In re Orndorff Const., Inc., Bankruptcy No. 06-11340.

• Decision Date: 25 August 2008
• Docket Number: Bankruptcy No. 06-11340.,Adversary No. 07-02048.
• Citation: 394 B.R. 372
• Parties: In re ORNDORFF CONSTRUCTION, INC., Debtor. Gerald S. Schafer, Trustee, Plaintiff, v. Carolina Kitchen and Bath, Inc., Defendant.
• Court: U.S. Bankruptcy Court — Middle District of North Carolina

Page 372

394 B.R. 372

In re ORNDORFF CONSTRUCTION, INC., Debtor.

Gerald S. Schafer, Trustee, Plaintiff, v. Carolina Kitchen and Bath, Inc., Defendant.

Bankruptcy No. 06-11340.

Adversary No. 07-02048.

United States Bankruptcy Court, M.D. North Carolina, Greensboro Division.

August 25, 2008.

Gerald S. Schafer, Greensboro, NC, pro se.

Billy Edwards, Jamestown, NC, for Defendant.

MEMORANDUM OPINION

THOMAS W. WALDREP, JR., Bankruptcy Judge.

This adversary proceeding came on before the Court on April 14, 2008, for hearing on cross motions for summary judgment. At the hearing, Billy Edwards represented Carolina Kitchen and Bath, Inc. ("Carolina Kitchen"), and J. Marshall Shelton represented the Chapter 7 trustee herein, Gerald S. Schafer (the "Trustee").

Carolina Kitchen performed work prepetition on real property in Guilford County, North Carolina, owned by the above-referenced debtor (the "Debtor"). When the Debtor failed to pay, Carolina Kitchen filed a claim for a materialman's lien in the Guilford County Register of Deeds pursuant to Chapter 44A of the North Carolina General Statutes. Under North Carolina law, an action to enforce a materialman's lien must be filed within 180 days after the last furnishing of labor or materials, or the lien is discharged. If the owner of the real property has filed bankruptcy, then North Carolina law also provides that the requirement for the commencement of an enforcement action may be satisfied by the filing of a proof of claim and the filing of a notice of lis pendens within the 180-day period. Carolina Kitchen did not file an enforcement action or a notice of lis pendens. Instead, 182 days after it last furnished labor or materials to the Debtor's property, Carolina Kitchen filed a proof of claim in the Debtor's bankruptcy.

After a Court-approved sale of the subject real property, the Trustee filed this adversary proceeding to avoid the lien claimed by Carolina Kitchen. The question presented is whether the Claim of Lien meets the requirements of N.C. Gen. Stat. § 44A-13 and Section 546(b) of the Bankruptcy Code, which allows a creditor to perfect, or to maintain the perfection of, a security interest in property after a debtor files for bankruptcy. If so, then the Claim of Lien is valid and enforceable. If not, then the Claim of Lien is discharged. For the reasons stated below, the Court finds that Carolina Kitchen failed to meet the requirements of N.C. Gen.Stat. § 44A-13(a) and that the lien lapsed 181 days after Carolina Kitchen last furnished labor or materials to the Debtor's property. The Court will grant summary judgment for the Trustee and deny summary judgment for Carolina Kitchen.

I. JURISDICTION

The Court has jurisdiction over the subject matter of this proceeding pursuant to 28 U.S.C. §§ 151, 157, and 1334, and the General Order of Reference entered by the United States District Court for the Middle District of North Carolina on August 15, 1984. This is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(a) and (k), which this Court may hear and determine.

II. FACTS

The facts are not disputed. On September 26, 2007, the Trustee filed a complaint challenging the validity of the lien of Carolina Kitchen on certain real property owned by the Debtor located at 5910 Crutchfield Farm Road, Guilford County, Oak Ridge, North Carolina (the "Property"). The claimed lien grew out of work that the Debtor contracted with Carolina Kitchen to perform on the Property. The invoice for the work performed was $14,856.96. The last day that Carolina Kitchen performed work or delivered materials to the Property was August 16, 2006.

The Debtor failed to pay Carolina Kitchen for the work performed, so on October 12, 2006, Carolina Kitchen filed a Notice of Claim of Lien (the "Claim of Lien") with the Guilford County Register of Deeds. On November 3, 2006, the Debtor filed its Chapter 7 bankruptcy, and the Trustee was appointed. On February 14, 2007, Carolina Kitchen filed a proof of claim in the Debtor's bankruptcy in the amount of $14,856.00 (the "Proof of Claim"). The Proof of Claim was filed 182 days after Carolina Kitchen last performed work or delivered materials to the Property. Carolina Kitchen did not file a notice of lis pendens, nor did it seek relief from stay to commence a lawsuit against the Debtor in state court.

III. STANDARD FOR SUMMARY JUDGMENT

The standard for summary judgment is set forth in Rule 56 of the Federal Rules of Civil Procedure, which is made applicable to this adversary proceeding by Rule 7056 of the Federal Rules of Bankruptcy Procedure. Rule 56 provides that the moving party will prevail on a motion for summary judgment if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). See also Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Adickes v. S.H. Kress & Co., 398 U.S. 144, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). In considering a motion for summary judgment, the court is required to view the facts and draw reasonable inferences in the light most favorable to the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Shaw v. Stroud, 13 F.3d 791, 798 (4th Cir.), cert. denied, 513 U.S. 813, 115 S.Ct. 67, 130 L.Ed.2d 24 (1994). The parties agree that there are no genuine issues of material fact.

IV. DISCUSSION

The decision of this case involves an analysis of several sections of the Bankruptcy Code, including Section 362 (Automatic Stay), Section 546 (Limitation on Avoiding Powers), and Section 108 (Extension of Time). These sections must be analyzed and read together, along with applicable provisions of North Carolina law, to reach the correct result.

A. Applicable Provisions of the Bankruptcy Code

A bankruptcy petition "operates as a stay ... of ... any act to create, perfect, or enforce any lien against property of the estate." 11 U.S.C. § 362(a)(4). An action to enforce a materialman's lien is clearly stayed by this section. In re Baldwin Builders, 232 B.R. 406, 412-13 (9th Cir. BAP 1999); In re Concrete Structures, Inc., 261 B.R. 627, 637 (E.D.Va.2001); In re Cook, 384 B.R. 282, 288-89 (Bankr. N.D.Ala.2008); In re WorldCom, Inc., 362 B.R. 96, 105, 108 (Bankr.S.D.N.Y.2007); In re Premier Hotel Development Group, 270 B.R. 234, 242 (Bankr.E.D.Tenn.2001); In re Richardson Builders, Inc., 123 B.R. 736, 738 (Bankr.W.D.Va.1990).

Exceptions to the applicability of the automatic stay are found in Section 362(b), including an exception for the post-petition perfection of an interest in property to the extent allowed by Section 546(b). Pursuant to Section 362(b)(3), a bankruptcy petition "does not operate as a stay ... of any act to perfect, or to maintain or continue the perfection of, an interest in property to the extent that the trustee's rights and powers are subject to such perfection under section 546(b)." An action to perfect a materialman's lien is excepted from the automatic stay by Section 362(b)(3). Richardson Builders, 123 B.R. at 738; Victoria Grain Co. of Minneapolis v. Janesville Elevator Construction, Inc. (In re Victoria Grain Co. of Minneapolis), 45 B.R. 2, 6 (Bankr.Minn.1984).

Section 544 gives a bankruptcy trustee the powers of a judicial lien creditor as of the date of the filing of the case, with the power to avoid liens that are not perfected or are improperly perfected. 11 U.S.C. § 544(a)(1). Section 545 gives the bankruptcy trustee the power to avoid the fixing of certain statutory liens on property of the debtor. 11 U.S.C. § 545. But Section 546(b)(1) and (2) limit the trustee's ability to avoid liens pursuant to Sections 544 and 545. Section 546(b)(1)(B) provides that "[t]he rights and powers of a trustee under §§ 544, 545 and 549 of this Title are subject to any generally applicable law that provides for the maintenance or continuance of perfection of an interest in property to be effective against an entity that acquires rights in such property before the date in which action is taken to effect such maintenance and continuation." Chapter 44A of the North Carolina General Statutes is such a statute. See Cook, 384 B.R. at 288 (state mechanics' lien law is "generally applicable law" within the meaning of § 546(b)). Finally, Section 546(b)(2) provides:

If (A) a law described in paragraph (1) requires seizure of such property or commencement of an action to accomplish such perfection, or maintenance or continuation of perfection of an interest in property; and (B) such property has not been seized or such action has not been commenced before the date of the filing of the petition, such interest in such property shall be perfected, or perfection of such interest shall be maintained or continued, by giving notice within the time fixed by such law for such seizure or such commencement.

11 U.S.C. § 546(b)(2). Thus, Sections 362(b)(3) and 546(b) allow a creditor to file a notice post-petition to perfect, or to continue or maintain the perfection of, a security interest. Baldwin Builders, 232 B.R. at 411.

The purpose of Section 546(b) is to protect those creditors whom state law protects by allowing them to perfect their prepetition liens through post-petition notice that relates back to the date of recording. In re 360 Networks (USA) Inc., 282 B.R. 756, 762 (Bankr.S.D.N.Y.2001); 5 Collier on Bankruptcy ¶ 546.03[1] (Alan N. Resnick & Henry J. Sommer eds., 15th ed. rev.2007). The Bankruptcy Reform Act of 1994¹ expanded the scope of Section 546(b) to include an act to maintain or continue perfection of a security interest.² WorldCom, 362 B.R. at 104 (citing Concrete Structures, 261 B.R. at 637). This amendment was meant to include acts to continue or maintain the perfection of security interests that would otherwise lapse...