gavel, scale, and law book

The Third Circuit has disagreed with a U.S. district judge on predicting which course the Pennsylvania Supreme Court is likely to follow when interpreting the Pennsylvania Uniform Planned Community Act with regard to bankruptcy.

The appeals court vacated and remanded the decision of the Middle District of Pennsylvania.

The U.S. Court of Appeals for the Third Circuit predicted that the Pennsylvania Supreme Court, which hasn’t weighed in on the intersection of the UPCA with bankruptcy law, would follow the reasoning in the Commonwealth Court’s 2004 opinion in London Towne Homeowners Association v. Karr rather than the Superior Court’s more recent opinion from 2006 in Forest Highlands Community Association v. Hammer.

“The district court properly considered the relevant decisions from intermediate courts of equal authority: the Commonwealth Court’s opinion in Karr and the Superior Court’s opinion in Hammer,” Third Circuit Judge Thomas Hardiman said on behalf of the unanimous three-judge panel.

“But it improperly concluded that Hammer had ‘binding effect’ merely because the case ‘presents the latest and most definitive ruling by the intermediate courts’ on the interpretation of Section 5315,” he said, quoting from the district court’s opinion in In re Makowka. “Because it was not, in fact, bound by a decision of the intermediate appellate court, the district court gave Hammer too much weight, particularly in light of its own cogent critique of the Superior Court’s analysis.”

The question to which the Third Circuit had narrowed its decision revolved around whether the homeowners’ association that had gotten two default judgments in order to collect dues from Kelly L. Makowka had tolled the three-year statute of limitations in the UPCA when it sued her. Makowka argued that the act was clear in dictating that the only way for a homeowners’ association to enforce a lien is to file a foreclosure complaint. The homeowners’ association argued that the law allows several ways for it to enforce a lien.

The Third Circuit leaned toward Makowka’s view.

“Consistent with the district court’s concerns, we decline to adopt Hammer because it is internally inconsistent, it conflicts with the text and structure of Section 5315, and it contravenes a fundamental precept of Pennsylvania law,” Hardiman said. “We adhere instead to the more persuasive analysis presented by the Commonwealth Court in Karr. Accordingly, we predict that the Pennsylvania Supreme Court would hold that an action in debt does not constitute a proper method to enforce a statutory lien under the UPCA, and that Makowka may avoid the association’s claims in bankruptcy.”

Hardiman was joined by Senior Judges Maryanne Trump Barry and Dolores Sloviter.

Initially, Hammer had followed Karr‘s reasoning, distinguishing the enforcement portion of the law, which is foreclosure, from “other avenues to obtain payment of assessments,” Hardiman said, quoting from the law, to which the court looked closely in evaluating the case.

“Thereafter, Hammer took, in our view, a wrong turn by conflating the association’s ability to enforce with its remedies to collect,” Hardiman said.

As to whether foreclosure is the only method for enforcement of liens, Hardiman said, “This case does not require us to determine whether foreclosure is the exclusive means to enforce the lien, as Makowka contends. Rather, we must decide only whether actions in debt are a valid way to enforce the statutory lien—and the language of Section 5315(f), which explicitly defines actions in debt as an alternative to the lien created by the statute, suggests not.”

He later concluded, “We find it appropriate to discount Hammer‘s problematic statement about valid enforcement mechanisms,” and predict that, instead, the state Supreme Court would follow the earlier decision in Karr.

The issues presented weren’t too complex, said J. Zac Christman of Newman, Williams, Mishkin, Corveleyn, Wolfe & Fareri in Stroudsburg, Pa., who represented Makowka. But, the case was somewhat complicated since it came from a bankruptcy perspective and was further complicated by a lack of prior opinions on the issue, he said.

The case will now be sent back to the district court, which will likely dispatch it back to bankruptcy court, which would be faced with the interesting question of whether or not the initial lien can be broken down further between the first six months and the remaining two-and-a-half years, an issue that the Third Circuit left undecided, Christman said.

Gino L. Andreuzzi, who has a law practice in Hazleton, Pa., represented the homeowners’ association and couldn’t be reached for comment.

Saranac Hale Spencer can be contacted at 215-557-2449 or Follow her on Twitter @SSpencerTLI.

(Copies of the 18-page opinion in In re Makowka, PICS No. 14-0920, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.)