Turner et al v. Frascella Enterprises, Inc. et al

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
IN RE: FRASCELLA : MISCELLANEOUS ACTION
ENTERPRISES, INC. :
*
*
: NO, 08-100
MEMORANDUM
Bartle, C.J. September 10, 2008
Before the court is the motion of Frascella
Enterprises, Inc., David W. Frascella, Jr., and Larry D.
Frascella for leave to appeal the May 8, 2008 Order of a
bankruptcy judge in the Eastern District of Pennsylvania to
enforce a settlement agreement of a class action.
I.
The facts underlying this bankruptcy case and class
action are detailed in earlier opinions of the bankruptcy judge.
See, e.g.. In re Frascella Enter.. 360 B.R. 435, 437-41 (Bankr.
E.D.. Pa. 2007) , In brief, defendant Frascella Enterprises, Inc.
doing business as CashToday was a payday lending business. In
December, 2005, a class of consumers brought claims in the Court
of Common Pleas of Philadelphia County against Frascella
Enterprises and its principals, David and Larry Frascella,
alleging violations of state usury and consumer protection laws.
Defendant Frascella Enterprises filed for Chapter 11 bankruptcy
Case 06-00101-mdc Doc 130 Filed 09/10/08 Entered 03/26/09 14:20:00 Desc Main
Document Page 1 of 9

on January 30, 2006 and on February 3, 2006 removed the
plaintiffs' action which became a part of the bankruptcy
proceedings.
The facts relevant to this Motion for Leave to Appeal
begin on August 17, 2007 when the parties executed an Agreement
to Settle Class Adversary Proceeding ("the August Agreement")
after seven months of negotiations. On September 24, 2007, the
plaintiffs filed a Motion Seeking Preliminary Approval of the
Settlement Agreement accompanied by a proposed order of approval
and a class notice. The parties agree that when they appeared
before the bankruptcy judge at a hearing on November 5, 2007,
they were jointly seeking preliminary approval of the August
Agreement.
At the November 5 hearing, the bankruptcy judge
critiqued aspects of the August Agreement and, in particular,
expressed her concerns about a provision regarding payment by the
defendants upon default. In re Frascella Enter., Inc., Bankr.
No. 06-10322DWS, 2008 WL 2051115, at *2 (Bankr. E.D. Pa. May 8,
2008). Instead of granting or denying preliminary approval of
the August Agreement, the judge urged the parties to "return to
the table" to address her reservations. Id. at *3. The parties
agreed to do so.
At the time the parties brought the August Agreement
before the bankruptcy judge, the defendants had pending before
— 2 —
Case 06-00101-mdc Doc 130 Filed 09/10/08 Entered 03/26/09 14:20:00 Desc Main
Document Page 2 of 9

her a motion to compel arbitration based on previously signed
arbitration agreements between the parties. On December 19,
2007, while the August class action settlement agreement was
still awaiting preliminary approval from the bankruptcy judge,
our Court of Appeals handed down Gay v. Creditinform, 511 F.3d
369 (3d Cir. 2007) . It held that arbitration agreements that
preclude class actions are not per se unconscionable. Id. at
391. Two days later, counsel for the defendants e-mailed counsel
for the plaintiffs. The e-mail stated that in light of the
bankruptcy judge's "failure to approve the earlier agreement,
which is now null and void, and the impact of the Third Circuit's
decision in Gay v. Creditinform, all terms previously proposed
are hereby withdrawn. Defendants need to give further thought to
the terms upon which they would be willing to consider a
settlement of this case." Def.'s Br. at 8.
On February 15, 2008, the plaintiffs responded with a
Motion to Enforce Settlement Agreement. Specifically, the
plaintiffs argued that the parties had reached a meeting of the
minds on the modifications discussed following the November 5
hearing and that those terms had become part of the August
Agreement. In the alternative, the plaintiffs sought enforcement
of the August Agreement without any subsequent modifications.
The bankruptcy judge ruled on May 8, 2008 that the
August Agreement was still valid and enforceable but that there
-3-
Case 06-00101-mdc Doc 130 Filed 09/10/08 Entered 03/26/09 14:20:00 Desc Main
Document Page 3 of 9

had been no meeting of the minds with respect to any subsequent
modifications. In re Frascella Enter., Inc., 2008 WL 2051115, at
*11.
II.
District courts have jurisdiction under 28 U.S.C.
§ 158 (a) to hear appeals "...with leave of the court, from
interlocutory orders and decrees, of bankruptcy judges entered in
cases and proceedings referred to the bankruptcy judges under
section 157 of this title."1 28 U.S.C. § 158(a)(3); see In re
Truoncr, 513 F.3d 91, 93 (3d Cir. 2008). The parties agree that
the bankruptcy judge's May 8 Order is interlocutory because it
did not terminate the proceedings before her.
The parties also agree that district courts, in
deciding whether to grant an appeal of an interlocutory
bankruptcy order, typically reference the standard described in
28 U.S.C. § 1292 (b), which governs the appeal of interlocutory
orders of the district court to the court of appeals. See In re
Sandenhill, Inc., 304 B.R. 692, 694 (E.D. Pa. 2004). Under
§ 1292 (b), the district court may certify an interlocutory order
for appeal where (1) the order "involves a controlling question
of law," (2) "as to which there is substantial ground for
difference of opinion," and (3) "an immediate appeal from the
1. Section 157 governs the procedure and circumstances under
which district court judges may refer cases to bankruptcy judges.
28 U.S.C. § 157.
-4-
Case 06-00101-mdc Doc 130 Filed 09/10/08 Entered 03/26/09 14:20:00 Desc Main
Document Page 4 of 9

order may materially advance the ultimate termination of the
litigation."
A "controlling question of law" is a broad concept that
"encompass[es] at the very least every order which, if erroneous,
would be reversible on final appeal." Katz v. Carte Blanche
Corp., 496 F.2d 747, 755 (3d Cir. 1974) . The issue need not be
one that would terminate the litigation, nor need it be
determinative of the claims on their merits. Id. Rather,
relevant factors include whether the order is "serious to the
conduct of the litigation, either practically or legally,"
including saving the time of the courts and the expense of the
litigants. Id. at 755. The correctness of a decision to approve
class action treatment is an appropriate ground for interlocutory
appeal. Id^ at 756. Similarly, we find that the correctness of
a decision regarding the enforceability of a class action
settlement is a controlling question of law amenable to
interlocutory review. The enforceability of the August Agreement
has obvious serious practical and legal consequences to this
litigation. The opinion accompanying the bankruptcy judge's May
8, 2008 Order explained, "In short, my critique of the terms of
the Settlement Agreement and demand for clarity in the notice and
proposed order do not give the Defendants a license to repudiate
their agreement." In re Frascella Enterprises, Inc., 2008 WL
2051115, at * 11. This issue that the bankruptcy judge decided
-5-
Case 06-00101-mdc Doc 130 Filed 09/10/08 Entered 03/26/09 14:20:00 Desc Main
Document Page 5 of 9

was a matter of law and, contrary to the plaintiffs' argument,
not a resolution of disputed facts.
We next turn to the question of whether there exists a
"substantial ground for difference of opinion" with respect to
the May 8 Order. A "substantial ground for difference of
opinion" exists where courts differ in their views on the correct
legal standard. See Ungar y. Dunkin' Donuts of America^ Inc.,
531 F.2d 1211, 1214 (3d Cir. 1976). The defendants do not point
us to conflicting decisions on the controlling legal standard.
Whether a judge is free to postpone ruling on a motion for
preliminary approval of a settlement agreement without affecting
the validity of that agreement does not appear to have been the
subject of any prior precedent in this Circuit. The mere
existence of a matter of first impression is generally
insufficient to establish a "substantial ground for difference of
opinion." See, e.g.. Max Daetwyler Corp. v. Meyer, 575 F. Supp.
280, 283 (E.D. Pa. 1983) (Pollak, J,). Some courts have found a
"substantial ground for difference of opinion" where the matter
of first impression is "novel" or requires "highly complex"
analysis. See Zenith RadioCorp. v. Matsushita Elec. Indus. Co.,
Ltd., 494 F. Supp. 1190, 1243 (E.D. Pa. 1980) (Becker, J.).
Here, however, the matter is not novel, and the analysis is
straightforward.
When the parties jointly brought the August Agreement
-6-
Case 06-00101-mdc Doc 130 Filed 09/10/08 Entered 03/26/09 14:20:00 Desc Main
Document Page 6 of 9

before the bankruptcy judge on November 5, 2007, they considered
themselves bound by it. It is undisputed that the bankruptcy
judge did not enter an order denying the joint motion seeking
preliminary approval of the August Agreement. Instead, she chose
to defer ruling on the motion, or, as she describes it, she
"suspended" her decision on the motion until the parties worked
out the problems she had identified in the Agreement. In re
Frascella Enter., Inc.. 2008 WL 2051115, at *9.
During the following seven weeks, the parties exchanged
emails and drafts of modifications to the August Agreement. The
parties by mutual consent could have decided to abrogate their
August Agreement. However, they did not do so. Under
well-established principles of contract law, one party generally
may not cancel a bilateral agreement such as this. The fact that
the parties entered into negotiations to modify an existing
agreement does not change the result, and the defendants cite no
case supporting their position. Consequently, based on the
record before us, we do not see any basis for allowing an appeal
because of a "substantial ground for difference of opinion" as to
validity of the bankruptcy judge's May 8, 2008 Order.
Since the interlocutory order in issue does not meet
the second prong under § 1292 (b), we need not consider whether an
immediate appeal from the order "may materially advance the
ultimate termination of the litigation."
-7-
Case 06-00101-mdc Doc 130 Filed 09/10/08 Entered 03/26/09 14:20:00 Desc Main
Document Page 7 of 9

Finally, the defendants rely on the collateral order
doctrine. See Cohen y. Beneficial Indus. Loan Corp., 337 U.S.
541, 546-47 (1949). However, it does not provide an alternative
mechanism for them to appeal the May 8 Order. "To come within
the xsmall class' of decisions excepted from the final-judgment
rule by Cohen, the order must conclusively determine the disputed
question, resolve an important issue completely separate from the
merits of the action, and be effectively unreviewable on appeal
from a final judgment." Saber v. FinanceAmerica Credit Corp.,
843 F.2d 697, 703 (3d Cir. 1988). Assuming that the first two
parts of the test have been met, there is nothing before us to
demonstrate that the May 8 Order will effectively be unreviewable
on appeal from a final judgment.
Accordingly, we will deny the defendants' motion for
leave to appeal the bankruptcy judge's May 8, 2008 Order.
-8-
Case 06-00101-mdc Doc 130 Filed 09/10/08 Entered 03/26/09 14:20:00 Desc Main
Document Page 8 of 9

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
IN RE: FRASCELLA : MISCELLANEOUS ACTION
ENTERPRISES, INC. :
: NO. 08-100
ORDER
AND NOW, this 10th day of September, 2008, for the
reasons set forth in the accompanying Memorandum, it is hereby
ORDERED that the motion of defendants Frascella Enterprises,
Inc., David W. Frascella Jr., and Larry Frascella for leave to
appeal the bankruptcy judge's Order of May 8, 2008 is DENIED.
BY THE COURT:
/s7 Harvey Bartie III
C.J.
Case 06-00101-mdc Doc 130 Filed 09/10/08 Entered 03/26/09 14:20:00 Desc Main
Document Page 9 of 9