Veronica BARRY, Claimant, v. BOARD OF MANAGERS OF ELMWOOD PARK CONDOMINIUM II a/k/a Elmwood Park II, Defendant.
Claimant, Veronica Barry, commenced this small claims action against the defendant, Board of Managers of Elmwood Park Condominium II (“Board”), alleging that the claimant suffered damages when the defendant violated both the federal Fair Debt Collections Practices Act (FDCPA) and Civil Practice Law and Rules 5020 attempting to collect on the judgment awarded to defendant on December 2, 2005 in the matter of the Board of Managers of Elmwood Park Condominium II v. Barry (SCR 60177/05).
Currently before the court is defendant's motion to dismiss the action on the grounds that CPLR § 5020 and the FDCPA have not been violated. Claimant did not file opposition to defendant's motion but claimant filed a motion for summary judgment in her favor asserting that there are no triable issues of fact. Defendant has opposed the motion.
On December 22, 2005, Judge DiDomenico, after a trial on the merits, awarded a judgment in favor of the Board of Managers against Barry in the amount of $1,459.90, representing $1,430.11 for unpaid common charges, plus $29.79 disbursements (SCR 60177/05).
On March 14, 2007, the Board caused to be issued an “execution with notice to garnishee” directed to the sheriff and any marshal in the City of New York seeking to enforce the judgment pursuant to CPLR § 5232(a).
On March 20, 2007, Marshal Giachetta served a Levy and Demand on the Bank of New York and was notified by JP Morgan Chase, the successor bank, that it had captured funds in the amount of $1,750.16 in one of Barry's accounts.
On March 27, 2007, Barry received a letter from Marshal Giachetta seeking the sum of $1,750.16 to satisfy the judgment in favor of the Board. This amount included the judgment as well as marshal's fees.
On March 29, 2007, Barry issued a personal check to the Marshal in the amount of $1,750.16.
On April 2, 2007, Chase debited Barry's account to satisfy the levy.
On April 9, 2007, Barry demands by facsimile transmission a satisfaction from office of Howard file.
On April 13, 2007, Giachetta returned Barry's personal check because he had received an official check from Chase Bank.
On April 16, 2007, Barry sends letter to law office of Howard File, counsel to the Board, alleging that the marshal sought to collect the monies twice on April 2, 2007 and that the Board had failed to issue a satisfaction.
On April 17, 2007, Chase sent a letter to Barry notifying her of the payment of the levy.
On May 31, 2007, Giachetta issues check to Howard File in the amount of $2,321.83 allegedly in satisfaction of the Barry obligation. The court questions if this is the correct check or whether it contains other monies due to clients of File besides the Barry funds since Giachetta only received $1,750.16 from the bank levy.
On June 7, 2007, counsel for the Board issues “satisfaction of judgment” which was produced in court on June 8, 2007 and delivered to Barry.
A. Is Claimant Entitled to Penalty for Failure to Timely Receive a Satisfaction?
CPLR § 5020(c) provides:
When the judgment is fully satisfied, if the person required to execute and file with the proper clerk pursuant to subdivisions (a) and (d) hereof fails or refused to do so within twenty days after receiving full satisfaction, then the judgment creditor shall be subject to a penalty of one hundred dollars recoverable by the judgment debtor pursuant to Section 7202 of the civil practice law and rules or article eighteen of the New York City civil court act ․;
Defendant Board asserts that it did issue a satisfaction within twenty days of receipt of the payment from the marshal and therefore is not subject to a penalty. The marshal however received the funds from claimant's bank account in early April. If the marshal is the “agent” of the judgment creditor for collection of the monies, an argument could be made that the twenty-day period begins to run from when the marshal received the monies. However, the Marshal Rules promulgated by the Department of Investigations require that the marshal turn over any monies collected within thirty days of receipt. Because the marshal has thirty days to turn the money over to the judgment creditor, the requirement of CPLR § 5020(c) that the judgment creditor has twenty days to file a satisfaction, can only commence when the judgment creditor is in receipt of the monies. It would not make any sense to require the judgment creditor to issue a satisfaction prior to receipt of all of the funds levied upon to satisfy the judgment.
Further, CPLR § 5020(a) states:
“Generally. When a person entitled to enforce a judgment receives satisfaction or partial satisfaction of a judgment, he 1 shall execute and file with the proper clerk pursuant to subdivision (a) of section 5021, a satisfaction-piece․” The judgment creditor or its assignee is the person “entitled to enforce a judgment” and not the marshal, so the obligation to file the satisfaction piece rests with that individual or entity. The twenty-day period therefore runs from the date of receipt of the monies by the judgment creditor and not the date the marshal's levy is paid.
There is a question as to whether or not a satisfaction-piece is even required when the marshal or sheriff is the person collecting on the judgment. CPLR § 5021(b) provides:
Entry upon return of execution. A sheriff shall return an execution to the clerk of the court from which the execution is issued if such execution is wholly or partially satisfied, and the clerk shall make an appropriate entry on his docket of the judgment. The sheriff shall also deliver to the person making payment, upon request, a certified copy of the execution and return of satisfaction or partial satisfaction. Upon the filing of such copy with the clerk of the county where the execution was satisfied, such clerk shall enter satisfaction or partial satisfaction.'
The clerk of the court is marking the court records satisfied if notified by the sheriff or marshal that the execution has been paid in full. This being the case, what is the purpose of the judgment creditor filing a satisfaction-piece? Because the satisfaction-piece is to be acknowledged in the form required to entitle a deed to be recorded (CPLR § 5020(a)), the satisfaction-piece may be recorded with the county clerk as “satisfied” in the judgment book, as opposed to merely being reflected on the records of the court rendering the judgment. This process is necessary so that title to any real property which may be encumbered by a judgment may be cleared.
Based on the foregoing, claimant's allegation that she is entitled to damages pursuant to CPLR § 5020(a) must be denied. Defendant Board delivered a satisfaction piece to the claimant within twenty days of receipt of the funds collected by the marshal.
B. Did Defendant Violate the Fair Debt Collection Procedure Act (15 USCA 1692)?
Claimant contends that the Fair Debt Collection Practices Act (15 USCA 1692 et seq.) applies to this transaction and that the defendant failed to comply with that law. There does not appear to be any reported cases in New York concerning the application of the FDCPA to condominium association charges.
Section 1692a contains certain definitions that are applicable to debt collection activities.
(3)The term “consumer” means any natural person obligated or allegedly obligated to pay any debt.
(4)The term “creditor” means any person who offers or extends credit, creating a debt or to whom a debt is owed, but such term does not include any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another.
(5)The term “debt” means any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.
(6)The term “debt collector” means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection on any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. Notwithstanding the exclusion provided by clause (F) of the last sentence of this paragraph, the term includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts. For the purpose of section 1692f(6) of this title, such term also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests. The term does not include-
(A)any officer or employee of a creditor while, in the name of the creditor, collecting debts for such creditor; ․
(F)any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity (i) is incidental to a bona fide fiduciary obligation or a bona fide escrow arrangement; ․
Somehow I think that Adams, Jefferson and Madison must be turning over in their graves at the thought that the federal government is regulating such a local activity as the collecting of condominium association dues between the homeowner and the association. The trend in cases has been to expand the FDCPA to cover the collection of condominium association dues.
In general, a condominium or homeowners' association contracts with a private company to manage the daily affairs of the association. One of the many functions of the management company is to bill the unit owners for common charges, dues and assessments levied by the board of directors of the association. There are of course many smaller condominiums and associations that handle all of these tasks without hiring outside management. It is only when the association is unsuccessful in obtaining payment of these unit obligations that counsel is retained to pursue the matter in court. In New York, a corporation, such as a condominium, must appear by counsel in all litigation (CPLR § 321(a)), although there is an exception for small claims actions where appearance by counsel is not required (New York City Civil Court Act 1809 & 1809-A).
1. Are Condominium Dues a “Debt” Under the FDCPA?
As stated above, the FDCPA defines a “debt” as “any obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance or services are primarily for personal, family or household purposes, ․” while a “consumer” is “any natural person obligated or allegedly obligated to pay any debt.”
New York Real Property Law Article 9-B governs the formation and obligations of condominiums and the unit owners. RPL 339-e(3) defines “common charges” as “each unit's proportionate share of the common expenses” in accordance with its “common interest” (emphasis added). “Common expenses” are defined as “(a) Expenses of operation of the property and (b) All sums designated common expenses by or pursuant to the provisions of this article, the declaration or by-laws.” RPL 339-i discusses the rights and obligations that arise from the existence of “common elements”. This statute provides: “1. Each unit shall have appurtenant thereto a common interest as expressed in the declaration․ 2. The common interest appurtenant to each unit as expressed in the declaration shall have a permanent character and shall not be altered without the consent of all unit owners affected, expressed in an amended declaration․” (Emphasis added).
The New York Legislature helped to further define the nature of the obligation when it created a “lien for common charges” (RPL 339-z). The statute provides: “The board of managers, on behalf of the unit owners, shall have a lien on each unit for the unpaid common charges thereof,․” This law leads to two conclusions. The first is that the obligation for common charges is a lien against the unit and not an individual obligation. The obligation for payment exists irrespective of ownership of the unit. The second is that a fiduciary relationship exists between the board of managers and all of the unit owners to insure that every unit is in compliance with its statutory duty to pay the common charges. RPL 339-z states that “upon the sale or conveyance of a unit, such unpaid common charges shall be paid out of the sale proceeds or by the grantee.” Additionally, RPL 339-aa holds that “nothing contained herein shall affect or impair or release the unit from the lien for such common charges:” (emphasis added). This further supports the conclusion that the common charges run with the unit and are not a debt incurred by the unit owner. Because the common charges are a lien against the unit, they must be paid from the proceeds of the sale. If this were an individual's obligation, the common charges would not be a lien required to be paid from the sale proceeds. The law would permit the seller to pay the amount from the seller's own assets. Likewise, the statute in the alternative, permits payment of the lien by the grantee because the unpaid charges are a lien which would adversely affect title to the unit. If the obligation was a “ debt” and not a “lien” it would not have to be satisfied in this manner and as each unit was sold, an obligation to pay would commence in the new owner, with the condominium being required to collect past due charges from the seller exclusively.
The New York statutory scheme requires all unit owners to comply with the by-laws, rules, regulations, resolutions and decisions adopted thereto (RPL 339-j). A failure to comply with any of these subjects the offending unit owner to legal action undertaken on behalf of all of the unit owners.
RPL 339-x makes it impossible for any unit owner to be exempt from payment of common charges by waiving the use or enjoyment of the common elements or by abandoning the unit. The only way to avoid common charges is to surrender the unit and all interests in the common elements to the Board of Managers. In other words, there is no defense to the payment of the common charges. And as set forth above, it appears that the board of a condominium does not have to undertake any collection practices to enforce the amount due since the common charges become a lien automatically subject to satisfaction from the sale or foreclosure of the unit. The monthly payment is not “debt”; it is a statutory obligation to pay imposed upon each unit.
2. Is the Common Charge Payment a “Fiduciary” Obligation of Each Unit?
One of the exceptions to the term “debt collector” is “any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity (i) is incidental to a bona fide fiduciary obligation․” (15 USCA 1692a(6)(F)). By purchasing a unit in a condominium, each unit owner has by contract and by statute (RPL Article 9-B) entered into a fiduciary relationship with every other unit owner. One of the elements of that fiduciary relationship is the obligation to pay common charges irrespective of any disputes that unit owner has with another unit owner or the board of managers, or third parties acting on behalf of the board.
The reason for this is that if each unit owner refuses to pay common charges assessed, the condominium would either cease to exist or other owners would be forced to contribute funds to cover the defaulting member's obligation so as to keep the condominium viable. By purchasing a unit, each owner is acknowledging this obligation to pay common charges. The benefit is not just for that unit owner but it is for all owners in the condominium (RPL 339-i). The fact that this is a “fiduciary relationship” is further supported by RPL 339-z cited above where the statute provides that “the board of managers, on behalf of the unit owners, shall have a lien on each unit for the unpaid common charges thereof,․” (Emphasis added). While RPL 339-aa states that “nothing contained herein shall affect or impair or release the unit from the lien for such common charges or impair or diminish the rights of the manager or the board of managers on behalf of the unit owners under this section and section three hundred thirty-nine-z” (emphasis added). This establishes the legislative intent that the common charges are for the benefit of all unit owners and an obligation owed to the condominium by the unit owner.
Finally, one of the documents executed upon the initial sale of each individual unit is a “power of attorney” in favor of the board of managers which permits the board to act on behalf of the unit owner as to all management issues that arise in the daily activities of the condominium. This power of attorney, like the obligation to pay common charges, runs with the land so that subsequent purchasers of a unit do not have to execute a new power of attorney on each transfer. This power of attorney also establishes a fiduciary relationship between the unit owner and the board, as well as one between all of the unit owners. In regard to the payment of common charges and maintenance of the unit itself, each unit must be operated by the unit owner so as not to diminish the interest of other owners. Each and every unit may either be benefitted or damaged by the actions of any individual unit. This further supports the conclusion that a “fiduciary” relationship exists between each unit owner.
Since there is a fiduciary relationship between each unit owner and all other unit owners, the collection of common charges by the condominium, its managing agent or attorneys acting on its behalf are exempt from the application of the FDCPA.
3. Is the Board of Managers a “Person” Under the FDCPA?
The FDCPA defines the term “creditor” as “any person who offers or extends credit creating a debt or to whom a debt is owed” (15 USCA 1692a(4)). The federal statute does not define who is a “person”. It describes a “consumer” as a “natural person,” but it is silent on who qualifies as a “person”. This requires the application of New York State law to define the term. RPL 339-e(10) defines “person” as a “natural person, corporation, partnership, association, trustee or other legal entity”. In New York, a condominium may be an unincorporated association, or a corporation formed under the Business Corporation Law or the Not-For-Profit Corporation Law. In this litigation, the defendant condominium is an unincorporated association managed by a board of managers. Under General Associations Law 12 the president or treasurer of an unincorporated association may maintain an action “for or upon which all of the associates may maintain such an action by reason of their interest or ownership therein, either jointly or in common”. Case law has permitted members of the association to bring an action on behalf of themselves and all other members of the association (Douglas E. McOwen, Hamp Funeral Home, Inc. v. Boccaccio, 79 A.D.2d 1098, 435 N.Y.S.2d 844 (1981)). So, although the “association” is a “person” under New York law, it is not a “creditor” under the FDCPA since the association is not the person extending credit or to whom the debt is owed (15 USCA 1692a(4)). Under New York law the debt is owed to all of the other unit owners and each and every one of them has a right to enforce the claim against any other owner. In fact, it might sound strange, but owing to the unique nature of condominium ownership, the unit owner owes the obligation to pay dues to himself or herself, since the unit derives the benefit of the payment.
B. Contrary Case Law.
The history of litigation concerning the application of the FDCPA to condominium common charge collections reveals that most trial courts dealing with the issue initially found the FDCPA was not applicable, often on the grounds that there was no “debt” involved since the money was collected monthly for future services or that the obligation ran with the land and was not personal to the unit owner. Later cases, especially federal circuit court decisions, have over-ruled these lower court findings when they ruled that common charges are “debts” under the statute and rejected the argument that the monies were being paid before the services were rendered (Newman v. Boehm, Pearlstein & Bright, Ltd., 119 F.3d 477 (1997)). Some of these decisions are based on the interpretation that the required “transaction” to trigger the attachment of the statutory definition of “debt” (15 USCA 1692a(5)) is the purchase of the unit by the unit owner (Ladick v. Van Gemert, 146 F.3d 1205 (1998)) and that no offer or extension of credit is needed to create the debt (Thies v. Law Offices of William A. Wyman, 969 F.Supp. 604 (1997)). I must respectfully disagree.
The transaction that creates the obligation to pay the common charges is the creation of the condominium, its approval by the attorney general in New York State and the recording of the declaration, covenants and restrictions with the county clerk. Once the condominium offering plan has been approved, the number of units that will be created and the percentage ownership of common elements with the concomitant percentage of common charges to be paid by that unit comes into existence as an obligation. At the creation of the condominium, the sponsor is responsible for all of the expenses based on the sponsor's ownership of all of the interests. The obligation for payment of the common charges is created when the unit comes into legal existence and not when it is sold to a purchaser. At this point, the triggering transaction has taken place, but there is no “consumer” since there is no “natural person” obligated to make payment (15 USCA 1692a(3)) and there is no “debt” without the existence of a consumer (15 USCA 1692a(5)). Once the condominium is formed the obligation to pay has been established, the only thing that will change is who will be paying the obligation on behalf of the unit.
The administrative rules governing the condominium approved by the attorney general require the sponsor to pay all common charges and assessments with respect to unsold units (13 NYCRR 20-3(p)(11) and 13 NYCRR 23.3(d) (4)). This was done to eliminate “deficiency budget” arrangements that exist in other states and makes the condominium a separate financial entity from the developer from the time that the declaration is filed. This system supports the conclusion that the “transaction” is the formation of the condominium and not the sale of the individual units. Again, the obligation for payment exists irrespective of who is the owner of the unit.
C. Other FDCPA Issues.
Even if this court were to agree with the federal courts that have ruled on the issue that the FDCPA was applicable, there are other reasons to dismiss this action.
1. The statute of limitations for commencing an action alleging a violation of the FDCPA is one year (15 USCA 1692k(d)). The action in which the alleged violation occurred was the one commenced by the defendant condominium in small claims court in 2005. Therefore, the collection practice that would be subject to scrutiny arose in 2005 prior to the institution of the small claims action and not by the efforts undertaken to enforce the judgment. The claim of an FDCPA violation arose in 2005 prior to the small claims suit. It had to be brought before the end of 2006. This action was commenced in 2007 and is time-barred.
2. Under the FDCPA the condominium association is not a “debt collector” subject to the act since a debt collector undertakes to collect debts on behalf of another (15 USCA 1692a(6)). The condominium can collect money owed to it without being subject to the FDCPA. Neither is a management company which is hired to manage the day to day operations of the condominium community subject to the FDCPA, since the primary purpose of the company is engaged in services unrelated to the collection of association dues. The act would only be applicable to the management company if a substantial part of the services rendered was collection of common charges (Alexander v. Omega Management, Inc., 67 F.Supp.2d 1052 (1999)). The only party who might be subject to the FDCPA would be counsel for the condominium and then only if counsel's principal business is collection of debt or regularly collects debts for another (Blakemore v. Pekay, 895 F.Supp. 972 (1995)). There is no showing by claimant that the law firm bringing this litigation regularly engages in the debt collection business. In addition, if counsel did not send any letters attempting to collect the debt or commence litigation on behalf of the client, but only appeared in court to represent the condominium, the FDCPA does not apply. Therefore, claimant has sued the wrong party. The condominium is exempt from the FDCPA since it is originating the debt. The issue of the lawyer's role is apparently completely avoided by having the condominium commence the action “pro se” in small claims court. Because a corporation and voluntary association can only appear by attorney in an action of proceeding (CPLR 321(a)), requiring counsel for the corporation to comply with the FDCPA places an additional unfair burden on those entities which does not exist for a natural person.
3. Claimant's allegations as to violation of the FDCPA arise from the enforcement efforts undertaken by the marshal after a valid judgment entered after trial in this court. Claimant cannot allege that she did not know about the debt since she participated in the trial. The defendant condominium did not have any obligation to give a notice to the claimant that it would seek to enforce its rights as a judgment creditor prior to doing so. The FDCPA specifically exempts the actions of an employee of the State to the extent that collecting or attempting to collect any debt is in the performance of his or her official duties (15 USCA 1692a(6)(c)). The actions of the marshal, and the creditor in utilizing the marshal, are exempt from the FDCPA.
Claimant's motion for summary judgment is denied in its entirety.
Defendant's motion to dismiss claimant's cause of action is granted. Claimant has failed to state a cause of action for violation of either the FDCPA or CPLR § 5020.
Claimant's cause of action is dismissed.
The foregoing constitutes the decision and order of the court.
1. The legislature has not as yet made this section gender neutral.
PHILIP S. STRANIERE, J.