Mann v. Chase Manhattan Mortg. Corp., 02-1355.

• Decision Date: 17 January 2003
• Docket Number: No. 02-1355.,02-1355.
• Citation: 316 F.3d 1
• Parties: Billings MANN and Cheryl Mann, Plaintiffs, Appellants, v. CHASE MANHATTAN MORTGAGE CORP., Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

Page 1

316 F.3d 1

Billings MANN and Cheryl Mann, Plaintiffs, Appellants, v. CHASE MANHATTAN MORTGAGE CORP., Defendant, Appellee.

No. 02-1355.

United States Court of Appeals, First Circuit.

Heard October 9, 2002.

Decided January 17, 2003.

Christopher M. Lefebvre, with whom Law Offices of Claude Lefebvre & Sons,

Daniel A. Edelman, Tara L. Goodwin and Edelman, Combs & Latturner were on brief for appellants.

LeAnn Pedersen Pope, with whom Edward J. Lesniak, Burke, Warren, MacKay & Serritella, P.C., Melissa E. Darigan, and Partridge, Snow & Hahn, LLP were on brief for appellee.

Before BOUDIN, Chief Judge, TORRUELLA, Circuit Judge, and CYR, Senior Circuit Judge.

CYR, Senior Circuit Judge.

Plaintiff-appellants Billings and Cheryl Mann, husband and wife, appeal from a district court judgment which (i) dismissed their claim that Chase Manhattan Mortgage Company ("Chase") violated the automatic stay provisions of the Bankruptcy Code, then (ii) denied their motions to amend the complaint. We affirm the district court judgment.

I BACKGROUND

In 1993, the Manns and Chase entered into a $126,950 mortgage loan and related security agreement which conveyed a lien on the Manns' principal residence. The security agreement provided, inter alia: "[Chase] may do and pay for whatever is necessary to protect the value of the Property and [its] rights in the Property ... [including] paying reasonable attorneys' fees.... Any amounts disbursed by [Chase] under this paragraph ... shall become additional debt of the Borrower[s] secured by this Security Instrument."¹

After the Manns defaulted on their mortgage payments in 1988, Chase fixed a date for a foreclosure sale and advised the Manns that it planned to inspect the property.² On April 9, 1999, the Manns filed their joint chapter 13 petition.

The $7,342.08 proof of claim submitted by Chase in the ensuing chapter 13 proceedings included existing loan-payment arrearages ($5,698.55), as well as related prepetition attorney fees and inspection costs ($1,643.53). Moreover, unbeknownst to the Manns, Chase continued to accrue postpetition attorney fees against the Manns in its internal records, but neither submitted a proof of claim in the chapter 13 proceedings nor billed the Manns for the postpetition fees.

The bankruptcy court order confirming the chapter 13 plan (i) allowed the $7,342 proof of claim filed by Chase, representing the full mortgage arrearage and prepetition attorney fees, (ii) directed the Manns to make all future mortgage payments directly to Chase as and when due,³ and (iii) prescribed that unsecured creditors were to receive not less than 17% on their allowed claims.

Following the confirmation of their chapter 13 plan, the Manns objected to the proof of claim filed by Chase, specifically challenging its inclusion of $1,643.53 in prepetition attorney fees and inspection costs. Before the bankruptcy court ruled on their objection, however, the Manns withdrew it, opting instead to institute their putative class-action lawsuit in the United States District Court for the District of Rhode Island. The class-action complaint alleged, inter alia, that Chase willfully violated the automatic stay provision, see Bankruptcy Code § 362, 11 U.S.C § 362, in that, "subsequent to plaintiffs ... filing bankruptcy," Chase continued to "charge" — viz., record charges in its internal loan files — the Manns for attorney fees and inspection fees incurred postpetition.

Following discovery, Chase submitted its motion for summary judgment and the Manns submitted a motion to amend their complaint, claiming that Chase improperly included a $2.00 surcharge in each of its prepetition inspection charges. The motion to amend also sought to delete the Manns' earlier allegation that Chase improperly had charged postpetition inspection fees. Subsequently, the Manns submitted another motion to amend their complaint so as to include Raul and Jo-Ann Rodrigues as coplaintiffs. The second amended complaint asserted that Chase recently had billed the Rodrigueses for $2,756.55 in postpetition attorney fees, notwithstanding its stated policy (reiterated in the instant appeal) that it does not attempt to collect such postpetition attorney fees from its mortgagors, provided they complete their chapter 13 plan payments and occasion no further mortgage-payment defaults.

The district court, in an unpublished opinion, directed summary judgment against the Manns on their section 362 claim, then denied their motions to amend the complaint.

II DISCUSSION

A. The Automatic Stay

The Manns first contend that the mere recordation of postpetition, preconfirmation attorney fees incurred by Chase, on its internal books, violated the automatic stay, in that it constituted either (i) "an[] act to obtain possession of the property of the estate or of property from the estate or to exercise control over property of the estate," 11 U.S.C. § 362(a)(3), or (ii) "an[] act to create, perfect, or enforce any lien against property of the estate," id. § 362(a)(5). Of course, acts undertaken in violation of the automatic stay are not only void, see Soares v. Brockton Credit Union (In re Soares), 107 F.3d 969, 976 (1st Cir.1997), but may expose the violator to monetary sanctions as well, see 11 U.S.C. § 362(h).

Generally speaking, the automatic stay prescribed in Bankruptcy Code § 362(a) serves the salutary purpose of deterring creditors from jockeying for advantage by, for instance: (i) seeking to convert an unsecured prepetition claim into a secured claim; (ii) obtaining actual possession of property of the chapter 13 estate; or (iii) attempting to perfect a judicial, statutory or other lien in such property. See In re Soares, 107 F.3d at 975-76. Thus, the automatic stay provision is designed to forfend against the disorderly, piecemeal dismemberment of the debtor's estate outside the bankruptcy proceedings. See id.

Viewed in this light, these postpetition bookkeeping entries by Chase did not implicate Bankruptcy Code § 362(a)(3), since such unilateral accruals of amounts assertedly due, but in no manner communicated to the debtor, the debtor's other creditors, the bankruptcy court, nor any third party, plainly are not the sort of "act" Congress sought to proscribe. See, e.g., In re Sims, 278 B.R. 457, 471 (Bankr. E.D.Tenn.2002) (noting that "creditor could produce all kinds of paperwork which if communicated to a debtor or a third party would violate the stay, but absent that communication, some overt act, or resulting effect on the debtor, no [§ 362] violation has occurred") (collecting cases; emphasis added). Thus, the Manns' property, presently revested in them following the confirmation of their chapter 13 plan, remains unaffected by the internal bookkeeping entries initiated by Chase. As a consequence, absent any overt attempt by Chase to recover these fees from the chapter 13 estate in the future, as (i) by instituting collection proceedings which the Manns or the chapter 13 estate would be forced to defend against, or (ii) by transmitting "harassing" communications to the Manns, the Chase bookkeeping entries represent mere unilateral notations regarding attorney fees which it assertedly incurred, thereby according it no identifiable legal advantage over other creditors.

Nor did these mere bookkeeping entries, albeit effected postpetition and preconfirmation, violate Bankruptcy Code § 362(a)(5). The security agreement states that Chase may include certain attorney fees in the Manns' loan balance. Consequently, these postpetition entries do indeed pose the prospect that the amount due Chase, hence subject to its security interest, may increase. Nevertheless, a mere potentiality of future liability reasonably cannot be considered the "creation" of a new and enlarged lien. The Manns have made no evidentiary proffer that Chase has undertaken any action to modify its original record lien. Although a secured creditor may record a lien indicating an original amount certain (e.g., the original loan balance), the amount of a lien typically fluctuates during the term, as the debtor repays the mortgage debt or other senior indebtedness, or as additional charges accrue to their loan account. Thus, until such time as Chase initiates some external effort, either to fix or recover upon, the amount of its secured or in rem indebtedness, the lien subsists simply as a recorded prepetition lien of indeterminate value.⁴

The case authority cited by the Manns is plainly distinguishable. For instance, in In re Stark, 242 B.R. 866 (Bankr.W.D.N.C. 1999), the bankruptcy court imposed subsection 362(h) sanctions against a secured creditor on the grounds that (i) the loan documents accorded the secured creditor no express authority to assess postpetition inspection fees; and (ii) the creditor nonetheless "attempted to collect" the inspection fees by mailing the debtors monthly statements reflecting the postpetition inspection fees. Id. at 869, 872.⁵ Chase, on the other hand, never communicated the attorney-fee charges to anyone; indeed, the Manns would not have learned of these charges but for their subsequent discovery proceedings before the district court. Cf. In re Soares, 107 F.3d at 975 (noting that automatic stay is designed to afford debtors "breathing room" free from creditor "harassment").

B. Bankruptcy Code § 506(b)

Next, the Manns assert that Chase violated the automatic stay by failing to submit a preconfirmation request, pursuant to Bankruptcy Code § 506(b),⁶ that any postpetition attorney fees be included in its allowed secured claim. Chase contends, on the other hand, that the Manns waived any "claim" based on a § 506(b) violation, by failing to include it in their several complaints.

Although Chase correctly states that the Manns failed to assert a § 506(b) "claim" in their various complaints,⁷ their argument was squarely raised and adequately preserved — as a theoretical adjunct to their section 362 claim — in their...