Opinion
J. A02036/14 989 EDA 2013
03-03-2014
LIBERTY PHILADELPHIA REO, LP, v. EFL PARTNERS V, L.P. AND EFL PARTNERS X, L.P., Appellants
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
Appeal from the Order Dated February 19, 2013,
in the Court of Common Pleas of Philadelphia County,
Civil Division at No(s): Control No. 11040518
January Term, 2010, No. 314
BEFORE: FORD ELLIOTT, P.J.E., OTT, and STRASSBURGER, JJ. MEMORANDUM BY STRASSBURGER, J.:
Retired Senior Judge assigned to the Superior Court.
EFL Partners V, L.P. and EFL Partners X, L.P. (EFL) appeal from the order entered on February 19, 2013, which granted the Petition to Fix Fair Market Value of Real Properties, filed by Liberty Philadelphia REO, LP (Liberty), and entered a deficiency judgment against EFL. Upon review, we affirm in part, vacate in part, and remand for proceedings consistent with this memorandum.
A prior panel of this Court set forth the complicated history of this case as follows.
On January 5, 2010, [Liberty] filed a complaint in confession of judgment seeking a judgment in theLiberty Philadelphia REO, LP v. EFL Partners V, L.P. and EFL Partners X, L.P., 55 A.3d 141 (Pa. Super. 2012) (citing Republic First Bank v. EFL, 31 A.3d 738 (Pa. Super. 2011) (table)).
amount of $11,214,861.05. This sum included $1,459,682.22 in attorneys' fees.Initially, [the Superior Court] indicated that the appeal was from the trial court's Order dismissing EFL's Petition to strike or open the confessed judgment. This Court then analyzed our Supreme Court's holding in McMullen v. Kutz, 985 A.2d 769 (Pa. 2009), which stated that the term "reasonable" should be implied in all contracts that contain attorneys' fee shifting clauses. ... Thereafter, this Court, despite its prior statement that the appeal arose out of the trial court's dismissal of the Petition to open/strike, vacated the judgment and remanded for further proceedings consistent with the unpublished Memorandum.
On February 6, 2010, EFL filed a [P]etition to strike or open the confessed judgment. In particular, the [P]etition alleged that EFL disputed "the amount claimed in the Complaint." Thereafter, on April 13, 2010, the trial court filed an [O]rder denying the petition to strike or open the confessed judgment. EFL subsequently filed [a] timely appeal.
On appeal, EFL assert[ed] that the trial court erred in dismissing the petition to strike or open the confessed judgment "because the total judgment amount included an unreasonable and unconscionable figure of $1,459,682.22 for [attorneys'] fees to prepare and file the confession of judgment papers[.]"
On remand, the trial court implemented this Court's decision as vacating its dismissal of EFL's Petition to open/strike the confessed judgment. The trial court thus scheduled a hearing on the sole issue of attorneys' fees assessed in the confessed judgment. However, prior to the hearing, on June 14, 2011, [Liberty] filed a Petition to amend its confessed judgment, removing any claim related to the attorneys' fees. EFL filed a response to the Petition, arguing that this Court had vacated the entire confessed judgment and that [Liberty] had no standing to request a modification of the vacated confessed judgment. On July 12, 2011, the trial court granted [Liberty's] Petition and directed the Prothonotary to modify the January 5, 2010 confessed judgment. The trial court stated that the confessed judgment would total $9,755,718.83 plus post-judgment interest
accruing at a per diem rate of $2,444.31 from January 5, 2010. EFL did not file a petition to open/strike the modified confessed judgment; instead, EFL filed a Notice of appeal.
In that appeal, this Court held that pursuant to Pa.R.C.P. 2959, EFL waived all issues on appeal by failing to file a petition to strike or open the confessed judgment. Thus, the confessed judgment, in the amount of $9,755,718.83 plus post-judgment interest accruing at a per diem rate of $2,444.31, was affirmed. See id. Meanwhile,
[i]n execution of the Judgment, [Liberty], by writ of execution, caused the sale of the premises located at 18-22 Letitia Street and 31-33 South Second Street in Philadelphia, ("Properties"). The Properties consist of 19 condominium units known as the Waterbridge Condominiums. [Liberty] purchased the Properties at Sheriff's Sale on October 5, 2010, and petitioned [the trial court] to determine the "fair market value" of the [Properties] as of that date under the Deficiency Judgment Act, 42 Pa.C.S.A. § 8103 (the "Act"). The Act applies whenever real property of a judgment debtor is sold in execution to the judgment creditor for a sum less than the amount of the judgment, interest and costs.Trial Court Opinion, 6/25/2013, at 1-2 (footnotes omitted).
***
Pursuant to the Act, and following a hearing where evidence and argument was presented by both parties, and after supplemental briefs were filed by both parties, the [trial] court granted the Petition to Fix Fair Market Value and determined the Fair Market Value of the Properties to be $8,400,000.00.
In that order, the trial court also granted Liberty a deficiency judgment against EFL in the amount of $4,005,226.47. Trial Court Order, 2/19/2013. EFL appeals from that order.,
The trial court did not order Appellants to file a Pa.R.A.P. 1925(b) statement and none was filed.
Petitions to fix the fair market value and accompanying deficiency judgments are governed by Pa.R.C.P. 3281-3285. Specifically, Pa.R.C.P. 3285, states that trial shall be conducted pursuant to Pa.R.C.P. 1038, and that regular petition practice rules do not apply. Moreover, the rules provide a post-trial motion must be filed in this case. Here, EFL timely filed a post-trial motion then filed a notice of appeal before that post-trial motion was denied. Because the post-trial motion was subsequently denied by order of court, we will reach the merits of the appeal.
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On appeal, EFL presents two issues for our review.
1. Did the trial court err or otherwise abuse its discretion when it determined the fair market value of the Waterbridge Condominiums relying on the bulk wholesale method, in violation of this Court's ruling in Cheltenham Federal Sav. And Loan Ass's v. Pocono Sky Enterprises, Inc., 451 A.2d 744, 747-49 (Pa. Super. Ct. 1982), ultimately arriving at a valuation that was not only far too low, but that also lacked any factual support in the record, in violation of this Court's ruling in Loukas v. Mathias, 931 A.2d 661, 666 (Pa. Super. Ct. 2007).EFL's Brief at 3.
2. Did the trial court err or otherwise abuse its discretion in awarding a deficiency judgment that contained an extremely excessive interest component, because the trial court failed to credit against the original confessed judgment, as previously amended, the trial court's determination of fair market value of the Waterbridge Condominiums on the sheriff's sale date when calculating interest on the deficiency judgment between the time of the sheriff's sale and the later entry of a deficiency judgment?
We first consider whether the trial court erred in fixing the fair market value of the Properties.
The scope of appellate review in a deficiency judgment proceeding is limited to assessing whether sufficient evidence exists to sustain the trial court's order, or whether the court committed a reversible error of law. The judgment creditor must carry the burden to demonstrate its compliance with the Deficiency Judgment Act. Moreover, the Deficiency Judgment Act is to be liberally interpreted in favor of judgment debtors.Home Sav. and Loan Co. of Youngstown, Ohio v. Irongate Ventures, LLC, 19 A.3d 1074, 1078 (Pa. Super. 2011) (some internal citations and quotations omitted).
The Deficiency Judgment Act, 42 Pa.C.S.A. § 8103(a) provides, in pertinent part:
(a) General rule.—Whenever any real property is sold ... to the judgment creditor in execution proceedings and the price for which such property has been sold is not sufficient to satisfy the amount of the judgment, interest and costs and the judgment creditor seeks to collect the balance due on said judgment, interest and costs, the judgment creditor shall petition the court to fix the fair market value of the real property sold. The petition shall be filed as a supplementary proceeding in the matter in which the judgment was entered....42 Pa.C.S.A. § 8103 (emphasis added).
After the fair market value of the property has been determined, "the judgment creditor may proceed by appropriate proceedings to collect the balance of the debt." 42 Pa.C.S.A. § 8103(c)(5). The objective of the Deficiency Judgment Act is to relieve a debtor from further personal liability to the judgment creditor when the real property taken by the judgment creditor on an execution has a fair market value on the date of sale sufficient so that the judgment creditor can dispose of the property to others without a further loss.
On appeal, EFL contends that the trial court erred in assessing the fair market value of the Waterbridge Condominiums in several respects. First, it argues that the trial court should have given no credence to Liberty's expert testimony as it utilized a valuation methodology that was specifically rejected by this Court in Cheltenham. EFL's Brief at 13. Furthermore, EFL suggests the trial court erred by not accepting the complete report of either appraiser, and setting a value somewhere in the middle of the two, which was not "grounded in the actual evidence of record." Id. at 21.
"The initial duty and authority to determine 'fair market value' under petitions of this kind lies with the fact-finder, the lower court. Our review is limited to deciding whether there is sufficient evidence to sustain the holding of the lower court, or whether there is a reversible error of law." Cheltenham, 451 A.2d at 746. Furthermore,
[i]n reviewing the sufficiency of the evidence, we view the evidence in the light most favorable to the verdict winner, the appellees in the present case. Our sole task is to decide if there was sufficient evidence to sustain the verdict. Additionally, [t]he trier of fact weighs the credibility of an expert witness's testimony regarding valuation. An appellate court must accept the credibility determinations of the trial court with respect to the credibility of witnesses.Confederation Life Ins. Co. v. Morrisville Properties, L.P., 715 A.2d 1147, 1154 (Pa. Super. 1998) (internal quotations and citations omitted).
Instantly, the trial court heard testimony from two appraisers. Liberty presented the testimony of its expert appraiser, Albert R. Hughes, III (Hughes). Hughes testified that he used a "development analysis" approach to value the Properties. This approach required a determination of what each unit could sell for, which would be calculated as gross revenue. Then, he deducted the costs to sell the units, which included transfer taxes, broker fees, and administrative costs. Additionally, he subtracted carrying costs, which included real estate taxes and condominium fees. He then subtracted development costs, which are the costs to finish the unfinished units. Finally, he subtracted profit because "[n]obody works for free in the real estate business[.]" N.T., 9/27/2012, at 38. He then discounted that value to the present value, and concluded that the appropriate fair market value for the Properties was $6,000,000. Id. at 62.
EFL presented the testimony of Harvey M. Levin (Levin) as its appraiser. He testified that as of October 5, 2010, the Properties' fair market value was $12,750,000. He reached this conclusion by utilizing the "sales comparison approach," which is based on comparing the Properties with actual sales data. N.T., 10/18/2012, at 59.
The trial court concluded that the fair market value for the Properties was $8,400,000 and offered the following rationale.
The [trial court] made its decision based upon competing estimates of value presented by qualified appraisers. It did not blindly accept [Hughes'] appraisal value, but did consider it along with [Levin's] appraisal value, the testimony produced on cross examination, and accepted the portions of expert testimony it found credible to reach the number for fair market value.Trial Court Opinion, 6/25/2013, at 3.
EFL argues the trial court erred in considering Hughes' testimony at all, as he "employed an approach to valuation ... that Cheltenham condemned as improper." EFL's Brief at 14. The properties at issue in Cheltenham consisted of 55 lots, which were not contiguous, some of which had been developed and sold at retail prices. One appraiser evaluated the lots as being sold "in bulk" at wholesale prices, rather than taking into account that some of the lots were able to be sold at retail prices. That appraiser valued the property at $136,000. Another appraiser, using the comparable sales method, evaluated the same property as worth $110,000. The trial court accepted $136,000 as the fair market value and this Court reversed. Specifically, this Court, in a divided opinion, concluded that "the determination of a fair market value of $136,000 seems inconsistent with much of the testimony," where there were three other appraisals made during the ordinary course of business valuing the property at $400,000. Cheltenham, 451 A.2d at 749. Thus, this Court did not reject the "bulk sales" approach under all circumstances; it merely concluded that under the circumstances at issue in Cheltenham, the trial court erred accepting that testimony in total.
Instantly, the trial court neither accepted nor rejected the testimony of either expert in total; rather, it accepted the portions it found to be credible. "[T]he trial court is free to believe all, part, or none of the evidence that is presented, to make all credibility determinations, and to resolve any conflicts in the evidence." Scolbell, Inc., v. Schade, 688 A.2d 715, 718 (Pa. Super. 1997). There was no question that the approaches of both appraisers were acceptable forms of valuing property under these circumstances. These experts just differed as to which was more accurate for the Properties; thus, it was appropriate for the trial court to resolve this conflict in this way. Accordingly, we hold that there was sufficient evidence of record for the trial court's determination of fair market value and the trial court did not err as a matter of law in reaching its conclusion.
Next, EFL contends that the trial court erred in calculating the deficiency judgment amount as being $4,005,226.47. Before we consider the substance of this issue, we address Liberty's contention that EFL has waived this issue on appeal. Liberty's Brief at 23-24. Specifically, Liberty argues that EFL could have and should have raised this issue in its appeal from the July 12, 2011 order. In fact, Liberty points to a letter from EFL's counsel to the trial court requesting that the trial court modify the amount in the July 12, 2011 order because the property was sold at Sheriff's sale on October 5, 2010, and Liberty was not entitled to accrue interest after that date. However, EFL did not pursue this issue on appeal to this Court. Id. at 24.
EFL responds that this issue was not ripe for review until the trial court calculated the deficiency judgment; therefore, it contends the issue was not reviewable until the February 19, 2013 order was entered. EFL's Reply Brief at 12. Therefore, EFL did not pursue the issue in the appeal from the July 12, 2011 order.
The order of July 12, 2011 contained a modified confessed judgment amount. The issue with respect to calculating the interest rate was not ripe for consideration until a deficiency judgment amount was calculated, which could not be done until the petition to fix the fair market value was resolved. Once this occurred, EFL sought relief from the allegedly excessive interest in a post-trial motion and appeal to this Court. See EFL's Post-trial Motion, 2/27/2013, at ¶ 14. Thus, we conclude that the issue is now ripe for our review.
Substantively, EFL argues the trial court erred in continuing to apply the $2,444.31 per diem interest amount for the time following the sheriff's sale, which occurred on October 5, 2010. We agree.
We set forth EFL's summary of the calculations that led to this amount.
Although the trial court did not explain how it calculated the deficiency judgment amount as $4,005,226.47 as of February 19, 2013, it appears that the deficiency judgment that the trial court awarded contained an erroneous and far too generous interest component. ... The deficiency judgment that the trial court entered on February 19, 2013, appears to continue to apply a per diem interest amount of $2,444.31 each day for the entire period up until February 19, 2013, giving the EFL respondents no reduction in per diem interest even though the amount of the unpaid judgment significantly decreased as of October 5, 2010 as the result of the property that [Liberty] obtained at sheriff's sale on that date.EFL's Brief at 9-10.
In Dearnley v. Survetnick, 63 A.2d 66, 69 (Pa. 1949), our Supreme Court considered a similar issue, and concluded that a plaintiff "cannot charge interest on the [principal] from the time of the sheriff's sale in 1933 [to the time the property was sold to him in 1941], ... any more than he could charge such interest if he had been paid that same amount in cash at the time of the sale."
Accordingly, we agree that the $2,444.31 per diem interest rate is only effective from the date of the confessed judgment, January 5, 2010, to the date of the sheriff's sale, October 5, 2010. Thus, we vacate the portion of the order setting the amount of judgment and remand to the trial court for a new calculation of the amount consistent with this memorandum.
Order affirmed in part, vacated in part, and remanded for proceedings consistent with this memorandum. Jurisdiction relinquished. Judge Ott concurs in result. Judgment Entered. ________________
Joseph D. Seletyn, Esq.
Prothonotary