Goudelock v. Sixty-01 Ass'n of Apartment Owners

• Decision Date: 10 July 2018
• Docket Number: No. 16-35384,16-35384
• Citation: 895 F.3d 633
• Parties: Penny D. GOUDELOCK, Appellant, v. SIXTY-01 ASSOCIATION OF APARTMENT OWNERS, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

895 F.3d 633

Penny D. GOUDELOCK, Appellant,

v.SIXTY-01 ASSOCIATION OF APARTMENT OWNERS, Appellee.

No. 16-35384

United States Court of Appeals, Ninth Circuit.

Argued and Submitted February 6, 2018—Seattle, Washington

Filed July 10, 2018

Amanda K. Rice (argued), Jones Day, Detroit, Michigan; Nathaniel P. Garrett, Jones Day, San Francisco, California; Christina L. Henry, Henry & DeGraaff, P.S., Seattle, Washington; for Appellant.

Stephen M. Smith (argued), Sound Legal Partners PLLC, Kenmore, Washington, for Appellee.

J. Erik Heath, San Francisco, California, as and for Amicus Curiae National Association of Consumer Bankruptcy Attorneys.

Before: Milan D. Smith, Jr. and Mary H. Murguia, Circuit Judges, and Eduardo C. Robreno,^* District Judge.

ROBRENO, District Judge:

Appellant Penny Goudelock appeals the district court's affirmance of the bankruptcy court's grant of summary judgment in favor of appellee, Sixty-01 Association of Apartment Owners ("Sixty-01"). The issue is whether condominium association ("CA") assessments that become due after a debtor has filed for bankruptcy under Chapter 13 of the Bankruptcy Code are discharged upon confirmation of the plan. We have jurisdiction pursuant to 28 U.S.C. § 158(d)(1). We conclude that such assessments are dischargeable under 11 U.S.C. § 1328(a) and, accordingly, reverse and remand.

I. FACTUAL AND PROCEDURAL BACKGROUND

The facts are not in dispute. Goudelock purchased a condominium unit in Redmond, Washington in 2001. Her deed was subject to a declaration of covenants and restrictions (the "Declaration") that was recorded against the property in 1978. The Declaration provides that Sixty-01, a CA, may charge property owners assessments for monthly fees and for maintenance, repairs, and capital improvements.

The Declaration grants Sixty-01 two methods for collecting unpaid assessments. It provides that all unpaid assessments: (1) constitute a lien on the condominium unit, enforceable through foreclosure; and (2) create a personal obligation through which Sixty-01 can bring suit for damages against the owner of the condominium unit.¹

Goudelock stopped paying the CA assessments in 2009 and Sixty-01 sought to enforce its lien by initiating foreclosure proceedings in state court. Goudelock moved out of her condominium unit and, in March of 2011, filed for bankruptcy under Chapter 13. As part of her Chapter 13 plan, Goudelock surrendered the condominium unit. Sixty-01 filed a proof of claim attesting to $18,780.39 in unpaid CA assessments and noted that they continued to accrue at a monthly rate of $388.46. Before the plan was confirmed by the bankruptcy court, Sixty-01 canceled the foreclosure sale because the mortgage lender paid the outstanding assessments. The condominium unit sat unoccupied until February 26, 2015, when the mortgage lender foreclosed on it. On July 24, 2015, Goudelock completed her plan obligations and received a discharge pursuant to 11 U.S.C. § 1328(a).

Meanwhile, in April of 2015, Sixty-01 had brought suit in the United States Bankruptcy Court for the Western District of Washington to determine the dischargeability of Goudelock's personal obligation to pay the post-petition CA assessments that had accrued between March 2011 (when Goudelock filed her Chapter 13 petition) and February 2015 (when the condominium unit was foreclosed upon). The bankruptcy court granted summary judgment in Sixty-01's favor, concluding that the post-petition CA assessments "were not dischargeable because they arose at the time of their assessment and were an incidence of legal ownership of the burdened property." Goudelock v. Sixty-01 Ass’n of Apartment Owners, No. C15-1413-MJP, 2016 WL 1365942, at *1 (W.D. Wash. Apr. 6, 2016) (summarizing the bankruptcy court's holding). The court rejected Goudelock's argument that the personal obligation to pay CA assessments was a pre-petition debt under 11 U.S.C. § 1328(a) that arose when she initially purchased the condominium unit. Id.

Goudelock appealed, and the district court affirmed the bankruptcy court's grant of summary judgment. Id. at 2. Goudelock then filed a timely appeal in this court.

II. STANDARD OF REVIEW

"This court reviews de novo a district court's decision on appeal from a bankruptcy court" as well as "[t]he bankruptcy court's conclusions of law and interpretation of the Bankruptcy Code." In re Greene , 583 F.3d 614, 618 (9th Cir. 2009).

III. ANALYSIS

No circuit court of appeals has addressed the dischargeability of CA assessments that have become due after the filing of a Chapter 13 petition. There are, however, two appellate decisions addressing the dischargeability of similar post-petition assessments under Chapter 7. Moreover, a number of lower courts have imported the teachings of these two appellate decisions under Chapter 7 to the dischargeability of post-petition association assessments under Chapter 13. The two appellate decisions (and their progeny) represent polar opposite positions and their applicability to Chapter 13 cases is the starting point of our analysis.

First, in Matter of Rosteck , 899 F.2d 694 (7th Cir. 1990), the Seventh Circuit Court of Appeals found that the obligation to pay CA assessments was an unmatured contingent debt under the Bankruptcy Code that arose prepetition (when the debtors purchased the property) and that merely became mature when the assessments became due post-petition. Id. at 696–97. As a result, the debt for future assessments was dischargeable, which the court held was "consistent with the Bankruptcy Code's goal of providing debtors a fresh start." Id. at 697.

A contrasting view was articulated in In re Rosenfeld , 23 F.3d 833 (4th Cir. 1994), wherein the Fourth Circuit Court of Appeals held that the obligation to pay cooperative association assessments ran with the land and arose each month from the debtor's continued post-petition ownership of the property. Id. at 837. Thus, the court concluded that any assessments due and payable after the filing of the Chapter 7 petition were not dischargeable as they were not prepetition debts. Id. at 838.²

Both lines of reasoning have been relied upon by lower courts in this circuit when considering the dischargeability of post-petition association assessments under Chapter 13, ultimately reaching competing results. Compare In re Coonfield , 517 B.R. 239, 243 (Bankr. E.D. Wash. 2014) (following Rosteck 's reasoning and concluding "that the claim against [the debtors] for association assessments arose pre-petition and includes obligations for ongoing assessments"), with In re Foster , 435 B.R. 650, 660–61 (B.A.P. 9th Cir. 2010) (applying Rosenfeld ), and In re Batali , No. WW-14-1557-KiFJu, 2015 WL 7758330, at *8–9 (B.A.P. 9th Cir. 2015) (applying Rosenfeld and Foster ).

We agree with the reasoning of Rosteck and conclude that its teachings in the Chapter 7 context are applicable to Chapter 13 cases. Sixty-01 obtained two state law remedies under the Declaration to address the failure to pay CA assessments: an in rem remedy of a lien and right of foreclosure; and an in personam remedy allowing it to bring suit against the property owner. While the in rem lien is not dischargeable under Chapter 13, the pre-petition in personam obligation is. It is Goudelock's in personam obligation that ultimately is at issue in this case.

A. The Personal Obligation to Pay CA Assessments Is a Debt Under Section 1328(a)

A Chapter 13 discharge is intended to be a "discharge of all debts," barring a few enumerated exceptions. 11 U.S.C. § 1328(a). Bankruptcy proceedings are intended to grant debtors a "fresh start," Grogan v. Garner , 498 U.S. 279, 286, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991), and, as a result, the Bankruptcy Code "is to be construed liberally in favor of debtors," In re Devers , 759 F.2d 751, 754 (9th Cir. 1985). Moreover, in that Chapter 13 is the preferred route for personal bankruptcy, "[a] discharge under Chapter 13 ‘is broader than the discharge received in any other chapter.’ " United Student Aid Funds, Inc. v. Espinosa , 559 U.S. 260, 268, 130 S.Ct. 1367, 176 L.Ed.2d 158 (2010) (quoting 8 Collier on Bankruptcy ¶ 1328.01, p. 1328–5 (rev. 15th ed. 2008) ).

The Bankruptcy Code defines "debt" as a "liability on a claim." 11 U.S.C § 101(12). In turn, 11 U.S.C. § 101(5)(A) defines a "claim," (and thus, a debt) as a "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured."³ This definition of a claim is very broad, encompassing all of a debtor's obligations "no matter how remote or contingent ." In re SNTL Corp. , 571 F.3d 826, 838 (9th Cir. 2009) (quoting In re Jensen , 995 F.2d 925, 929 (9th Cir. 1993) ); see also, e.g. , Rosteck , 899 F.2d at 696 ; In re Christian Life Ctr. , 821 F.2d 1370, 1375 (9th Cir. 1987) (stating that Congress intended to provide " ‘the broadest possible definition’ of claims so that ‘all legal obligations of the debtor, no matter how remote or contingent, will be able to be dealt with in the bankruptcy case.’ " (quoting S. Rep. No. 95-989, at 22 (1978), as reprinted in 1978 U.S.C.C.A.N. 5787, 5808) ).

Thus, the obligation to pay CA assessments is a debt since it creates a right to payment. See 11 U.S.C. § 101(5)(A). The fact that the future assessments may be a contingent and unmatured form of the debt does not alter this analysis. See, e.g. , id. ; SNTL Corp. , 571 F.3d at 838.

B. The CA Assessment Debt Arose Pre-Petition and Is Dischargeable

Neither party disputes that only debts arising pre-petition may be discharged. Federal law determines when a claim arises under the Bankruptcy Code. SNTL Corp. , 571 F.3d at 839. In the Ninth Circuit, courts use the "fair contemplation" test to determine when a claim arises. Id. This test provides that "a claim arises when a claimant can fairly or reasonably contemplate the claim's existence even if a cause of action has not yet accrued under...