Tate v. Fairfax Vill. I Condo. (In re Tate)

In re DWAIN W. TATE, Debtor.

DWAIN W. TATE, Plaintiff, v. FAIRFAX VILLAGE I CONDOMINIUM, et. al., Defendant.

Case No. 19-00237

Adversary Proceeding No. 19-10009

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF COLUMBIA

February 10, 2020

(Chapter 13)

MEMORANDUM DECISION AND ORDER RE MOTIONS FOR SUMMARY JUDGMENT

The plaintiff in this adversary proceeding, Dwain W. Tate ("Tate"), the debtor in the main bankruptcy case, has filed a second amended complaint seeking (1) declaratory relief voiding a foreclosure sale of property located at 3939 Pennsylvania Ave., SE, Unit 201, Washington, DC 20020 (the "Property") ("Count I") and (2) damages pursuant to 11 U.S.C. § 362(k)(1) for the defendants' having willfully violated the automatic stay ("Count II"). The defendants have now filed a Motion for Summary Judgment (Dkt. No. 36), which Tate has opposed in an opposition (Dkt. No. 37) which includes a motion for summary judgment (which amounts to a motion for partial summary judgment) decreeing that the defendants willfully violated the automatic stay, with damages to be fixed later. I will grant the defendants' motion as to Count I, but will deny it as to Count II. As to Count II, I will grant Tate partial summary judgment decreeing that, within the meaning of 11 U.S.C. § 362(k)(1), the defendants "willfully" violated the automatic stay.

IFACTUAL BACKGROUND

Tate is the son of Annetta M. Tate ("Ms. Tate"), who owned the Property until her death. After his mother passed away intestate, Tate, the heir to the Property, continued to make the monthly payments on the mortgage and condominium fees, but Ms. Tate remained the "named owner" according to the deed on file with the Recorder of Deeds and the Office of Tax and Revenue tax records. Tate eventually fell delinquent on the payment of the condominium fees, and the condominium association, Fairfax Village Condominium I ("Fairfax Village"), a defendant herein, filed and served a Notice of Foreclosure regarding the Property. The foreclosure sale was set for April 11, 2019. After Tate filed his bankruptcy petition on April 10, 2019, his counsel informed Brian Fellner, who is counsel for Fairfax Village andindividually a defendant herein, of the filing of the bankruptcy and of Tate's interest in the Property as Ms. Tate's heir. Despite this notice, the foreclosure sale proceeded on April 11, 2019. On April 14, 2019, Tate commenced this adversary proceeding, and on April 19, 2019, Tate filed an amended complaint (Dkt. No. 7) seeking declaratory relief voiding the foreclosure sale and damages for violation of the automatic stay.

Upon consideration of the defendants' Motion to Dismiss (Dkt. No. 19) regarding Tate's amended complaint, the court issued its Memorandum Decision And Order Re Motion To Dismiss And Directing Plaintiff To Provide A More Definite Statement (Dkt. No. 28) ("Memorandum Decision And Order"). In that Memorandum Decision And Order, the court ruled that if Tate had a prepetition equitable interest in the Property arising from his status as Ms. Tate's heir, that such an interest would be a valid basis for the relief sought in the amended complaint, and directed Tate to provide a more definite statement of the basis for such an equitable interest. Thereafter, Tate filed a second amended complaint (Dkt. No. 32) complying with the court's Memorandum Decision And Order. In response, the defendants filed an answer (Dkt. No. 34) to the second amended complaint in which they conceded, based on the court's Memorandum Decision And Order, that the debtor had an equitable interest in the Property and agreed to unwind the foreclosure sale. Subsequently, onAugust 6, 2019, the defendants filed the present Motion for Summary Judgment, and on August 13, 2019, Tate filed his opposition which included a motion that summary judgment be entered in his favor as to the issue of whether there was a willful violation of the automatic stay.

IIOVERVIEW

Fed. R. Civ. P. 56(a), made applicable in this court under Fed. R. Bankr. P. 7056, provides that "[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." When evaluating a motion for summary judgment, "[t]he court need consider only the cited materials, but it may consider other materials in the record." Fed. R. Civ. P. 56(c)(3).

The defendants' Motion for Summary Judgment argues (1) that Tate's request for declaratory judgment is moot in light of the defendants' having unwound the foreclosure sale, and (2) Tate is not entitled to attorney's fees arising from the defendants' violation of the automatic stay, either because the violation of the automatic stay was not willful, or because Tate failed to mitigate his damages. As set forth below, because there is no genuine dispute as to any material fact regarding Count I, the defendants are entitled to summary judgement in their favor as amatter of law. As to the question of willfulness under Count II, the material facts are not in genuine dispute, and on those facts the law requires a finding that the defendants' conduct constituted, within the meaning of § 362(k)(1), a willful violation of the automatic stay, such that they are not entitled to summary judgment in that regard and that Tate is entitled to partial summary judgment in that regard. Finally, as to the question of mitigation of damages, there are material disputes of fact as to whether any conduct of Tate or his counsel was inconsistent with the duty to mitigate damages, and summary judgment based on this is therefore inappropriate as to Count II. I will now address each of these issues in detail.

II

TATE'S REQUEST FOR DECLARATORY RELIEF

The defendants request summary judgment in their favor as to Tate's request for a declaratory judgment because, in response to the court's Memorandum Decision and Order, "the foreclosure sale has already been canceled, the deposit refunded to the highest bidder, and a cancelation [sic] filed with the Recorder of Deeds," thus rendering such relief moot. Tate does not dispute that the defendants have rescinded the foreclosure sale, or present any argument as to why the defendants' undoing the foreclosure does not render Count I of the second amended complaint moot. There is no reason not to treat the reversal ofthe foreclosure as mooting the request for declaratory relief. See Galope v. Deutsche Bank Nat. Trust Co., 566 Fed. Appx. 552, 553 (9th Cir. 2014) ("rescission of the [foreclosure] sale ... mooted [debtor's] claims for injunctive and declaratory relief").¹ Accordingly, the defendants are entitled to summary judgment as to Count I.

IIITATE'S REQUEST FOR DAMAGES

The defendants seek summary judgment in their favor as to Tate's Count II requesting that the court find that the defendants willfully violated the automatic stay and that Tate is entitled to damages. The defendants contend that summary judgment is appropriate for two reasons. First, they argue that the applicable state law basis for Tate's interest in the Property was too ambiguous to render their violation of the automatic stay "willful." I conclude that the law was notambiguous and that Tate is entitled to partial summary judgment decreeing that there was a willful violation of the automatic stay. Second, the defendants argue that Tate is not entitled to attorney's fees because he failed to mitigate damages. For the reasons set forth below, I reject the defendants' arguments.

ADEFENDANTS' ARGUMENT THAT THE LAW WAS AMBIGUOUS

The defendants argue, relying on this court's rulings in In re Flowers, 94 B.R. 3 (Bankr. D.D.C. 1988), and In re Stancil, 487 B.R. 331 (Bankr. D.D.C. 2013), that there was no willful violation of the automatic stay because state law was uncertain or unsettled regarding the ownership rights of Tate in the Property.² In support of this argument, the defendants merely cite the court's statement in Flowers, 94 B.R. at 8, that"[a]lthough a debtor's property rights are generally controlled by state law, the fact that such differing results have been reached on the questions now before this Court, in jurisdictions having seemingly similar state laws, would dictate that no contempt be found here," without actually providing any examples of such disparate results.³ And in fact, the Bankruptcy Court for the District of Maryland has held under Maryland law, which influenced the District of Columbia's Probate Reform Act of 1980, D.C. Code §§ 20-101 et seq. (1981) (see Richardson v. Green, 528 A.2d 429, 436-37 (D.C. 1987)), that it was "clear" that the debtor, as heir and beneficiary of his mother's intestacy estate, held an equitable interest in his deceased mother's Property notwithstanding his failure, as the personal representative of her estate, to distribute the Property to himself in probate. See In re Bunch, 249 B.R. 667, 670 (Bankr. D.Md. 2000). More generally, courts applying state law have tended to conclude that when a debtor's interest in the decedent's estate vests prepetition, this interest becomes the property of the estate,even if probate has not yet occurred.⁴ See, e.g., Matter of Chenoweth, 3 F.3d 1111 (7th Cir. 1993) (involving will); In re Chappel, 189 B.R. 489 (9th Cir. BAP) (citing Chenoweth); Gan B, LLC v. Sims, 575 B.R. 375 (N.D. Ill. 2017) (applying Chenoweth to intestacy estates); In re Anderson, 128 B.R. 850, 851, 856-57 (D.R.I. 1991) (holding that debtor's argument that debtor's interest under will did not belong to the bankruptcy estate was so frivolous as to require the imposition of sanctions under Fed. R. Civ. P. 11 and 28 U.S.C. § 1927) ("Few cases exist where a lawyer has even argued that a prepetition testamentary entitlement should be excluded from the bankruptcy estate under [11 U.S.C. §] 541.").

Even without relying on analogous decisions construing other states' laws, I find no ambiguity as to legal basis for the existence of the automatic stay in this case. D.C. Code § 20-105...