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In Re Passerella

2011 WL 25028 (Bkrtcy. Ct. D. N.J. 2011) (Unpublished)

CONDOMINIUMS; DAMAGES — New Jersey law provides that liquidated damages provisions in a commercial contract between sophisticated parties are presumably reasonable and even though a condominium’s master deed is not a contract, the authority to assess late fees is expressly granted to condominium associations by New Jersey law and a liquidated damages analysis will be applied to master deeds just as it would be applied to commercial contracts.

After a unit owner filed a Chapter 13 bankruptcy petition, the condominium association moved for relief from the automatic stay in order to collect unpaid post-petition maintenance fees. Its claim was for unpaid, post-petition assessments, late fees, fines, and attorneys fees. At the hearing on the stay relief motion, the Chapter 13 Standing Trustee suggested that the debtor might pay off these arrearages by including them in her Chapter 13 plan as an administrative claim. The parties agreed and submitted a consent order to that effect, preserving the debtor’s right to challenge the reasonableness of the late fees. The debtor did, in fact, object to the proportionality and reasonableness of the late fees and the attorneys fees.

The Bankruptcy Court analyzed the appropriateness of late fees using a stipulated damages analysis framework. In New Jersey, liquidated damages provisions in a commercial contract between sophisticated parties are presumptively reasonable and the party challenging such damage bears the burden of proving unreasonableness. The condominium’s master deed was not a contract; but, the authority to assess late fees is expressly granted to condominium associations by New Jersey law. Specifically, an association may levy and collect assessments duly made by the association, together with interest thereon, late fees, and reasonable attorneys’ fees. The master deed clearly authorized a late fee in the amount of $25. New Jersey law provides the same presumption of reasonableness to late fees as to stipulated damage clauses. The $25 fee, being de minimis in absolute terms, was held not unreasonable.


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