George Dulgerian

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
In re 	: 	Chapter 11
G EORGE D ULGERIAN , 	:
Debtor. 	: 	Case No. 06-10203 	(JKF)
________________________________
MEMORANDUM OPINION
BY: 	J EAN K. F ITZ S IMON
United States Bankruptcy Judge
This matter is before the Court on the Debtor’s Motion to Confirm Sale to
First National Bank of Chester County or its Assignee Free and Clear of Liens,
Claims and Encumbrances Pursuant to Section 363 of the Bankruptcy Code and
for Clarification of Sale Order (the “Motion”). Because WV-PP Towne Center
received notice and the sale is free of its easement pursuant to applicable
nonbankruptcy law, the Motion is granted.
BACKGROUND
An involuntary Chapter 7 bankruptcy petition was filed against George
Dulgerian on January 19, 2006. The Debtor voluntarily converted his case to
Chapter 11 on June 7, 2006. Mr. Dulgerian owns 57 acres of land on Baltimore
Pike known as Point Ardashes (the “Property”). The Property is subject to a first
priority mortgage of First National Bank of Chester County (“FNBCC”) for
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The Motion seeks a declaration as to other encum berances, including easem ents, on the
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Property. However, no argum ent or evidence was presented with regard to anything other than the
Easem ent. Accordingly, this opinion and Order only address the Easem ent.
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approximately $6,700,000. 	This mortgage was taken on May 9, 2003. The
Property also is subject to a road easement agreement between Franklin Center
Trust and George Dulgerian dated October 30, 2003 and recorded on
December 12, 2003 (the “Easement”). 	The Easement later was transferred to1
WV-PP Towne Center, L.P. (“W V-PP”).
On March 15, 2007, this Court entered an Order approving the sale of the
Property to W illiam Sasso (the “Sale Order,” docket entry #255). Pursuant to an
Order Approving the Procedure for Entertaining Higher and Better Offers at the
Hearing to Approve the Proposed Sale (docket entry #217), entered by this Court
on February 1, 2007, FNBCC offered to purchase the Property for $6,600,000
and was deemed a Backup Bid to the Sasso offer. KRPM, L.P. (“KRPM”) is the
assignee of FNBCC and joins the Debtor in seeking confirmation of the sale of
the Property.
According to the Sale Order, “[t]he Property shall be conveyed pursuant to
§ 363 of the Bankruptcy Code and the terms of the Agreement free and clear of
any liens, encumbrances, interests and claims thereon, therein, or relating to . . .”
(¶13). Paragraph 1.2 of the Agreement to Purchase Real Estate includes, in
relevant portion:
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The Property shall be sold free and clear of all security interests,
liens, pledges, claims, levies, charges, deeds of trust, escrows,
encumbrances, options, rights of first refusal, transfer restrictions,
conditional sale contracts, title retention contracts, mortgages,
leases, easements, hypothecations, indentures, security agreements
or other agreements, arrangements, contracts, commitments,
understandings or obligations of any kind whatsoever, whether
written or oral (“Encumbrances”). . . .
(See docket entry #183, attached to the Expedited Motion to Sell Real Estate to
W illiam Sasso as Exhibit A, emphasis added). Similarly, the Contract to
Purchase Real Estate between George Dulgerian and FNBCC states, in relevant
portion:
Buyer shall purchase, acquire and accept from Seller, all of Seller’s
right, title and interest in and to the Real Property . . . free and clear
of all security interests, liens, pledges, claims, levies, charges, deeds
of trust, escrows, encumbrances, options, rights of first refusal,
transfer restrictions, conditional sale contracts, title retention
contracts, mortgages, leases, easements, hypothecations,
indentures, security agreements or other agreements, arrangements,
contracts, commitments, understandings or obligations of any kind
whatsoever, whether written or oral (“Encumbrances”). . . .
(See docket entry #318, attached to the Motion for Sale of Property Under
Section 363(b) as Exhibit B, emphasis added). It is undisputed that W V-PP’s
counsel of record, Mr. Levant, received notice and copies of all the relevant
motions and their attachments.
Mr. Sasso defaulted on his agreement to purchase the Property from the
Debtor and has forfeited his $150,000.00 deposit. Therefore, the Debtor now
wishes to sell the Property to the Backup Bidder, KRPM (which stands in the
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shoes of the mortgagee, FNBCC). The title company working to close the sale
has refused to remove the Easement from the title absent either consent from the
Easement holder or a specific court order. KRPM contacted WV-PP and
requested that the Easement voluntarily be removed; W V-PP refused, and this
Motion followed. The Motion seeks to “clarify” the Sale Order to confirm that the
Easement “was an encumbrance or interest which was removed from the
Property and attaches to the Sale Proceeds like any other claim.” (¶14).
W V-PP who, as discussed below, asserts that it did not receive adequate
notice of the Debtor’s intent to extinguish the Easement, has been represented by
two firms in the Debtor’s bankruptcy. The docket shows that as of January 24,
2006, W illiam J. Levant of Kaplin Stewart entered his appearance on behalf of
W V-PP. In addition, as of September 17, 2007, W V-PP also became
represented in the bankruptcy by Ashley Federer and David Stern of W olf Block
Schorr and Solis-Cohen LLP.
W V-PP objects to the Debtor’s Motion on both due process and
substantive grounds. First, as just mentioned, the Easement holder asserts that
the notice of the sale received from the Debtor was not adequate. Second,
W V-PP argues that the Easement runs with the land and cannot be divested
pursuant to § 363 of the Bankruptcy Code. For reasons discussed below,
because W V-PP’s counsel received adequate notice and because applicable
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nonbankruptcy law permits the sale free and clear of the Easement, W V-PP’s
objections are overruled and the Motion is granted.
DISCUSSION
I. 	WV-PP Received Adequate Notice of the Sale of the Property
and the Proposed Disposition of the Easement
W V-PP’s contention that its due process rights have been violated is
unfounded because the notice to it of both the sale of the Property and the
proposed extinguishment of the Easement was adequate. The information which
W V-PP received satisfied the standards set forth by both the Bankruptcy Code
and case law.
There is no question that notice is of paramount importance in bankruptcy
sales. See In re Pinnacle Brands, Inc., 259 B.R. 46 (Bankr. D. Del. 2001).
Pursuant to Bankruptcy Rule 6004(c)
[a] motion for authority to sell property free and clear of liens or other
interests shall be made in accordance with Rule 9014 and shall be
served on the parties who have liens or other interests in the
property to be sold. The notice required by subdivision (a) of this
rule shall include in the date of the hearing on the motion and the
time within which objection may be filed and served on the debtor in
possession or trustee.
See also Rule 2002(c) (“the notice of a proposed use, sale or lease of property,
including real estate, is sufficient if it generally describes the property”). In
addition to the Bankruptcy Rules, the Third Circuit has made clear that due
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It is the Debtor’s burden to provide notice to all interested parties of a sale of property. See e.g.,
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In re Savage Industries, Inc., 43 F.3d 714, 720-1 (1st. Cir. 1994).
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process considerations also guide bankruptcy notice requirements. See Folger
Adam Sec. Inc. v. DeMatteis/MacGregor J.V., 209 F.3d 252, 265 (3d Cir. 2000)
(stating that notice must be “reasonably calculated, under all the circumstances,
to apprise interested parties of the pendency of the action and afford them an
opportunity to present their objections”) (quoting Mullane v. Central Hanover
Bank & Trust Co., 339 U.S. 306, 314-15 (1950)). With regard to a sale under
§ 363 of the Code, parties in interest must receive specific notice of the intended
sale; general notice of the bankruptcy is not sufficient. See W alker v. Lee (In re
Rounds) 229 B.R. 758 (Bankr. W.D. Ark. 1999).
The Debtor has satisfied each of the notice requirements set forth above. 2
The Expedited Motion to Sell Real Estate to W illiam Sasso and its attachments
(the “Expedited Motion”), filed on January 10, 2007, contained detailed
information regarding the Property, the terms and conditions of the proposed
sale, as well as the date and time of the hearing on the matter. The Expedited
Motion was served by fax on W illiam J. Levant, an attorney of record for W V-PP,
on January 11, 2007. (See docket entry #188). The hearing on the sale of the
Property was originally scheduled for January 19, 2007 (see docket entry #183),
but was continued to January 25, 2007, and then to March 15, 2007, when the
Sale Order was entered by Judge Raslavich. WV-PP therefore had more than
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W ithout benefit of citation to law, W V-PP asserts in its Mem orandum that the Debtor should
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have served the com pany directly, rather than serving its attorney of record. This argum ent is without
m erit; serving a party’s lawyer is tantam ount to providing notice to the party itself. See Garcia v. I.N.S.,
222 F.3d 1208 (9th Cir. 2000) (“in our system of representative litigation . . . each party is deem ed bound
by the acts of his lawyer-agent and is considered to have ‘notice of all facts, notice of which can be
charged upon the attorney.’”) (quoting Link v. W abash R.R., 370 U.S. 626, 634 (1962)). 	W V-PP also
abandoned this argum ent at the hearing.
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two months after receiving notice of the Expedited Motion to review the
documents, make inquiries of the Debtor and FNBCC, request a copy of the title
report (which was missing from the motions), file any objection, or appear in court
and object to the sale of the Property.
W V-PP does not deny that its counsel received notice and copies of the
pleadings in this case. 	(See Deposition Transcript of Kevin McLaughlin at3
page 12, attached as Exhibit E to Debtor’s Memorandum; Deposition Transcript
of Albert Ciardi at page 7, submitted during oral argument on January 7, 2008).
Nor does W V-PP deny that the notice sent by the Debtor described that the sale
of the Property was to be free and clear of all liens, claims, leases and
encumberances, including “all claims of ownership . . . or other equitable rights of
any party of any kind,” and the place and time of the hearing on the sale of the
Property. (Expedited Motion ¶9). Rather, WV-PP’s sole argument is that the
notice given to it was inadequate because it failed specifically to inform it that the
easements would be extinguished by the proposed sale. This argument fails.
The Expedited Motion and Sale Order, along with the attachments thereto,
while not models of clarity, put the Easement holder on notice that the Property,
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described sufficiently to inform it that the property on which it held an easement,
was to be sold, attached the Sale Agreements, described the terms of the sale,
and provided the date and time of the hearing on the sale. For example,
paragraph 30 of the Expedited Motion states that “most importantly the Debtor
seeks the entry of an order . . . approving the Agreement and the sale in all
respects. . . . The Sale Approval Order reflects the terms of the Agreement.”
(Emphasis added). Similarly, the Sale Order, which is titled “Order Approving
Sale of Agreement of Sale” states in paragraph three that the Property “shall be
conveyed pursuant to §363 of the Bankruptcy Code and the terms of the
Agreements free and clear of any and all liens, encumbrances, interests and
claims thereon, therein, or relating to. . . .” (Emphasis added). While the word
“easement” is not specifically mentioned in the notices or the motions
themselves, as W V-PP would have liked, these documents unquestionably point
the reader to and rely upon the Agreement of Sale. The referenced Agreement,
which was attached to the Expedited Motion as Exhibit A, defines an easement
as an encumbrance and declares that “[t]he Property shall be sold free and clear
of all . . . easements. . . .” (¶1.2). Therefore, one reviewing these papers, which
W V-PP unquestionably received, easily will find that easements were to be
extinguished upon the sale of the Property. At that point, it was up to W V-PP to
inquire whether its easement was meant to be extinguished.
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W V-PP’s complaint that the disposition of the Easement was not spelled
out in the motion to sell the Property is not well taken for two reasons. First, as
just shown, the Expedited Motion and Sale Order clearly satisfy the requirement
of specific notice of the sale, the description of the Property and the opportunity to
object. Second, once the Debtor satisfied its burden to provide notice, W V-PP’s
failure to fully and carefully review all documents provided to it can be blamed
only on itself. See Millman v. U.S. Patent and Trademark Office, 2007 W L
129062 (E.D. Pa. Jan. 11, 2007) (recipient’s failure to review all documents is
immaterial in an analysis of what constitutes adequate notice). That W V-PP did
not take note of the effect of the sale on the Easement is not the fault of the
Debtor. Clearly, one who has an interest in property who receives a motion
regarding a sale of that property is on notice that a close reading of the
documents or inquiry is necessary. The Court, therefore, concludes that the
notice given to W V-PP of the sale, which included a copy of the Sale Agreement,
was adequate.
II. 	The Easement does not Survive the Sale in this Case
Given the conclusion that the WV-PP received sufficient notice of the
Debtor’s intention to eliminate the Easement upon sale of the Property, the next
question is whether such an act is possible. That is, can the Easement be
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extinguished like other property interests in a bankruptcy sale? 	An examination
of applicable bankruptcy and relevant nonbankruptcy law leads to the conclusion
that the Easement may be extinguished upon sale of the Property. The sale to
KPRM free and clear of the Easement may therefore proceed.
The Debtor seeks to sell the Property pursuant to § 363 of the Bankruptcy
Code. This Section provides, in relevant portion, that a debtor may “sell
property . . . free and clear of any interest in such property of an entity other than
the estate, only if - (1) applicable nonbankruptcy law permits sale of such
property free and clear of such interest. . . .” In this case, the purchaser is the
assignee of the mortgagee of the Property and seeks to extinguish all liens on the
Property later than the mortgagee’s. The parties agree the applicable
nonbankruptcy law is state foreclosure law.
Foreclosure law in Pennsylvania dictates that, upon a sheriff’s sale, the title
of a purchaser relates back to the date of the mortgage and defeats all
intervening estates and interests on the property - including easements - acquired
subsequent to the mortgage. See, e.g., Ernst, Jr. v. Kwik-Check Realty Co., Inc.,
1972 WL 14772 (Pa. Com. Pl. Dec. 6, 1972); Vanderwerff v. Consumers Gas
Co., 166 Pa.Super. 358 (1950); Dexter v. Pennsylvania Power Co., 127
Pa.Super. 419 (1937). In other words, upon foreclosure, a mortgagee takes the
property subject only to the liens and encumbrances thereon at the time the
mortgage was granted; any encumbrances on the land that postdate the
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In the pleadings, W V-PP argued that FNBCC should be treated as having consented to the
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Easem ent, rem oving it effectively from the subsequent encum berances which m ay be elim inated. W V-PP
presented no evidence of any consent and m ade no argum ent about this at the hearing.
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mortgage are eliminated. In this case, because the Easement was taken after
the relevant mortgage, KRPM, which stands in the shoes of the mortgagee, takes
the Property free of subsequent interests on the Property, including W V-PP’s
Easement. Therefore, under applicable state law the Debtor and the purchaser
of the Property, KRPM, are well within their rights to extinguish the Easement
upon the sale. 4
In arguing the opposite, W V-PP points to a single case in which a court in
the Eastern District of New York held that easements run with the land and are
not monetary property interests that are effected by a § 363 bankruptcy sale.
See Silverman v. Ankari (In re Oyster Bay Cove, LTD), 196 B.R. 251, 255-6
(E.D.N.Y. 1996). However, Oyster Bay is distinguishable because there,
apparently, the relevant law did not provide for elimination of the easement. For
these reasons, the Debtor and KRPM may properly extinguish the Easement
upon sale of the Property to an assignee of the mortgagee.
III. 	WV-PP is not Entitled to Adequate Protection
The final question is how to compensate W V-PP for the loss of its
Easement. WV-PP will have a claim in the bankruptcy. The Debtor and KRPM
readily acknowledged this at oral argument. However, § 363(e) of the Code
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W V-PP asserted in its initial Response to the Debtor’s Motion that “Respondent has not been
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provided with adequate protection.” (See ¶14(e), docket entry #324).
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states, in relevant portion, that “on request of an entity that has an interest in
property used, sold, or leased, or proposed to be used, sold, or leased, by the
[debtor], the court, with or without a hearing, shall prohibit or condition such use,
sale, or lease as is necessary to provide adequate protection of such interest.” 5
The award of adequate protection is within the discretion of the Court and will be
granted on a case by case basis. In re NJ Affordable Homes Corp., 2006 W L
2128624, at *14 (Bankr. D.N.J. June 29, 2006).
In this case, W V-PP is not entitled to adequate protection. There is no
value in the Easement. As the Property may be sold free and clear of it, there is
no interest to protect. An adequate protection analysis requires examination of
the creditor’s state law remedies. See Paccom Leasing Corp. v. Deico Elecs, Inc.
(In re Deico Elecs, Inc.), 139 B.R. 945, 947 (9th Cir. BAP 1992). Here, as
discussed, such an analysis reveals that state foreclosure law will apply upon the
sale of the Property. Upon a sheriff’s sale, WV-PP’s interest in the Property
would be extinguished, because the title of a purchaser relates back to the date
of the purchase and defeats all intervening property interests. See 	Ernst, Jr. v.
Kwik-Check Realty Co., Inc., 1972 W L 14772 (Pa Com. Pl. Dec. 6, 1972).
W V-PP cannot expect to receive adequate protection for an asset to be
terminated by law. Therefore, the Court will not order the Debtor to provide
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adequate protection to the Easement holder, but will set a hearing to determine
the value of W V-PP’s claim upon a motion from W V-PP.
CONCLUSION
For the reasons discussed, the Court concludes that W V-PP has no
grounds on which to object to the sale of the Property from the Debtor to KRPM,
the assignee of the mortgagee of the Property. WV-PP received adequate notice
of the parties’ intent to dispose of its Easement; and such disposition is
prescribed by the Code and applicable nonbankruptcy law. Therefore, the
Debtor’s Motion to confirm the sale to KRPM is granted. W V-PP is not entitled to
adequate protection of its property interest. The Court will set a hearing date to
determine the value of W V-PP’s claim if W V-PP so requests. As the Order
entered today makes clear, all provisions of the initial Sale Order remain in effect,
including waiver of the ten-day automatic stay of Rule 6004(h).
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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
In re 	: 	Chapter 11
G EORGE D ULGERIAN , 	:
Debtor. 	: 	Case No. 06-10203 (JKF)
________________________________
ORDER
This 25th day of January, 2008, upon consideration of the Debtor’s Motion
to Confirm Sale to First National Bank of Chester County or its assignee
(“FNBCC”) Free and Clear of Liens, Claims and Encumberances Pursuant to
Section 363 of the Bankruptcy Code and for Clarification of Sale Order (“the
Motion”), and after notice and hearing
It is hereby ORDERED, as follow:
1. the Motion is GRANTED;
2. The Debtor is authorized and directed to proceed with the sale of the
real estate in accordance with the Sale Order (docket entry # 255) attached as
Exhibit B to the Motion (the “Property”);
3. This Order confirms that the Property shall be conveyed to FNBCC
pursuant to § 363 of the Bankruptcy Code free and clear of any and all liens,
encumberances, interests, and claims including, without limitation, that certain
easement granted pursuant to that certain Road Easement Agreement dated as
of October 30, 2003 and recorded on December 12, 2003 in Volume 3037 page
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1472 in the Officer of Recorder of Deeds of Delaware County to Franklin Center
Trust; and
4. All other provisions of the Order Approving Sale and Agreement of Sale
dated March 15, 2007 remain in effect, including the authority to immediately
close the transaction. That is, the automatic stay of Rule 6004 is waived.
______________________________
J EAN K. F ITZ S IMON
United States Bankruptcy Judge
Copies to:
W alter W eir, Jr., Esquire
The Widener Building, Suite 500
1339 Chestnut Street
Philadelphia, PA 	19107
Albert A. Ciardi, Esquire
Ciardi & Ciardi, PC
One Commerce Square
2005 Market Street, Suite 2020
Philadelphia, PA 	19103
David E. Stern, Esquire
1650 Arch Street, 22nd Floor
Philadelphia, PA 	19103
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