In re Boca Village Ass'n, Inc.

• Decision Date: 28 December 2009
• Docket Number: No. 09-29573-PGH.,09-29573-PGH.
• Citation: 422 B.R. 318
• Parties: In re BOCA VILLAGE ASSOCIATION, INC., Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Florida

422 B.R. 318

In re BOCA VILLAGE ASSOCIATION, INC., Debtor.

No. 09-29573-PGH.

United States Bankruptcy Court, S.D. Florida, West Palm Beach Division.

December 28, 2009.

Bradley S. Shraiberg, Boca Raton, FL, for debtor.

Deborah Menotte, West Palm Beach, Fl, for trustee.

ORDER GRANTING CREDITORS' MOTION TO DISMISS CHAPTER 7 CASE

PAUL G. HYMAN, Chief Bankruptcy Judge.

THIS MATTER came before the Court for hearing on November 17, 2009 ("Hearing") upon Roofing Services, Inc. d/b/a Best Roofing's ("Best Roofing") Motion to Dismiss Chapter 7 Case ("Motion")(D.E.# 13), and Rainbow Colors, Inc. d/b/a RCI Painting & Waterproofing ("RCI," collectively with Best Roofing, the "Creditors") Motion for Joinder in Best Roofing's Motion (D.E.# 18). The Creditors seek dismissal of the above-referenced Chapter 7 case, filed by Boca Village Association, Inc. (the "Debtor" or "Boca Village"), on September 16, 2009 (the "Petition Date").

BACKGROUND

At the Hearing, the Debtor and Best Roofing agreed on the record that the determination of this matter presented a purely legal issue based upon the facts contained in the parties' stipulations and proffer. See Stipulation of Uncontested Facts (D.E.# 23) and Supplemental Stipulation of Uncontested Facts (D.E.#41). Thus, it is undisputed that the Debtor is a nonprofit condominium association with sixty-six units (the "Condominium"). Grant Management, Inc. was hired to handle the day-to-day affairs of the Condominium. Upon the Debtor's formation in 1975, the Debtor's Declaration of Condominium of Boca Village Phase I (the "Declaration"), Articles of Incorporation (the "Articles"), and By-Laws (collectively, the "Condominium Documents") were recorded in the Public Records of Palm Beach County, Florida (ORB 2437 at Page 868). Motion Exs. "A" & "B".

Pursuant to the terms of the Condominium Documents and the Condominium Act of the State of Florida, Fla. Stat. §§ 718.101-.622 ("Condominium Act"), the Debtor was organized to administer and manage the operations of the Condominium, to enforce the provisions of the Declaration, to levy and collect assessments, and to adopt, promulgate and enforce rules and regulations.

In October 2005, Hurricane Wilma caused substantial damage to the roofs of the Condominium. On or about April 4, 2006, the board of directors of the Condominium voted to specially assess each unit owners $3,000.00 for necessary expenses caused by Hurricane Wilma, including roof repair, pool repair, and tree and stump removal, and ultimately collected $191,803.00 (the "Special Assessment"). The Debtor immediately spent $48,500.00 from the Special Assessment for emergency repairs including tree and stump removal pool repair, emergency roof repair, electrical and fixtures, and miscellaneous repairs. After soliciting three competing bids, the Debtor hired Best Roofing to replace the damaged roofs for $211,000.00. Soon thereafter, the Debtor paid Best Roofing $73,885.00 from the Special Assessment with the balance being due upon completion. A dispute subsequently arose resulting in Best Roofing suing the Debtor in State Court for payment of roofing services (the "State Court Action"). Paul Greco, the Debtor's corporate representative, testified at a pre-trial deposition for the State Court Action that the Debtor was holding $148,000.00 of contract funds obtained from the unit owners.

On March 4, 2009, Best Roofing obtained a Final Judgment against the Debtor in the amount of $123,084.50, plus interest, which was recorded in the Public Records of Palm Beach County, Florida on March 5, 2009. Motion Ex. "C". The State Court reserved jurisdiction to award costs and to consider motions for attorney fees. Best Roofing's pending claim for attorneys' fees in the State Court Action has been stayed by the Debtor's bankruptcy filing. Following the entry and recording of the Final Judgment, Best Roofing filed garnishment actions to collect the Final Judgment.

Best Roofing later learned that the Debtor and Grant Management had set up a new bank account for the Debtor in the name of Grant Management (the "New Account"). Best Roofing then filed a garnishment action against Grant Management. Debtor's counsel entered an appearance in State Court for Grant Management and responded to the writ of garnishment claiming that Grant Management was not in possession of any of the Debtor's money or property, despite the fact that Debtor's money was specifically placed into the New Account in the name of Grant Management to avoid Best Roofing's collection efforts.

After Best roofing obtained its Final Judgment, the Debtor hired another roofing company ("Campany Roofing") to perform additional roof repairs. On April 20, 2009, after Best Roofing had filed and served its garnishment action, the Debtor paid Campany Roofing $35,363.50 from the Special Assessment.

By the time Best Roofing learned about the transfer of the Debtor's funds into the New Account, the account balance had been reduced to $46,768.52. Best Roofing was able to garnish the New Account balance of $46,768.52 which consisted of the remaining balance of the Special Assessment along with additional monies from the Debtor's operating account. Best Roofing obtained an additional judgment against Grant Management for the remaining balance which remains due and owing by the Debtor.

The Debtor's bankruptcy schedules listed accounts receivable in the total amount of $71,616.81 for varying amounts of assessments due from unit owners. However, in its initial filing, the Debtor failed to disclose that it filed and recorded liens, in the Public Records of Palm Beach County, for unpaid assessments against five Condominium unit owners. As of the Petition Date, no releases of these liens had been recorded.

Although Bankruptcy Schedule "B", item 21 requires a debtor to list other contingent and unliquidated claims owing to the debtor, the Debtor's initial schedules did not list any contingent or unliquidated claims. However, pursuant to the Declaration, the Debtor was granted a lien on all dwelling units and their appurtenant interests in the common elements, "which lien shall secure and does secure the monies due for all assessments now or hereafter levied against the owner of each DWELLING UNIT." Motion Ex. "A": Declaration at § XXX, ¶ J. On December 2, 2009, two weeks after the Hearing, the Debtor filed an Amended Schedule "B" stating that the "Debtor has a lien on all dwelling units and appurtenant interests in the common elements, which lien secured monies due for all assessments now or hereafter levied against the owner of each dwelling unit". Debtor's Amended Schedule "B" also disclosed that the Debtor had filed and recorded liens against certain Condominium units.

On September 15, 2009, one day prior to the Petition Date, an entity known as Village at Boca Condominium Association, Inc. ("VBCA") filed Articles of Incorporation listing the identical officers that the Debtor had listed in its Statement of Financial Affairs. Motion Ex. "D": Articles of Incorporation for VBCA. According to the parties' stipulation, VBCA was formed for the purpose of collecting future assessments against the owners of the dwelling units for the future operations of the Condominium property.

The Creditors' Dismissal Motion alleges that the Debtor's bankruptcy should be dismissed for cause pursuant to 11 U.S.C. § 707(a) as a bad faith filing. The Creditors maintain that the Debtor's bad faith is evidenced by its actions in response to Best Roofing's attempted garnishment and collection of its Final Judgment. These acts include the officers' direct involvement in the formation of VBCA on the eve of the filing of this case, the hiding of Debtor's funds that were subject to garnishment in the New Account, the failure to disclose the ownership of certain lien rights and contingent claims due and owing to the Debtor, and the attempt to liquidate the Debtor condominium association without statutory or contractual authority. The Creditors also argued that the Debtor improperly attempted to transfer or assign its assessment and lien rights to VBCA.

The Debtor argued in response that the Creditors do not have standing to assert that the Debtor lacks authority to file a Chapter 7 liquidation, that "bad faith" does not provide cause for dismissal under § 707(a), and that even if it did, the Debtor did not act in bad faith.

As discussed below, based upon the specific facts presented in this matter, the Court finds that cause exists to dismiss this case pursuant to § 707(a).

CONCLUSIONS OF LAW

A. Corporate Debtor's Bad Faith Can Provide § 707(a) Cause For Dismissal

Section 707(a) of the Bankruptcy Code, provides that:

(a) The court may dismiss a case under this chapter only after notice and a hearing and only for cause, including—

(1) unreasonable delay by the debtor that is prejudicial to creditors;

(2) nonpayment of any fees and charges required under chapter 123 of title 28 [28 U.S.C. §§ 1911 et seq.]; and

(3) failure of the debtor in a voluntary case to file, within fifteen days or such additional time as the court may allow after the filing of the petition commencing such case, the information required by paragraph (1) of section 521, but only on a motion by the United States trustee.

11 U.S.C. § 707(a).

The Eleventh Circuit has not addressed the issue of whether bad faith can constitute cause for dismissal under § 707(a). However, courts that have considered the issue generally begin their analyses by noting that the statute's three listed cause for dismissal grounds are illustrative and not exhaustive. See e.g. In re Padilla, 222 F.3d 1184, 1191 (9th Cir.2000)(noting that 11 U.S.C § 102(3) defines "including" for purposes of Title 11 to be "not limiting"). However, from this initial point of agreement the analyses diverge.

The minority position, and the one urged by the Debtor, is that bad faith does not provide cause for dismissal under § 707(a). See e.g. P...