United States District Court, D. Oregon, Portland Division
AMENDED OPINION AND ORDER
Aiken United States District Judge
Meritage Homeowners' Association ("Meritage")
filed this action against defendants Nicholas Lee Watt and
Patricia Moudy Watt ("the Watts"), asserting that
the Watts owe Meritage dues, assessments, interest, and
related to a vacation property on the Oregon coast. The Watts
now move for summary judgment. For the reasons set forth
below, the motion is granted in part and denied in part. This
opinion was initially filed August 13, 2017, but was amended
after the Watts filed a motion for reconsideration.
2006, the Watts took out a loan to purchase a second
residence in Newport, Oregon ("the property"). The
property, one of eighteen townhouse units within a planned
community known as Meritage at Little Creek, is subject to a
series of covenants and restrictions ("CCRs")
enforced by Meritage. Pursuant to the CCRs, unit owners are
responsible for maintenance and repair of windows. Compl.
and 2009, Meritage and other interested parties filed a
construction defect action in state court, alleging defective
installation of windows in all Meritage at Little Creek units
("the window litigation"). The defective windows
caused substantial water damage to individual units as well
as to common areas of Meritage at Little Creek. In 2011, the
Watts and ten other Meritage at Little Creek owners sued
Meritage in state court ("the HOA litigation"). The
plaintiffs in the HOA litigation then intervened in the
window litigation. Also in 2011, Meritage sued the Watts and
other unit owners in state court for failure to pay
assessments and charges and for violating the CCRs ("the
collection litigation"). Id. ¶ 20.
2012, the HOA litigation and the window litigation settled.
After the settlement in the HOA litigation, Meritage's
insurance company refused to pay a claim for a portion of
Meritage's attorney's fees. Meritage levied a special
assessment to recoup those unreimbursed fees ("first
special assessment"). In accordance with the terms of
the HOA litigation settlement agreement, Meritage levied the
first special assessment only against the plaintiffs in the
HOA litigation rather than against all unit
owners. Also in 2012, the Watts defaulted on their
loan payments. Lender Bank New York Mellon ("BNYM")
instituted foreclosure proceedings.
September 2013, Meritage approved a resolution imposing a
fine of $500 per day, up to $5, 000 per month, against any
unit owner that failed to repair the defective windows or
deposit the money necessary to begin the window replacement
process. Id. ¶ 19.
February 2014, Meritage obtained a stipulated judgment of
$175, 504 against the Watts in the collection litigation. One
month later, the Watts filed a petition for relief under
Chapter 13 of the Bankruptcy Code. In June 2014, the Watts
proposed a second amended Chapter 13 plan.The second amended
plan included the stipulated judgment from the collection
litigation in its list of debts. It also included a
nonstandard provision purporting to vest the property in BNYM
upon confirmation. BNYM objected to the second amended plan
because it did not want to take title to the property. BNYM
found taking title objectionable, in part, because it would
make BNYM responsible for ongoing obligations associated with
the property-including dues and assessments. Those
obligations were substantial. Dues for the property exceed
$15, 000 per year and, as noted, assessments for failure to
replace the windows ran as high as $5, 000 per month.
September 2014, the Lincoln County Circuit Court ruled in a
companion action to the collection litigation that the first
special assessment violated Oregon law because it had been
assessed against only a subset of unit owners without a
determination that those unit owners were at fault. In
response to that decision, Meritage rescinded the first
special assessment. Meritage applied a credit in the amount
of the first special assessment to the Watts' $175, 504
stipulated-judgment debt, which was by then a part of the
Watts' bankruptcy proceeding.
the fourth quarter of 2014, Meritage found that the Watts
(and others) were at fault with respect to the unreimbursed
attorney's fees in the HOA litigation. It then levied a
new special assessment ("second special
assessment") against the Watts in the amount of $26,
October 15, 2014, the bankruptcy court confirmed the plan
over BNYM's objection, and the property was transferred
to BNYM. BNYM appealed. On April 22, 2015, this Court vacated
and remanded, holding that the bankruptcy court lacked
statutory authority to force an objecting creditor to assume
a debtor's interest in and ongoing liabilities associated
with a piece of property. Bankof N.Y. Mellon v.
Watt, 2015 WL 1879680, *7 (D. Or. Apr. 22,
August 27, 2015, the property was reconveyed to BNYM through
a sale under 11 U.S.C. § 363. The practical effect of
this complex procedural history is that, after they filed for
bankruptcy, the Watts were the owners of the property for
roughly eleven months.
ceased attempts to collect the stipulated judgment from the
Watts after they filed for bankruptcy. However, throughout
the bankruptcy process, Meritage has continued to engage in
collection activities against the Watts. Through those
efforts, including in this action, Meritage seeks to collect
three debts it asserts are post-petition obligations incurred
during the eleven months the Watts owned the property after
filing for bankruptcy: unpaid post-petition homeowners'
association dues ("HOA dues"), unpaid post-petition
assessments for failure to replace the windows ("window
fines"), and the second special assessment, Meritage
sent the Watts collection statements regarding those debts in
August 2014,  November 2014, January 2016, and May 2016.
Nicholas Watt Decl, ¶ 12.
2016, Meritage initiated this action as an adversary
proceeding in bankruptcy court. Meritage seeks a declaratory
judgment endorsing its collection efforts as "legitimate
efforts to enforce the Watts' obligations under the
CCRs" and "an appropriate exercise of
Meritage's fiduciary obligation to assure unit owners
comply with the CCRs." Compl. ¶ 45. Meritage also
seeks money damages, including attorney's fees, which it
calculated to total $124, 969.03 as of the date the complaint
was filed. Id. ¶¶ 49-50.
to 28 U.S.C. § 157(d) and Local Rule 2100-4, Judge Dunn
sua sponte issued a report and recommendation asking
this Court to withdraw the reference with respect to the
adversary proceeding. Judge Dunn's recommendation rested
on his determination that state law issues predominate over
bankruptcy issues in this case and on the relationship
between Meritage's claims in this action and its claims
against BNYM in another case already pending in this Court.
Judge Dunn also questioned whether the bankruptcy court had
authority to adjudicate Meritage's claims under recent
Supreme Court precedent. The case was assigned to Judge
Hernandez, who adopted Judge Dunn's report and
recommendation and withdrew the reference. The case was then
reassigned to me based on its close factual connection to
Meritage Homeowners' Association v. The Bank of New
York Mellon, Case No. 6:16-cv-00300.
had filed a motion for partial summary judgment in bankruptcy
court. That motion, which was fully briefed when Judge
Hernandez withdrew the reference, sought summary judgment
with respect to the Watts' obligation to pay the second
special assessment and unpaid dues. Meritage did not seek
summary judgment with respect to the window assessments or
April 11, 2017, I denied Meritage's motion. I concluded
that Meritage was not entitled to summary judgment with
respect to the second special assessment because that
is simply the first special assessment in a new form. Because
the Watts' obligation to pay both the first and second
special assessments arose from the same pre-petition conduct,
and because the Watts played no affirmative role in the
post-petition events that required the first special
assessment to be rescinded, the second special assessment is
part of a debt "provided for by the plan" and
subject to discharge under [11 U.S.C.] § 1328(a).
Meritage Homeowners' Ass'n, 2017 WL 1364209
at *5. I also concluded that the Watts were liable for $7,
422.96 in unpaid dues and associated interest. Id.
at *6. However, I could not grant summary judgment with
respect to the unpaid dues because the Watts had made a
partial settlement payment of $ 14, 969.79. Id.
Watts now move for summary judgment on all Meritage's
claims. They also seek summary judgment on their first and
third counterclaims, which allege violation of the Bankruptcy
Code's automatic stay and breach of the settlement
agreements in the HOA litigation and window litigation.
judgment is appropriate if "there is no genuine dispute
as to any material fact and the movant is entitled to
judgment as a matter of law." Fed.R.Civ.P. 56(a). The
moving party has the burden of establishing the absence of a
genuine issue of material fact. Id.; Cehtex Corp. v.
Catrelt, 477 U.S. 317, 323 (1986). If the moving party
shows the absence of a genuine issue of material fact, the
nonmoving party must go beyond the pleadings and identify
facts which show a genuine issue for trial. Id. at
324. "Summary judgment is inappropriate if reasonable
jurors, drawing all inferences in favor of the nonmoving
party, could return a verdict in the nonmoving party's
favor." Diaz v. Eagle Produce Ltd. Partnership,
521 F.3d 1201, 1207 (9th Cir. 2008).
Meritage 's Claims
Watts first seek summary judgment with respect to
Meritage's claims. In essence, they contend that their
maximum liability in this case could not possibly exceed the
$14, 969.79 payment they already made. To evaluate that
argument, I must carefully examine Meritage's ...