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PA Bulletin, Doc. No. 02-1322




[32 Pa.B. 3676]

Public Meeting held
July 11, 2002

Commissioners Present:  Glen R. Thomas, Chairperson; Robert K. Bloom, Vice Chairperson; Aaron Wilson, Jr.; Terrance J. Fitzpatrick; Kim Pizzingrilli

Emergency Petition of Charles Crafa for Declaratory Order for Waiver of Application of 66 Pa.C.S. § 2403; Doc. No. P-00021948


By the Commission:

   On March 18, 2002, Petitioner, Charles Crafa, filed an Emergency Petition for Immediate Relief from the Application and Interpretation of 66 Pa.C.S. § 2403 (Petition). Specifically, the petition requested the Commission to allow Mr. Crafa to acquire an encumbered medallion without satisfying a junior lienholder, who had properly filed a Notice of Lien with the Commission. More importantly, the petition requested the Commission to determine that when a foreclosure of medallion occurs through a validly executed sheriff sale, all junior liens on the medallion are discharged by operation of law.

   Under 52 Pa. Code § 5.42, on May 30, 2002, a copy of the Petition was served upon the Office of Consumer Advocate, the Office of Trial Staff, and the Office of Small Business Advocate. No answers were filed to the Petition.1

Standards for Declaratory Orders

   The Public Utility Code authorizes the Commission to issue a declaratory order to terminate an actual controversy or remove uncertainty. 66 Pa.C.S. § 331(f). Re Duquesne Light Co., 61 Pa. PUC 507 (1986). To this end, it has frequently been stated that the issuance of a declaratory order is discretionary and limited to instances where the controversy is based on existing rights, status or legal relations. Pennsylvania Independent Petroleum Producers v. Department of Environmental Resources, 525 A.2d 829 (Pa. Cmwlth. 1988), affirmed, 550 A.2d 195 (Pa. 1989), cert. denied, 489 U.S. 1096 (1989). Thus, declaratory relief has never been appropriate to determine rights in anticipation of events which may never occur. Chester Upland School District v. Commonwealth of Pa., 495 A.2d 981 (Pa. Cmwlth. 1985); see South Whitehall Township v. Pa. Dept. of Transportation, 475 A.2d 166 (Pa. Cmwlth. 1984). In this regard, in South Whitehall Township, the plaintiff's request for declaratory judgment was denied due to the remoteness of an actual conflict. Similarly, in Doe v. Johns-Manville Corp., 471 A.2d 1952 (Pa. Super. 1984), the Superior Court concluded that a declaratory judgment cannot be used simply to search out a new legal doctrine.

   The requirements for petitions for declaratory orders are set forth at 52 Pa. Code § 5.42(a) as follows:

   (a)  Petitions for the issuance of a declaratory order to terminate a controversy or remove uncertainty shall state clearly and concisely the controversy or uncertainty which is the subject of the petition, shall cite the statutory provision or other authority involved and shall include a complete statement of facts and grounds prompting the petition, together with a full disclosure of the interest of the petitioner.

   Although there has been little interpretation of declaratory orders by administrative agencies in Pennsylvania such orders are akin to the declaratory judgments issued by courts to declare rights, status, and other legal relations between parties. See Declaratory Judgments Act, 42 Pa.C.S. §§ 7531, et seq. There, as in 66 Pa.C.S. § 331(f), declaratory judgments are discretionary, not a matter of right. Presbyterian University of Pennsylvania Medical Center v. Keystone Insurance Co., 380 A.2d 381 (Pa. Super. 1977); Greenburg v. Blumberg, 206 A.2d 16 (Pa. 1965); State Farm Mutual Auto Insurance Co. v. Semple, 180 A.2d 925 (Pa. 1962).


   On September 28, 2001, Metran Funding of Philadelphia, Inc. (Metran), confessed judgment under Pa.R.C.P. No. 2951, against N & Dohou Corp. and Narcisse Dahou (Defendants) in the amount of $83,550.00 as a result of the default in a judgment note. The case was captioned at Philadelphia Court of Common Pleas, September Term, 2001, No. 003642. A copy of the Complaint is attached to the Petition.

   As stated in the petition, the Confession of Judgment arose as a result of an unpaid loan Metran extended to the Defendants for the purchase of Philadelphia Taxicab Medallian P-667. As a result of the Confession of Judgment and the Defendants' failure to respond thereto, a Writ of Execution was issued by the Philadelphia Sheriff on November 16, 2001, against Taxicab Medallion P-667. A copy of the Notice and the Writ of Execution are attached to the Petition. After the seizure, the medallion was surrendered to the Commission. On December 5, 2001, a sheriff's sale was scheduled for P-667 as property of the Defendents, N & Dohou Corp. and Narcisse Dohou. A copy of the Sheriff's Sale Notice is attached to the petition.

   At the sheriff's sale, Petitioner Charles Crafa purchased medallion P-667 for the sum of $70,000. Metran has received the proceeds of the sale, and Mr. Crafa now desires to operate taxicab medallion P-667. However, the Petitioner has been informed that the existence of a junior lienholder, who did not bid or participate in the sheriff's sale, may prevent Commission approval of the sale under 66 Pa.C.S. § 2403 unless the junior lienholder is satisfied from the proceeds. Petitioner was advised to file the instant petition as the medallion remains in the possession of the PUC.


   Section 2403(a) of the Public Utility Code, 66 Pa.C.S. § 2403(a) states, in pertinent part:

   Medallions may be pledged to lenders or creditors as security on debt. All lenders or creditors who accept a medallion as security shall file with the commission a notice of lien which describes the loan transaction. A lien on a medallion is void by operation of law unless notice of lien is filed with the commission. The Commission may not permit a sale of a medallion until the lien is removed or unless the commission is notified by the lienholder that the lien will be satisfied from the proceeds of the sale. 66 Pa.C.S. § 24e3(a) (Emphasis added).

   Further guidance as to the Commission's filing requirement is found at 52 Pa. Code § 30.13(a) wherein it states that ''a lender or creditor who accepts a medallion as security shall file an original and two copies of a Notice of Lien with the Secretary of the Commission  . . .  within 30 days of the date of the loan transaction. . . .''

   Important to the averments of the instant Petition, which are premised upon the implications of the Pennsylvania Uniform Commercial Code (UCC) and the rights of secured parties to dispose of collateral after default (13 Pa.C.S. §§ 1101 et seq.), Commission regulations acknowledge the perfection requirements of the UCC. Specifically, 52 Pa. Code § 30.13(b)(c) and (d) state:

   (b)  The filing of a Notice of Lien with the Commission does not relieve a lender or creditor of filing its lien, for the purpose of perfection, in accordance with 13 Pa.C.S. Chapter 94 (relating to filings).
   (c)  If the lender or creditor files a Notice of Lien with the Commission within 30 days of the date of the loan transaction, the date of its compliance with Commission regulations has no effect on a determination as to priority of liens, which is governed by 13 Pa.C.S. Chapter 93 (relating to rights of third parties; perfected and unperfected security interests; rules of priority).
   (d)  If the lender or creditor fails to file a Notice of Lien with the Commission within 30 days of the date of the loan transaction, the lien is void by operation of law.

   Clearly provided in the Public Utility Code and the aforementioned regulations is the requirement that a lender or creditor must file a Notice of Lien with the Commission. This is critical to our disposition herein because the aforementioned Section 2403(a) states that the Commission cannot permit a sale of a medallion until the lien is removed. Thus, the novel issue presented by this Petition is whether or not a sheriff's sale ''removes'' the lien, in particular, a junior lien that has been properly filed with the Commission.

   Although the Public Utility Code and Commission regulations are silent on this precise issue, it is well settled in Pennsylvania case law that a sheriff's sale of property divests all junior liens on that property. Unity Savings Association v. American Urban Sciences Foundation, Inc., 487 A. 2d 356 (Pa. Super. 1984). To this end, it has been frequently stated that a sheriff's sale discharges that lien and all subsequent junior liens on the property and that the purchaser at a sheriff's sale acquires free and clear title to the property. Dauphin Deposit Bank v. Howard O. Stouffer, Inc., 426 A.2d 1164, (Pa. Super. 1981); Albert J. Grosser v. Rosen, 259 A.2d 679, (Pa. 1969).

   Generally, where a junior lienholder has notice of a sheriff's sale, he may attempt to protect his interest by bidding on the property at the sheriff's sale or by presenting legal or equitable arguments at a hearing as to why the lien should not be divested. Boyer v. Walker, 714 A.2d 458 (Pa. Super. 1998); City of McKeesport v. Delmar Leasing Corporation, 656 A.2d 180 (Pa. Cmwlth. 1995).

   In the case subjudice, it appears as if the junior lienholder, Tomorrow's Financing, Inc. (TFI), was provided constructive notice of the sheriff's sale, under Pa.R.C.P 3128(a) which requires the sheriff to provide notice of a sheriff's sale of personal property.2 Moreover, Pa.R.C.P. 3128(b) requires the sheriff to file a proposed schedule of distribution of the proceeds in the sheriff's office not later than five days after the sale and that persons having a claim against the proceeds shall file Exceptions within ten days. No claims or Exceptions were filed by the junior lienholder, TFI. On this point, it should be emphasized that although TFI. was served a copy of the instant Petition, which requests the Commission to allow the sale of a medallion on which TFI had a lien, no response has been filed by TFI.

   In addition to the fundamental principle that a sheriff's sale of property discharges all junior liens by operation of law, we are cognizant of the fact that medallions are sold so that taxicabs can be operated in cities of the first class. Clearly, the legislature did not intend to protect junior lienholders in a fashion that contravenes Pennsylvania case law and the UCC. We are also cognizant of the fact that a sheriff's sale of a medallion would be rendered meaningless if the Commission were precluded from approving the sale of a medallion under Section 2403, without satisfaction of the junior lien. By recognizing lien priority under the UCC (that is, the date in which a lien is perfected establishes lien priority) and the ramifications of a valid sheriff's sale, the Commission can approve the sale of a medallion because the ''lien has been removed'' by operation of law; Therefore,

It is Ordered That:

   1.  The Commission shall exercise its discretion by issuing a Declaratory Order.

   2.  Upon the submission of substantive information that a validly executed sheriff's sale of a medallion has been conducted by the sheriff's office, all junior liens on file with the Commission are discharged upon verification by the Commission.

   3.  A copy of this order be served on Tomorrow's Financing, Inc.

   4.  A copy of this order be published in the Pennsylvania Bulletin.

   5.  The docket at P-00021948 be closed.


[Pa.B. Doc. No. 02-1322. Filed for public inspection July 26, 2002, 9:00 a.m.]


1A copy of the petition was properly served on Tomorrow's Financing Inc., the junior lien holder, as evidenced by an Affidavit of Service dated March 14, 2002.

2Commission staff has been informed by a TFI representative that TFI was in attendance at the sheriffs sale of Taxicab Medallion P-667.

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