In re Reed

• Decision Date: 09 December 2020
• Docket Number: Case No. 19-72449-FJS
• Court: United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — Eastern District of Virginia
• Parties: IN RE: Dawn Elaine REED, Debtor.

624 B.R. 155

IN RE: Dawn Elaine REED, Debtor.

Case No. 19-72449-FJS

United States Bankruptcy Court, E.D. Virginia.

Signed December 9, 2020

Christopher M. Baker, John Russell Bollinger, Matthew R. Hahne, Kathryne Mary Rose Shaw, Barry W. Spear, Boleman Law Firm, P.C., Virginia Beach, VA, for Debtor.

MEMORANDUM OPINION

FRANK J. SANTORO, Chief United States Bankruptcy Judge

Dawn Elaine Reed ("Dawn") filed a voluntary petition under chapter 13 of the Bankruptcy Code on June 27, 2019. Planet Plumbing, LLC ("Planet") filed an unsecured claim on July 19, 2019 (the "Original Claim"), which it amended on August 9, 2019 (the "Amended Claim"). On September 6, 2019, Dawn objected to the allowance of the Original Claim and the Amended Claim pursuant to 11 U.S.C. § 502(b)(1) and Federal Rule of Bankruptcy Procedure 3007 (the "Objection"), initiating a contested matter under Federal Rule of Bankruptcy Procedure 9014. Accordingly, this matter is a core proceeding over which this Court has jurisdiction under 28 U.S.C. §§ 157(b)(2)(B) and 1334(b). Venue is proper pursuant to 28 U.S.C. §§ 1408 and 1409(a).

The Court convened a preliminary hearing on the objection on October 22, 2019. Following the preliminary hearing, the Court established pre-trial deadlines and set the matter for trial to be convened on March 11, 2020. Pre-Trial Order, ECF NO. 26. At trial, the Court received evidence in the form of witness testimony and exhibits.¹ Upon the conclusion of trial, the Court ordered the parties to submit post-trial briefs and reserved the right to schedule oral arguments if the Court deemed necessary upon its review of the briefs. Following review of the parties' post-trial briefs, the Court took the matter under advisement.

Upon consideration of the evidence presented at trial and for the reasons set forth below, the Court finds and concludes that the Amended Claim shall be allowed in the amount of $74,429.23, with no prejudgment interest awarded. This memorandum opinion constitutes the Court's findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52, as incorporated into the Federal Rules of Bankruptcy Procedure by Rule 7052.

I. Findings of Fact

a. The Renovations

In the fall of 2013, Dawn owned two pieces of real property: a home located at 241 Bridge Landing Court, Virginia Beach, Virginia ("Bridge Landing") and a home located at 2633 East Lake Drive, Virginia Beach, Virginia ("East Lake"). Tr. of Mar. 11, 2020 Trial ("Tr.") 41:12-42:9, ECF No. 51. Knowing her employment contract would expire at the end of 2013, Dawn anticipated that she would soon be unable to afford the mortgages on both properties. Id. 45:11-12. Dawn thus sought to sell East Lake while she continued to reside at Bridge Landing with her mother and her daughter. See id. 41:19-42:18. Her efforts to sell East Lake proved successful when she received an offer in late October of 2013. Claimant's Ex. BK. But the receipt of the offer led Dawn to reevaluate whether to sell East Lake—a home that had been in her family for twenty-five years, Tr. 42:8-9—or renovate East Lake and reside there. See Claimant's Ex. BK.

With the pressure of having an offer to purchase East Lake on the table, Dawn discussed the possibility of renovating East Lake with Jack Reed ("Jack"), her brother and the president of Planet. See id. At trial, Dawn testified that Jack approached her with a "plan to fix the family home up" with all labor to be performed by him at no cost to Dawn. Tr. 42:13-43:8. However, the text messages between the two following Dawn's receipt of the offer to purchase East Lake do not suggest that Jack made such a proposal. Rather, in a primarily one-sided string of text messages, Dawn pitched to Jack the many personal and financial advantages of renovating East Lake so that she could relocate there. See Claimant's Ex. BK. Dawn assured Jack repayment of "every last penny" if he could "make the house liveable and make sure it is mold free" and pleaded that she would "do anything" if he agreed to undertake the renovation project. Id. Dawn added that the renovations would have to be done quickly so she could put Bridge Landing on the market as soon as possible. Id. Over the course of a few days, Dawn pressed Jack for an answer, but received no response. See id.

An email exchange in early November 2013 between Dawn and Kim Reed ("Kim"), Jack's wife and Planet's bookkeeper, imply that further discussions between Dawn and Jack had ensued, resulting in Dawn's decision to renovate East Lake in lieu of going through with the sale. See Claimant's Ex. BL. In her emails to Dawn, Kim emphasized multiple times that the East Lake renovations must be performed by Planet "as a job" with repayment upon completion. Id. Kim also expressed her concern that the necessary renovations would require "a lot of man hours" and cost far in excess of the limited funds—up to $15,000—that Planet had on hand, and that Dawn would be unhappy with how little time Jack could invest in the project.² Id. Kim urged Dawn to reconsider.

Id. In response, Dawn assured Kim that her objective was only to make East Lake "liveable" and that the renovations would not be prolonged. Id. ("[Jack] agreed that this would be a fast process as my [employment] contract ends Dec 31, so neither of us wants to drag it out."). Dawn acknowledged that she would benefit because Planet would begin work without upfront payment, but confirmed her understanding that Planet was undertaking the project "as [a] job" and reiterated her commitment to "pay back every cent." Id.

With Dawn's employment contract set to expire at the end of 2013, it was essential to renovate East Lake as soon as possible so that she could move in and sell Bridge Landing. See Tr. 79:14-21; Claimant's Ex. BL; Debtor's Ex. 5. Dawn also needed to sell Bridge Landing because she believed she possessed equity in Bridge Landing of "about $40- to $50,000" that would enable her to repay Planet for the renovations to East Lake from the proceeds of the Bridge Landing sale. Tr. 44:17-22, 61:13-17. Dawn testified that, before renovations commenced, Jack had assured her that the work would be done in time for her to move into East Lake by the end of 2013. Id. 79:11-21; see also Claimant's Ex. BL; Debtor's Ex. 5. Though Jack denies that he assured this outcome, he agrees that he and Dawn discussed having East Lake move-in ready by the year's end. Tr. 69:7-11. Indeed, an anticipated quick turnaround on the project is consistent with Jack's testimony as to his initial understanding of the scope of the renovations, which included primarily cosmetic items such as paint, sheetrock repair, and new carpeting. Id. 62:16-22.

The parties agree that the East Lake renovations did not commence in 2013 as originally intended. Id. 67:19-23; 80:6-8. When work did begin in 2014, the scope of the project expanded to address the effects of a latent water leak, and ultimately included painting, countertop replacement, hardwood floor refinishing, interior and exterior demolition, framing, door installation, elevated deck construction, siding installation, sheetrock installation, plastering, drywall repair, baseboard and molding installation, scraping of textured ceilings, bathroom remodeling, and carpet replacement. See id. 46:15-19, 47:3-16, 62:23-63:3, 73:5-16, 75:18-19; Claimant's Exs. A, H, L, M. After the project was underway, Dawn checked on the progress periodically at Jack's direction. Tr. 54:9-17.

To complete the East Lake renovations, Planet enlisted the assistance of subcontractors. See id. 54:9-17, 63:5-19; Claimant's Ex. A. The parties disagree on whether this was contemplated. Jack claimed that Dawn understood that the project would require the use of subcontractors and that hiring subcontractors is customary and necessary when a job requires skilled trades outside Planet's expertise. Tr. 63:5-11, 71:7-16. Whereas Dawn testified that she believed that only Jack himself would perform the labor and would do so gratuitously. Id. 55:6-8. Nevertheless, it is uncontroverted that, after the renovations commenced, Dawn was aware of Planet's use of subcontracted labor at East Lake. Id. 54:9-17. Dawn also communicated directly with Brian Evans ("Evans"), who Planet subcontracted to perform a substantial portion of the renovations, concerning aspects of his work at East Lake, including the selection of fixtures and finishes. Id. 17:24-18:2, 19:21-22; Claimant's Exs. BO, BQ. Although Dawn was concerned that she could not afford to pay for the subcontracted labor, she did not direct that Planet cease the use of subcontractors or order the subcontractors to stop work. Tr. 48:4-14; see id. 54:18-20. Rather, Dawn testified that she raised her concerns regarding the cost with Jack, who advised her not to worry. Id. 48:11-14, 54:18-20.

Dawn was able to move into East Lake in September of 2014. Id. 44:6-7. At that time, Dawn reiterated her understanding that she must repay Planet. Claimant's Ex. BR ("I am an honorable person and have nearly killed myself cleaning, packing, and moving as I know I need to repay you."). Seven months later and facing the threat of foreclosure, Dawn ultimately sold Bridge Landing via a short sale on April 29, 2015.³ Tr. 44:1-5; Stip. of Facts ¶ 2, ECF No. 44. She continues to reside at East Lake. Tr. 41:11-12.

Following the completion of renovations, Planet prepared a breakdown invoice itemizing its costs for the project (the "Breakdown Invoice"). Id. 28:11-17; Claimant's Ex. A; Debtor's Ex. 1. Jack testified that Planet segregates receipts for its jobs into separate folders so that receipts are not comingled and that none of the items purchased for Dawn's renovations were used on any other job. Tr. 65:23-66:12. Dawn presented no evidence to controvert this testimony or that would demonstrate that any charge itemized on the Breakdown Invoice did not in fact represent an amount that Planet expended on her behalf. The parties agree that Planet provided the...