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FILED

DEC 06 2016

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL ORDERED OF THE NINTH CIRCUIT PUBLISHED

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. HI-16-1170-JuTaKu

)

ONENOA FAAVEVELA FAITALIA and ) Bk. No. 15-00698-RJF

SOI FAITALIA, )

)

Debtors. )

______________________________)

)

VILLAGE PARK COMMUNITY )

ASSOCIATION, ) 

)

 Appellant, )

v. ) O P I N I O N

)

ONENOA FAAVEVELA FAITALIA; )

SOI FAITALIA, )

)

 Appellees. )

______________________________)

Argued and Submitted on November 17, 2016

at Pasadena, California 

Filed - December 6, 2016

Appeal from the United States Bankruptcy Court

for the District of Hawaii

Honorable Robert J. Faris, Bankruptcy Judge, Presiding

_________________________

Appearances: John Winnicki, Deeley King Pang & Van Etten,

argued for appellant Village Park Community

Association; Jean Christensen and Edward Maguaran

argued for appellees Onenoa Faavevela Faitalia 

and Soi Faitalia.

_________________________

Before: JURY, TAYLOR, and KURTZ, Bankruptcy Judges.
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JURY, Bankruptcy Judge:

Onenoa Faavevela Faitalia and Soi Faitalia (collectively,

Debtors) filed a motion to value their real property for the

purpose of stripping off the asserted secured claim of Village

Park Community Association (Association) in their chapter 131

case. The bankruptcy court found that the Association’s lien

was wholly unsecured and entered an order granting Debtors’

motion. The court also held that Debtors were entitled to their

attorney’s fees and costs under Hawaii law.

Debtors then filed a motion and supporting declarations

seeking attorney’s fees and costs under Hawaii Revised Statutes

(HRS) § 514B-157, which is a reciprocal attorney fee statute

pertaining to certain actions between a condominium association

and its owner-members. After a hearing, the bankruptcy court

found that Debtors were entitled to their fees and costs under

HRS § 421J-10(a) — an analogous statute pertaining to planned

community associations — and entered an order awarding Debtors

$27,397.89 in attorney’s fees and costs against the Association. 

This appeal followed. For the reasons explained below, we

REVERSE.

 I. FACTS

A. Prepetition Events

The Association consists of the unit owners of a planned

residential community known as the Village Park Community,

1 Unless otherwise indicated, all chapter and section

references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 

“Rule” references are to the Federal Rules of Bankruptcy

Procedure.

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established and governed by the Declaration of Protective

Covenants for Village Park Community, dated March 13, 1979

(Covenants), and located in Honolulu, Hawaii. Debtors are

members of the Association based on their ownership of a home

located within the Village Park Community. 

The Covenants authorize and require the Association to

assess and collect from its members annual membership fees and

other assessments, which are personal debts and obligations of

the member against whom they are assessed. If a member fails to

pay the assessments of the Association when due, the Association

may obtain a lien on the unit or unit owned by the member by

recording a notice of lien in the Bureau of Conveyances. The

lien secures the member’s obligation for unpaid assessments

arising before or after recordation of the lien, annual interest

at twelve percent, and costs of collection including reasonable

attorney’s fees. 

Debtors failed to pay the Association’s annual membership

fees for several years, which resulted in the assessment by the

Association of late fees against them which also remained

unpaid.2 

In 2009, the Association assigned Debtors’ debt for the

delinquent assessments to the law firm of Deeley King Pang & Van

Etten for collection. The law firm’s collection efforts

included demand letters, payment plans, and the recordation of a

notice of lien. Ultimately, in October 2010, the law firm

commenced a foreclosure action in the state court against

2 The Association’s appraisal which is part of the record

shows that the monthly assessment is $11.67. 

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Debtors’ property. In August 2011, J.P. Morgan Mortgage

Acquisition (J.P. Morgan), the first trust deed holder, also

commenced a foreclosure action against Debtors’ property. A few

months later, the state court granted the Association’s motion

to consolidate the foreclosure lawsuits against Debtors. J.P.

Morgan did not further pursue foreclosure because it entered

into a loan modification with Debtors. 

On May 19, 2015, the Association filed and served a motion

for default judgment, summary judgment, and for interlocutory

decree of foreclosure in the circuit court foreclosure action. 

A declaration of indebtedness attached to the motion for summary

judgment shows that Debtors owed the Association $1,168.51 as of

May 11, 2015. Debtors did not respond to the motion. 

B. Bankruptcy Events

Instead, on June 8, 2015, Debtors filed their chapter 13

petition. In Schedule A, they listed the value of their real

property at $540,000. In Schedule D, Debtors showed a secured

claim against their property for $609,000 and listed $7,000 

owed to the Association as disputed. Their chapter 13 plan

provided for monthly payments of $380 over three years with an

estimated 6.6% return to unsecured creditors. 

On July 29, 2015, the Association filed a proof of claim

showing a secured claim for $11,579.79, consisting of Debtors’

delinquent assessments and various fees owed to the Association. 

The next day, the Association objected to Debtors’ chapter 13

plan on the grounds that it failed to provide for payment of the

Association’s claim and was filed in bad faith. 

One day later, Debtors filed an amended plan and a motion

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to value their real property which sought to modify or strip off

the Association’s lien because the amount of the first priority

mortgage encumbering their residence exceeded the value of the

property. 

The Association objected to the amended plan and motion to

value on several grounds: (1) the value of the property was not

supported by admissible evidence; (2) the plan was not filed in

good faith; (3) the plan failed to provide for payments on the

Association’s claim; (4) Debtors failed to provide for payment

of post-petition assessments; and (5) Debtors failed to commit

all of their disposable income to plan payments. 

At the confirmation hearing on September 17, 2015, the

bankruptcy court scheduled the confirmation of Debtors’ plan and

their valuation motion for an evidentiary hearing on March 1,

2016. 

In January 2016, Debtors filed a motion for summary

judgment contending that the mortgage on their property

($613,419.89) exceeded the appraised value of the property

($530,000). 

The Association filed an opposition to Debtors’ motion and

a counter motion for summary judgment. The Association

requested the court to deny confirmation and dismiss Debtors’

case based on bad faith. The Association further asserted that

the modification of Debtors’ mortgage loan was invalid and

resulted in the lender’s claim exceeding the value of Debtors’

property. Due to the invalid modification, the Association

maintained that its lien was senior to the $164,000 debt

incurred through the modification and thus there was

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approximately $100,000 of equity after deducting the first loan

from the appraised value of $545,000. According to this

argument, the Association’s lien could not be stripped off. 

Attached to the counter motion for summary judgment was the

Association’s appraisal of the property showing a value of

$545,000. 

In opposition to the Association’s counter motion, Mr.

Faitalia submitted a declaration stating that Debtors had acted

in good faith in filing the bankruptcy petition. He explained

that the relationship with the Association had been frustrating

to him since he did not understand how an annual fee of $100-

$130 could turn into more than $11,000. He also declared that

the stripping off of the Association’s lien was permitted by law

so he did not understand how that could be bad faith. Finally,

in a separate pleading, Debtors maintained that the loan

modification was permitted by the original mortgage documents

and was not a new loan as no new money had been loaned. Rather,

the additional sum of $164,000 was added to the principal and

the term of the note was extended to fifty years. According to

Debtors, the full amount of the principal retained priority over

the Association’s junior lien. 

On February 16, 2016, the bankruptcy court heard the

parties’ cross motions for summary judgment and confirmation of

Debtors’ plan. Ultimately the bankruptcy accepted the

Association’s appraisal of $545,000 as the value of the

property. The court also found that the modification of

Debtors’ loan (actually two modifications) added interest and

unpaid monthly payments back to the mortgage and that no further

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money was loaned. Accordingly, the court found that this was

not the kind of modification which would allow the junior

lienholder to jump up in the priority schedule. 

As a result of these conclusions, the bankruptcy court

granted Debtors’ motion for summary judgment because there was

no equity in the property after deducting amounts owed to the

first trust deed holder. The court held that it was proper to

treat the Association’s claim as wholly unsecured. The

bankruptcy court also held that Debtors, as the prevailing

parties, were entitled to their attorney’s fees and costs under

Hawaii statutory law. Finally, the bankruptcy court concluded

that under a totality of circumstances analysis, Debtors acted

in good faith and thus confirmed their chapter 13 plan. 

On March 9, 2016, the bankruptcy court entered the order

granting Debtors’ motion for summary judgment, finding the claim

of the Association wholly unsecured. On March 15, 2016, the

bankruptcy court entered an order granting Debtors’ motion to

value collateral and a separate order confirming Debtors’

chapter 13 plan. 

On April 7, 2016, Debtors filed a motion for attorney’s

fees and costs from the Association. Debtors’ request was based

on HRS § 514B-157, which gives unit owners the reciprocal right

to collect fees and costs from an association if the claim

asserted by the association was not substantiated. Debtors

maintained that the sweep of the statute’s reciprocity provision

was broad. They further argued that their fee request was

supported under the holdings in Travelers Cas. & Sur. Co. v.

Pac. Gas & Elec. Co., 549 U.S. 443, 445 (2007) and Hoopai v.

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Countrywide Home Loans, Inc. (In re Hoopai), 369 B.R. 506, 510

(9th Cir. BAP 2007), aff’d in part & rev’d in part on other

grounds, 581 F.3d 1090 (9th Cir. 2009). 

Finally, Debtors relied upon the bankruptcy court’s

decision in In re Beck, 2014 WL 6606577 (Bankr. D. Haw. Nov. 5,

2014). In Beck, the debtor filed a motion to determine value

for the purpose of stripping off the lien of the association. 

The bankruptcy court applied HRS § 514B-157 and awarded the

debtor his attorney’s fees and costs. The court reasoned that

the association’s proof of claim was the equivalent of an effort

to collect the delinquent assessments owed by the debtor, to

preserve the right to foreclose its lien, and to enforce the

provisions of the condominium declaration and bylaws. Since the

debtor prevailed on the lien strip motion, the bankruptcy court

held that the association’s lien rights were not substantiated

within the meaning of the statute. 

The Association opposed Debtors’ request for fees,

contending that the bankruptcy court wrongly decided Beck. In

that regard, the Association maintained that the court

incorrectly started its analysis from the premise that the

association’s filing of a proof of claim asserting a lien

against the debtor’s apartment was in effect an attempt to

collect delinquent assessments within the meaning of HRS § 514B157(a). According to the Association, even if the filing of a

proof of claim could be deemed to be a collection effort, the

proof of claim here was allowed — Debtors did not object to the

Association’s proof of claim and the Association remained

entitled to collect the delinquent fees. The Association

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further pointed out that its lien was not found to be invalid

under state law or the provisions of the Association’s lien

declaration and bylaws. In short, the Association maintained

that clearly there was no action to foreclose on its lien. 

The Association also pointed out that this proceeding, like

Beck, involved the debtor’s motion to value collateral and to

modify the Association’s lien rights under bankruptcy law. 

Therefore, it did not involve any claims by the Association to

which HRS § 514B-157(a) applied. 

Finally, the Association relied on Schmidt v. Bd. of Dirs.,

836 P.2d 479 (Haw. 1992), where the Supreme Court of Hawaii

declined to interpret the predecessor statute to HRS § 514B-157 

so broadly. There, in interpreting the term “enforce”, the

court held that the statute only permitted an award of fees in

an action to impose an affirmative course of action on an

association by compelling obedience to any provision of its

declaration, by-laws, house rules, or any enumerated provision

of chapter 514A. 

On May 10, 2016, the bankruptcy court heard the matter. 

Initially, the Association contended that HRS § 514B-157(a) and

Beck did not apply because the Association was governed by HRS

Chapter 241J which applied to planned communities. The

Association conceded that the statutes at issue were analogous,

but argued that there was a difference in the language, and on

that basis asked that the case be rebriefed to address the

correct section. The court declined to continue the matter and

ruled at the hearing. 

The bankruptcy court distinguished Schmidt, stating that it

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had nothing to do with the monetary rights of the parties to

collect maintenance fees or the secured status of maintenance

fees, but involved a damage claim based on the condition of the

property. In the end, the bankruptcy court followed its

previous analysis in Beck. The court found that by filing a

proof of claim the Association was taking an action to collect

delinquent assessments and, in effect, to foreclose its lien,

because the Association filed as a secured claimant and the

Association did not have a secured claim. The bankruptcy court

found that Debtors were the prevailing parties in the matter and

therefore they were entitled to reasonable attorney’s fees.3

The court granted Debtors’ motion and directed them to submit

declarations on the amount of the attorney’s fees and costs. 

Thereafter, Debtors filed a declaration showing that they

had paid $1,047.12 for the appraisal. Debtors’ attorney also

submitted a declaration and supporting time records requesting

an award of attorney’s fees and costs in the total amount of

$27,571.89. 

The Association opposed, arguing that (1) Debtors failed to

establish that they agreed to pay their attorney the amounts

claimed in the request; (2) the hourly rate charged by Debtors’

attorney was not reasonable; (3) the amount of time expended was

not reasonable; (4) the printing costs were unjustified; 

3 At the hearing, the Association’s counsel asked the

bankruptcy court to certify the decision to the Hawaii Supreme

Court if it ruled that attorney’s fees and costs were authorized

under the statute. The bankruptcy court declined the request,

concluding that it was not a “difficult” question and thus

certification was unnecessary. 

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(5) expert witness fees were not an allowable cost; and (6) the

attorney’s fees and costs claimed by Debtors against the

Association should be offset by the non-dischargeable, postpetition assessments for the Association’s dues and fees owed by

Debtors. 

In a Memorandum Decision, the bankruptcy court awarded

Debtors fees and costs under HRS § 421J-10, the statute applying

to planned communities. The court found that the fee request

was reasonable both as to the hourly rate and the time expended. 

The bankruptcy court disallowed the printing costs, but allowed

Debtors their appraiser’s fee. Finally, the bankruptcy court

denied the offset request. 

On May 25, 2016, the bankruptcy court entered an order

granting Debtors’ motion awarding $26,350.77 for attorney’s fees

and $1,047.00 for the appraisal as an expense. The Association

filed a timely notice of appeal from that order. 

On August 4, 2016, the bankruptcy court denied the

Association’s request for stay pending appeal without prejudice

to a possible proposal for a stay pending appeal on a secured

basis. The Association then sought a stay from the Panel. On

August 19, 2016, the Panel denied the Association’s request for

a stay pending appeal without prejudice on a secured basis. On

September 7, 2016, the bankruptcy court granted the

Association’s motion for a stay pending appeal on the condition

that it post a supersedeas bond in the amount of $45,000 within

one week from the date of the order. The bond was evidently

posted. 

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 II. JURISDICTION

The bankruptcy court had jurisdiction pursuant to 28 U.S.C.

§§ 1334 and 157(b)(2)(A). We have jurisdiction under 28 U.S.C.

§ 158. 

III. ISSUE

Did the bankruptcy court err as a matter of law when it

awarded Debtors attorney’s fees and costs under HRS § 421J-10?

 IV. STANDARD OF REVIEW

We review the bankruptcy court’s interpretation and

application of a state statute governing the award of attorney’s

fees de novo. Kona Enters. v. Estate of Bishop, 229 F.3d 877,

883 (9th Cir. 2000). 

V. DISCUSSION

Under the “American Rule,” prevailing parties in federal

court are not ordinarily entitled to attorney’s fees unless

authorized by contract or statute. Alyeska Pipeline Serv. Co.

v. Wilderness Soc’y, 421 U.S. 240, 257 (1975). This default

rule applies to bankruptcy litigation, but “can, of course, be

overcome by statute.” Travelers, 549 U.S. at 448. Following

Travelers, the question of whether parties to a bankruptcy

proceeding are entitled to attorney’s fees under Hawaii law is

purely a question of state law. See Americredit Fin. Servs.,

Inc. v. Penrod (In re Penrod), 611 F.3d 1158 (9th Cir. 2015). 

Here, the bankruptcy court based its award of fees and

costs to Debtors on HRS § 421J-10(a), which applies to planned

community associations and not, as requested by Debtors, HRS

§ 514B-157 which applies to condominium property. Because the

Association is a planned community association, our resolution

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of this case turns on the interpretation of HRS § 421J-10(a),

which states:

(a) All costs and expenses, including reasonable

attorneys’ fees, incurred by or on behalf of the

association for:

(1) Collecting any delinquent assessments against any

unit or the owner of any unit;

(2) Foreclosing any lien on any unit; or

(3) Enforcing any provision of the association

documents or this chapter;

against a member, occupant, tenant, employee of a

member, or any other person who in any manner may use

the property, shall be promptly paid on demand to the

association by such person or persons; provided that

if the association is not the prevailing party, all

costs and expenses, including reasonable attorneys’

fees, incurred by any such person or persons as a

result of the action of the association, shall be

promptly paid on demand to the person by the

association. The reasonableness of any attorney’s

fees paid by a person or by an association as a result

of an action pursuant to paragraph (2) shall be

determined by the court. . . . (Emphasis added.) 

HRS § 421J-1.5 states that chapter 421J “shall be liberally

construed to facilitate the operation of the planned community

operation.” 

In awarding Debtors their attorney’s fees and costs, the

bankruptcy court reasoned that by filing a proof of claim in the

bankruptcy case the Association was in essence seeking to

collect its delinquent assessments or assert its right to

foreclose on its lien within the meaning of HRS § 421J-10(a). 

From that proposition, the bankruptcy court concluded that

Debtors were the prevailing parties in the valuation contest and

thus were entitled to their fees and costs under the Hawaii

statute. We are not persuaded by this reasoning.

As with all questions of statutory interpretation, we begin

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with the plain language of the statute. Lamie v. U.S. Trustee,

540 U.S. 526, 534 (2004); Ariz. Health Care Cost Containment

Sys. v. McClellan, 508 F.3d 1243, 1249 (9th Cir. 2007); State v.

Wheeler, 219 P.3d 1170, 1177 (Haw. 2009). If the statute is

clear, the inquiry is at its end, and we enforce the statute on

its terms. United States v. Ron Pair Enters., Inc., 489 U.S.

235, 241 (1989). In construing the statute, we also keep in

mind that we must apply the law as we believe the Hawaii Supreme

Court would apply it. Gravquick A/S v. Trimble Navigation Int’l

Ltd., 323 F.3d 1219, 1222 (9th Cir. 2003). 

HRS § 421J-10(a) permits fees and expenses incurred by the

Association only if the Association was “collecting” delinquent

assessments, “foreclosing” on its lien, or “enforcing” its

covenants. While these terms are not defined in HRS Chapter

421J, the use of these active verbs denotes some type of

affirmative conduct relating to those described acts. 

In Schmidt v. Bd. of Dirs., the Hawaii Supreme Court was

called upon to interpret the meaning of the word “enforce” in

HRS § 514A-94(b), the predecessor statute to HRS § 514B-157 and

the statutory counterpart to HRS § 421J-10, applicable to

condominium associations. 836 P.2d 479. There, the court

adopted the plain meaning of the word “enforce” and stated that

the “plain and obvious” application of HRS § 514A-94(b) is to an

owner’s substantiated claim against an association or its board

to impose an affirmative course of action upon the association

to put into execution - or compel obedience to - any provision

of its declaration, by-laws, house rules, or any enumerated

provision of HRS chapter 514A. Id. at 483. 

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The court noted that the Schmidts did not seek to enforce

any affirmative action on the part of the Association to comply

with any provision of the Association’s declaration, by-laws,

house rules, or HRS Chapter 514A. Rather, in their own words,

they were seeking damages for the Association’s failure to

comply with its by-laws and declaration. Since the Schmidts did

not seek to compel obedience to the Association’s by-laws and

declaration, the court found that HRS § 514A-94(b) did not apply

to their action and reversed the award of attorney’s fees. 

The holding in Schmidt reinforces the conclusion that the

correct interpretation of the statutory terms “collecting”

(delinquent assessments) or “foreclosing” (a lien) requires some

affirmative conduct against Debtors or their property. However,

due to the automatic stay, once Debtors filed their petition,

the Association was prohibited from affirmatively pursuing the

very acts described in the statute. See § 362(a)(1), (4), and

(6).

We acknowledge that as a general rule, the automatic stay

does not apply to the filing of a proof of claim. See Arneson

v. Farmers Ins. Exch. (In re Arneson), 282 B.R. 883, 893 (9th

Cir. BAP 2002); Rein v. Providian Fin. Corp., 270 F.3d 895,

904–905 (9th Cir. 2001). Nonetheless, we are not persuaded that

a creditor’s proof of claim in a bankruptcy case constitutes an

effort to “collect”, “foreclose”, or “enforce” within the

meaning of HRS § 421J-10(a). The plain language of HRS § 421J10(a) requires the “collecting” of delinquent assessments to be

against Debtors or their property and “foreclosing” a lien must

also be against Debtors’ property. However, “the purpose for

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filing a claim is not to affirmatively target [Debtors]

personally or their property, but to receive distributions from

the bankruptcy estate.” See Clayton v. Roundup Fundings, LLC

(In re Clayton), 2010 WL 4008335, at *3 (Bankr. E.D. Wash. Oct.

12, 2010) (explaining why the filing of a proof of claim did not

violate the automatic stay); See also Rule 3021 (requiring

distributions under plans to be made only to those creditors

whose pre-petition claims are “allowed.”). 

We thus conclude that the mere filing of a proof of claim

does not entail the affirmative acts contemplated by HRS § 421J10(a) even under a liberal construction of the statute. It

follows that the statute has no applicability under these

circumstances. 

Moreover, the bankruptcy court’s reasoning cannot withstand

scrutiny under a prevailing party analysis. “In determining

which party is the prevailing party in complex litigation,

Hawaiian courts focus on which party prevailed on the ‘disputed

main issue.’” In re Hoopai, 581 F.3d at 1102. There can be no

disagreement that the disputed main issue in Debtors’ valuation

motion was the value of Debtors’ property under § 506(a) and the

amount due on the senior secured lien. The valuation of real

property for purposes of lien stripping is unique to chapter 13

and federal bankruptcy law. Not surprisingly, nowhere in HRS

§ 421J-10(a) or Chapter 421J is there any mention of valuation

for purposes of lien stripping. In short, the disputed issue

upon which the bankruptcy court found Debtors to be prevailing

parties is not covered by the statute. 

Furthermore, Debtors never objected to the Association’s

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proof of claim nor did the bankruptcy court ever find that the

Association’s lien was invalid. Indeed, since the Association’s

lien was stripped under § 506(a) for purposes of plan

confirmation, if Debtors fail to complete their plan the

Association’s lien remains on their property under Hawaii law

unless later found invalid. In short, Debtors were not the

prevailing parties in any sense. Accordingly, the bankruptcy

court erred in awarding them fees and costs on this basis. 

Finally, our conclusion does no harm to the policies

supporting the American Rule. If proofs of claim were construed

as the equivalent of collecting delinquent assessments or

foreclosing on a lien under HRS § 421J-10(a), creditors seeking

distributions from the estate would confront potential liability

for attorney’s fees simply because a debtor enforced his or her

statutory rights under § 506(a) and successfully stripped the

creditor’s lien from his or her property. One should not be

penalized under a state law statue for filing a proof of claim,

which is a requirement for distribution from the chapter 13

estate, nor should one be penalized for defending a valuation

motion filed by a debtor who is exercising his or her statutory

rights under the Bankruptcy Code. See Kaanapali Hillside

Homeowners’ Ass’n, 145 P.3d at 907 (citing Fleischmann

Distilling Corp. v. Maier Brewing Co., 386 U.S. 714, 718 (1967)

(“[S]ince litigation is at best uncertain one should not be

penalized for merely defending or prosecuting a

lawsuit. . . .”)). In short, a reciprocal compensatory remedy

to either party under these circumstances is inappropriate.

In sum, we conclude that the bankruptcy court erred in

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awarding Debtors their attorney’s fees and costs under HRS

§ 421J-10(a). In light of our decision, it is unnecessary to

discuss the other issues raised by the Association. 

VI. CONCLUSION

For the reasons stated, we REVERSE. 

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