In re Spencer

• Decision Date: 22 August 2011
• Docket Number: Nos. 10–14413,09–74255.,s. 10–14413
• Citation: 457 B.R. 601
• Parties: In re Ezroy C. SPENCER, Debtor.Maple Forest Condominium Association a/k/a Red Maple Lane Association, Appellant,v.Ezra C. Spencer and David Wm. Ruskin, Standing Chapter 13 Trustee, Appellees.
• Court: U.S. District Court — Eastern District of Michigan

457 B.R. 601

In re Ezroy C. SPENCER, Debtor.Maple Forest Condominium Association a/k/a Red Maple Lane Association, Appellant,

v.Ezra C. Spencer and David Wm. Ruskin, Standing Chapter 13 Trustee, Appellees.

Nos. 10–14413

09–74255.

United States District Court, E.D. Michigan, Southern Division.

Aug. 22, 2011.

Christopher W. Jones, William D. Johnson, Acclaim Legal Services, Southfield, MI, for Debtor.

OPINION AND ORDER REVERSING IN PART BANKRUPTCY COURT'S ORDER AND REMANDING FOR FURTHER PROCEEDINGS

ROBERT H. CLELAND, District Judge.

This case comes before the court on the appeal of Appellant Maple Forest Condominium Association (“Association” or “Maple Forest”) to an order of the bankruptcy court denying its motion for summary judgment in an adversary proceeding and granting in part Appellee/Debtor Ezroy C. Spencer's motion for summary judgment. Maple Forest challenges the bankruptcy court's determination that condominium association fees assessed following the date on which Debtor filed for bankruptcy comprise pre-petition claims subject to discharge under 11 U.S.C. § 1328(a). Having reviewed the briefs, the court determines that oral argument would not significantly aid the decision, as all issues are adequately addressed in the briefs and record. See Fed. R. Bankr.P. 8012. The court will reverse in part and affirm in part the bankruptcy court's order and remand for further proceedings consistent with this opinion.

I. BACKGROUND

Prior to bankruptcy, Debtor owned a condominium unit on Red Maple Lane in Wixom, Michigan. Maple Forest Condominium Association issued regular assessments for fees covering maintenance and repairs for common elements of the condominium project including Debtor's unit. On November 5, 2009, Debtor filed a petition for relief under Chapter 13 of the United States Bankruptcy Code, by which point several months of arrearage was owed to the Association. Debtor also vacated the condominium shortly before or after the petition date. However, Debtor has retained title to the property as of the date of this appeal. This is not by choice, apparently, but rather as a result of the upside down nature of his mortgages on the property. Creditor CitiMortgage holds a perfected first mortgage on the property at least equivalent to its market value at the time of bankruptcy. In addition thereto, the Association held a lien for assessments, and Creditor Guarantee Bank held a second mortgage on the property. On February 2, 2010, the bankruptcy court lifted the automatic stay with respect to CitiMortgage to permit it to pursue its remedies under state law through foreclosure or otherwise. Upon confirmation of Debtor's Chapter 13 plan, on April 24, 2010, the bankruptcy court lifted the automatic stay to permit foreclosure of the other secured creditors' liens on the property. The property revested in Debtor. Although Debtor indicated he was surrendering the property in satisfaction of the secured debt, no secured creditor had moved to enforce its rights against Debtor as of the date of the appeal. The secured creditors may, therefore, foreclose upon the property, but none has done so. This, presumably, remains the state of affairs at this time.

Maple Forest filed several objections to Debtor's Chapter 13 plan, eventually withdrawing them. On February 5, 2010, the Association also filed a complaint in the instant adversary proceeding against Debtor, seeking a declaratory judgment that postpetition assessments are not discharged by the bankruptcy proceedings. Cross-motions for summary judgment were filed. On October 6, 2010, the bankruptcy court denied the Association's motion for summary judgment and granted in part and denied in part Debtor's motion for summary judgment. In re Spencer, 437 B.R. 563 (Bankr.E.D.Mich.2010). In relevant part, the order held that “Maple Forest's claim for condominium association dues is a pre-petition claim regardless of whether the condominium association dues were assessed prior to the Debtor's Chapter 13 petition, or became due and payable after the Debtor's Chapter 13 petition.” Id. at 578. On November 3, 2010, the Association appealed this ruling. Debtor responded on February 3, 2011. The standing Chapter 13 trustee also filed a response on February 11, 2011. The only issue before this court is whether assessments of condominium fees for periods following the bankruptcy petition are discharged by a Chapter 13 plan pursuant to 11 U.S.C. § 1328(a). The court does not consider the other issues decided by the bankruptcy court.

II. STANDARD OF REVIEW

In reviewing a bankruptcy appeal, a district court must accept as correct the bankruptcy court's findings of fact, unless they are clearly erroneous. Fed. R. Bankr.P. 8013; see also In re Wingerter, 594 F.3d 931, 935–36 (6th Cir.2010). Conclusions of law, however, are reviewed de novo. In re Wingerter, 594 F.3d at 935–36. Issues of statutory interpretation are conclusions of law reviewed de novo. United States v. Springer, 609 F.3d 885, 889 (6th Cir.2010); In re Westfall, 599 F.3d 498, 501 (6th Cir.2010).

III. DISCUSSION

The sole issue presented on this appeal is whether Debtor's personal liability for condominium fees assessed after the filing of a petition for relief may be discharged in a Chapter 13 bankruptcy proceeding, pursuant to 11 U.S.C. § 1328(a). With certain exceptions not relevant here, § 1328(a) discharges pre-petition debts upon confirmation and completion of a bankruptcy plan. Debts arising after the petition date, however, are not generally dischargeable in bankruptcy. 11 U.S.C. §§ 101(5), (12), & 1328(a); In re Hester, 63 B.R. 607, 609 (Bankr.E.D.Tenn.1986). Therefore, the appeal ultimately depends upon whether the post-petition assessments of condominium fees constitute dischargeable pre-petition debts or nondischargeable post-petition debts.

Under the Bankruptcy Code, “as soon as practicable after completion by the debtor of all payments under the [Chapter 13] plan ... the court shall grant the debtor a discharge of all debts provided for by the plan.” 11 U.S.C. § 1328(a). The plan provides for full or partial repayment of “debts”—a defined term under the Code. A “debt” means simply “liability on a claim.” 11 U.S.C. § 101(12). A “claim” is in turn defined 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.” 11 U.S.C. § 101(5). Although a “right to payment” is not defined, the language has been read to require “the broadest available definition of ‘claim.’ ” Johnson v. Home State Bank, 501 U.S. 78, 83, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991). It does not follow, however, that the definition of “claim” is unbounded. To the contrary, there is no claim without a “right to payment,” however uncertain. As a “ ‘right to payment’ [means] nothing more nor less than an enforceable obligation,” a claim must ultimately find some foundation in an obligation that a creditor—at some point in time and under some conditions—could enforce against the debtor. Johnson, 501 U.S. at 83, 111 S.Ct. 2150 ( quoting Pennsylvania Dept. of Public Welfare v. Davenport, 495 U.S. 552, 559, 110 S.Ct. 2126, 109 L.Ed.2d 588 (1990)) (alteration in original). Such right need not be immediately enforceable at the time of filing for the right to constitute a claim. 11 U.S.C. § 101(5); In re Parks, 281 B.R. 899, 902 (Bankr.E.D.Mich.2002). A claim may be contingent or unmatured yet remain a claim for purposes of bankruptcy law. At the time of the bankruptcy petition, however, it must be a right at least potentially enforceable by the creditor.

A. Approaches to Determining Timing of a Debt

Courts have taken three distinct approaches to determining whether a claim arises pre-petition or post-petition. As succinctly set forth in In re Dixon,

The first, which is the most restrictive, is referred to as the “right to payment” test, under which a claim does not arise for bankruptcy purposes until each element of the claim is established. This is the minority view and has been widely criticized as inconsistent with the broad definition of “claim” intended by Congress. Under the second approach, termed “the debtor's conduct” approach, a claim arises when the conduct by the debtor occurs, even if the actual injury is not suffered until much later. Finally, the third approach looks at whether there was a prepetition relationship between the debtor and the creditor such that a possible claim is within the fair contemplation of the creditor at the time the petition is filed. This has been alternately termed the “fair contemplation,” “foreseeability,” “pre-petition relationship,” or “narrow conduct” test.

295 B.R. 226, 230 (Bankr.E.D.Mich.2003) (citations and internal quotations omitted). Although the Court of Appeals for the Sixth Circuit has yet to address the various tests, the emerging consensus appears to adopt some version of the “fair contemplation” approach. In re Huffy Corp., 424 B.R. 295, 305 (Bankr.S.D.Ohio 2010).

In some situations, however, it is unnecessary to choose between the three foregoing tests. As applied to recurring condominium association fees, all three result in further obfuscation of the underlying issue without indicating different results. The Association's right to payment of post-petition assessments as a personal debt of Debtor depended upon Debtor's post-petition conduct in retaining ownership of the property, establishing a post-petition claim under the first two tests. Applying the third test and placing particular emphasis on the pre-petition relationship of the parties, the bankruptcy court determined that “a possible claim for the condominium association dues that become due and payable in the future, even post-petition, was unquestionably within the fair contemplation of Maple Forest when the Debtor filed his petition.” In re Spencer, 437 B.R. at 572. To the extent...