At least in Pennsylvania, a casino’s gaming license is not “property.” A debtor therefore cannot set aside revocation of a gaming license as a fraudulent transfer, even if the casino lost $50 million from revocation.
Because the license was not property, the state was also protected by sovereign immunity, District Judge Joseph F. Leeson, Jr. of Philadelphia ruled in upholding a decision by Chief Bankruptcy Judge Magdeline D. Coleman.
The debtor had paid the state $50 million for a gaming license. When the casino was years behind schedule in opening, the state revoked the license, essentially causing the debtor to forfeit the $50 million. The debtor unsuccessfully challenged license revocation in state trial and appellate courts.
Two years later, the debtor filed a chapter 11 petition and sued the state, alleging that revocation was a constructively fraudulent transfer under Section 548 and Pennsylvania’s version of the Uniform Fraudulent Transfer Act, or PUFTA.
Bankruptcy Judge Coleman dismissed the suit in late December 2019, finding that the gaming license was a revocable privilege, not property. Philadelphia Entertainment & Development Partners LP v. Commonwealth of Pennsylvania (In re Philadelphia Entertainment & Development Partners LP), 611 B.R. 51 (Bankr. E.D. Pa. Dec. 31, 2020). To read ABI’s report, click here.
The casino fared no better after de novo review on appeal. Like Judge Coleman, Judge Leeson decided in his September 30 opinion that a gaming license is not property and therefore cannot be the subject of a fraudulent transfer claim.
To decide whether the license was property, Judge Leeson focused on state gaming laws, just like Judge Coleman. He noted how the statute says that a gaming license is a “privilege” and that no one can claim an “entitlement” to a license. Furthermore, a license may not be transferred, nor may it be the subject of a security interest. Regulators have “discretion” to revoke a license.
The casino contended that the definition of property in PUFTA should control. The state’s fraudulent transfer law defines property as anything that may be the subject of ownership. In turn, ownership means the right to possess a thing.
Judge Leeson agreed that the casino possessed the license, but he said that the state’s gaming laws did not give the casino a right to possess the license, since it is a revocable privilege under state law.
Even if the gaming laws were irreconcilable with PUFTA, Judge Leeson said that the more narrow definition in the gaming laws controlled, even though the gaming laws were on the books before PUFTA.
Judge Leeson therefore affirmed Judge Coleman by holding that the license was not property. In the absence of a transfer of property, the casino therefore failed to state a claim for fraudulent transfer under either state law or Section 548.
Like Judge Coleman, Judge Leeson decided that the state was also protected by sovereign immunity, even though, generally speaking, the adoption of the federal Constitution waived states’ sovereign immunity with regard to fraudulent transfer suits.
If the casino was attempting to recover property, the estate’s property interest would turn the fraudulent transfer suit into an in rem action, to which sovereign immunity does not apply.
Because the license was not property, the casino was therefore only aiming to win a money judgment barred by sovereign immunity.
For a discussion of the pivotal concept of a bankruptcy court’s in rem jurisdiction in the context of sovereign immunity, click here to read ABI’s discussion of a decision last term from the Supreme Court, Allen v. Cooper, 140 S. Ct. 994 (2020).
At least in Pennsylvania, a casino’s gaming license is not “property.” A debtor therefore cannot set aside revocation of a gaming license as a fraudulent transfer, even if the casino lost $50 million from revocation.
Because the license was not property, the state was also protected by sovereign immunity, District Judge Joseph F. Leeson, Jr. of Philadelphia ruled in upholding a decision by Chief Bankruptcy Judge Magdeline D. Coleman.
The debtor had paid the state $50 million for a gaming license. When the casino was years behind schedule in opening, the state revoked the license, essentially causing the debtor to forfeit the $50 million. The debtor unsuccessfully challenged license revocation in state trial and appellate courts.
Two years later, the debtor filed a chapter 11 petition and sued the state, alleging that revocation was a constructively fraudulent transfer under Section 548 and Pennsylvania’s version of the Uniform Fraudulent Transfer Act, or PUFTA.