In re Devey

• Decision Date: 17 August 2018
• Docket Number: Case No. 17-05751-JW
• Citation: 590 B.R. 706
• Court: U.S. Bankruptcy Court — District of South Carolina
• Parties: IN RE: Randy Lee DEVEY, Debtor.

590 B.R. 706

IN RE: Randy Lee DEVEY, Debtor.

Case No. 17-05751-JW

United States Bankruptcy Court, D. South Carolina.

Signed August 17, 2018

Michael Glen Matthews, Beaufort, SC, for Debtor.

ORDER SUSTAINING DEBTOR'S OBJECTION TO CLAIM

John E. Waites, US Bankruptcy Judge

This matter comes before the Court for a hearing on the debtor Randy Lee Devey's ("Debtor") objection to the proof of claim ("Claim") filed by Carrie Jones Peterson and Ryan William Peterson (collectively the "Petersons"). The Petersons, through counsel, filed a timely response to the objection ("Response"). A hearing on the objection and Response was held before the undersigned, and attended by counsel for the parties and the Chapter 13 Trustee ("Trustee").

After considering the arguments of counsel and the statements of the Trustee, together with other matters properly before the Court, the Court makes the following Findings of Fact and Conclusions of Law pursuant to Federal Rule of Civil Procedure 52, made applicable herein by Federal Rule of Bankruptcy Procedure 7052 :¹

FINDINGS OF FACT ²

1. Debtor commenced the above-captioned Chapter 13 case on November 14, 2017.

2. Prepetition, Debtor was named as a defendant in a state court lawsuit brought by the Petersons wherein they asserted various state law claims against Debtor, including breach of contract and fraud ("Litigation").³ Debtor filed for bankruptcy before the deadline for filing a responsive pleading in the Litigation. It is undisputed that as of the petition date, the Petersons' claims against Debtor were contingent and unliquidated.⁴

3. In his original schedules filed on November 14, 2017, Debtor listed the Petersons as the holders of an unsecured claim in an "Unknown" amount, arising from "unsecured credit," as a result of Petersons suing him prepetition for "breach of contract."

4. Debtor filed his proposed Chapter 13 plan on November 14, 2017 ("Plan"). The Plan provided that if there were funds available after payment of all other allowed claims, general unsecured creditors with allowed claims would be paid pro rata , but the Plan did not contemplate payment of 100% of general unsecured claims.

5. The Petersons were served with the Plan, and filed an objection to confirmation of the Plan on December 13, 2017 ("Peterson Plan Objection").

6. Debtor amended his schedules on February 13, 2018 to disclose as a previously omitted asset an account receivable in the amount of $7,332.37 owed to him by the Petersons, and to claim an exemption therein.

7. The Court held the continued confirmation hearing on March 12, 2018. At this hearing, the Court heard the testimony of the Petersons and Debtor, considered the evidence presented, and the arguments of counsel.

8. On March 13, 2018, the Petersons, through counsel, filed the Claim. In paragraph 8 of the Claim, the Petersons indicated that the basis of the Claim was a "lawsuit for breach of contract and fraud."⁵ The Petersons, however, did not attach a copy of the contract to the Claim, nor is there an explanation for the failure to attach the contract.⁶ Rather, the Petersons only attached to the Claim the following three (3) items:

a. "Carrie's Paperwork," is a chart containing entries totaling $140,137.30, covering a period commencing October 31, 2015 and ending on May 7, 2017. The document is not signed, notarized, or otherwise attested or verified. There is no reference in the document to the terms of any contract, nor is there an identification of the property to which the entries apply. The document does not appear to be a summary of the terms of the written contract. There are no supporting invoices or other documentation attached. The total appears to include $64,900 in payments to Debtor but lists other payments to third-party merchants and vendors, including references to credit card statements. There are no credits for value received in goods and services or anything that connects those goods and services to the property which is the subject of any contract. The following information is shown but does not appear to be included, credited, or accounted for in the total: "10/28/16 Randy's Sales Agreement – 2 pages $78,736."⁷

b. A letter on Patterson Construction Letterhead addressed to the Petersons, "Ref: Completion of Remodel" ("Patterson Letter"). The Patterson Letter is undated and signed by "David Summerall," but the letter does not identify Mr. Summerall or his capacity with Patterson Construction. The Patterson Letter does not reference Debtor, any contract between Debtor and the Petersons, or identify the property which is the subject of the quote. The Patterson Letter appears to be a quote for work to be performed on an unidentified property for a "Base bid: of $38,175.00," with an estimated project duration of thirty days. There is no indication that the work was performed.

c. A document entitled "Affidavit of Attorney's Fees" bearing the /s/ signature of the Petersons' then counsel, Naki Richardson-Bax. The document is not sworn, notarized, or offered under penalty of perjury, nor does it qualify as an unsworn declaration under 28 U.S.C. § 1746. The document appears to be a form affidavit used by counsel in domestic relations cases, as it cites to two state court divorce cases, and includes language regarding "the fact that there is no contingency of compensation in a domestic relations case." See Affidavit at ¶ 5. The document states that "in connection with this motion,"⁸ Ms. Richardson-Bax and "associated attorneys" spent "in excess of 53.9 hours," at the rate of $250 per hour, and support staff spent 19.1 hours at the rate of $150 per hour. The document seeks an award of $16,870.32, but does not specify the details of the work or time of performance, including whether the amount was incurred in connection with this bankruptcy case or the Litigation. The document does not disclose what portion of the $16,870.32 total is attributable to professional fees, and what portion is attributable to costs. The document also fails to identify any statute or contract provision entitling the Petersons to recover attorney's fees and does not indicate the existence or nature of any attorney's fee agreement between the Petersons and their counsel (i.e. hourly rate, contingency fee).

(collectively the "Attachments"). The Attachments appear to constitute a summary of alleged damages, but do not indicate the terms of any contract between the parties, including the scope of the work, duties and responsibilities of each party (including the duty to supply materials, allowances and overages, contact changes, etc.), consideration, or timing of performance. The Attachments do not indicate any intentional misrepresentations by Debtor or right to rely by the Petersons. The Attachments simply do not provide parties with sufficient information to ascertain the basis and accuracy of the Claim or the existence of the debt represented by the Claim.⁹

9. Although the Petersons have admitted in both the Statement of Dispute filed prior to the hearing and in statements at the hearing, through counsel, that the Claim is contingent and unliquidated, this is not indicated on the Claim, which actually purports to state that the Petersons are owed the sum certain amount of $195,182.70. Furthermore, there is no indication in the Claim that it is an estimated claim, although the Petersons, through counsel, stated at the hearing that the amount stated in the Claim represented an estimation of damages.

10. March 14, 2018 was the deadline for all creditors, except governmental units, to file a proof of claim. Five (5) unsecured creditors filed claims totaling $204,143.86. The largest claimant amongst them was the Petersons.

11. On April 11, 2018, this Court entered an Order overruling the Peterson Plan Objection and confirming Debtor's Plan ("April 11 Order"). The April 11 Order made the following holdings, which are relevant to this Order:

a. that § 707(b) is not applicable to Chapter 13 cases. April 11 Order at 5, n.10.

b. that there was no evidence that Debtor's amendments to his schedules were undertaken for a nefarious purpose. April 11 Order at 10-12.

c. that the Plan was filed in good faith, and there was no convincing evidence that Debtor attempted to manipulate or abuse the Bankruptcy Code. April 11 Order at 13-14, and 15.

d. that the Petersons failed to offer any convincing evidence to indicate to the Court that Debtor was dishonest in representing the facts of his case. April 11 Order at 13.

e. that the Petersons failed to offer any testimony or evidence regarding their specific issues with Debtor's work, or regarding the nature and scope of the job for which Debtor had been hired.* April 11 Order at 14.

f. that Debtor's decision to file bankruptcy and not respond to the Litigation, in and of itself, is not evidence of a lack of good faith. April 11 Order at 14.

g. that, although the Petersons had filed the Claim, "a copy of [the Petersons'] contract with the Debtor is not attached to the Claim or otherwise part of the record ...."*¹⁰ April 11 Order at 8, n.14.

12. The April 11 Order was not appealed, and is a final Order of this Court.

13. On April 26, 2018, Debtor filed his objection to the Petersons' Claim ("Objection"). Therein, Debtor challenged the Claim in the amount of $195,182.70 as unenforceable by asserting that the Claim's balance was not proper or supported, the Claim did not comply with Fed. R. Bankr. P. 3001, the Petersons, in fact, owed him $7,332.27, and the attorney's fees sought in the Claim have "no legal basis for recovery." In his Objection, Debtor asked that the Claim be disallowed in its entirety.

14. On May 29, 2018, the Petersons filed the Response to the Objection to Claim. Therein, the Petersons argued that:

a. their debt "is not a consumer debt;"

b. a proof of claim is prima facie evidence of validity and amount of the Claim;c. the Objection did not identify any specific grounds as to why the Claim should not be allowed;

d. the debt arose out of

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