Case Law Alert: Third Circuit Finds No Fraudulent Transfer Liability in Connection With Revocation of Pennsylvania Gaming License

In a June 29, 2021 decision concerning an alleged $50 million fraudulent transfer to the Commonwealth of Pennsylvania, the United States Court of Appeals for the Third Circuit affirmed the dismissal of an action by the liquidating trustee of Philadelphia Entertainment and Development Partners (d/b/a Foxwoods Casino Philadelphia) (the “Debtor”) under Bankruptcy Code Sections 544(b), 548, 550, and 551 to recover the value of a gaming license that had been revoked by the Commonwealth. The Third Circuit determined that, because the license was not a property right under Pennsylvania state law, sovereign immunity barred the trustee’s action against the Commonwealth. The decision turned on the distinction between transferable ownership rights in property versus mere “privileges.” Although the Third Circuit’s opinion in this matter is non-precedential, it nevertheless underscores the importance that state law plays in determining “property of the estate,” and the resulting consequences for debtors and their creditors. By way of example, we would expect to see the same result under New York law with respect to liquor licenses, which – unlike in New Jersey and certain other states – are non-transferable licenses and thus not estate property under Bankruptcy Code Section 541 and state law.