Charter v. Kearney (In re Colen)

Citation: 516 B.R. 618Docket: Bankruptcy No. 13-60563-tmr7; Adversary No. 13-6109-tmr

Court: United States Bankruptcy Court, D. Oregon; August 26, 2014; Us Bankruptcy; United States Bankruptcy Court

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Gerald and Paula Colen (Debtors) filed for Chapter 7 bankruptcy on February 27, 2013. Trustee Joseph Charter initiated an adversary proceeding on August 20, 2013, filing an Amended Complaint against Kearney Holdings, LLC and Ken Kearney, which includes three claims. The First Claim seeks to avoid the transfer of a 1999 Avion 5th Wheel trailer as fraudulent under 11 USC §§ 548 and 550. The Second Claim seeks recovery of a $5,000 non-refundable move-in fee under the Oregon Residential Landlord and Tenant Act. The Third Claim requests a declaration that a ten-year lease for a 1998 Fleetwood manufactured home is valid, barring the unenforceable fee provision.

Defendants denied the allegations and asserted nine affirmative defenses, alongside a Counterclaim for attorney fees related to the Second and Third Claims. After a pre-trial conference, the parties agreed on the Court's jurisdiction and the potential for a final judgment. A stipulated order on February 28, 2014, dismissed the Third Claim, rendering the fourth affirmative defense moot.

Following an unsuccessful settlement conference, Defendants filed a motion for partial summary judgment regarding the Second Claim and their Counterclaim, supported by a memorandum, a concise statement of material facts, and a declaration from Ken Kearney. The Lease for the Fleetwood, signed on March 16, 2012, had a ten-year term starting April 1, 2012, requiring total payments of $29,000, including the non-refundable fee. The Lease included an integration and attorney fee clause and referenced a "Lease to Purchase Option Agreement" allowing the Debtors to buy the Fleetwood for $12,500 at the lease's end, contingent upon the non-refundable fee and timely payments. The motion is now ready for decision, with no requests for oral argument from the parties.

Debtors accepted an Option to lease property, agreeing to pay a total of $29,000, which includes a $5,000 nonrefundable move-in fee and 120 subsequent monthly payments of $200. If they default on lease payments, Holdings can terminate the Option without refunding any payments made. Debtors paid the move-in fee on March 30, 2012, and moved into the property around April 1, 2012. On February 27, 2013, Debtors filed a Chapter 7 bankruptcy petition, intending to assume the Lease. They listed a $5,000 deposit with Kearney Holdings LLC and claimed $2,250 and $2,750 as exempt under Oregon's homestead exemption. On April 10, 2013, they amended their exemption claim to reflect a $2,500 security deposit. No objections to these claims were raised. Debtors consistently paid their $200 monthly lease until moving out on March 21, 2014.

Regarding summary judgment standards, the moving party must demonstrate no genuine dispute of material fact exists and that they are entitled to judgment as a matter of law, as per FRCP 56(a). Material facts are those that could influence the case outcome. A genuine dispute arises only if a reasonable jury could potentially rule for the nonmoving party. The moving party must provide evidence that is significantly probative, shifting the burden to the nonmoving party to show a genuine issue for trial. The moving party can either negate elements of the nonmoving party's claims or demonstrate that their evidence is insufficient. Once the moving party meets its burden, the nonmoving party must produce enough evidence to support a jury verdict on the essential elements of its claims.

In a legal motion for summary judgment, the nonmoving party must provide more compelling evidence when their claims are deemed factually implausible. All doubts regarding genuine material facts should favor the nonmoving party, and reasonable inferences must be drawn in their favor. Summary judgment is inappropriate if multiple reasonable interpretations exist. The defendants seek summary judgment on the plaintiff's Second Claim under the Oregon Residential Landlord-Tenant Act (ORLTA), specifically ORS 90.302(1), which prohibits landlords from charging fees at the start of a tenancy unless specified in a written rental agreement. Defendants argue that the plaintiff lacks standing because the claim, assuming merit, is no longer part of the estate due to the debtors' claimed exemption. The claim involves recovery of an allegedly illegal fee, with debtors asserting a homestead exemption in a $5,000 security deposit, despite the lease not labeling it as such. The ORLTA distinguishes between "security deposits" and "fees," allowing the plaintiff to pursue recovery for the fee despite the debtors' exemption. The defendants contend that the lease and option clearly identify the $5,000 as consideration for a purchase option rather than as a fee. Alternatively, they argue that any ambiguity can be resolved in their favor through uncontradicted extrinsic evidence. The plaintiff counters that the lease and option are ambiguous and that the defendants' evidence does not meet the burden for summary judgment. The court must determine whether the lease and option should be interpreted as a single contract, as they reference each other and meet Oregon's criteria for integration. The court will analyze the text of the disputed provisions within the context of the entire contract to assess ambiguity, which is a legal question.

The court aims to interpret the contract to uphold all its provisions. If a provision’s meaning is clear from the text and context, no further analysis is needed. If ambiguous, the court examines extrinsic evidence of the parties’ intent. If ambiguity remains, it applies construction maxims. In this case, the Lease identifies a $5,000 fee as a "nonrefundable move in fee" within a total lease amount of $29,000, but does not define it further. The Option clarifies this fee as consideration for the Option to Purchase Agreement. It indicates that the $5,000 represents the consideration for purchasing the Fleetwood, resolving any potential conflict in favor of the Option. Even if the term is deemed ambiguous, extrinsic evidence supports that the fee pertains to the purchase right, not occupancy. The court concludes that the $5,000 is not an illegal fee under ORS 90.802(1), as it is charged by an optionor, not a landlord, and is unrelated to the dwelling's occupancy. Summary judgment in favor of the Defendants on the Second Claim is warranted.

Regarding the Counterclaim for attorney fees, Defendants cite both the Lease’s attorney fee clause and ORS 90.255, which permits reasonable fees to the prevailing party in rental agreement actions. Since both the Second and Third Claims arise under ORLTA, the court finds it unnecessary to consider the Lease’s clause due to ORS 90.255 covering the matter. Defendants prevail on both claims, but the decision to award fees is discretionary. The court determines that there is insufficient evidence to justify an attorney fee award under the statutes, making summary judgment on the Counterclaim inappropriate.

The Court will grant Defendants' motion regarding the Second Claim but will delay formal judgment until the First Claim is resolved. Defendants' motion concerning the Counterclaim is denied, but they are recognized as the prevailing parties on the Second and Third Claims for purposes of ORS 90.255. The amount of attorney fees will be determined based on Defendants' application under LBR 9021-l(c) after the First Claim's resolution. The Court's findings are formalized as its conclusions of law under FRBP 7052, and an appropriate order will be issued. An error regarding the third affirmative defense will be corrected through a stipulated amendment in conjunction with the current motion's resolution.

Plaintiff's failure to respond to Defendants' concise statement results in deemed admission of the facts presented by Defendants. The Lease specifies that descriptive headings serve only as references and do not affect the rights or obligations of the parties. Debtors would earn a credit of the entire $12,500 purchase price if they performed the Lease and Option without default. The moving party must address any overlooked evidence in the record when responding to the nonmoving party's assertions, as per Rule 56's burden of production.

Under ORS 90.125(2), rights and obligations under the Oregon Residential Landlord-Tenant Act (ORLTA) are enforceable unless stated otherwise. Key definitions include "Landlord," "Dwelling unit," "Fee," "Tenant," and "Rental agreement," with acknowledgment that the statute does not permit a "move-in fee," although Defendants argue that the disputed $5,000 "fee" may fall under the statute’s provisions. A "Rental agreement" includes all forms of agreements regarding dwelling units, while a "Security deposit" is defined as a refundable payment meant to ensure compliance with the rental agreement, explicitly excluding fees.

The court may use extrinsic evidence regarding the circumstances of contract formation to identify ambiguities, but no party has presented such evidence in this case. Both parties agree that the $5,000 mentioned in the Lease and Option refers to the same sum. Even with ambiguity in contract terms, summary judgment can be granted if the movant provides compelling extrinsic evidence of intent, and the non-movant fails to offer competing evidence favoring their interpretation. No party has invoked ORS Ch. 72A, which allows for evidence regarding the "course of dealing, usage of trade, and course of performance." If the Fleetwood is classified as "goods," the court may consider UCC factors alongside the text and context, which in this case support the conclusion that the $5,000 clearly represents the payment for the purchase option of the Fleetwood. Additionally, ORS 20.075(1) outlines factors for awarding attorney fees, including the conduct of the parties, the reasonableness of claims and defenses, and the impact of the award on future litigation, among other considerations.