United States Court of Appeals
For the First Circuit
No. 02-1355
BILLINGS MANN AND CHERYL MANN,
Plaintiffs, Appellants,
v.
CHASE MANHATTAN MORTGAGE CORP.,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
[Hon. Ernest C. Torres, U.S. District Judge]
Before
Boudin, Chief Judge,
Torruella, Circuit Judge,
and Cyr, Senior Circuit Judge.
Christopher M. Lefebvre, with whom Law Offices of Claude
Lefebvre & Sons, Daniel A. Edelman, Tara L. Goodwin and Edelman,
Combs & Latturner were on brief for appellants.
LeAnn Pedersen Pope, with whom Edward J. Lesniak, Burke,
Warren, MacKay & Serritella, P.C., Melissa E. Darigan, and
Partridge, Snow & Hahn, LLP were on brief for appellee.
January 17, 2003
CYR, Senior Circuit Judge. Plaintiff-appellants Billings
and Cheryl Mann, husband and wife, appeal from a district court
judgment which (i) dismissed their claim that Chase Manhattan
Mortgage Company (“Chase”) violated the automatic stay provisions
of the Bankruptcy Code, then (ii) denied their motions to amend the
complaint. We affirm the district court judgment.
I
BACKGROUND
In 1993, the Manns and Chase entered into a $126,950
mortgage loan and related security agreement which conveyed a lien
on the Manns’ principal residence. The security agreement
provided, inter alia: “[Chase] may do and pay for whatever is
necessary to protect the value of the Property and [its] rights in
the Property . . . [including] paying reasonable attorneys’ fees.
. . . Any amounts disbursed by [Chase] under this paragraph . . .
shall become additional debt of the Borrower[s] secured by this
Security Instrument.”1
After the Manns defaulted on their mortgage payments in
1988, Chase fixed a date for a foreclosure sale and advised the
1
We review the summary judgment ruling de novo, accepting all
record evidence in the light most condign to the Manns. See In re
Gosselin, 276 F.3d 70, 71-72 (1st Cir. 2002).
2
Manns that it planned to inspect the property.2 On April 9, 1999,
the Manns filed their joint chapter 13 petition.
The $7,342.08 proof of claim submitted by Chase in the
ensuing chapter 13 proceedings included existing loan-payment
arrearages ($5,698.55), as well as related prepetition attorney
fees and inspection costs ($1,643.53). Moreover, unbeknownst to
the Manns, Chase continued to accrue postpetition attorney fees
against the Manns in its internal records, but neither submitted a
proof of claim in the chapter 13 proceedings nor billed the Manns
for the postpetition fees.
The bankruptcy court order confirming the chapter 13 plan
(i) allowed the $7,342 proof of claim filed by Chase, representing
the full mortgage arrearage and prepetition attorney fees, (ii)
directed the Manns to make all future mortgage payments directly to
Chase as and when due,3 and (iii) prescribed that unsecured
creditors were to receive not less than 17% on their allowed
claims.
Following the confirmation of their chapter 13 plan, the
Manns objected to the proof of claim filed by Chase, specifically
2
The district court rejected the contention that the
inspection and foreclosure notifications issued by Chase violated
the terms of the Security Agreement. The Manns do not challenge
these rulings on appeal.
3
Unless otherwise provided in the chapter 13 plan, title to
all property of the chapter 13 estate vests in the debtor upon
confirmation. See Barbosa v. Soloman, 235 F.3d 31, 37 (1st Cir.
2000).
3
challenging its inclusion of $1,643.53 in prepetition attorney fees
and inspection costs. Before the bankruptcy court ruled on their
objection, however, the Manns withdrew it, opting instead to
institute their putative class-action lawsuit in the United States
District Court for the District of Rhode Island. The class-action
complaint alleged, inter alia, that Chase willfully violated the
automatic stay provision, see Bankruptcy Code § 362, 11 U.S.C §
362, in that, “subsequent to plaintiffs . . . filing bankruptcy,”
Chase continued to “charge” — viz., record charges in its internal
loan files — the Manns for attorney fees and inspection fees
incurred postpetition.
Following discovery, Chase submitted its motion for
summary judgment and the Manns submitted a motion to amend their
complaint, claiming that Chase improperly included a $2.00
surcharge in each of its prepetition inspection charges. The
motion to amend also sought to delete the Manns' earlier allegation
that Chase improperly had charged postpetition inspection fees.
Subsequently, the Manns submitted another motion to amend their
complaint so as to include Raul and Jo-Ann Rodrigues as
coplaintiffs. The second amended complaint asserted that Chase
recently had billed the Rodrigueses for $2,756.55 in postpetition
attorney fees, notwithstanding its stated policy (reiterated in the
instant appeal) that it does not attempt to collect such
postpetition attorney fees from its mortgagors, provided they
4
complete their chapter 13 plan payments and occasion no further
mortgage-payment defaults.
The district court, in an unpublished opinion, directed
summary judgment against the Manns on their section 362 claim, then
denied their motions to amend the complaint.
II
DISCUSSION
A. The Automatic Stay
The Manns first contend that the mere recordation of
postpetition, preconfirmation attorney fees incurred by Chase, on
its internal books, violated the automatic stay, in that it
constituted either (i) “an[] act to obtain possession of the
property of the estate or of property from the estate or to
exercise control over property of the estate,” 11 U.S.C. §
362(a)(3), or (ii) “an[] act to create, perfect, or enforce any
lien against property of the estate,” id. § 362(a)(5). Of course,
acts undertaken in violation of the automatic stay are not only
void, see Soares v. Brockton Credit Union (In re Soares), 107 F.3d
969, 976 (1st Cir. 1997), but may expose the violator to monetary
sanctions as well, see 11 U.S.C § 362(h).
Generally speaking, the automatic stay prescribed in
Bankruptcy Code § 362(a) serves the salutary purpose of deterring
creditors from jockeying for advantage by, for instance: (i)
seeking to convert an unsecured prepetition claim into a secured
5
claim; (ii) obtaining actual possession of property of the chapter
13 estate; or (iii) attempting to perfect a judicial, statutory or
other lien in such property. See In re Soares, 107 F.3d at 975-76.
Thus, the automatic stay provision is designed to forfend against
the disorderly, piecemeal dismemberment of the debtor's estate
outside the bankruptcy proceedings. See id.
Viewed in this light, these postpetition bookkeeping
entries by Chase did not implicate Bankruptcy Code § 362(a)(3),
since such unilateral accruals of amounts assertedly due, but in no
manner communicated to the debtor, the debtor's other creditors,
the bankruptcy court, nor any third party, plainly are not the sort
of “act” Congress sought to proscribe. See, e.g., In re Sims, 278
B.R. 457, 471 (Bankr. E.D. Tenn. 2002) (noting that "creditor could
produce all kinds of paperwork which if communicated to a debtor or
a third party would violate the stay, but absent that
communication, some overt act, or resulting effect on the debtor,
no [§ 362] violation has occurred”) (collecting cases; emphasis
added). Thus, the Manns' property, presently revested in them
following the confirmation of their chapter 13 plan, remains
unaffected by the internal bookkeeping entries initiated by Chase.
As a consequence, absent any overt attempt by Chase to recover
these fees from the chapter 13 estate in the future, as (i) by
instituting collection proceedings which the Manns or the chapter
13 estate would be forced to defend against, or (ii) by
6
transmitting “harassing” communications to the Manns, the Chase
bookkeeping entries represent mere unilateral notations regarding
attorney fees which it assertedly incurred, thereby according it no
identifiable legal advantage over other creditors.
Nor did these mere bookkeeping entries, albeit effected
postpetition and preconfirmation, violate Bankruptcy Code §
362(a)(5). The security agreement states that Chase may include
certain attorney fees in the Manns' loan balance. Consequently,
these postpetition entries do indeed pose the prospect that the
amount due Chase, hence subject to its security interest, may
increase. Nevertheless, a mere potentiality of future liability
reasonably cannot be considered the “creation” of a new and
enlarged lien. The Manns have made no evidentiary proffer that
Chase has undertaken any action to modify its original record lien.
Although a secured creditor may record a lien indicating an
original amount certain (e.g., the original loan balance), the
amount of a lien typically fluctuates during the term, as the
debtor repays the mortgage debt or other senior indebtedness, or as
additional charges accrue to their loan account. Thus, until such
time as Chase initiates some external effort, either to fix or
recover upon, the amount of its secured or in rem indebtedness, the
7
lien subsists simply as a recorded prepetition lien of
indeterminate value.4
The case authority cited by the Manns is plainly
distinguishable. For instance, in In re Stark, 242 B.R. 866
(Bankr. W.D.N.C. 1999), the bankruptcy court imposed subsection
362(h) sanctions against a secured creditor on the grounds that (i)
the loan documents accorded the secured creditor no express
authority to assess postpetition inspection fees; and (ii) the
creditor nonetheless “attempted to collect” the inspection fees by
mailing the debtors monthly statements reflecting the postpetition
inspection fees. Id. at 869, 872.5 Chase, on the other hand,
never communicated the attorney-fee charges to anyone; indeed, the
Manns would not have learned of these charges but for their
subsequent discovery proceedings before the district court. Cf. In
re Soares, 107 F.3d at 975 (noting that automatic stay is designed
4
The proof of claim submitted by Chase in the chapter 13
proceeding valued the secured claim at only $124,743.32. There is
no indication that Chase included any postpetition attorney fees.
5
Similarly, in Fessenden v. Maine Savs. Bank (In re Nield), 95
B.R. 259 (Bankr. D. Me. 1989), the secured creditor unilaterally
removed funds deposited in an escrow account, in the bank's
possession, and which had been set aside to defray the insurance
premiums and taxes on the mortgaged property as due. Id. at 260-
61. And the court in In re Megan-Racine Assocs., Inc., 203 B.R.
873 (Bankr. N.D.N.Y.), aff’d, 102 F.3d 671 (2d Cir. 1996), noted
that the creditor had “engaged in [the type of] self-help”
prohibited under § 362 by unilaterally withdrawing sums from an
escrow account in its possession. Id. at 878, 883.
8
to afford debtors “breathing room” free from creditor
“harassment”).
B. Bankruptcy Code § 506(b)
Next, the Manns assert that Chase violated the automatic
stay by failing to submit a preconfirmation request, pursuant to
Bankruptcy Code § 506(b),6 that any postpetition attorney fees be
included in its allowed secured claim. Chase contends, on the
other hand, that the Manns waived any “claim” based on a § 506(b)
violation, by failing to include it in their several complaints.
Although Chase correctly states that the Manns failed to
assert a § 506(b) “claim” in their various complaints,7 their
argument was squarely raised and adequately preserved — as a
theoretical adjunct to their section 362 claim — in their
6
Bankruptcy Code § 506(b) provides: “To the extent that an
allowed secured claim is secured by property the value of which,
after any recovery under subsection (c) of this section, is greater
than the amount of such claim, there shall be allowed to the holder
of such claim, interest on such claim, and any reasonable fees,
costs, or charges provided for under the agreement under which such
claim arose.” 11 U.S.C. § 506(b). Subsection 506(b) applies
exclusively to postpetition fees accrued prior to confirmation of
the plan. See 4 Lawrence P. King, Collier on Bankruptcy ¶
506.05[3] (15th rev. ed. 2001).
7
The Manns never mentioned § 506(b) in their complaint, but
simply noted that Chase had made its postpetition internal
bookkeeping entries “without obtaining court approval . . . [which]
violates the automatic stay.” These references reasonably could
not have placed the district court on fair notice that the Manns
were claiming a § 506(b) violation. Instead, the reference more
plausibly implied simply that Chase was required to seek approval
from the court for relief from the automatic stay pursuant to §
362(d).
9
opposition to summary judgment. Citing five cases, the Manns
asserted: “The proper procedure for [Chase] to follow if it
desires to be compensated for post-petition charges, is to request
Court approval of those charges, pursuant to § 506 of the Code, and
Bankruptcy Rule 2016.” In other words, the Manns contended that
any unilateral imposition of postpetition fees by Chase must be
violative of § 362(a), given that the Code establishes specific
prerequisites and a particular mechanism for imposing such fees,
viz., § 506(b).
Nevertheless, the Manns' simple citation to Bankruptcy
Code § 506(b) is insufficient to advance their § 362 claim on the
merits. As a “significant exception” to the general rule that
creditors cannot recover postpetition fees in bankruptcy
proceedings, Bankruptcy Code § 506(b) permits an oversecured
creditor to request that the bankruptcy court permit postpetition
fees to be included in its oversecured claim, provided that the
postpetition fees were (i) contemplated by the underlying contract;
and (ii) “reasonable” in amount. See 4 Lawrence P. King, Collier
on Bankruptcy ¶ 506.04[3] (15th rev. ed. 2001). Since there are
numerous circumstances in which a chapter 13 discharge would not
extinguish a secured claim, see Doral Mort. Corp. v. Echevarria (In
re Echevarria), 212 B.R. 185, 187 (B.A.P. 1st Cir. 1997), § 506(b)
accords secured creditors an advantageous prospect of recovering
full payment of their postpetition attorney fees.
10
As support for their contention, however, the Manns rely
exclusively upon a series of unpublished bankruptcy court decisions
which hold that a creditor’s failure to disclose, during the
chapter 13 proceedings — e.g., by filing a proof of claim — its
internal recordation of such postpetition, preconfirmation attorney
fees on its internal books violates § 506(b), in that such
nondisclosure frustrates the “fresh start” policy underlying the
Bankruptcy Code by precluding chapter 13 debtors from availing
themselves of a reasonable opportunity to satisfy (viz., discharge)
such attorney fees through their chapter 13 plan. See, e.g., In re
Slick, No. 98-14378 (Bankr. S.D. Ala. May 10, 2002). Assuming,
arguendo, the correctness of its holding, a matter we expressly
refrain from resolving, the Slick series of cases is readily
distinguishable. That is to say, Slick directly holds that the
creditor’s nondisclosure violated § 506(b), rather than § 362, and
that the creditor’s fees were thus discharged. Id., slip op. at
12-13.
By contrast, the Manns neither contended before the
district court that Chase violated § 506(b), nor requested that the
district court declare the attorney fees discharged under their
chapter 13 plan, but instead simply cited to § 506(b) as an adjunct
to their § 362 claim asserting a violation of the automatic stay,
viz., by way of statutory evidence informing the meaning of the
term “act” under § 362(a). It is not surprising, therefore, that
11
the district court opinion did not rely upon § 506(b) as a discrete
basis for its decision. Whatever the legal effect of the failure
to submit an application or proof of claim under § 506(b), a matter
which we need not resolve here,8 any such omission or waiver
plainly would not constitute the sort of overt, affirmative act
stayed by § 362(a). Thus, the § 362 claim, as submitted by the
Manns, was properly dismissed by the district court.
8
Nevertheless, it is important to note that there is a serious
question as to whether a discrete § 506(b) claim would be
sufficiently ripe for adjudication at the present juncture.
Normally, a claim is unripe where there are too many contingencies
which might moot the claim. See, e.g., Bowen v. First Family Fin.
Servs., Inc., 233 F.3d 1331, 1340 n.7 (11th Cir. 2000). Chase has
never billed the Manns for these fees, nor communicated to any
third party its putative entitlement to the fees. Moreover, Chase
represents on appeal that it will never seek to collect the fees
unless the Manns were to default on their mortgage once again. See
Chamber of Commerce v. Reich, 57 F.3d 1099, 1100 (D.C. Cir. 1995)
(in assessing ripeness, court should consider, inter alia, the
hardship upon the parties were the court to withhold immediate
review of the claim). Although we might be reluctant to accept
mere bald assurances regarding the latter contingency, it cannot be
said with any confidence that its collection efforts are
inevitable.
Second, although plainly not determinative on its own, we
note that the Manns have not yet completed their payments under the
confirmed plan. Unlike a chapter 11 debtor, which receives its
discharge upon plan confirmation, chapter 13 debtors obtain a
discharge only upon the successful completion of their required
payments under the confirmed plan. See In re Roberts, 279 F.3d 91,
93 n.1 (1st Cir. 2002). Should the Manns fail to do so, none of
their debts would be discharged, let alone their putative
contractual obligation to Chase for its postpetition,
preconfirmation attorney fees. Cf. In re Echevarria, 212 B.R. at
188 (noting that creditor which waived recourse to § 506(b), until
completion of confirmed plan, thereby waived right to collect §
506(b) postpetition interest).
12
C. The Motions to Amend the Complaint
Finally, we affirm the district court ruling rejecting
the motions to amend the Manns' complaint to plead new facts
allegedly disclosed during discovery. The Manns sought (i) to
allege that Chase, absent any contractual authorization, added a
$2.00 “surcharge” for each prepetition inspection charge posted to
their mortgage loan account, and (ii) to add, as coplaintiffs, the
Rodrigueses, whom Chase recently had billed for the same type of
postpetition, preconfirmation fees following the entry of the
Rodrigueses’ chapter 13 discharge, even though the Rodrigueses had
not defaulted again on their mortgage payments.
Trial court rulings on motions to amend a complaint are
reviewed for abuse of discretion. See Invest Almaz v. Temple-
Inland Forest Prods. Corp., 243 F.3d 57, 71 (1st Cir. 2001). Of
course, the trial court may deny leave to amend, as a matter of
law, where a proposed amendment would not cure the deficiencies in
the original complaint. See Grant v. News Group Boston, Inc., 55
F.3d 1, 5 (1st Cir. 1995). So it is here.
The first proposed amendment was defective due to the
fact that the Manns failed to file timely objection to the
inclusion of the subject surcharges in their chapter 13 plan. The
second amendment was deficient in that (i) the Manns submitted an
insufficient Rule 56 proffer regarding their § 362 claim for the
postpetition, preconfirmation attorney fees, and (ii) even
13
assuming, arguendo, that the Rodrigueses held a viable claim under
either § 362 or § 506(b), their standing did not confer standing
upon the Manns.
Accordingly, the district court judgment is affirmed.
The parties shall bear their own costs. SO ORDERED.
14