In re Elias
| Citation | 98 BR 332 |
| Decision Date | 14 March 1989 |
| Docket Number | No. 88 C 6098.,88 C 6098. |
| Parties | In re Willis and Patricia ELIAS, Debtors-Appellees. Appeal of FIRESIDE TERRACE CONDOMINIUM ASSOCIATION. |
| Court | U.S. District Court — Northern District of Illinois |
Theda C. Snyder, Chicago, Ill., for debtors-appellees.
George D. Downs, Palatine, Ill., for appellant.
Fireside Terrace Condominium Association (Fireside) appeals from the bankruptcy court's order holding it in contempt for continuing an action in Illinois state court to recover condominium assessments in violation of 11 U.S.C. sec. 524(a)(2).
On 30 July 1983 Willis and Patricia Elias filed for bankruptcy under Chapter 7 of the United States Bankruptcy Code, 11 U.S.C. 701 et seq. Fireside was listed as a creditor in the Eliases' A-2 schedule. And the debt to Fireside, along with the others in the schedule, was discharged on September 12.
Nearly two years later, on 9 August 1985 Fireside filed suit against the Eliases in Illinois Circuit Court seeking to recover assessment fees which had accrued both pre- and postpetition. By letter dated 3 October 1985, the Eliases' attorney, Richard Fogel, advised Fireside's attorney, George Downs, of the discharge of the debt in the previous bankruptcy action, and asked Mr. Downs to refrain from pursuing the state court action further.
Mr. Downs responded with alacrity — the very next day — taking the position that since the Eliases were discharged as of 30 July 1983 (the date they filed their Chapter 7 action), Fireside was still entitled to assessments coming due after July 30; he advised Mr. Fogel that Fireside would "take a judgment" for the postpetition assessments on 29 October 1985.
October 29 came and went without Fireside taking a judgment. Apparently little else happened in the case until 20 February 1986, when Fireside amended its complaint to reflect the fact that it was seeking to recover only assessments arising after the discharge. And that same day (indeed in the same order granting Fireside leave to amend its complaint), the Illinois Circuit Court found the Eliases in default and entered judgment in Fireside's favor in the amount of $7,042.24 plus court costs.
Like most litigants with judgment in hand, Fireside began taking steps to turn it into money in hand (aptly called "executing" on the judgment). After being served with a writ of attachment, the Eliases finally showed up and petitioned the court (pursuant to Ill.Rev.Stat. ch. 110, par. 2-1401) to vacate the default judgment because the debt which Fireside sought to collect had been discharged in the prior bankruptcy proceeding, and because they never received notice of Fireside's motion to "apportion the debt"—amend the complaint?—into pre- and postpetition amounts.
The court granted the Eliases' motion to vacate, ruling that the action was "void ab initio" due to the discharge in bankruptcy, and that Fireside's amendment to the complaint did not cure that defect; the court also ruled that Mr. Downs's October 4 letter to Mr. Fogel did not, for purposes of "due process", constitute sufficient notice to the debtors regarding Fireside's motion for default judgment. Fireside appealed to the Illinois Appellate Court.
After both sides had briefed the issues in state court, the Eliases filed a petition in bankruptcy court to enjoin Fireside from continuing its appeal, and for an order finding that Fireside had acted in contempt of court by pursuing the state court action. And on 6 June 1988, Judge Katz entered an order finding Fireside in civil contempt and awarded $2,163.10 in damages to the Eliases. Fireside appeals from this order.
We must decide two principal issues: (1) whether Fireside violated sec. 524(a)(2) by pursuing its state court action, and (2) if so, whether the bankruptcy court properly entered a finding of civil contempt against Fireside. And to those issues we now turn.
The first issue presents an interesting question of statutory interpretation. We must decide whether condominium assessments which arise out of a prepetition contract but come due after the discharge has been granted constitute a debt within the meaning of 11 U.S.C. secs. 101(11) and 727(b). As we shall see, the courts that have addressed this issue are divided. But first we examine the relevant statutory language. United States v. Ron Pair Enterprises, Inc., ___ U.S. ___, ___, 109 S.Ct. 1026, 1031, 103 L.Ed.2d 290 (1989).
Section 727(b) discharges a debtor "from all debts that arise before the date" the petition for relief is filed. A "debt" is defined as "liability on a claim." Sec. 101(11). The existence of a debt thus depends on whether the creditor has a "claim" against the debtor. "Claim" means a "right to payment, whether or not such right is * * * contingent * * *." Sec. 101(4). The definition of "claim" is "broad." Ohio v. Kovacs, 469 U.S. 274, 279, 105 S.Ct. 705, 708, 83 L.Ed.2d 649 (1985).
Does Fireside have a claim against the Eliases for the amount of postpetition assessments? Unquestionably. No doubt Fireside's right to payment is contingent1, at least as of the time that the Eliases filed their bankruptcy petition, for it was not certain that they would continue to be the owners of the condominium; but a contingent right to payment is still a claim for purposes of the Code.
Is Fireside's claim a "debt"? The statute itself provides no certain answer. But according to the Code's legislative history, the answer once again is "yes" because H.R.Rep. No. 595, 95th Cong., 1st Sess. 310 (1977); see also S.Rep. No. 989, 95th Cong., 2d Sess. 23 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5787, 5809, 6267. As one court has noted, however, debts are limited to claims for which there is liability, thus implying that the term "claim" is broader than the term "debt." In re King, 9 B.R. 376, 7 BCD 395, 396 (Bkrtcy.D.Or.1981). In an effort to construe these definitions in a manner consistent with the legislative history, one commentator suggests that the "liability simply means the debtor has to pay." R. Ginsberg, Bankruptcy, Para. 10, 011 n. 6 (1988). And this reading is reasonable: liability is "a broad legal term. * * * It has been referred to as of the most comprehensive significance, including almost every character of hazard or responsibility, absolute, contingent, or likely." Black's Law Dictionary 823 (5th ed. 1979). It includes "any kind of debt or liability, either absolute or contingent, * * * the condition of being actually or potentially subjected to an obligation." Id. It would seem, then, that the term "liability" need not delimit the universe of claims that constitute "debts" under the Code; rather, the definitions are simply different ways of describing the same thing: a "claim" from the creditor's perspective is a "debt" from the debtor's.
But what of the cases addressing this issue? The courts are divided. In re Rosteck, 95 B.R. 558 (N.D.Ill.1988), Rink v. Timbers Ass'n I, Inc., 87 B.R. 653 (Bkrtcy. D.Colo.1987), and In re Horton, 87 B.R. 650 (Bkrtcy.D.Colo.1987), hold that condominium assessments which come due after the date of discharge do not constitute a dischargeable debt in a Chapter 7 proceeding. Behrens v. Woodhaven Association, 87 B.R. 971 (Bkrtcy.N.D.Ill.1988), aff'd, 1989 WL 24067, U.S. Dist. LEXIS 2298 (N.D.Ill. Mar. 7, 1989), goes the other way.
We begin with Behrens. There, a condominium association sued the debtors in state court for breach of contract to recover postpetition assessments after the debtors had received a Chapter 7 discharge. After the association obtained a judgment in its state court action, the debtors petitioned the bankruptcy court to hold the association in contempt for violating the permanent injunction imposed by sec. 524(a)(2). The association countered that the postpetition assessments were not discharged under sec. 727(b) because the debtors' obligation to pay arose at the time the assessments were made, after the petition was filed. The court found the association's reasoning unpersuasive. It held the association in contempt, finding that it made no difference that the actual assessments were made postpetition. Rather, "the key was that the association was seeking to enforce a personal obligation of the debtors based on a prepetition contract." 87 B.R. at 975. The court reasoned that any other result would enfeeble the Code's goal of providing honest individual debtors with a "fresh start", and undermine the deliberately broad protections against unknowing, inadvertent, or involuntary reaffirmations of prepetition agreements (see secs. 524(c) and (d)). Accord In re Rosteck, 85 B.R. 73 (Bkrtcy.N.D.Ill.), rev'd, 95 B.R. 558 (N.D.Ill.1988). Cf. In re Cox, 53 B.R. 829 (Bkrtcy.M.D.Fla.1985).
Now for the other side of the coin. In re Horton, 87 B.R. 650 (Bkrtcy.D.Colo.1987), held that postpetition assessments were not subject to discharge under sec. 727(b); and that a creditor's state court action to recover such assessments did not violate sec. 524(a). The court held that the Code distinguishes between a debt and liability. It relied on a committee report which stated that sec. 524(a) "voids any judgment to the extent that it is a determination of the personal liability of the debtor with respect to a pre-petition debt * * *." Id. at 652 (emphasis in original). The "debt" is extinguished, the "liability" is not. Under the contract the association did not have a "`right to payment'—and hence, a claim — within the meaning of sec. 101(4)(A) until each monthly installment came due." See also Rink v. Timbers Homeowners Association I, Inc., 87 B.R. 653 (Bkrtcy.D.Colo. 1987) (). We find this reasoning less than compelling.
First, the court's reliance on the committee report language begs the question: ...
To continue reading
Request your trial