LEIF M. CLARK

____________________

UNITED STATES BANKRUPTCY JUDGE

Chapter 13

MEMORANDUM OPINION ON DEBTORS' MOTION FOR CONTEMPT AND REQUEST

FOR SANCTIONS

The chapter 13 debtors in this case filed a motion for contempt and sanctions against Brycewood Homeowners Association ("the Association") for an alleged violation of the automatic stay under section 362(a) of the Bankruptcy Code. In this case, subsequent to the confirmation of the Chapter 13 plan, the Association filed a state court lawsuit against the Debtors to recover post-petition homeowner association's assessments, and the Debtors claim that this constituted a willful violation of the automatic stay because the Association knew of the Debtors' bankruptcy petition. In response, the Association asserts that the automatic stay does not apply to the Association's attempt to collect post-petition HOA assessments because assessments that accrue post-petition are post-petition debts and are thus not subject to the automatic stay.

This Court in Beeter held that post-petition actions taken by a homeowners association in pursuit of collection of post-petition assessments did not violate the automatic stay because those assessments that accrued post-petition were not pre-petition claims. See Beeter v. Tri-City Property Management Services, Inc., 173 B.R. 108 (Bankr. W.D. Tex. 1994). Significantly, however, Beeter did not decide—at least explicitly—whether the attorney's fees incurred to collect post-petition assessments are themselves post-petition debts that are not subject to the automatic stay. This issue is particularly important here because the case involves attorney's fees that far exceed the underlying post-petition assessments. Particularly, in this case, the Debtors allege that the Association acted in bad faith by incurring the attorney's fees and allowing them to be accrued to the point beyond the control of the Debtors, especially when the underlying post-petition assessments at stake were relatively small. The only issue before this Court is whether the post-petition attorney's fees incurred to collect post-petition assessments are also part of post-petition assessments that this Court in Beeter held were post-petition debts and not subject to the automatic stay.

ANALYSIS

I. Willful Violation of the Automatic Stay

"The imposition of sanctions or damages for a willful violation of the automatic stay requires a showing that (1) the conduct at issue constituted a violation of the automatic stay; (2) the violation was willful; and (3) the debtor was injured as a result of the violation." Hamrick v. United States (In re Hamrick), 175 B.R. 890, 893 (W.D.N.C. 1994); Foreston Coal Int'l, Inc. v. Red Ash Coal & Coke Corp. (In re Red Ash Coal & Coke Corp.), 83 B.R. 399, 403 (W.D. Va. 1988). Thus, to impose sanctions, there must first be an action that constitutes a violation of the automatic stay under Section 362(a).

II. Section 362(a) and Post-Petition Assessments

"For there to be a stay violation, there must be, for present purpose, an attempt to 'recover a claim against the debtor that arose before the commencement of the case'" Beeter, 173 B.R. at 123 (quoting 11 U.S.C. § 362(a)(1) & (a)(6)). The Bankruptcy Code does not prohibit the commencement of a lawsuit to collect a post-petition debt. See 11 U.S.C. §362(a). Homeowners association fees assessed after the filing of a voluntary petition in bankruptcy are post-petition debts, not pre-petition debts. River Place East Housing Corp. v. Rosenfeld (In re Rosenfeld), 23 F.3d 833, 837 (4th Cir. 1994), cert. denied, 513 U.S. 874, 115 S. Ct. 200, 139 L. Ed. 2d 131 (1994), reh'g. denied, 513 U.S. 1035, 115 S. Ct. 622, 130 L. Ed. 2d 530 (1994); Beeter, 173 B.R. at 122-23; In re Schechter, 2012 Bankr. LEXIS 3796 (Bankr. E.D. Va. Aug. 16, 2012). In Beeter, concluding that the covenant to pay assessments runs with the land, this Court said:

Each new month's ownership carries with it a new personal liability, arising out of the equitable servitude that burdens that ownership. As such, the liability does not arise 'as of' the day the debtor acquires the property, but 'as a result of' the fact that, on the first of any given month, the debtor is the current owner of the property. The assessments, then, are not 'rooted in the pre-bankruptcy past' but rather are rooted in the estate in property itself. Id. at 122.

Thus, the automatic stay under Section 362(a) does not apply to the Association's attempt to collect post-petition assessments because those post-petition assessments are post-petition debts. However, "the right to undertake collection activity, including filing a lawsuit, to collect a post-petition debt does not allow all collection activities." Montclair Prop. Owners Ass'n v. Reynard (In re Reynard), 250 B.R. 241, 245 (Bankr. E.D. Va. 2000). The automatic stay prevents "any act to create, perfect, or enforce any lien against property of the estate", and "any act to obtain possession of 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)(4) & (a)(5). "Consequently, a post-petition creditor who has the right to initiate a suit against a debtor and obtain a judgment for a post-petition debt without violating the automatic stay may not have recourse to execute on all assets that would have been, but for the filing of a chapter 13 petition, property of the debtor. Recourse is limited to property that is not property of the estate." Montclair, 250 B.R. at 245. Following these authorities, in this case, the Association does not need relief from the automatic stay to pursue a state lawsuit to collect post-petition assessments, prosecute that suit to judgment and to enforce that judgment against property that is not property of the estate (such as exempt property).

III. Post-Petition Attorney's Fees

The issue remains whether the post-petition attorney's fees are part of post-petition assessments. First, the term "assessments" are broadly defined in Texas Property Code. Section 82.113 of the Property Code, which applies to a condominium association, defines "assessments" as "regular and special assessments, dues, fees, charges, interest, late fees, fines, collection costs, attorney's fees, and any other amount due to the association..." Tex. Prop. Code Ann. § 82.113(a) (Vernon 2012) (emphasis added). Section 209.002, which generally applies to other homeowners associations in a residential subdivision, defines "assessments" as "a regular assessment, special assessment, or other amount a property owner is required to pay a property owners' association under the dedicatory instrument or by law." Tex Prop. Code Ann. § 209.002(1) (emphasis added). The definition of "assessments" in Texas Property Code is broad enough to encompass attorney's fees incurred to collect assessments.

Second, after Beeter, Congress in 1994 added Section 523(a)(16), which provides in pertinent part that "a discharge...does not discharge an individual debtor from any debt for a fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor's interest in a unit that had condominium ownership, in a share of a cooperative corporation, or a lot in a homeowners association." 11 U.S.C. § 523(a)(16) (emphasis added). "It appears that § 523(a)(16) was intended to preempt any argument that postpetition fees and assessments should be considered prepetition obligations because they relate to the prepetition past when the debtor acquired the condominium unit and accepted responsibility to pay assessments." In re Ames, 447 B.R. 680, 682 n.3 (Bankr. D. Mass. 2011). The bill's sponsors intended "that the debt be nondischargeable if the debtor enjoyed the benefits of post-petition ownership." Old Bridge Estates Cmty. Ass'n, Inc. v. Lozada (In re Lozada), 214 B.R. 558, 562 (Bankr. E.D. Va. 1997). "The legislative history indicates congressional concern that the burden from unpaid assessments by bankrupt debtors who continue to own, occupy, or benefit from their units post-petition not be effectively borne by the other unit holders and owners in the building." In re Barr, 457 B.R. 733, 736-738 (Bankr. N.D. Ill. 2011) (citing 140 Cong. Rec. S14750-01 (daily ed. Oct. 7, 1994) (statements of Sen. Heflin)).

Third, case law supports the Court's view that post-petition attorney's fees incurred to collect post-petition assessments are post-petition debts. In Moreno, a post-petition default judgment that the association obtained against the debtor in a state court included attorney's fees and interest that had accrued on account of both the post-petition and pre-petition assessments. See In re Moreno, 2012 Bankr. LEXIS 3798 (Bankr. E.D. Cal. Aug. 15, 2012). The court in Moreno held that, "with the discharge injunction in place, the association was prohibited from recovering any attorney's fees relating to the collection of pre-petition debt" because those attorney's fees constituted "a pre-petition debt." Id. The association was "still entitled to recover post-petition attorney's fees." Id. Likewise, Montclair said: "some of the time entries suggest that the full amount claimed should not be awarded. One series of time entries reflected a court appearance after the filing of the petition in this case for pre-petition association fees. To the extent that actions were taken in violation of the automatic stay, they cannot form the basis for compensation." Montclair, 250 B.R. at 250, n.10. By allowing associations to go forward with the collection of post-petition attorney's fees, but not pre-petition attorney's fees, the courts were impliedly saying that an association's attempt to collect post-petition attorney's fees incurred to collect only post-petition assessments violated neither the discharge injunction nor the automatic stay. IV. "Reasonable" Post-Petition Attorney's Fees

A court still reserves the right to determine the "reasonableness" of post-petition attorney's fees. The amount to be awarded as attorney's fees is "principally a matter of state law and should be left to the state court to determine in the first instance." Id. For example, the court in Montclair was concerned that: (1) "the attorney's fees sought are more than three times the amount in controversy"; (2) "the actions for which compensation is sought for attorney's fees should have been accomplished by non-attorneys at significantly reduced expense"; and (3) "reconciling a homeowner's account generally does not require the skills of an attorney." Id. However, the court concluded that "the resolution of these matters is best left to the state court which deals with them on a routine basis." Id.

"The decision whether to grant or deny attorney's fees is within the trial court's discretion." Commissioners Court v. Agan, 940 S.W.2d 77, 81 (Tex. 1997). "Although courts should consider several factors when awarding attorney's fees, a short hand version of those factors is whether the fees are reasonable and necessary for the prosecution of the suit." Stewart Title Guaranty Co. v. Sterling, 822 S.W.2d 1, 10 (Tex. 1991).

V. Conclusion

For the foregoing reasons, the Association's attempt to collect post-petition assessments, including reasonable attorney's fees, did not violate the automatic stay. Debtors' Motion for Contempt and Sanctions is hereby DENIED.