Foxwood Hills Prop. Owners Ass'n, Inc. v. 783-C, LLC (In re Foxwood Hills Prop. Owners Ass'n, Inc.)
| Decision Date | 05 May 2021 |
| Docket Number | Adv. Pro. No. 20-80049-HB,C/A No. 20-02092-HB |
| Court | U.S. Bankruptcy Court — District of South Carolina |
| Parties | In re, Foxwood Hills Property Owners Association, Inc., Debtor(s). Foxwood Hills Property Owners Association, Inc., Plaintiff(s), v. 783-C, LLC et al. Defendant(s). |
THIS MATTER is before the Court on the Motion for Determination of Core/Non-Core Status and Motion for Abstention Pursuant to 28 U.S.C. §§ 1334(c)(1) and 1334(c)(2) and 11 U.S.C. § 305(a)(1) filed by Defendant Tona Renee Busbee ("Busbee"),1 requesting the Court abstain from presiding over the above-captioned bankruptcy case and adversary proceeding, and the Withdrawal of Consent to Bankruptcy Jurisdiction filed by Defendants Busbee and Jackie Calvin Busbee, Jr. ("Mr. Busbee") in the adversary proceeding.2 Foxwood Hills Property Owners Association, Inc. (the "Association") filed Responses objecting to the relief requested in the Motion3 and Withdrawals.4 Various documents seeking to join the Motion were filed by other pro se defendants5 as well as the numerous defendants represented by attorney Michael B. Dodd(defined therein as the "Dodd Defendants").6 The Court entered an order on March 24, 2021, scheduling a hearing and requiring any party intending to participate to complete a pretrial statement indicating witnesses to be called and proposed exhibits.7 Only Busbee and counsels for the Association and the Dodd Defendants submitted Pretrial Statements and participated in the hearing held on April 27, 2021.
The Association is the property owners' association for a residential development known as Foxwood Hills (the "Community") located on Lake Hartwell in Oconee County, South Carolina. The Association is a nonprofit corporation and its duties include the maintenance, operation, and management of: roadways within the Community; security services; certain vacant lots; and amenities, including a clubhouse, restaurant, pool, tennis courts, parking area, docks, and common areas. The Association is governed by a board of directors consisting of seven members who each serve three-year terms. Board members are elected pursuant to the Association's bylaws through annual elections. All board members are unpaid volunteers.
The Community is comprised of approximately 4,100 lots divided among more than 20 different sections that range from lakefront and single-family homes to recreational vehicle and mobile home lots. In developing the different sections of the Community, the developer filed different covenants and restrictions as part of the real property records and conveyed deeds with different amounts in assessments payable to the Association. As a result, the Association has been inconsistent in enforcing restrictions and assessing dues for many years.
Busbee owns three lots in the Hatteras I section of the Community. In October 2017, she filed an action against the Association in the Oconee County Court of Common Pleas, C/A No. 2017-CP-37-00607 ("Hatteras Action"), asserting the Association failed to enforce various restrictions on the lots within the Community, including the Hatteras I section. Busbee sought a declaratory judgment that, inter alia, she is not a member of the Association and is only required to pay a minimal annual assessment amount for the maintenance of roads and use of recreational facilities. Busbee did not assert a right to a jury trial.
In July 2018, the Association filed a motion to join in the Hatteras Action all record property owners in the Hatteras I section to prevent further litigation and obtain a consistent ruling among the lots and property owners within this section of the Community. Despite Busbee's objection filed in August 2018, the state court granted the Association's request on January 25, 2019. Thereafter, the Association filed a third-party complaint naming as third-party defendants approximately 200 property owners within the Hatteras I section. The Association sought a declaratory judgment that the third-party defendants are members of the Association and subject to its bylaws and, therefore, required to pay budget-based dues, fees, and assessments. The third-party complaint also requested the state court revise the Hatteras I restrictions to provide the same. Busbee filed a motion to dismiss the Association's third-party complaint, which the state court denied on June 14, 2019.
The pleadings stage of the Hatteras Action continued throughout 2019 and into 2020, as both Busbee and the Association filed various amendments. In the meantime, the Association attempted service of the summons and third-party complaint on the third-party defendants through various methods, including a process server and sheriff's offices for numerous jurisdictions inwhich the Hatteras I property owners resided. Complications with service arose, including failing to locate all third-party defendants. Service was never completed and the Hatteras Action never progressed past this initial stage. At that time, the Association incurred approximately $261,000.00 in legal fees and expenses.
In April 2018, Christopher Pierce filed an action against the Association in Oconee County, seeking a judgment of $1,226.00 for alleged overpaid dues wrongfully charged to him. The Association incurred approximately $44,000.00 in legal fees and expenses in that action.
The Hatteras Action and other state court litigation exposed issues with the covenants and restrictions on lots within the Community and the governance of the Association, which directly and indirectly affected the Association's successful operation. Prior to the Hatteras Action, the Association's collection rate of fees, dues, and assessments for its 2017-2018 fiscal year was approximately 70% of all property owners within the Community. Although originally anticipated to improve the following year, the collection rate fell to 57% and further decreased to 50% for 2019-2020. The Association concluded this drastic decrease was caused by the Hatteras Action as word spread of controversy over the property owners' obligation to pay fees, dues, and assessments. Additionally, the Association previously initiated foreclosure actions when property owners failed to pay fees, dues, and assessments. The board adopted a less aggressive collection approach after the Hatteras Action to avoid possible counterclaims similar to Busbee's claims, resulting in less recovery of amounts owed. These issues will remain until the matters concerning membership in the Association and calculation of fees, dues, and assessments are resolved.
Realizing this, as well as the threat of additional litigation since the Hatteras Action involved only one section of the Community, the resulting insurmountable legal expense (inaddition to the amounts already spent), and that the Association would no longer be able to operate if these issues remained, the Association board began to explore alternative methods for resolution. In Fall 2019, the board began to seriously consider Chapter 11 bankruptcy relief and spoke with bankruptcy counsel. Its bankruptcy counsel conducted two town hall meetings in February 2020, where property owners attended and voiced both opposition and support for filing bankruptcy.
The Association ultimately determined that filing for Chapter 11 bankruptcy relief was an efficient means to comprehensively address the issues regarding restrictions in certain deeds and recorded real property filings by initiating a single adversary proceeding against all property owners within the Community, rather than piecemeal, duplicative litigation with the numerous sections of the Community that would likely last several years. Although solvent, if these issues are left unaddressed, they jeopardize the Association's ability to continue operating and fulfill its obligations. The board, therefore, filed a petition for Chapter 11 relief on behalf of the Association on May 8, 2020, staying the Hatteras Action and other state court litigation.
The Association also seeks to accomplish through its Chapter 11 case the following: treatment for the "outparcel lots" of the Community, which have no infrastructure and pose a liability to the Community; termination of the executory contract with its prior management company and resolution of disputes with that party over amounts allegedly owed; resolution of disputes concerning enhancement fees for water supply and sewage collection on lots owned by the Association; and clarification as to which restrictions and covenants will be enforced by the Association. These issues were addressed in the Association's plan and disclosure statement, filed March 4, 2021.8 The plan also provided for payment in full of the Association's creditors and proposed amendments to the bylaws. However, after numerous objections and a lengthy hearing,the Association agreed to remove from the plan sections concerning the bylaws and filed an amended plan and disclosure statement.9 A hearing to consider the amended disclosure statement is scheduled for May 26, 2021. The Association has also provided significant information through its monthly operating reports and other filings with the Court.
The above-captioned adversary proceeding was filed on July 13, 2020, naming over 3,300 defendants who are property owners of record within the Community. This proceeding seeks to determine issues regarding membership, member voting rights, and restrictions on assessments.10 Pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201, et seq., the Association's Amended Complaint seeks a declaratory judgment based on equitable grounds for relief that defendants are members of the Association with equal voting rights and are required to pay budget-based dues, fees, and assessments.11 The Amended Complaint also asserts various covenants and restrictions on certain deeds and recorded real...
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