In re Premier Hotel Development Group

• Decision Date: 11 October 2001
• Docket Number: 01-20940. Adversary No. 01-2022.,Bankruptcy No. 01-20922,01-20923
• Citation: 270 BR 234
• Parties: In re PREMIER HOTEL DEVELOPMENT GROUP d/b/a Hospitality Consultants, The Carnegie Hotel, Austin Spring Spa & Salon, and Luigies EID XX-XXXXXXX and XX-XXXXXXX; Premier Investment Group d/b/a Premier Investments EID XX-XXXXXXX; and Samuel T. Easley ss XXX-XX-XXXX, Debtors. Durkan Patterned Carpet, Inc., a Georgia Corporation, Plaintiff, v. Premier Hotel Development Group, a Tennessee General Partnership; the Public Building Authority of the City of Johnson City, Tennessee; First Tennessee Bank National Association; and K. Newton Raff, Trustee, Defendants, and Durkan Patterned Carpet, Inc., Third-party plaintiff, v. TBN Enterprises, L.L.C., d/b/a Design Floor Systems, Third-party defendant.
• Court: U.S. Bankruptcy Court — Eastern District of Tennessee

270 B.R. 234 (2001)

In re PREMIER HOTEL DEVELOPMENT GROUP d/b/a Hospitality Consultants, The Carnegie Hotel, Austin Spring Spa & Salon, and Luigies EID XX-XXXXXXX and XX-XXXXXXX; Premier Investment Group d/b/a Premier Investments EID XX-XXXXXXX; and Samuel T. Easley ss XXX-XX-XXXX, Debtors.

Durkan Patterned Carpet, Inc., a Georgia Corporation, Plaintiff, v. Premier Hotel Development Group, a Tennessee General Partnership; the Public Building Authority of the City of Johnson City, Tennessee; First Tennessee Bank National Association; and K. Newton Raff, Trustee, Defendants, and Durkan Patterned Carpet, Inc., Third-party plaintiff, v. TBN Enterprises, L.L.C., d/b/a Design Floor Systems, Third-party defendant.

Bankruptcy Nos. 01-20922, 01-20923, 01-20940. Adversary No. 01-2022.

United States Bankruptcy Court, E.D. Tennessee.

October 11, 2001.

John S. Taylor, Esq., McKinnon, Fowler, Fox & Taylor, Johnson City, TN, for Durkan Patterned Carpet, Inc.

P. Edward Pratt, Esq., Suzanne H. Bauknight, Esq., Baker, Donelson, Bearman & Caldwell, Knoxville, TN, for First Tennessee Bank National Association and K. Newton Raff, Trustee.

MEMORANDUM

MARCIA PHILLIPS PARSONS, Bankruptcy Judge.

In this adversary proceeding, the plaintiff, Durkan Patterned Carpet, Inc. ("Durkan"), seeks to enforce its materialman's lien against the debtor's real property and a determination that its lien is superior to that held by the debtor's principal secured lender, First Tennessee Bank National Association ("First Tennessee"). Presently before the court is First Tennessee's motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), as incorporated by Fed. R. Bankr.P. 7012(b). The motion presents the primary issue of whether under Tennessee law a materialman's lien takes precedence over subsequent encumbrances if notice of the lien was filed more than ninety days after the materials were furnished but prior to the ninety-day period following completion of the structure. The other issue presented is whether a bankruptcy filing by the owner of the real property within ninety days after completion of the structure tolls the materialman's ability to file a notice of lien. Because the court answers both of these questions in the negative, First Tennessee's motion to dismiss will be granted.¹

I.

In its complaint filed on September 27, 2000, in the Chancery Court for Washington County, Tennessee, Durkan alleges that it entered into a contract with Premier Hotel Development Group, L.L.C. ("Premier LLC") to supply carpet and related materials to Premier LLC for installation in connection with the construction of the Carnegie Hotel in Washington County, Tennessee. Durkan alleges that it fully complied with the contract by furnishing the carpet, but that it has not been paid the sum of $63,755.55 which remains owing under the contract. Because of this failure, Durkan filed a "NOTICE OF MECHANIC'S AND MATERIALMAN'S LIEN" (the "Notice") in the register's office for Washington County, Tennessee on July 10, 2000. The Notice, a copy of which is attached to the complaint, was addressed to Carnegie Hotel and Premier LLC and specified that Durkan furnished materials "on or about March 17, 2000, and prior thereto."

Durkan also alleges in the complaint that at the time the contract was executed, Premier LLC owned the property upon which the Carnegie Hotel was located and that effective December 31, 1999, Premier LLC merged into Premier Hotel Development Group, a Tennessee general partnership ("PHDG"). By quitclaim deed dated March 23, 2000, PHDG conveyed the Carnegie Hotel property to the Public Building Authority of Johnson City, Tennessee, who by agreement dated that same day, leased the property back to PHDG and provided PHDG an option to repurchase the Carnegie Hotel property for $10. Also, on March 23, 2000, PHDG executed a deed of trust in favor of First Tennessee on the Carnegie Hotel property in order to secure a loan in the principal amount of $8,250,000. Durkan requests in the complaint that an attachment issue and be levied on the Carnegie Hotel property, that it be granted a judgment in the amount of $63,755.55 plus interest, that the judgment be declared a lien superior to First Tennessee's deed of trust and PHDG's leasehold interest, and that the court order the Carnegie Hotel sold in satisfaction of Durkan's judgment.

PHDG filed for chapter 11 relief on March 15, 2001, commencing the underlying bankruptcy case, and Durkan's state court action was removed to this court by the debtor on April 16, 2001. In its motion to dismiss, First Tennessee states that according to the allegations in the complaint, Durkan supplied materials on or about March 17, 2000, but did not record its Notice until July 10, 2000, some 115 days later. First Tennessee asserts that pursuant to TENN. CODE ANN. § 66-11-117, a materialman's lien relates back and takes precedence over all other subsequent liens only if notice of the materialman's lien is filed within ninety days following completion of the materialman's contract. First Tennessee contends that because Durkan's Notice was not filed within ninety days of March 17, 2000, it does not have precedence over First Tennessee's deed of trust recorded on March 23, 2000.

First Tennessee also asserts that Durkan's action against it should be dismissed because Durkan "failed to perfect its mechanic's lien through issuance of a proper attachment as required by TENN. CODE ANN. § 66-11-126." First Tennessee maintains that under TENN. CODE ANN. § 29-6-117(c), Durkan was required to post an attachment bond "double the amount of Durkan's claim" which "would have been in a minimum amount of $127,511.10 $63,755.55 × 2." Because Durkan only posted a bond in the amount of $500, First Tennessee argues that the attachment was void and did not perfect the Durkan's lien.

In response, Durkan asserts that under applicable law, a materialman may file its notice of lien within ninety days after expiration of its contract or within ninety days after the building is completed. Durkan maintains that because no notice of completion was ever filed on the Carnegie Hotel, the building was completed on January 19, 2001 when the final certificate of occupancy was issued. Thus, the argument continues, Durkan had ninety days after January 19, 2001, in which to perfect its lien. Because the debtor filed bankruptcy on March 15, 2001, during the ninety-day period following completion of the building, Durkan asserts that its ability to preserve its lien was stayed by the automatic stay of the bankruptcy filing and that pursuant to 11 U.S.C. § 108(c), the ninety-day period does not expire until thirty days after the stay is lifted.

With respect to First Tennessee's argument regarding the amount of the attachment bond, Durkan disagrees that Tennessee law requires the amount of the bond to be twice the amount sought. Instead, Durkan asserts that when the property to be attached is real property, TENN. CODE ANN. § 29-6-116(4) only requires "a bond in penalty sufficient to cover all costs and damages as same may be estimated by the issuing officer." Durkan states that the issuing officer for the state court determined the amount of the bond and that this amount is "perfectly satisfactory." Furthermore, argues Durkan, a defect in the bond is not cause for dismissal of the attachment and even if the amount of the bond is incorrect, Durkan should be permitted to modify the amount.

II.

The Tennessee statutory scheme for materialmen's liens is found in Title 66, Chapter 11 of the Tennessee Code under the heading "MECHANICS' AND MATERIALMEN'S LIENS." See TENN. CODE ANN. §§ 66-11-101 through XX-XX-XXX. These provisions appear to set forth two types of liens, with the distinction between the two turning not on whether goods or services are supplied as the heading suggests, i.e., a "materialman's lien" or a "mechanic's lien," but on whether the entity contracted directly with the owner of the real property as opposed to a contractor or a subcontractor. See Charles H. Barnett, Note, Mechanics' and Materialmen's Liens in Tennessee: Some Problem Areas, 5 U. MEM. L. REV. 359, 360 (1975).

In its brief filed in opposition to First Tennessee's motion to dismiss, Durkan states that it contracted directly with the owner of Carnegie Hotel when it agreed to supply carpet for the project. As such, the statutory basis for Durkan's lien is TENN. CODE ANN. § 66-11-102(a)² which provides in part that "there shall be a lien upon any lot of ground or tract of land upon which a house or structure has been erected . . . by special contract³ with the owner or the owner's agent, in favor of the contractor, mechanic, laborer, founder or machinist, who does the work . . . or furnishes the materials . . . for such building. . . ." A lien under this provision takes effect "from the time of the visible commencement of operations," see TENN. CODE ANN. § 66-11-104; and "continues for one (1) year after the work is finished or materials are furnished, and until the final decision of any suit that may be brought within that time for its enforcement." TENN. CODE ANN. § 66-11-106.

Because the contract is with the owner, no notice of the lien is required in order to perfect the lien as to the owner.⁴Walker Supply Co. v. Corinth Community Dev., Inc., 509 S.W.2d 514 (Tenn.App.1974). However, in order to perfect, or in the language of the statute, "preserve" the lien as to subsequent purchasers or encumbrancers for value without notice, the lienholder must file the contract or a sworn statement in lieu thereof with the register's office of the county where the real property is located. See TENN. CODE ANN. §§ 66-11-111 (applicable statute if contract filed)⁵ and 66-11-112(a) (sworn statement provision).⁶See also Don Huckaby Plumbing Co. v. Cardinal Indus. Mortgage Co., 848 S.W.2d 57, 59 (Tenn. 1993) (noting the two ways in which lien may be perfected as to subsequent third parties).

From the Notice...