Wells Fargo Bank, N.A. v. 1401 Condominium Association

IN THE COURT OF COMMON PLEAS FOR THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
WELLS FARGO BANK, N.A.,
Defendant—Below/Appellant,
v. CA. No. CPU4—13u002536
1401 CONDOMINIUM ASSOCIATION,
PlaintiffiBelow/Appellee.
Submitted: February 5, 2015
Decided: March 24, 2015
Kristi Doughty, Esquire Michael P. Morton, Esquire
Robert T. Aulgur, .112, Esquire Michael P. Morton, PA.
651 N. Broad Street, Suite 206 1203 North Orange Street
PO. Box 1040 Wilmington, DE 19801
Middletown, DE 197094040 Attorney far A ppellee
Al'romeyfbr Appellant
DECISION AFTER TRIAL
This matter involves a dispute between a condominium association and a lien holder.
Defendant—Below/Appellant Wells Fargo Bank, NA. (“Wells Fargo”) filed this appeal de novo
from a final order of the Justice of the Peace Court. PlaintiffiBelow/Appellee 1401
Condominium Association (the “Association”) originally brought this suit against Wells Fargo to
recover for condominium assessments and maintenance fees for a condominium unit located at
1401 Delaware Avenue.
Trial was held on July 16, 2014. At the close of the Association’s case—in-chief, Wells
Fargo moved for judgment as a matter of law pursuant to Court of Common Pleas Civil Rule
50(a). The Court reserved decision, and the parties continued with their closing arguments. This
is the Court’s final decision after trial.
FACTS AND PROCEDURAL HISTORY
On May 21, 2008, Jon Ingman (“ML lngman”) obtained a mortgage from Wachovia
Bank, NA. (“Wachovia”) in the amount of $78,750.00 in order to purchase Condo Unit #1114
(the “Unit”) from the Association. Wells Fargo is the successor by merger to Wachovia. On
August 1, 2009, Mr. Ingman defaulted on the mortgage.
On September 15, 2010, Wells Fargo brought suit against Mr. Ingman in Superior Court
to recover the amount of the note securing the mortgage, and on December 10, 2010, the Court
entered default judgment against Mr. Ingman.
On September 13, 201 1, before a sheriff’ s sale could be held, Mr. Ingman filed a Chapter
7 bankruptcy petition. On October 12, 2011, while the bankruptcy proceedings were pending,
the trustee of the bankruptcy estate abandoned the bankruptcy estate’s interest in the Unit. On
December 6, 2011, the Bankruptcy Court entered an Order granting Wells Fargo relief from the
automatic stay that arose from Mr. lngman’s filing for bankruptcy. Wells Fargo, however, has
not foreclosed on the Unit.
On January 12, 2012, Mr. Ingman received a discharge of his personal liability for pre»
petitioned debts.
On November 20, 2012, the Association sent Wells Fargo a letter demanding payment for
condominium assessments and maintenance fees arising from November 2011 to November
2012, in the amount of $5,?) 52.27. The Association claimed that Wells Fargo was responsible for
the assessments and fees due to the bankruptcy trustee’s abandonment of the Unit. Wells Fargo
did not respond to this demand letter.
On January 9, 2013, the Association initiated a debt action against Wells Fargo in the
Justice of the Peace Court, seeking to recover $6,334.27 for the condominium assessments and
maintenance fees, plus interest, costs, and attorney’s fees. The Court held trial on April 10,
2013, and on June 26, 2013, the Court entered judgment in favor of the Association in the
amount of $6,334.27 pius court costs, interest, and attorney’s fees.
On July 31, 2013, Wells Fargo appealed the Justice of the Peace Court’s decision, and
this Court held a trial ole new on July 16, 2014. At the close of the Association’s casein-chief,
Wells Fargo moved for judgment as a matter of law pursuant to Court ofCommon Pleas Civil
Rule 50(a). The Court reserved decision, and the parties continued with their closing arguments.
After hearing the parties” closing arguments, it is clear that the aforementioned facts are not in
dispute; however the parties disagree on the effect of the bankruptcy proceedings in terms of the
Unit’s ownership, and Wells Fargo’s liability. Therefore, the Court ordered postutrial briefing on
the following issues: (1) the effect of the bankruptcy proceedings; (2) Wells Fargo’s liability
under theories of unjust enrichment or quantum memit, and; (3) the correct measure of damages
if Wells Fargo is liable to the Association.
Both parties submitted thorough post-trial briefs.1 The Association alleges that as a result
of the aforementioned bankruptcy proceedings, Wells Fargo acquired ownership of the Unit, and
is therefore liable for condominium assessments and maintenance fees at issue under theories of
unjust enrichment and quantum merult. Wells Fargo denies that it is the owner of the property in
' Wells Fargo submitted its Opening Brief on August 15, 2014. The Association submitted its Reply
Brief on September 15, 2014. Wells Fargo submitted its Reply-Brief on September 30, 2014. Although
not provided for in the briefing schedule set by the Court, the Association filed a SuruReply Brief on
October 15, 2014, and requested oral argument. in reSponse, Wells Fargo filed a letter with the Court on
October 20, 2014. Oral argument was originally set for December 12, 2014, however the Association
requested a continuance, which Wells Fargo did not oppose. The Court attempted to reschedule oral
argument in February 2015, but after multiple attempts, was unable to accommodate the parties’
schedules. The Court is therefore deciding this matter on the merits of the trial and submitted briefs.
question, and claims that ownership and possession of the Unit, as well as liability for the
assessments and fees, remain with Mr. Ingman.
DISCUSSION
A. The Effect of the Bankruptcy Abandonment
Pursuant to 11 U.S.C. § 541(a), a debtor’s filing of bankruptcy creates a bankruptcy
estate (the “estate”) that encompasses “every conceivable interest of the debtor.”2 Thereafter, the
United States trustee appoints a disinterested person that is a member of the panel of private
trustees to serve as a trustee by overseeing and administering the assets of the estate.3 If the
trustee determines that an asset within the estate is either burdensome to the estate, or has
inconsequential value or benefit to the estate, then the trustee may abandon the asset.4 The
property is deemed abandoned once a trustee notifies interested parties of his intention to
abandon, unless an interested party objects to the abandonment within 15 days.5 Abandonment,
therefore, is not considered to be a “transfer of property from the estate to the debtor, but rather a
reversion.”6
By operation of law, abandoned property is no longer property of the
estate. The debtor's interest in the property is restored mmc pro tame as of
the petition date. Abandoned property is removed from the bankruptcy
estate, divesting the trustee of control over that property and divesting the
[bankruptcy court] of jurisdiction over matters concerning the abandoned
property. The debtor holds abandoned property as if no bankruptcy had
been tiled.7
2 In re Dowuey Fin. Corp, 499 BR. 439, 453 (Bankr. D. Del. 20l3) aff'd, 593 F. App'x 123 (3d Cir.
2015) (quoting Matter of Yonikus, 996 F.2d 866, 869 (7th Cir.l993) (citations omitted)).
31] U.S.C. §§ 701, 704.
4 I! U.S.C. § 554(a).
S In re Bryson, 53 BR. 3, 4 (Bankr. MD. Tenn. 1985).
6 in re Vassau, 499 B.R. 864, 870 (Bankr. SD, Cat. 2013).
7 In re Lyn, 483 BR. 440, 451 (Bankr. D. Del. 2012) (citations omitted).
4
In this case, the trustee abandoned the Unit on October 12, 2011, and the Unit reverted back to
Mr. Ingman. Under 11 U.S.C. § 554(a), Mr. Ingman owns title to the Unit mmc pro tune as of
September 13, 2011, the petition date.
B. The Effect of the Bankruptcy Discharge
When a debtor discharges his debt under 11 US. C. § 727, he is “dischargeljdl . . . from
all debts that arose before the date of the order for relief,”8 which is the date in which the debtor
flied his petitioan However, 1 l U.S.C. § 523(a)(16) provides the following exception:
A discharge under section 727 . . . of this title 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 has condominium
ownership . . . for as long as the debtor . . . has a legal, equitable, or
possessory ownership interest in such unit . . .
Therefore, § 523(a)(16) “clearly excepts post-petition condominium fees from discharge so long
as the debtor maintains an ‘ownership interest’ in the property.”‘0 Moreover, “[a] plain reading
of the sub—section, specificaliy the phrase ‘after the order for relief,’ as that term is defined by §
301(1)), makes it clear that § 523(a)( 16) makes all post-petition condominium fees payable and
non~dischargeable as soon as a debtor files a voluntary petition?”
In this case, on January 12, 2012, Mr. Ingman received a discharge from all incurred debt
arising before the petition date, in accordance with 11 U.S.C. § 727(b). Under § 523(a)(16), this
discharge however, did not include any debt arising from unpaid condominium assessments or
8 11 us. C, § 7270:).
9 11 use. § 301(a)—(b).
m In re Brown, 2011 WL 1322311 at *2 (Bankr. DNJ. Apr. 6, 2011).
“ In re Liversidge, 2010 WL 4941654, at *2 (Bankr. DNJ. Dec. 3, 2010).
maintenance fees that Mr. lngman incurred after the petition date. At the time of the discharge,
the Unit had already been abandoned by the bankruptcy estate, and consequently, the Unit
reverted back to Mr. Ingman. Therefore, under § 523(a)(16), Mr. Ingman remains liable for any
unpaid post~pelifi0n condominium assessments or maintenance fees that be incurred since he has
legal and possessory owuership interest in the Unit.
C. The Association’s Claims for Unjust Enrichment and Quantum Mei-nit
In the absence of an express agreement, a plaintiff may recover under theories of unjust
enrichment]2 or quantum meruit.l3 These two theories, while related, are separate and distinct
causes of action: the theory of unjust enrichment allows a plaintiff to recover by “focusiing] on
the retention of a benefit or money,” whereas the theory of quantum meruit allows a plaintiff to
recover by focusing on the “reasonable value of the services rendered, not the value of a benefit
received.”l4 For reasons discussed infiu, the Association may not recover for the assessments or
fees at issue under either claim.
Under the Delaware Code, “after default, a secured party may take possession of the
collateral”15 and “may sell, lease, license, or otherwise dispose of any or all of the collateral?”
Pursuant to 6 Del. C. § 9-402, “[t]he existence of a security interest . . . without more, does not
subject a secured party to liability in contract, tort or otherwise for the debtor’s acts or
'2 Deere :52 Co. v. Exelon Generation Acquisitions, LLC, 2014 WL 6674471, at *3 (Del. Super. Nov. 10,
2014).
H C & C Drywall Contractor, Inc. v. Mitford Lodging LLC, 2010 WL 1178233, at *3 (Del.Super. 2010).
'4 Hercules, Inc. v. Tomaszei-vski, 2011 WL 6951839, at *5 (Del. Com. Pi. Dec. 29, 2021) (quoting
Hynamky v. 1492 Hospitality 613)., Inc, 2007 WL 2319191, at *1 (Del. Super. Aug. 15, 2007)).
'5 6 Del. C. § 9-609 (emphasis added).
‘6 6 Del. C. § 9-610 (emphasis added).
omissions.” Moreover, the Delaware Code “rejects theories on which a secured party might be
held liable on a debtor's contracts 01' in tort merely because a security interest exists or because
the debtor is entitled to diSpose of or use collateral.”l7 Therefore, Wells Fargo, as a lien holder,
merely has the right to take possession of the Unit after Mr. lngman’s default, and cannot be held
liable merely because it may carry on foreclosure proceedings on the Unit.
Recently, in Dover E. Estates v. Greenh‘ee Servicing, LLC, the Court found that a lien
holder was not liable for certain fees associated with a manufactured home when the lien holder
had not taken possession of the home.18 The Court found that there were no specific actions
demonstrating that the lien holder took possession of the home, and noted that “the existence of a
security interest alone is not enough to subject a lien holder to liability on its collateral”!9 To
illustrate, the Court distinguished the case from Greemree Fin. Sew, LLC 12. Glasgow Court
Eman, LLC.20 In Glasgow, “the Court found that a lien holder was liable to the landlord of a
mobile home park for storage and late fees associated with two mobile homes because the lien
holder repossessed the mobile homes pursuant to its security interest?” The Glasgow lien
holder possessed the keys to the homes (after the original owner abandoned the homes),
acknowledged its possession. and liability for the debts incurred, and marketed and sold the
homes.22 These specific actions demonstrating the Glasgow lien holder’s possessions were not
present in the Dover E. Estates case.23
” 6 Del. C. § 9-402 cmt. 2.
'3 Dover E. Estates v. Green/wee Servicing, LLC, 2014 WL 4050591, at *3 (Del. Com. "Pl. July 29, 2014).
19
Id.
2“ CA. No. cream—00625 (Del.Com.Pl. Sept. 13, 2012).
2' DoverE. Estates, 2014 WL 4050591, at *3 (citing Glasgow, CA. No. CPU4—10w00625 at 6, 23).
22 1d.
In this case, Wells F argo’s status as a lien holder is similar to that of the Dover E. Estates
lien holder because neither lien holder actually took possession of its secured collateral. As
discussed supra, Mr. Ingman owns title to the Unit nunc pro tune as of September 13, 2011, and
has maintained possession of the Unit at all times relevant to this action.
Additionally, this case can be distinguished from Glasgow. In Glasgow, the original
home owner abandoned the mobile homes, and the lien holder repossessed the homes, promising
the landlord that it would pay for storage fees. In this case, the original home owuer, Mr.
Ingman, still resides in the Unit, and Wells Fargo has neither foreclosed on the Unit, nor has it
promised the Association that it would pay for the condominium assessments or maintenance
fees. Absent any specific actions showing possession, Wells Fargo cannot be held liable for the
assessments and fees that the Association seeks to recover.
CONCLUSION
For the foregoing reasons, judgment is entered in favor of Defendant-Below/Appellant
Wells Fargo and against P1aintiff—Below/Appellee 1401 Condominium Association.
IT IS SO ORDERED.
cc: Pat Thomas, J udicial Case Manager
%
23 Id. at *3, *4.