present matter in its proper context, it is nevertheless necessary to review that history, particularly the administration of this bankruptcy case, in some detail.

A. The Debtor's 2004 Chapter 13 Bankruptcy Case

The Debtor filed this chapter 13 bankruptcy case, acting pro se , on January 6, 2004 – more than sixteen years ago.² The bankruptcy judge originally assigned to the 2004 case, the Hon. Diane W. Sigmund, has since retired.³

At the outset, it is worth mentioning that, during the relevant time periods in the administration of the bankruptcy case, the City's counsel did not enter an appearance on the main case docket and therefore, did not receive electronic service of any documents filed on the docket through the court's CM/ECF system.

1. the Debtor's bankruptcy schedules

The Debtor's Schedule A disclosed that he owned three (3) properties (the "Properties"). All of the Properties are in Philadelphia:

• 1618 South 58th St. ("1618 S. 58th");

• 1620 South 58th St. ("1620 S. 58th");

• 1251 South Ruby St. ("Ruby St.").

In Schedule D, the Debtor disclosed that Ruby Street was subject to secured claims held by the City of approximately $10,000.00 and that each of the other two (2) properties were subject to secured claims of $18,000.00.

The Debtor listed no other secured creditors.

2. proofs of claim

The City did not file any proofs of claim prior to the expiration of the June 6, 2004 deadline for filing government claims.

On July 17 and 24, 2004, after the June 6th deadline, the Debtor filed two (2) proofs of claim on behalf of the City for unpaid, prepetition water and sewer bills:

• Proof of Claim #4 for $18,000.00, secured by 1618 S. 58th; and

• Proof of Claim #5 for $10,000.00, secured by Ruby Street.

Notably, neither the City nor the Debtor filed a proof of claim on account of 1620 S. 58th prior to confirmation.⁴

On June 17, 2004, (even before he filed the proofs of claim on the City's behalf), the Debtor filed what he styled as a Motion to Cramdown ("the Cramdown Motion"). Therein, the Debtor asserted that the City's claims against 1618 S. 58th and 1620 S. 58th exceeded the value of those properties, and requested that the City's secured claims be reduced to value of the collateral. (Bky. No. 04-10175, Doc. # 36). The Debtor filed a certification stating that he served the City with the Cramdown Motion at the "Municipal Services Building" in Philadelphia. The City did not respond to the Cramdown Motion, which the court granted on August 26, 2004.

The order granting the Cramdown Motion ("the Cramdown Order"), handwritten by Judge Sigmund over the proposed order submitted by the Debtor, allowed the City of Philadelphia's claims as follows:

(1) secured claim of $6,800 with respect to 1618 S. 58th St., balance unsecured;⁵ and

(2) secured claim of $5,700 with respect to 1620 S. 58th St., balance unsecured.

(Bky. No. 04-10175, Doc. # 54). The City was never served with the Cramdown Order. (See Bky. No. 04-10175, Doc # 55).

3. chapter 13 plans, confirmation and the Trustee's Final Report

The Debtor filed his first proposed chapter 13 plan in January 2004 and filed three (3) amended plans between June and November 2004. Significantly, the Debtor did not serve any of his proposed plans on the City.

The court confirmed the Debtor's Third Amended Chapter 13 Plan on February 22, 2005 ("the Confirmed Plan"). The Confirmed Plan defined "Class 2" as "[a]ll allowed secured claims secured by a lien which is not crandown [sic] under 11 U.S.C. § 1322(b)(2)" and provided that Class 2 claims would be paid in full. (Confirmed Plan ¶¶ 4.B, 5.B.) (Bky. No. 04-10175, Doc. # 71).⁶ The Plan required payments of $445.00 for 49 months, totaling $21,805.00.

On July 31, 2009, the chapter 13 Trustee filed his Final Report, stating, inter alia , that he had distributed the following amounts to the City pursuant to the Confirmed Plan:

• $10,000.00 secured claim for water/sewer

• $6,800.00 secured claim for a water/sewer

• $3,500.42 unsecured claim for water/sewer.

(Doc. # 127).

The relevant portion of the Final Report is below:

Scheduled Creditors:
Creditor Name	Class	Claim Scheduled	Claim Asserted	Claim Allowed	Principal Paid	Int. Paid
AMERICAN REALITY	UNS	1,150.00	2,400.00	2,400.00	677.69	0.00
CITY OF PHILA	SEC	18,000.00	NA	NA	0.00	0.00
CITY OF PHILA	SEC	10,000.00	NA	NA	0.00	0.00
CITY OF PHILA (WATER/SEWER)	SEC	NA	10,000.00	10,000.00	10,000.00	0.00
CITY OF PHILA (WATER/SEWER)	SEC	NA	6,800.00	6,800.00	6,800.00	0.00
CITY OF PHILA (WATER/SEWER)	UNS	NA	12,396.97	12,396.97	3,500.42	0.00
CITY OF PHILADELPHIA	SEC	18,000.00	NA	NA	0.00	0.00
COMPUTER CREDIT INC	UNS	251.66	NA	NA	0.00	0.00
PECO	UNS	500.00	NA	NA	0.00	0.00
PGW	UNS	1,100.00	1,605.71	1,605.71	453.41	0.00
T-MOBILE	UNS	500.97	550.92	550.92	155.57	0.00
US DEPT OF EDUCATION	UNS	3,000.00	NA	NA	0.00	0.00
VERIZON	UNS	90.19	NA	NA	0.00	0.00
WACHOVIA BANK	UNS	400.00	NA	NA	0.00	0.00

The Debtor received his discharge on September 3, 2009. The court closed the Debtor's case on September 8, 2009, although it was reopened later to adjudicate the Prior Adversary (resulting in the issuance of Thomas I ).

B. The Prior Adversary

The Debtor first challenged the City's collection activities in the Prior Adversary.

On January 17, 2013, the Debtor filed the Prior Adversary pro se in District Court. The District Court subsequently referred the proceeding to this court.

In the Prior Adversary, the Debtor challenged the post-petition collection actions of the City and other defendants, alleging violations of both the automatic stay and the confirmed chapter 13 Plan.

The Debtor's complaints in the Prior Adversary were based solely on collection efforts against the Ruby Street property.

The Debtor made the following four (4) assertions in the Prior Adversary:

(1) the Philadelphia Authority for Industrial Development ("PAID") – to whom the City transferred a portfolio of delinquent assets – sold a tax bond on Ruby St. to Wachovia Bank in violation of the automatic stay;

(2) the tax obligations that PAID sold to Wachovia were paid through the chapter 13 plan;

(3) Wachovia's filing a Sheriff Sale petition in November 2005 violated the automatic stay; and

(4) Wachovia's post-discharge resumption of the Sheriff Sale petition was improper.

See Thomas I, 497 B.R. at 194.

For present purposes, we need only concern ourselves with the outcome of the Debtor's claims against the City.

In Thomas I, I denied the Debtor's request for relief on two (2) independent grounds:

(1) the Plan did not provide for Claim #5, secured by Ruby Street;⁷ and

(2) the City did not have notice of the plan prior to confirmation and therefore was not bound by the Confirmed Plan.⁸

The Debtor appealed the September 25, 2013 Order dismissing the complaint in Thomas I. On October 23, 2013, the District Court dismissed his appeal due to procedural errors. See Thomas v. City of Phila., No. 13-cv-6049 (E.D. Pa.).

C. The Debtor's Subsequent Action in District Court

Nearly...