Driftwood Manor Owners Ass'n v. Borgus (In re Borgus)

544 B.R. 315
CourtUnited States Bankruptcy Court, E.D. North Carolina
DecidedJanuary 21, 2016
DocketCASE NO. 12-02524-8-SWH; ADVERSARY PROCEEDING NO. 14-00201-8-SWH
StatusPublished
Cited by2 cases

This text of 544 B.R. 315 (Driftwood Manor Owners Ass'n v. Borgus (In re Borgus)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, E.D. North Carolina primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Driftwood Manor Owners Ass'n v. Borgus (In re Borgus), 544 B.R. 315 (N.C. 2016).

Opinion

ORDER REGARDING CROSS MOTIONS FOR SUMMARY JUDGMENT

Stephani W. Humrickhouse, United States Bankruptcy Judge

The matters before the court are cross motions for summary judgment in the adversary proceeding between Driftwood Manor Owners Association and the debtor, Dianna Lyn-Michele Borgus. A hearing was held in Raleigh, North Carolina, on September 22, 2015. At the conclusion of the hearing, the court took the matter under advisement, pending supplemental [317]*317briefing by the parties. The matter is now ripe for disposition.

BACKGROUND

Dianna Lyn-Michele Borgus (the “debt- or”) is the owner of a condominium unit located at 1008-E Sandlin Place, Raleigh, North Carolina, 27606 (the “Property”). The debtor acquired the Property by general warranty deed, and took subject to the recorded declaration by the Driftwood Manor Owners Association (the “plaintiff’) which required her to pay homeowners fees and assessments, late fees, interest, and other charges.

The debtor filed a voluntary chapter 13 petition on April 2, 2012. According to the plaintiffs proof of claim, filed on April 20, 2012, the debtor owed plaintiff the total sum of $5,108.00 on the petition date for pre-petition assessments. The plaintiff claims to be secured by the Property. Post-petition, the debtor has allegedly failed to pay assessments in the following amounts: (1) $182.94 per month from May 1, 2012 through December 31, 2012, amounting to $1,463.53; (2) $192.08 per month for the entirety of 2013, amounting to $2,304.96; and (3) $209.57 per month for January 1, 2014 through August 8, 2014, amounting to $1,676.56. On October 31, 2013, the plaintiff filed a claim of lien with respect to the debtor’s unpaid post-petition obligations, and filed and served a Notice of Foreclosure Hearing. On June 25, 2014, a Foreclosure Order was entered, and the Property was noticed for sale on July 30, 2014. The debtor converted this case to one under chapter 7 on August 8, 2014, the last day before the end of the upset bid period provided for under N.C. Gen.Stat. § 45-21.27. The Notice of Conversion contained a statement indicating the debtor’s intent to surrender the Property. On the conversion date, the debtor owed $12,630.61 in pre-and post-petition assessments, late fees, and foreclosure expenses. The post-petition, pre-conversion assessments, late fees and foreclosure expenses amount to $7,522.61.

On October 15, 2014, the plaintiff initiated the instant adversary proceeding, seeking the entry of a judgment holding that the post-petition, pre-conversion assessments are nondischargeable administrative expenses under 11 U.S.C. § 503.1 The plaintiff concedes that the pre-petition charges are subject to discharge. On December 17, 2014, the debtdr filed her First Defense and Motion to Dismiss, in which she denied that the assessments fit within the definition of an administrative expense under § 503. On April 29, 2015, the plaintiff filed a Second Amended Complaint, which requested a determination of nondischargeability regarding the post-petition, pre-conversion debts based upon both § 503 and § 523(a)(16).

On July 16, 2015, the plaintiff filed its First Motion for Summary Judgment with respect to its claim under § 523(a)(16). The plaintiff maintains that the phrase “after the order for relief’2 in § 523(a)(16) refers to the order for relief under the case as originally filed; that is, the petition date, rather than the conversion date. Accordingly, the plaintiff urges that post-petition, pre-conversion debts are rendered nondischargeable under § 523(a)(16). In support of its argument, the plaintiff cites Hijjawi v. Five North [318]*318Wabash Condominium Ass’n, 495 B.R. 839, 849 (N.D.Ill.2013), which held that the “order for relief’ in § 523(a)(16) refers to the date of the initial order for relief, or the original petition date. The plaintiff contends that this interpretation comports with congressional intent in enacting § 523(a)(16), which was to “avoid the unfair burden on the other members of the [condominium] association which results from discharging the debtor’s assessments.” 140 Cong. Rec. S14750-01 (Oct. 7, 1994) (statement of Sen. Heflin); see also Hijjawi, 495 B.R. at 848. Further, the plaintiff expresses concern that any other interpretation would enable debtors to manipulate the dischargeability of their debts by converting their cases to chapter 7 and conveniently relieving themselves of their obligations to owners associations. The plaintiffs motion for summary judgment also included a request for attorneys’ fees and costs incurred in connection with this action.

In response, on August 6, 2015, the debtor filed her own Motion for Summary Judgment, raising two arguments. First, the debtor claims that the phrase, “after the order for relief,” in § 523(a)(16), read in conjunction with § 348, refers to the conversion date rather than the petition date, and renders post-petition, pre-conversion debts dischargeable. This interpretation of the phrase “after the order for relief’ would thus remove post-petition, pre-conversion homeowners association debts from the § 523(a)(16) exception. The debtor bases this interpretation on the interplay of §§ 348, 523(a)(16) and 727, which she argues work together to provide that pre-conversion debt is eligible for discharge in a case converted from chapter 13 to chapter 7. The debtor urges that its reading comports with the policies underlying the Code by providing relief for honest debtors that make good faith attempts to manage their debts. See Rosenfeld v. River Place East Housing Corp. (In re Rosenfeld), 23 F.3d 833 (4th Cir.1994). The debtor maintains that she made an honest attempt to reorganize under chapter 13 before realizing that she was not financially able to complete her plan. Further, the debtor criticizes the Hijjawi case for allegedly ignoring the impact of § 348(b) on the remainder of the Code’s dischargeability provisions.

Second, the debtor contends that the plaintiffs claim is time-barred because the deadline to challenge the dischargeability of debts was November 17, 2014, and the Second Amended Complaint, which first raised the § 523(a)(16) argument, was not filed until April 29, 2015. The debtor argues that the plaintiffs Second Amended Complaint does not relate back to the original Complaint filed on October 15, 2014 because the issue of § 523(a)(16) dischargeability is not part of the same transaction or occurrence supporting the original Complaint. According to the debtor, the § 523(a)(16) issue implicates a new set of facts — the debtor’s retention of the Property from the petition date to the conversion date — and thus should not relate back to the date of the original Complaint, which only recited a claim under § 503.

The plaintiff replied to the debtor’s motion on August 26, 2015, accusing the debt- or of trying to manipulate the discharge-ability of the debt through a deceptively-timed, calculated conversion of her case to chapter 7 on the last day before the expiration of the upset bid period. The plaintiff argues that this maneuver gave the debtor more time to wrongfully keep her home while failing to fulfill her obligations to the plaintiff.

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Bluebook (online)
544 B.R. 315, Counsel Stack Legal Research, https://law.counselstack.com/opinion/driftwood-manor-owners-assn-v-borgus-in-re-borgus-nceb-2016.