561 B.R. 767
9th Cir. BAP2016Background
- Debtors (Onenoa and Soi Faitalia) own a home in Village Park planned community; they fell years behind on association assessments and the Association recorded a lien and sued to foreclose.
- Debtors filed Chapter 13; their plan proposed stripping the Association’s lien as wholly unsecured after first mortgage exceeded property value; the bankruptcy court accepted an appraisal and granted lien-stripping under § 506(a).
- After prevailing on the valuation/lien-stripping motion and confirmation, Debtors moved for attorney’s fees under Hawaii’s reciprocal association-fee statute, citing HRS § 514B-157 (condominiums); the bankruptcy court instead applied the planned-community statute HRS § 421J-10(a).
- The bankruptcy court awarded Debtors ~$27,400 in fees, reasoning that the Association’s proof of claim constituted an effort to collect/foreclose and that Debtors were the prevailing parties.
- The Association appealed the fee award. The BAP reviewed whether HRS § 421J-10(a) authorized fees for the circumstances presented.
Issues
| Issue | Debtors' Argument | Association's Argument | Held |
|---|---|---|---|
| Whether HRS § 421J-10(a) authorizes attorney’s fees where debtor strips an association lien in Chapter 13 | Statute’s reciprocity allows fees when an association’s asserted lien/claim is not substantiated; filing a proof of claim was effectively collection/foreclosure | Statute does not apply to this bankruptcy valuation; filing a proof of claim is not affirmative collection/foreclosure/enforcement against person or property | Reversed: § 421J-10(a) did not authorize fees here; mere proof of claim is not "collecting/foreclosing/enforcing" under the statute and Debtors were not prevailing parties under that statute |
| Whether filing a proof of claim constitutes an act of "collecting, foreclosing, or enforcing" under HRS § 421J-10(a) | Proof of claim is an attempt to collect/discern lien rights and thus triggers reciprocity | Proof of claim seeks distribution from the estate and is not an affirmative act against Debtors or their property | Held that filing a proof of claim does not amount to the affirmative acts the statute contemplates |
| Whether Debtors were the "prevailing party" under the statute by succeeding on a § 506(a) valuation/lien-stripping motion | Prevailing on valuation equates to showing Association’s asserted secured claim was unsubstantial, triggering reciprocity | The valuation issue is federal bankruptcy law and not a statutory enforcement action under HRS; lien remains under state law if plan fails | Held that the disputed main issue (valuation for lien-stripping) is unique to bankruptcy law and not covered by § 421J-10(a); Debtors were not prevailing parties for purposes of the statute |
| Whether awarding fees chills creditors from filing proofs of claim in bankruptcy | Debtors did not address chilling argument | Association argued fee exposure would penalize creditors for filing required proofs of claim and defending statutory rights under the Code | Court agreed awarding fees here would improperly penalize creditors and contravene policy behind the American Rule |
Key Cases Cited
- Travelers Cas. & Sur. Co. v. Pac. Gas & Elec. Co., 549 U.S. 443 (2007) (statutory authorization governs fee-shifting in federal proceedings)
- Alyeska Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240 (1975) (American Rule default against fee-shifting)
- Lamie v. U.S. Trustee, 540 U.S. 526 (2004) (statutory interpretation governs bankruptcy practice)
- United States v. Ron Pair Enters., Inc., 489 U.S. 235 (1989) (plain statutory language controls interpretation)
- Americredit Fin. Servs., Inc. v. Penrod (In re Penrod), 611 F.3d 1158 (9th Cir. 2010) (state law controls award of fees in bankruptcy when statute invoked)
- Schmidt v. Bd. of Dirs., 836 P.2d 479 (Haw. 1992) (interpreting predecessor statute’s limited scope for "enforce")
- Hoopai v. Countrywide Home Loans, Inc., 581 F.3d 1090 (9th Cir. 2009) (analysis of prevailing-party concept in related contexts)