ROBERT G. MAYER, Bankruptcy Judge.
This case is before the court on Gordon Properties, LLC's Motion for a Preliminary Injunction to Enforce Automatic Stay and First Owners' Association of Forty Six Hundred Condominium, Inc.'s opposition. The debtor asserts that the unit owners
Forty Six Hundred Condominium consists of a main high-rise apartment building with both residential and commercial units and two commercial units adjacent to the high-rise building. One of the adjacent commercial units, a restaurant, is owned by the debtor. A dispute arose some years ago about the proper amount of condominium assessments that the restaurant unit should pay. The Board of Directors levied a significant condominium assessment against the restaurant unit which resulted in a number of law suits in state court. A judgment in favor of the unit owners association is presently on appeal to the Supreme Court of Virginia. The debtor owned a total of forty condominium units at the time of the 2009 annual meeting which constituted 19.7179% of the votes in the unit owners association.
The debtor was denied its right to vote as to all its condominium units at the 2007 and 2008 annual meetings and a special meeting held in June 2009, because it was delinquent in the payment of its condominium fees on the restaurant unit. By-Laws Article IV, Section 7.
The annual meeting was called to order a few hours after the court hearing on October 7, 2009. A quorum was ostensibly not present.
The Chairman of the Elections Committee reported to the Chair of the annual meeting that there was no quorum. The Chair then announced that there was no quorum, asked for a motion to adjourn, recognized the Chair of the Elections Committee who moved to adjourn, heard a second, took a voice vote, announced that the motion passed and, without recognizing anyone else or providing sufficient time for anyone else to speak or seek recognition, adjourned the meeting.
In fact, the motion was defeated by an overwhelming majority. The debtor and the two individuals holding proxies all voted against the motion.
The vote was significant. The vote to adjourn sine die, that is, adjourn without setting a date to reconvene, meant that there would be no annual meeting and no election of members of the Board of Directors until the next annual meeting a year away. The incumbent directors remained in office because no successors were elected. (Their terms expired in
The debtor asserts that the unit owners association denied it its vote in violation of the automatic stay. The unit owners association asserts that enforcement of Article IV, Section 7 of the By-Laws does not violate the automatic stay and that it did not, in fact, deny the debtor its right to vote.
The automatic stay prohibits all acts to collect a pre-petition debt.
The unit owners association argues that this case is different. It argues that the unit owners association is not denying the debtor its right to vote. Under Article IV, Section 7, it argues, a unit owner's right to vote exists only if the unit owner is not more than thirty days past due in the payment of his condominium fees. Since the debtor is past due in the payment of condominium fees, it just does not have a right to vote in the first place. Thus, the unit owners association is not taking any action to deny the debtor his right to vote.
Alternatively, the unit owners association argues, the debtor's right to vote is limited or encumbered with the restriction that it may not be exercised if a unit owner is more than thirty days past due in the payment of his condominium fees. In this case, the restriction or encumbrance arose prior to the filing of the petition in bankruptcy. Under the Bankruptcy Code, property of a debtor that becomes property of the estate does so subject to all restrictions existing when the petition in bankruptcy is filed. Thus, the unit owners association is not taking any action to deny
The arguments are not well taken. The fact remains, Article IV, Section 7 pressures the debtor to pay its past due pre-petition condominium fees. If the debtor pays the pre-petition condominium fees, it can vote. If it does not pay them, it cannot vote. The ability to vote is determined by whether the debtor pays the pre-petition debt. He is penalized if he does not and is rewarded if he does.
The Virginia Condominium Act makes clear that when a condominium unit owner's right to vote is created, it is not created subject to a condition, a limitation or a restriction. The right to vote is an integral and inseparable part of the condominium regime itself. At this condominium, and in most others, votes are allocated in accordance with the undivided interests in the common elements. Va.Code (1950) § 55-79.77(a). The undivided interests in the common elements was determined under Va.Code (1950) § 55-79.55(a). The undivided interest in the common elements allocated to each unit may not be altered and may not be separated from the unit itself. Va.Code (1950) § 55-79.55(f). The number of votes appertaining to any unit may not be altered. Va.Code (1950) § 55-79.71(E). These provisions may not be altered by agreement and may not be waived. Va.Code (1950) § 55-79.41:1. While the number of votes appertaining to a condominium unit or the weight of a particular unit owner's vote may vary, every unit owner has the right to vote. The right to vote does not fade in and out depending on whether condominium fees are paid or unpaid or on any other circumstance. Each condominium unit has as an inseparable bundle of rights that constitutes the condominium unit. The right to vote is a part of those inseparable rights.
The unit owners association's alternative argument, that Article IV, Section 7 is a restriction on the right to vote that is effective in bankruptcy is not well taken either. One Virginia circuit court held that a unit owner's right to vote may be restricted for non-payment of condominium fees. Clark v. Bay Point Condo. Ass'n, Inc., 2003 WL 23095986 (Va.Cir.Ct. 2003) (revocation of voting rights permissible under Va.Code (1950) § 55-79.80:2(C)). However described, the restriction becomes effective only upon non-payment of condominium fees for a period of thirty days and has the intended effect of coercing payment of the delinquent fees just like other remedies the unit owners association has, such as suing for the unpaid condominium fees or filing and enforcing a lien. Va.Code (1950) § 55-79.84.
Unit Owners Ass'n of BuildAmerica-1 v. Gillman, 223 Va. 752, 292 S.E.2d 378 (1982) and Va.Code (1950) § 55-79.80:2 are instructive. In Gillman, the unit owners association imposed monetary fines against Gillman for violating the condominium's rules and regulations. The Virginia Supreme Court held the unit owners association could not impose monetary fines without statutory authority and that there was no such statutory authority. The Virginia General Assembly responded by enacting what is now Va.Code (1950) § 55-79.80:2 which expressly grants the authority to impose penalties for failure to timely pay assessments. Va.Code (1950) § 55-79.80:2(A)
If the unit owners association properly invoked Article IV, Section 7 pre-petition, it must stop using it when the unit owner files bankruptcy. A creditor who properly takes an act prior to the filing of a petition in bankruptcy to collect a debt, must stop the act upon the filing of the petition. "It is well established that even a technical stay violation (one committed without knowledge of the stay) can become willful ... if the creditor fails to remedy the violation after receiving notice of the automatic stay." Kline v. Tiedemann (In re Kline), 424 B.R. 516, 524 (Bankr.D.N.M.2010). A creditor who caused a state court to issue a civil bench warrant for the arrest of a debtor who, prepetition, failed to appear in state court to answer interrogatories must cause the bench warrant to be withdrawn when the debtor files bankruptcy. Galmore v. Dykstra (In re Galmore), 390 B.R. 901, 909-914 (Bankr.N.D.Ind.2008). A creditor who issued a garnishment before a debtor files bankruptcy has the affirmative duty to promptly dismiss the garnishment upon filing of the bankruptcy petition. In re Manuel, 212 B.R. 517, 519 (Bankr.E.D.Va. 1997); Baum v. United Va. Bank (In re Baum), 15 B.R. 538, 541 (Bankr.E.D.Va. 1981) (creditor has the "responsibility to stop the downhill snowballing of a continuing garnishment."); In re Scroggin, 364 B.R. 772, 779 (10th Cir. BAP 2007). A creditor who repossessed a debtor's car pre-petition, but has not sold it before the debtor files bankruptcy, must release the car back to the debtor. In re Brown, 237 B.R. 316 (Bankr.E.D.Va.1999); In re Young, 193 B.R. 620, 621 (Bankr.D.D.C. 1996) (seized vehicle must be returned upon debtor giving adequate assurance). This case is no different. If the act to collect the past due condominium fees
The court concludes that enforcing By-Laws Article IV, Section 7 for a pre-petition condominium fee violates the automatic stay.
The unit owners association next contends that even if denying the debtor the right to vote at an annual meeting violates the automatic stay, it did not, in fact, deny the debtor its right to vote. In order to decide this issue, the court must determine what happened at the annual meeting.
Eight witnesses who were present at the meeting testified at the hearing. The testimony focused on two principal issues: Did Jane Brungard or Kevin Broncato first seek recognition from the Chair, Dee Cuadros? Was there sufficient time after the voice vote was taken on the motion to adjourn for a unit owner to request a division of the assembly?
Ms. Cuadros, the president of the association, chaired the annual meeting. While the proxies were being tallied to determine whether a quorum was present, the minutes of the last meeting were read and the association's attorney gave a report. Ms. Cuadros testified as to what then happened:
Tr. 134-135.
Other witnesses also testified to what happened and who first sought recognition
The second question that the parties focused on was whether there was adequate time after the vote on Mr. Broncato's motion was taken for the debtor—or any other unit owner—to request a division of the assembly, that is, for the vote to be taken again but with the proponents and opponents standing or using some method more reliable than a voice vote. The unit owners association argued that the failure to make such a request when the request could have been made showed that there was no denial by the unit owners association of the debtor's right to vote. The debtor simply did not fully exercise its rights in this instance. The debtor responded that the undue speed with which the vote was taken, the result was announced and the meeting was adjourned denied it the ability to seek a division and was a part of the denial of its right to vote.
Again, the eight witnesses who attended the meeting had similar, but not identical recollections. Generally, those in favor of the motion to adjourn testified that there was sufficient time and those against the motion that there was not enough time. Ms. Cuadros testified about the vote. She testified, commencing immediately after her testimony set out above:
Tr. at 135-136.
Lindsay Wilson, the representative of the debtor, testified to the same event:
Tr. at 78-79.
Ms. Brungard testified that "it happened within seconds. It was very fast." Tr. at 89. Martina Hernandez agreed.
Mr. Broncato who made the motion to adjourn was asked if "there was any opportunity after [Ms. Cuadros] said the ayes have it for a person present at the meeting to make any motion?" He testified that "I believe there was sufficient time. It's—it was roughly the standard operation, the amount of time that the vote is take at almost all meetings that I've been present at." Tr. at 146. Corey Brooks, a member of the Board of Directors appointed to fill a vacancy, thought that there was "a meaningful pause of several seconds." Tr. 161.
The ability of a unit owner to ask for a division after the vote and before Ms. Cuadros adjourned the meeting depends not only on the elapsed time but also the orderliness of the meeting at that time. Ms. Cuadros testified that "It was a very quiet meeting." Tr. at 137.
Ms. Wilson disagreed. She thought that the meeting "completely disintegrated."
Tr. at 113-114.
The court concludes that the meeting was an orderly meeting until Ms. Cuadros as chair of the meeting announced that there was no quorum and invited a motion from the floor. From that moment on, the meeting became increasingly disorderly.
These acts and the conduct of the unit owners association denied the debtor its right to vote.
Simply showing that the unit owners association denied the debtor its right to vote is not enough to show a violation of the automatic stay. The two questions counsel focused on are not the best focus of inquiry to answer this question. The better inquiry is not narrowly on who should have been recognized, whether there was sufficient time for an objection to the vote or a request for a division of the assembly, or whether these acts and the other conduct were a denial of the debtor's right to vote; but, more broadly, including but not limited to, how the meeting was conducted from the time Mr. Broncato reported the absence of a quorum
Robert's Rules of Order required that the meeting be conducted differently. After recognizing Mr. Broncato, hearing a second and stating the motion before the assembly, Robert's Rules of Order required the chair to recognize Ms. Brungard. Ms. Cuadros knew that Ms. Brungard wanted to make a motion to adjourn to a set time and date.
Ms. Cuadros should have, and could have, restored order after the vote on Mr. Broncato's motion was taken and before she announced the result of the vote. She heard the objections to the vote and should have interpreted them as a request for a division. It was not necessary for Ms. Brungard or anyone else to have been recognized before requesting a division. ROBERT'S RULES OF ORDER NEWLY REVISED § 29 at 271 states that a division of the assembly "[i]s in order without obtaining
Even if Ms. Cuadros did not hear the request for a division or did not properly interpret the demands as a request for a division, she should have, on her own initiative, proceeded with a recount by a method other than voice vote. She knew at the time the vote was taken that the debtor held a majority of votes present. She knew that Ms. Brungard and Ms. Hernandez held proxies. These three individuals were the deciding votes on the motion.
Robert's Rules of Order continue in Section 29:
ROBERT'S RULES OF ORDER NEWLY REVISED § 29 at 272.
There were multiple failures at the meeting. The chair failed to maintain order during the meeting and thereby prevented business that should properly have been brought before the association from being presented. The chair failed to recognize Ms. Brungard for the purpose of making a motion to adjourn to a fixed time and date. The chair failed to retake the vote on Mr. Broncato's motion both because
The debtor argues that the conduct violated the automatic stay, Section 362(a)(6) of the Untied States Bankruptcy Code. Its argument relies on the undisputed fact that it held a majority of votes at the annual meeting and voted against the motion to adjourn. It argues that if its votes had been counted, the motion would have failed. Since the motion passed, it concludes that its votes were not counted and that it was denied it right to vote, an action that, it says, necessarily violated the automatic stay.
The unit owners association counters that the debtor was allowed to fully participate in the annual meeting and to vote. If it disagreed with the ruling of the chair, the debtor through Ms. Wilson could have sought recognition from the chair and asked for a division of the assembly, that is, a recount of the vote. The debtor, it argues, did not do this, and thus, the unit owners association did nothing wrong.
The weakness of the debtor's argument is that while it is true that the debtor voted against the motion to adjourn, the motion failed even without the debtor's votes. Ms. Brungard and Ms. Hernandez voted their proxies against the motion. They constituted a clear majority against the motion even if the debtor's votes were not counted. Yet, the chair wrongly announced that it had passed. It was not that the debtor's votes were not counted. None of the votes against the motion were counted.
The weakness of the unit owners association's argument is that the chair mismanaged the annual meeting from the time she was advised that no quorum was obtained until she adjourned the meeting. She failed to recognize members who had a right to be recognized. She failed to maintain order. She failed to properly conduct the vote. In the circumstances of the growing disorder and the mismanagement, neither the debtor nor Ms. Brungard had any effective remedy. The chair's conduct was effectively the same as denying them their right to vote.
Looking at the overall circumstances, it is clear that there are major differences of opinion between the current Board of Directors and the debtor. One issue is the extent of the liability of the restaurant unit for condominium fees. The companion bankruptcy case of Condominium Services, Inc., an entity related to the debtor, reflects another issue, the propriety of the discharge of Condominium Services as managing agent for the condominium. These flow into a more general issue, the management of the building and the membership of the Board of Directors.
In the struggle for control of the Board of Directors, at least four unit owners— three of whom were members of the Board of Directors—were present at the annual meeting but were not counted for quorum purposes: Ms. Cuadros, Mr. Broncato, Lt. Brooks and Mr. Terry. The By-Laws and the Virginia Code are clear, a unit owner present in person or by proxy is counted for quorum purposes. Va.Code (1950) § 55-79.76(a); By-Laws Article IV, Section 5. It is not known if other directors or other unit owners were present but not
The reasons the four gave for not registering show that they did not want the meeting to go forward. Ms. Cuadros, when asked why she did not register stated, "Well, I don't know. I just didn't feel like I wanted to vote that day." Tr. 141. Mr. Broncato stated, "I did not believe that it was in the interests of the association to see — to actually have a majority at this time. So I personally decided that it was not something I wanted to see happen." Tr. 154. Mr. Terry testified that he did not want to be a part of the quorum because, "A lot of things had been going on that concerned me about the integrity of the vote, and, honestly, I felt that it was probably better to not have a quorum that night than potentially let some of the behavior I was concerned about unfairly influence the vote." Tr. 176. Lt. Brooks' answer was lengthier. The essence was that he did not want the debtor "taking over the board." Tr. 165.
The idea of not holding a meeting by not achieving a quorum did not arise for the first time at the meeting itself. A quorum was not achieved for the 2007 or the 2008 annual meetings. The idea was discussed among the unit owners before the meeting. Mr. Broncato, the Chairman of the Elections Committee, testified that he was
Tr. at 155. Similarly, Lt. Brooks testified that, "There was a lot of talk over the building about whether one should or should not, but I did not come down nor did I encourage anyone to do one thing or the other." Tr. 163. They testified that they did nothing to discourage this action. It can be inferred that they did nothing to encourage attendance at the annual meeting either.
Preventing the election of the Board of Directors by preventing the annual meeting from being held by absence of a quorum was accomplished by Ms. Cuadros. After Mr. Broncato told her that there was no quorum she recognized him to make a motion to adjourn. He had not registered for the meeting. Even though she knew that Ms. Brungard wanted to make a privileged motion to adjourn to a set time and date for the annual meeting to be reconvened, she refused to recognize her and improperly took the vote on the motion to adjourn.
The immediate purpose of the actions at the annual meeting was to continue in power the incumbent Board of Directors.
The conduct at the meeting and the motive to prevent the debtor from "taking over the board" show an abuse of power. The evidence is not sufficient to show that the acts taken at the annual meeting were a part of an effort to collect pre-petition condominium fees. The deciding factor is that the debtor was not singled out for special treatment. Even without its vote, the chair ruled that the motion to adjourn failed. Ms. Brungard and Ms. Hernandez voted their proxies against the motion.
The debtor's motion will be denied. It should be made clear that the reason for denying the motion is that this court does not have jurisdiction to correct improper corporate actions absent a violation of the automatic stay. The Virginia circuit court has that jurisdiction and is the proper forum. This court's jurisdiction is limited to bankruptcy matters, one of which is the enforcement of the automatic stay. The motion was properly brought. The unit owners association's conduct at the annual meeting was improper. However, having concluded that this was an abuse of power and not a violation of the automatic stay, this court has no jurisdiction to correct the abuse.
Tr. at 93.
Tr. at 24-25.
ROBERT'S RULES OF ORDER NEWLY REVISED § 3 at 28. (Sarah C. Robert et al. eds., De Capo Press, 10th ed. 2000).
Tr. at 99.
Tr. at 161.
Tr. at 137.
Tr. at 146.
Tr. at 79.
ROBERT'S RULES OF ORDER NEWLY REVISED § 22 at 235.
Robert's Rules of Order also states:
ROBERT'S RULES OF ORDER NEWLY REVISED § 21 at 227.
Here, there is no question about Ms. Cuadros participating in debate. She did not. But, the manner in which she handled Mr. Broncato's motion to adjourn brings into question the "confidence in the impartiality of [her] approach to the task of presiding."
Tr. 164-165.
Such an adjournment permits the association to obtain more proxies and better attendance so that business may be transacted, such as electing members of the board of directors. Proxies "terminate after the first meeting held on or after the date of that proxy or any recess or adjournment of that meeting." Va. Code (1950) § 55-79.77(D). See also By-Laws Article IV, Section 8. Under Mr. Broncato's motion, the proxies expired upon adjournment. Under Ms. Brungard's motion, the proxies would have remained in full force and effect (unless revoked) until after the reconvened meeting.
