Whispering Woods Condo. Ass'n, Inc. v. Rones (In re Rones)

• Decision Date: 17 February 2016
• Docket Number: Civil Action No. 15-4271 FLW
• Citation: 551 B.R. 162
• Parties: In re Mark William Rones and Ronda Jacqueline Rones, Debtors, Whispering Woods Condominium Association, Inc., Appellant, v. Mark William Rones and Ronda Jacqueline Rones, Appellees.
• Court: U.S. District Court — District of New Jersey

551 B.R. 162

In re Mark William Rones and Ronda Jacqueline Rones, DebtorsWhispering Woods Condominium Association, Inc., Appellant

v.Mark William Rones and Ronda Jacqueline Rones, Appellees.

Civil Action No. 15-4271 FLW

United States District Court, D. New Jersey.

Signed February 17, 2016

Mitchell Evan Zipkin, Griffin Alexander PC, Randolph, NJ, for Appellant.

Bruce Hugh Levitt, Levitt & Slafkes, PC, South Orange, NJ, Albert Russo, Albert Russo, PC, Robbinsville, NJ, for Appellees.

Timothy P. Duggan, Stark & Stark, PC, Princeton, NJ, Amicus.

OPINION

WOLFSON

, United States District Judge

This matter comes before the Court on the appeal of Whispering Woods Condominium Association, Inc. (“Whispering Woods” or “Association”) from an Order of the United States Bankruptcy Court for the District of New Jersey, rejecting Whispering Woods' objection to the bankruptcy plan proposed by debtors Mark Rones and Ronda Rones (collectively “Rones” or “Debtors”).¹ This Court has jurisdiction to review the decision of the Bankruptcy Court pursuant to 28 U.S.C. § 158(a)(1)

and (c)(2).

For the reasons set forth below, the Order of the Bankruptcy Court is reversed in part and this matter is remanded for further proceedings consistent with this Opinion. Specifically, the Court holds that (1) New Jersey's Condominium Act, N.J.S.A. 46:8B–1

to-38 (“Condominium Act”), provides a limited priority for condominium association liens for unpaid assessments, which elevates a portion of such a lien above senior claims; and (2) since the lien at issue in this case has a limited priority over the mortgage on the property, and is therefore secured by a security interest in the Debtors' principal residence, it is partially secured and none of the lien can be stripped off under the anti-modification clause of the Bankruptcy Code, 11 U.S.C. § 1322(b)(2).

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

The background of this dispute has been set forth in detail before the Bankruptcy Court. Accordingly, the Court sets forth only those facts that are relevant to this appeal.²

The Rones own a condominium unit at 4191 Bayberry Court, Monmouth Junction, New Jersey (the “Property”), which was made part of Whispering Woods in a master deed recorded on January 20, 1984, with the Middlesex County Clerk (the “Master Deed”). The Bylaws of Whispering Woods, incorporated by reference within the Master Deed, required the Rones to pay certain fees and assessments.

On March 21, 2013, Whispering Woods filed a Notice of Lien on the Property for the Rones' unpaid fees and assessments, in the amount of $6,085.85 (“Lien”). On January 28, 2014, Whispering Woods filed an amended Lien to reflect an outstanding balance of $18,761.76. B.R. 27-28.

On December 30, 2014, the Rones filed for bankruptcy under Chapter 13 of the Bankruptcy Code. B.R. 1-5, 6-10. The Debtors valued the Property at $170,000 and represented that, as of the date of December 30, 2014, there was a mortgage on the Property, from Ocwen Loan Servicing, in the amount of $288,063.37 (“Mortgage”). B.R. 2, 4, 7, 9. With respect to the Association's Lien, the Debtors proposed to pay $1,494, which represented six months of the unpaid fees and assessments, and have the remainder of the Lien be treated as unsecured and stripped off. Id. On January 15, 2015, Whispering Woods objected to confirmation of the Plan, arguing that its claim was protected from modification under the anti-modification provision, 11 U.S.C. § 1322(b)(2)

. B.R. 14-16.

On March 4, 2015, the Bankruptcy Court heard oral argument on the Association's objection. B.R. 92-100. On June 11, 2015, the Bankruptcy Court issued an opinion in which that court concluded that the Lien was wholly unsecured, and that except for the payment of six months of fees and assessments entitled to a statutory priority under the Condominium Act, the rest of the Lien could be stripped off in the Plan. In re Rones , 531 B.R. 526 (Bankr.D.N.J.2015)

. The majority of the Bankruptcy Court's extensive analysis focused on the first inquiry under Section 1322 : whether the Association's Lien was a security interest. See

id. at 528–34. The Bankruptcy Court concluded that the Lien was a consensual lien and, therefore, a security interest—a conclusion which neither of the parties, nor Amicus, challenges. After making this determination, however, the Bankruptcy Court then went on to determine that the super-priority status provided by N.J.S.A. 46:8B–21(b)(1) does not elevate the Lien over any other senior claims, but only provides a statutory priority for payment of a portion, i.e. , six months, of those unpaid assessments. See

id. at 534–35. Based on its determination that the limited priority granted to the Lien by the Condominium Act only “addresse [d] payment, not security,” id. at 535, the Bankruptcy Court determined that the Lien was junior to the Mortgage on the Property, which exceeded the value of the Property. Therefore, the Bankruptcy Court held, somewhat confusingly, that the Association's Lien was both “wholly unsecured and may be stripped off in the Plan” and, at the same time, that the Debtors “may not strip off the portion of the Lien given statutory priority.” See

id. at 535–36.

On June 15, 2015, the Bankruptcy Court entered an Order consistent with its written opinion. B.R. 87-88. On June 23, 2015, the Association filed a notice of appeal to this Court. B.R. 89-90.

II. STANDARD OF REVIEW

The standard of review for Bankruptcy Court decisions is determined by the nature of the issues on appeal. Baron & Budd, P.C. v. Unsecured Asbestos Claimants Comm. , 321 B.R. 147, 157 (D.N.J.2005)

. Findings of fact are reviewed under a clearly erroneous standard, where a factual finding may be overturned only when “the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.” In re Cellnet Data Systems, Inc. , 327 F.3d 242, 244 (3d Cir.2003) (citing U.S. v. U.S. Gypsum Co. , 333 U.S. 364, 395, 68 S.Ct. 525, 92 L.Ed. 746 (1948) ). “The fact that a reviewing court could have decided the matter differently does not render a finding of fact clearly erroneous.” First Western SBLC, Inc. v. Mac

–

Tav. Inc. , 231 B.R. 878, 881 (D.N.J.1999) (citing Anderson v. Bessemer City , 470 U.S. 564, 573-74, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985) ), aff'd , 213 F.3d 628 (3d Cir.2000).

On the other hand, legal conclusions from the Bankruptcy Court are subject to de novo , or plenary, review by the district court. Donaldson v. Bernstein , 104 F.3d 547, 551 (3d Cir.1997)

. If the issues on appeal present both findings of fact and conclusions of law, the applicable standard, “clearly erroneous” or “de novo ,” must be appropriately applied to each component. Meridian Bank v. Alten , 958 F.2d 1226, 1229 (3d Cir.1992) (citing In re Sharon Steel Corp. , 871 F.2d 1217, 1222 (3d Cir.1989) and Universal Minerals, Inc. v. C.A. Hughes & Co. , 669 F.2d 98, 102–103 (3d Cir.1981) ).

Lastly, decisions on procedural bases are reviewed for abuse of discretion. In re United Healthcare Sys., Inc. , 396 F.3d 247, 249 (3d Cir.2005)

, cert. denied , 546 U.S. 814, 126 S.Ct. 62, 163 L.Ed.2d 50 (2005). Deference is the hallmark of abuse of discretion review. See

Gen. Elec. Co. v. Joiner , 522 U.S. 136, 143, 118 S.Ct. 512, 139 L.Ed.2d 508 (1997) ; Koon v. United States , 518 U.S. 81, 98–99, 116 S.Ct. 2035, 135 L.Ed.2d 392 (1996). Thus, an exercise of discretion is not disturbed unless the court committed a clear error of judgment in making its decision, meaning that it relied upon “a clearly erroneous finding of fact, an errant conclusion of law or an improper application of law to fact.” In re Nutraquest, Inc. , 434 F.3d 639, 645 (3d Cir.2006) ; see also

In re Orthopedic Bone Screw Prods. Liab. Litig. , 246 F.3d 315, 320 (3d Cir.2001) ; Int'l Union, UAW v. Mack Trucks, Inc. , 820 F.2d 91, 95 (3d Cir.1987) ; see generally

In re United Healthcare Sys., Inc. , 396 F.3d at 249 (a district court reviews “the bankruptcy court's legal determinations de novo, its factual findings for clear error and its exercise of discretion for abuse thereof”) (quoting In re Trans World Airlines, Inc. , 145 F.3d 124, 130–31 (3d Cir.1998) ).

III. DISCUSSION

The Association argues the Bankruptcy Court's Order confirming the Plan was erroneous because, by virtue of the priority granted by the Condominium Act, the Association's Lien was not “wholly unsecured” and, thus, could not be stripped off. Assoc. Br. at 5 Specifically, the Association argues that the Bankruptcy Court misinterpreted the Condominium Act by “ascribing a different meaning to the statute [other] than its plain meaning” to reach its conclusion that the Condominium Act's limited-priority for assessment liens only “addresses payment, not security.” Id. at 11–12. The Association also challenges the Bankruptcy Court's conclusion, interpreting the Condominium Act as an alternative source of collateral, which would provide an independent basis for finding the anti-modification clause inapplicable. Id. 15–19. Finally, the Association argues that the Bankruptcy Court's order violates public policy because it would result in creditors being treated better under Chapter 13 than under Chapter 7. Id. at 19–23.

The Debtors argue that the Bankruptcy Court's Order should be affirmed. Specifically, the Debtors argue that the Association cannot invoke the limited priority provided by the Condominium Act and, at the same time, claim its lien is consensual to invoke the protection of the Anti-Modification Clause, since statutory liens are not security interests subject to the anti-modification clause. Debtors' Br. at 3-4. The Debtors also argue that the Bankruptcy Court's decision results in the Association “receiving everything to which it is entitled [to] under New Jersey law,” that is, “six month[s] [of] priority payment, even though its lien is actually unsecured under the Bankruptcy Code.” Id. at 7.

Amicus argues that the Condominium Act provides a limited...