In re Cook
| Citation | 384 B.R. 282 |
| Decision Date | 11 January 2008 |
| Docket Number | No. 07-40947-JJR7.,07-40947-JJR7. |
| Parties | In re Dianna Phillis COOK, Debtor. |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Alabama |
Robert D. McWhorter, Jr., Gadsden, AL, for Debtor.
Max C. Pope, Jr., Birmingham, AL, for Trustee.
This matter came before the Court on the Motion for Relief From Stay (the "Motion") filed by Bobby Dale Welch Construction Company, L.L.C. ("Welch"). The Court has jurisdiction to hear this matter pursuant to 28 U.S.C. §§ 157 and 1334, and the General Order of Reference, as amended, entered by the United States District Court for the Northern District of Alabama. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2); therefore, the Court has authority to enter a final order. For the reasons stated below, the Court is denying the relief sought in the Motion. In compliance with Rule 7052(a) of the Federal Rules of Bankruptcy Procedure,1 the following shall constitute the Court's findings of fact and conclusions of law.
FINDINGS OF FACTS:
The facts are undisputed and for the most part can be taken from the Motion and the Exhibits thereto, and the pleadings and other records maintained in the Court's file. On April 29, 2005, Dianna Phillis Cook (the "Debtor") and Welch entered into a Contractor Agreement (Exhibit A to the Motion, and herein the "Agreement"),2 under the terms of which Welch was to construct a home on the Debtor's property located in Etowah County, Alabama (the "Property"). The Debtor allegedly failed to pay the sums due under the Agreement, and on December 12, 2005, Welch filed a Lien (Exhibit B to the Motion, and herein the "Verified Statement of Lien") with the Office of the Judge of Probate of Etowah County, Alabama. In the Verified Statement of Lien, Welch claimed a mechanic's lien on the Property "to secure an indebtedness of $73,275.41 with interest from the 29th day of April, 2005, for materials supplied pursuant to the contract for construction of a new home. . . ."
The Agreement contained an arbitration provision stating, "All disputes hereunder shall be resolved by binding arbitration in accordance with the rules of the American Arbitration Association." Pursuant to this provision, on June 14, 2006, Welch made a Demand for Arbitration (Exhibit C to the Motion, and herein the "Arbitration Demand") naming the Debtor as respondent. In the Arbitration Demand, Welch inserted $98,112.76 as the "DOLLAR AMOUNT OF CLAIM," and described "OTHER RELIEF SOUGHT" as "Plus interest, attorneys' fees & costs." The Arbitration Demand described the dispute as involving "an agreement for the construction of a home," and the Debtor's refusal to pay the amounts due to Welch. There was no mention in the Arbitration Demand of any claim for a mechanic's lien, although one of the 43 exhibits described on Welch's Exhibit List in the arbitration proceedings was listed as a "Lien recorded with Probate Judge of Etowah County."
An arbitration proceeding was conducted on May 2, 2007, and on May 11, 2007, the arbitrator handed down his Award of Arbitrator (Exhibit D to the Motion, and herein the "Arbitration Award") in which he found Welch was entitled to recover $98,112.76 from the Debtor for sums due under the Agreement, plus interest at 12% from July 1, 2007; the arbitrator apportioned the fees and expenses of the arbitration between the parties. There was no mention of any mechanic's lien securing the Arbitration Award, and the last sentence of the Arbitration Award read, "This award is in full settlement of all claims submitted to the arbitrator, and all other claims and counterclaims of the parties not expressly granted herein are denied."
On May 22, 2007, Welch filed with the Circuit Court of Etowah County, Alabama an Application to Confirm Arbitration Award (Exhibit E to the Motion, and herein the "Circuit Court Application"). In the Circuit Court Application, Welch asked the circuit court to confirm the "Award as enforceable as a judgment upon which execution may issue." There was no request in the Circuit Court Application for the enforcement of a mechanic's lien or any mention of a lien securing the Arbitration Award. Apparently, the circuit court entered an order dated May 22, 2007 granting the relief sought by Welch in the Circuit Court Application; however, this Court was not furnished with a copy of the May 22, 2007 Order.
The Debtor filed her chapter 7 bankruptcy petition on May 31, 2007. On September 24, 2007, Welch filed a Motion to Amend Petition and Order Confirming Arbitration Award (Exhibit F to the Motion, and herein the "Amended Petition"). In the Amended Petition, Welch recognized that neither the Circuit Court Application nor the circuit court's order granting such Application made any mention of the Arbitration Award being secured by a mechanic's lien, and asked the circuit court to amend its order of May 22, 2007 "to reduce to judgment [Welch's] claim for a mechanic's lien against the property of the [Debtor] described in the attached notice of lien. . . ." Because the automatic stay was and remains in effect, this Court assumes the circuit court did not enter an order on the Amended Petition or any further orders relating to the Arbitration Award or Welch's sought-after mechanic's lien.
Finally, Welch filed with this Court, a pleading titled Supplemental Authorities in Support of Motion For Relief From Stay (the "Supplement") in which Welch argued "The bankruptcy court should abstain from deciding the perfection issue to allow the state court or the arbitrator to complete the award or resolve the ambiguity." This Court interprets the Motion and the Supplement as together requesting relief from the stay or abstention by this Court, to allow Welch not only to take the steps necessary to perfect or maintain his mechanic's lien under applicable state law, but also to allow the state circuit court to go forward with the establishment and enforcement of the lien, which will require an adjudication of the validity and extent of the lien.3
On July 30, 2007, the Chapter 7 Bankruptcy Trustee in this case, Rocco J. Leo (the "Trustee"), filed a Final Report of Trustee in No Asset Case; however, on August 6, 2007, the Trustee filed a Notice of Withdrawal of Final Report. Thus, the Property remains property of the bankruptcy estate under Section 1306 of the Bankruptcy Code.4
CONCLUSIONS OF LAW.
Welch was an original, or general contractor under the Agreement with the Debtor. A general contractor is required to take two steps to maintain his inchoate mechanic's lien for any unpaid balance due on a construction contract involving Alabama real property. First, he must file a verified statement of lien in proper form and containing the statutorily required information with the office of the judge of probate of the county where the construction project is located.5 ALA.CODE § 35-11-213 (1975); Metro Bank v. Henderson's Builders Supply Co., Inc., 613 So.2d 339 (Ala.1993). The verified statement must be filed by a general contractor within six months after the last work was performed or last item of materials furnished under the contract.6 ALA.CODE § 35-11-215 (1975). Second, within six months after the maturity of the debt secured by the inchoate lien, the contractor must commence an action in circuit court seeking the enforcement of his lien. ALA.CODE §§ 35-11-220, 221, 222 (1975); Metro Bank, supra.
If the property in which a mechanic's lien is claimed is property of a bankruptcy estate or a debtor's property, Sections 362(a)(4) and (5) stay any act to create perfect or enforce such lien.7 Nonetheless, Section 362(b)(3) excludes from such stay "any act to perfect, or to maintain or continue the perfection of, an interest [including a mechanic's lien] in property to the extent that the trustee's rights and powers are subject to such perfection under section 546(b) [of the Code]. . . ." Section 546(b)(1)(A) provides that the rights of the trustee "are subject to any generally applicable law that permits perfection of an interest in property to be effective against an entity that acquires rights in such property before the date of such perfection."
A mechanic's lien under Alabama law attaches to the property being improved when the work is performed or materials are delivered, and the lien is maintained or perfected by a general contractor when he files a verified statement of the lien with the county probate office and commences an action to enforce the lien with the circuit court, both within the time limits imposed by the applicable Alabama Code sections cited above. Anyone acquiring rights in the property after the mechanic's lien attaches, albeit before the lien is perfected, will be subject to the lien if it is later perfected. Metro Bank, supra; Greene v. Thompson, 554 So.2d 376 (Ala.1989). The law of Alabama establishing mechanics' liens is a "generally applicable law" falling within Section 546(b) because it allows a contractor, such as Welch, to acquire an inchoate lien against property before the date of perfection; subsequent perfection causes the lien to relate back to the time of its attachment and have priority over someone, including a chapter 7 trustee, who acquires rights in the property between such attachment and perfection. In re Neylon, 18 B.R. 765 (Bankr.S.D.Ala.1982); see also, WWG Indus., Inc. v. United Textiles (In re WWGIndus., Inc.), 772 F.2d 810 (11th Cir. 1985).
Welch filed his Amended Petition after the Debtor filed bankruptcy and without first seeking stay relief. In the Amended Petition, Welch asked the circuit court "to reduce to judgment [Welch's] claim for a mechanic's lien against the property of the [Debtor] described in the attached notice of lien. . . ." The Amended Petition was an obvious attempt by Welch to establish, perfect and enforce his lien against...
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