NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
No. 18-1249
U.S. BANK, NATIONAL ASSOCIATION,
Appellant
v.
MAURY ROSENBERG
On Appeal from the United States District Court for the Eastern District of Pennsylvania (District Court No.: 2-12-cv-00723) District Judge: Honorable Cynthia M. Rufe
Submitted under Third Circuit L.A.R. 34.1(a) on July 10, 2018
Before: SHWARTZ, NYGAARD, and RENDELL, Circuit Judges
(Opinion filed: July 31, 2018)
O P I N I O N*
* This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not constitute binding precedent. RENDELL, Circuit Judge:
U.S. Bank appeals the District Court’s order denying its motion for mutual
judgment satisfaction. Because the District Court did not abuse its discretion in denying
the motion, we will affirm the District Court’s order.1
I.
Because we write for the parties, we set out only what is necessary to explain our
decision. Appellee Rosenberg established National Medical Imaging (“NMI”), an
imaging company comprised of several limited partnerships and a limited liability
company. NMI entered into equipment leases with predecessors-in-interest to Appellant
U.S. Bank (“U.S. Bank”). In 2003, NMI defaulted on the equipment leases. U.S. Bank
brought suit against NMI and Rosenberg. The parties settled the suit pursuant to modified
lease agreements, under which NMI would continue to lease the equipment at a monthly
rate of $100,000. As part of the settlement agreement, Rosenberg would be personally
liable for approximately $7,600,000 in the event of another default, but Rosenberg’s
liability would be reduced by about $127,000 for each monthly payment NMI made
under the modified equipment leases.
After twenty-one months, NMI defaulted on the modified equipment leases,
leaving Rosenberg personally responsible for about $5,000,000. Entities related to U.S.
Bank (“DVI Entities”) filed an involuntary bankruptcy petition against Rosenberg in the
Eastern District of Pennsylvania. The involuntary bankruptcy proceeding was transferred
1 The District Court had jurisdiction under 28 U.S.C. § 1332. We have jurisdiction under 28 U.S.C. § 1291. 2 to the United States Bankruptcy Court for the Southern District of Florida, where
Rosenberg lived. The Bankruptcy Court for the Southern District of Florida dismissed the
involuntary bankruptcy petition.
After the involuntary bankruptcy petition was dismissed, Rosenberg filed an
adversary action in the Bankruptcy Court for the Southern District of Florida against U.S.
Bank and the DVI Entities under 11 U.S.C. § 303(i), which allows a plaintiff to recover
costs, attorney fees, and damages for the bad faith filing of an involuntary bankruptcy
petition. U.S. Bank and the DVI Entities moved to withdraw the reference to the District
Court. The motion was granted, and Rosenberg’s § 303(i) bad faith claim proceeded to a
jury trial in the District Court for the Southern District of Florida. The jury found in favor
of Rosenberg and awarded him approximately $1.1 million in compensatory damages and
$5 million in punitive damages. Although the District Court vacated the punitive
damages award and reduced the compensatory damages award, the Eleventh Circuit
reinstated the jury's verdict, and a final judgment of $6,120,000 was entered in the
Southern District of Florida in favor of Rosenberg and against U.S. Bank and the DVI
Entities. Rosenberg v. DVI Receivables XIV, LLC, 818 F.3d 1283, 1285-86 (11th Cir.
2016).
While the § 303(i) litigation was pending, U.S. Bank filed suit against Rosenberg
in the Eastern District of Pennsylvania for breach of contract, alleging that because NMI
had defaulted under the modified leases, Rosenberg was personally liable. After a bench
trial, the District Court found in favor of U.S. Bank and awarded U.S. Bank
approximately $6.5 million in damages, fees, and costs.
3 U.S. Bank filed a motion for mutual judgment satisfaction in the Eastern District
of Pennsylvania, requesting that the District Court offset the $6,120,000 Southern District
of Florida § 303(i) judgment against the $6.5 million Eastern District of Pennsylvania
contract judgment. If the District Court granted U.S. Bank’s motion, Rosenberg would
owe U.S. Bank approximately $380,000, and U.S. Bank would owe Rosenberg nothing.
The District Court denied U.S. Bank’s motion. U.S. Bank appealed.
II.
We review the District Court’s order for abuse of discretion. Otos Tech Co. v.
OGK Am., Inc., 393 F. App’x 5, 8 (3d Cir. 2010) (citing N. Chi. Rolling-Mill Co. v. St.
Louis Ore & Steel Co., 152 U.S. 596, 615 (1894)). Cf. Foster v. Mut. Fire, Marine &
Inland Ins. Co., 614 A.2d 1086, 1095 (Pa. 1992) (setoff is “an equitable right to be
permitted solely within the sound discretion of the court”). We will not disturb the
District Court’s exercise of discretion unless “no reasonable person would adopt the
district court’s view.” Stecyk v. Bell Helicopter Textron, Inc., 295 F.3d 408, 412 (3d Cir.
2002) (citation and internal quotation marks omitted). U.S. Bank’s motion for mutual
judgment satisfaction was filed under Federal Rule of Civil Procedure 69(a), which
provides that “[a] money judgment is enforced by a writ of execution . . . . The procedure
on execution . . . must accord with the procedure of the state where the court is
located[.]” The parties agree that Pennsylvania law governs under Rule 69.
The District Court provided two rationales for its decision to deny the motion for
mutual judgment satisfaction. First, it reasoned that the two judgments were not “mutual”
because the parties involved in the two judgments were not identical. For example, the
4 DVI Entities were jointly and severally liable for the Southern District of Florida
judgment, but they were not entitled to any part of the Eastern District of Pennsylvania
judgment. In addition, Rosenberg had assigned his interest in the Southern District of
Florida § 303(i) judgment to a trust for the benefit of his son. And, according to
Rosenberg, several attorney charging liens recorded against the Southern District of
Florida judgment had priority over U.S. Bank’s setoff claim to that judgment.
U.S. Bank argues that the District Court’s conclusion on the issue of mutuality
was erroneous. However, we need not decide the merits of this argument because the
District Court provided an alternative basis for its denial of the motion: “the equitable
principles embodied in § 303 of the United States Bankruptcy Code preclude setoff.” U.S.
Bank, Nat’l Ass’n v. Rosenberg, 581 B.R. 424, 429-30 (E.D. Pa. 2018).
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
No. 18-1249
U.S. BANK, NATIONAL ASSOCIATION,
Appellant
v.
MAURY ROSENBERG
On Appeal from the United States District Court for the Eastern District of Pennsylvania (District Court No.: 2-12-cv-00723) District Judge: Honorable Cynthia M. Rufe
Submitted under Third Circuit L.A.R. 34.1(a) on July 10, 2018
Before: SHWARTZ, NYGAARD, and RENDELL, Circuit Judges
(Opinion filed: July 31, 2018)
O P I N I O N*
* This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not constitute binding precedent. RENDELL, Circuit Judge:
U.S. Bank appeals the District Court’s order denying its motion for mutual
judgment satisfaction. Because the District Court did not abuse its discretion in denying
the motion, we will affirm the District Court’s order.1
I.
Because we write for the parties, we set out only what is necessary to explain our
decision. Appellee Rosenberg established National Medical Imaging (“NMI”), an
imaging company comprised of several limited partnerships and a limited liability
company. NMI entered into equipment leases with predecessors-in-interest to Appellant
U.S. Bank (“U.S. Bank”). In 2003, NMI defaulted on the equipment leases. U.S. Bank
brought suit against NMI and Rosenberg. The parties settled the suit pursuant to modified
lease agreements, under which NMI would continue to lease the equipment at a monthly
rate of $100,000. As part of the settlement agreement, Rosenberg would be personally
liable for approximately $7,600,000 in the event of another default, but Rosenberg’s
liability would be reduced by about $127,000 for each monthly payment NMI made
under the modified equipment leases.
After twenty-one months, NMI defaulted on the modified equipment leases,
leaving Rosenberg personally responsible for about $5,000,000. Entities related to U.S.
Bank (“DVI Entities”) filed an involuntary bankruptcy petition against Rosenberg in the
Eastern District of Pennsylvania. The involuntary bankruptcy proceeding was transferred
1 The District Court had jurisdiction under 28 U.S.C. § 1332. We have jurisdiction under 28 U.S.C. § 1291. 2 to the United States Bankruptcy Court for the Southern District of Florida, where
Rosenberg lived. The Bankruptcy Court for the Southern District of Florida dismissed the
involuntary bankruptcy petition.
After the involuntary bankruptcy petition was dismissed, Rosenberg filed an
adversary action in the Bankruptcy Court for the Southern District of Florida against U.S.
Bank and the DVI Entities under 11 U.S.C. § 303(i), which allows a plaintiff to recover
costs, attorney fees, and damages for the bad faith filing of an involuntary bankruptcy
petition. U.S. Bank and the DVI Entities moved to withdraw the reference to the District
Court. The motion was granted, and Rosenberg’s § 303(i) bad faith claim proceeded to a
jury trial in the District Court for the Southern District of Florida. The jury found in favor
of Rosenberg and awarded him approximately $1.1 million in compensatory damages and
$5 million in punitive damages. Although the District Court vacated the punitive
damages award and reduced the compensatory damages award, the Eleventh Circuit
reinstated the jury's verdict, and a final judgment of $6,120,000 was entered in the
Southern District of Florida in favor of Rosenberg and against U.S. Bank and the DVI
Entities. Rosenberg v. DVI Receivables XIV, LLC, 818 F.3d 1283, 1285-86 (11th Cir.
2016).
While the § 303(i) litigation was pending, U.S. Bank filed suit against Rosenberg
in the Eastern District of Pennsylvania for breach of contract, alleging that because NMI
had defaulted under the modified leases, Rosenberg was personally liable. After a bench
trial, the District Court found in favor of U.S. Bank and awarded U.S. Bank
approximately $6.5 million in damages, fees, and costs.
3 U.S. Bank filed a motion for mutual judgment satisfaction in the Eastern District
of Pennsylvania, requesting that the District Court offset the $6,120,000 Southern District
of Florida § 303(i) judgment against the $6.5 million Eastern District of Pennsylvania
contract judgment. If the District Court granted U.S. Bank’s motion, Rosenberg would
owe U.S. Bank approximately $380,000, and U.S. Bank would owe Rosenberg nothing.
The District Court denied U.S. Bank’s motion. U.S. Bank appealed.
II.
We review the District Court’s order for abuse of discretion. Otos Tech Co. v.
OGK Am., Inc., 393 F. App’x 5, 8 (3d Cir. 2010) (citing N. Chi. Rolling-Mill Co. v. St.
Louis Ore & Steel Co., 152 U.S. 596, 615 (1894)). Cf. Foster v. Mut. Fire, Marine &
Inland Ins. Co., 614 A.2d 1086, 1095 (Pa. 1992) (setoff is “an equitable right to be
permitted solely within the sound discretion of the court”). We will not disturb the
District Court’s exercise of discretion unless “no reasonable person would adopt the
district court’s view.” Stecyk v. Bell Helicopter Textron, Inc., 295 F.3d 408, 412 (3d Cir.
2002) (citation and internal quotation marks omitted). U.S. Bank’s motion for mutual
judgment satisfaction was filed under Federal Rule of Civil Procedure 69(a), which
provides that “[a] money judgment is enforced by a writ of execution . . . . The procedure
on execution . . . must accord with the procedure of the state where the court is
located[.]” The parties agree that Pennsylvania law governs under Rule 69.
The District Court provided two rationales for its decision to deny the motion for
mutual judgment satisfaction. First, it reasoned that the two judgments were not “mutual”
because the parties involved in the two judgments were not identical. For example, the
4 DVI Entities were jointly and severally liable for the Southern District of Florida
judgment, but they were not entitled to any part of the Eastern District of Pennsylvania
judgment. In addition, Rosenberg had assigned his interest in the Southern District of
Florida § 303(i) judgment to a trust for the benefit of his son. And, according to
Rosenberg, several attorney charging liens recorded against the Southern District of
Florida judgment had priority over U.S. Bank’s setoff claim to that judgment.
U.S. Bank argues that the District Court’s conclusion on the issue of mutuality
was erroneous. However, we need not decide the merits of this argument because the
District Court provided an alternative basis for its denial of the motion: “the equitable
principles embodied in § 303 of the United States Bankruptcy Code preclude setoff.” U.S.
Bank, Nat’l Ass’n v. Rosenberg, 581 B.R. 424, 429-30 (E.D. Pa. 2018).
The District Court did not abuse its discretion in denying U.S. Bank’s motion for
mutual judgment satisfaction based on equitable principles. Setoff is “an equitable right
to be permitted solely within the sound discretion of the court.” Foster, 614 A.2d at 1095.
The filing of an involuntary bankruptcy petition has devastating consequences for the
putative debtor. The Bankruptcy Code’s good faith filing requirement, which has “strong
roots in equity,” In re Forever Green Athletic Fields, Inc., 804 F.3d 328, 334 (3d Cir.
2015) (citations and internal quotation marks omitted), seeks to prevent the improper
filing of involuntary petitions and “ensures that the Bankruptcy Code’s careful balancing
of interests is not undermined by petitioners whose aims are antithetical to the basic
purposes of bankruptcy[,]” In re Integrated Telecom Express, Inc., 384 F.3d 108, 119 (3d
Cir. 2004). As the District Court correctly noted, § 303(i) plays a key role in deterring
5 bad faith filing and remedying the negative effects of improperly-filed petitions. Several
courts have concluded that § 303(i)’s equitable purpose would be frustrated if bad faith
filers were allowed to offset a § 303(i) judgment. See, e.g., In re Macke Int’l Trade, Inc.,
370 B.R. 236, 255 (B.A.P. 9th Cir. 2007) (“The consensus of courts is that a setoff of this
sort is impermissible.”); In re Diloreto, 442 B.R. 373, 377 (E.D. Pa. 2010) (“the
allowance of a setoff right would severely weaken the purpose of 303(i)”); In re Forever
Green Athletic Fields, Inc., Bankr. No. 12-13888-MDC, 2017 WL 1753104, at *7
(Bankr. E.D. Pa. May 4, 2017) (adopting Macke's reasoning to deny setoff of a § 303(i)
award); In re K.P. Enter., 135 B.R. 174, 185-86 (Bankr. D. Me. 1992) (denying setoff of
a § 303(i) award because setoff would “blunt” the policies underlying § 303(i)); In re
Schiliro, 72 B.R. 147, 149 (Bankr. E.D. Pa. 1987) (“[A]n award pursuant to § 303(i)
should not and cannot be permitted to be set off against the unsuccessful petitioning
creditor’s claims against the Debtor”). See also 2 Collier on Bankruptcy ¶ 303.33[8]
(16th ed. 2018) (“[S]etoff would undermine the goals of section 303(i)”).
Here, a jury determined that U.S. Bank acted in bad faith when it filed the
involuntary bankruptcy petition against Rosenberg. It concluded that Rosenberg was
entitled not only to compensatory damages under § 303(i) but also to substantial punitive
damages, which are only warranted when the evidence shows that a defendant acted
“with intentional malice” or that its conduct was “particularly egregious.” Rosenberg v.
DVI Receivables, XIV, LLC, No. 12-22275-CIV, 2014 WL 4810348, at *6 (S.D. Fla.
Sept. 29, 2014), rev’d on other grounds, 818 F.3d 1283. In light of U.S. Bank’s conduct
6 and the equitable principles embodied in § 303(i), we cannot conclude that the District
Court abused its discretion by denying U.S. Bank the equitable remedy of setoff.
III.
For the foregoing reasons, we affirm the order of the District Court.