Opinion
Case No. 19-56885 (Jointly Administered)
2023-09-30
IN RE: MURRAY ENERGY HOLDINGS CO., et al., Debtors.
Tiffany Strelow Cobb, Columbus, OH, Melissa S. Giberson, Vorys, Sater, Seymour and Pease LLP, Columbus, OH, Todd Goren, Lorenzo Marinuzzi, Jennifer Marines, Morrison & Foerster LLP, New York, NY, for Creditor Committee. Jeremy Shane Flannery, Benjamin A Sales, Office of the United States Trustee, Columbus, OH, Monica V. Kindt, John W. Peck Federal Building, Cincinnati, OH, for U.S. Trustee.
Tiffany Strelow Cobb, Columbus, OH, Melissa S. Giberson, Vorys, Sater, Seymour and Pease LLP, Columbus, OH, Todd Goren, Lorenzo Marinuzzi, Jennifer Marines, Morrison & Foerster LLP, New York, NY, for Creditor Committee. Jeremy Shane Flannery, Benjamin A Sales, Office of the United States Trustee, Columbus, OH, Monica V. Kindt, John W. Peck Federal Building, Cincinnati, OH, for U.S. Trustee. MEMORANDUM OPINION AND ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR SUMMARY JUDGMENT SUSTAINING THE DEBTORS' FIRST OMNIBUS OBJECTION TO MECHANIC'S LIEN CLAIMS OF WAYNE'S WATER 'N' WELLS , INC. (Doc. 2407) AND GRANTING IN PART AND DENYING IN PART WAYNE'S WATER 'N' WELLS, INC.'S MOTION FOR SUMMARY JUDGMENT OVERRULING THE FIRST OMNIBUS OBJECTION TO WORKMAN'S LIEN CLAIMS John E. Hoffman, Jr., United States Bankruptcy Judge
I. Introduction
An objection to over nearly $300,000 in claims filed for unpaid services now boils down to less than $3,000 in disputed interest charges included in those claims. Murray Energy Holdings Co. and its affiliated debtors and debtors in possession ("Debtors") initiated this contested matter by filing an objection (Doc. 1749) to the mechanic's lien claims of Wayne's Water 'N' Wells, Inc. ("Wayne's"). The plan administrator appointed under the Debtors' confirmed Chapter 11 plan ("Plan Administrator") then filed its motion for summary judgment on the claim objection ("Motion") (Doc. 2407) and Wayne's filed its own summary judgment motion (Doc. 2525). For the reasons stated below, the Plan Administrator's motion for summary judgment is granted in part and denied in part, and Wayne's motion for summary judgment is likewise granted in part and denied in part.
II. Jurisdiction and Constitutional Authority
The Court has jurisdiction to hear and determine this matter under 28 U.S.C. § 1334(b) and the general order of reference entered in this district in accordance with 28 U.S.C. § 157(a). An action seeking the allowance or disallowance of claims against the estate is a core proceeding, see 28 U.S.C. § 157(b)(2)(B), as is the determination of the validity, extent, or priority of liens, see 28 U.S.C. § 157(b)(2)(K). "To the extent [a] matter involves a determination of the validity, extent and priority of liens on property of the estate and claims against such property, the matter 'would necessarily be resolved in the claims allowance process,' " BMO Harris Bank, N.A. v. Vista Mktg. Grp., Ltd. (In re Vista Mktg. Grp., Ltd.), 548 B.R. 502, 512 (Bankr. N.D. Ill. 2016) (quoting Stern v. Marshall, 564 U.S. 462, 499, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011)), and a bankruptcy court therefore would have the constitutional authority to finally adjudicate it. See Waldman v. Stone, 698 F.3d 910, 919 (6th Cir. 2012) ("When a debtor . . . seeks disallowance of a creditor's claim against the estate . . . the bankruptcy court's authority is at its constitutional maximum."); Black Diamond Comm. Fin. L.L.C. v. Murray Energy Corp. (In re Murray Energy Holdings Co.), 616 B.R. 84, 87 (Bankr. S.D. Ohio 2020) ("[B]ankruptcy courts have the constitutional authority to enter final orders adjudicating the validity and priority of liens on property of the estate."). The Court accordingly has the constitutional authority to finally adjudicate this contested matter.
III. Background
A. The WV-Eligibility Opinion
Wayne's proofs of claim that are the subject of this opinion, claim numbers 1780 and 1801 ("Claim 1780" and "Claim 1801"), are based on the mechanic's liens it filed in West Virginia. Mechanic's liens are "statutory lien[s] secured by real or personal property, often for goods or services supplied in connection with improving, repairing or maintaining the property." In re Murray Energy Holdings Co., 639 B.R. 463, 467 (Bankr. S.D. Ohio 2022) ("WV-Eligibility Opinion"). This is not the first time these claims have been before the Court. The Court previously issued its WV-Eligibility Opinion, which addressed the secured status of Wayne's claims and those of other creditors that asserted secured claims based on their West Virginia's mechanic's liens. See WV-Eligibility Op., 639 B.R. at 463. In the WV-Eligibility Opinion, the Court considered whether Wayne's and other mechanic's lien claimants were eligible to file mechanic's liens under West Virginia's laborer's lien statute, W.Va. Code § 38-2-31 (West 2023) ("Section 31") or were required, as the Plan Administrator contended, to file their mechanic's liens under West Virginia's contractor's lien statute, W.Va. Code § 38-2-1, which they failed to do.
The Court granted partial summary judgment to Wayne's and the other mechanic's lienholders on the eligibility issue, holding that they had a right to file mechanic's liens under the laborer's lien statute. Id. at 490. But the Court held that Section 31 provides priority to a lienholder over later-filed liens only "to the extent and value of one month's . . . work or labor" and that another West Virginia statute, W. V. Code § 38-2-33 ("Section 33"), requires mechanic's lienholders to state in their notices of lien the one-month amounts for which they claim priority status. Ordinarily, when a bankruptcy court uses the phrase "priority status," it does so to denote that a particular unsecured claim or expense is entitled to priority in payment under §507 of the Bankruptcy Code. See 11 U.S.C. § 507. Here, however, the Court uses the phrase "priority status" to refer to the priority that Section 31 grants a mechanic's lienholder over a later-filed lien to the extent of one month's work or labor. And when the Court finds that all or part of an amount on a Wayne's invoice is entitled to "priority status," that amount may be included in calculating the allowed amount of Wayne's related secured claims.
In the WV-Eligibility Opinion, the Court found that Wayne's had not properly stated its one-month amount in the notices of lien it filed and thus deferred a ruling as to what portion of Wayne's claim had priority status vis-a-vis later filed liens until Wayne's had the opportunity to comply with the directives set forth in that opinion. Id. at 489-490. Wayne's then filed Wayne's Water 'N' Wells, Inc.'s Statement of Days Worked and Election of Priority ("Priority Statement") (Doc. 2939) with exhibits (Doc. 2939-1), and the Plan Administrator responded with the Plan Administrator's Objection to Wayne's Water 'N' Wells, Inc.'s Statement of Days Worked and Election of Priority ("Objection") (Doc. 2954).
Proof of claim number 1780 is Exhibit 1 to the Priority Statement, and proof of claim number 1801 is Exhibit 7 to the Priority Statement.
B. Calculation of Wayne's One-Month Priority Amount
Consistent with the Court's instruction in its prior opinion, Wayne's elected a one-month priority period starting July 17, 2019 and ending August 17, 2019 ("Priority Period") as to both claims. Priority Statement at 8.
1. Claim 1780
Wayne's Claim 1780 asserts a secured claim in the amount of $98,089.08 for work "performed no earlier than July 26, 2019 and no later than August 12, 2019," all of which fell within the Priority Period. Priority Statement at 4.
a. Principal
Claim 1780 is based on two Notices of Workman's Lien filed against the Marshall County Coal Company and two corresponding invoices. Invoice No. 3180, for $49,783.60, covers work performed at the 18E-2 Degas Borehole, and Invoice No. 3179, in the amount of $47,252.70, is for work performed at the 18E-3 Degas Borehole. Priority Statement at 3. According to Wayne's, it completed all work at Borehole 18E-2 between August 5, 2019 and August 12, 2019, id. at 4, and it completed work at Borehole 18E-3 between July 26, 2019 and August 5, 2019. Id. at 2-3.
The work that Wayne's performed included the drilling of boreholes. A borehole is "a hole created in the earth to obtain a fluid," such as water. Story of Stuff Project v. United States Forest Serv., 366 F. Supp. 3d 66, 81 (D.D.C. 2019).
Both borehole locations are in Marshall County, West Virginia, and both notices of lien were filed with the Marshall County Clerk on November 1, 2019. Id. at 2. The total of these notices of lien and invoices is $97,036.30.
b. Interest
Claim 1780 was filed in the amount of $98,089.08. The difference between the proof of claim total of $98,089.08 and the total of $97,036.30 stated in the notices of lien and invoices—$1,052.78—represents the combined finance charges for the two jobs: $540.12 on Job 18E-2 and $512.66 on Job 18E-3. Id. at 3-4. Both finance charges were accrued from the invoice payment-due date to the bankruptcy petition date. Id. at 3, 4. And each invoice says that Wayne's determined the amount of the finance charges on past due invoices in the following manner: "All past due invoices are subject to a finance charge of 1.5% per month. Annual rate 18%." Claim 1780, Exs. A and B. This 18% annual finance charge rate is identified as an 18% "annual interest rate" on the proof of claim form. Claim 1780 at 2. The amounts themselves, however, are not found on either invoice, nor are they stated in Wayne's Notices of Workman's Lien.
2. Claim No. 1801
Wayne's Claim 1801 asserts a secured claim against the Ohio County Coal Company in the amount of $212,456.50 for work performed between July 17, 2019 and August 19, 2019. All but the last of these days falls within the Priority Period. Priority Statement at 8.
a. Principal
Claim 1801 is based on charges for work done on three boreholes at a location known as 8 South in Marshall County, West Virginia. Id. at 5. This work is described in one Notice of Workman's Lien filed with the Marshall County Clerk on November 1, 2019. Id. at 5. The lien refers to two invoices: Invoice No. 3181 and Invoice No. 3197. Id. The principal amount of Claim No. 1801 is $210,668.11. Id.
b. Interest
Wayne's asserts that interest of $909.18 on Invoice 3181 and interest of $858.56 on Invoice 3197, for a total of $1,767.74, are proper components of its allowed secured claim. Id. at 9. In calculating the finance charges that it included to arrive at the total amount of its Claim 1801, Wayne's used the same method described above with regard to Claim 1780. With the addition of the interest charges, the total amount for which Wayne's seeks priority status in Claim No. 1801 is $209,922.85, id. at 9, and it seeks allowance of that entire amount as a secured claim. The finance charge amounts themselves are not stated in Wayne's Notice of Workman's Lien or on either invoice.
c. Amount Outside Priority Period
One day of work included in Claim 1801 fell outside the Priority Period—reimbursement to a third-party hauler for $938, plus backfilling, seeding and mulching at the site at a cost of $1,575, all of which occurred on August 19, 2019. Id. at 8. Wayne's concedes that the August 19 charges totaling $2,513 were incurred outside the Priority Period and thus are not entitled to priority status. In addition, of the total finance charges of $1,788.39 listed on the proof of claim, Wayne's treats $20.65 as nonpriority because it is attributed to the August 19, 2019 work that was done outside the Priority Period. These two adjustments bring the total secured priority request from $212,456.50 as set out in the proof of claim to $209,922.85 as set out in Wayne's Priority Statement. Id. at 9.
C. The Plan Administrator's Response
The Plan Administrator did not object to the principal amounts contained in the Priority Statement, which fall within the one-month period referred to in Sections 31 and 33. The Court's prior opinion provided that "[i]f no objection is filed, that one-month amount calculated by Wayne's for each claim will be allowed as a secured claim with priority over any subsequent lien." WV-Eligibility Opinion, 639 B.R. at 489. In keeping with that prior opinion, and given the Plan Administrator's failure to object to the principal amount of Wayne's claims, the Court grants summary judgment in favor of Wayne's as to the principal amounts of $97,036.30 stated in Claim 1780 and $208,155.11 stated in Claim 1801. Both claims shall be allowed as secured claims with priority over any subsequent liens and shall not be reclassified as general, unsecured claims.
The Plan Administrator objects only to the finance charges totaling $2,820.52, arguing that Section 31 does not allow mechanic's liens to include finance charges. That section reads:
Every workman, laborer or other person who shall do or perform any work or labor, for an incorporated company doing business in this State, by virtue of a contract either directly with such incorporated company or with its general contractor or with any subcontractor, shall have a lien for the value of such work or labor upon all real estate and personal property of such company; and, to the extent and value of one month's such work or labor, said lien shall have priority over any lien created by deed or otherwise on such real estate or personal property subsequent to the time when
such work or labor was performed . . . [.]W. Va. Code § 38-2-31.
According to the Plan Administrator, "the 'finance charges' do not relate to the value of the work itself. Rather, they are 'calculated at 1.5% per month from the payment due date'—a calculation relating to the passage of time after the work was done rather than anything related to the value of the work." Obj. at 3. And so, the argument goes, "those charges do not fall within what the West Virginia Code allows Wayne's to secure with a lien, nor do they fall within what Wayne's may be able to claim regarding priority over subsequent liens." Id. Thus, the Plan Administrator argues, the finance charges "are neither entitled to a lien nor lien priority." Id.
IV. Legal Analysis
Neither party presents caselaw addressing whether a mechanic's lien created by Section 31 may secure interest charged by the lienholder on the outstanding amounts owed. Nor has the Court found any authority directly on point. But one West Virginia case, Farley v. Zapata Coal Corp., 167 W.Va. 630, 281 S.E.2d 238 (1981), was decided in an analogous context. In Farley, the Supreme Court of Appeals of West Virginia ruled that under Section 31, the "value of such work or labor" means "all compensation contracted to be paid . . . regardless of the nature of such compensation." Id. at 242 (emphasis added). Farley addressed a claim for wages, sick pay, vacation pay and other fringe benefits. While the Farley court defined compensation broadly, it seems doubtful that a contractor's interest charges would qualify. But even if they did, Farley requires that any amount claimed must have been "contracted to be paid." And as discussed below, neither Wayne's contract with Marshall County Coal Company nor the purchase orders documenting work done for the Ohio Coal Company call for the payment of interest on outstanding amounts owed.
Wayne's executed an Intermittent Work Contract ("Work Contract") with the Marshall County Coal Company, but it apparently had no Work Contract with the Ohio County Coal Company, relying on purchase orders instead. Roe Decl., Doc. 2407-3, Ex. A at 3. The Work Contract between Wayne's and the Marshall County Coal Company, see Roe Decl., Doc. 2407-3, Attachment 1, is silent as to interest or finance charges. The only section of the Work Contract dealing with payment provides:
In consideration of the satisfactory completion of Work contemplated and required by this Contract, Company shall pay and Contractor shall accept as full compensation for the Work as follows: (a) on a force account basis, as per labor, material and equipment rates set forth in Exhibit B hereto; or (b) on a lump sum basis, quoted by Contractor and agreed to by Company for each project, as set forth in future work orders and purchase orders issued by the Company.Id. at 7. Under Farley, because Wayne's did not contract with either the Marshall County Coal Company or the Ohio County Coal Company for the payment of interest on unpaid invoices, it is not entitled to claim priority status for the finance charges included in its Priority Statement.
There is no Exhibit B attached to the Work Contract.
Another opinion by the West Virginia high court—although not addressing Section 31 mechanic's liens—also undercuts Wayne's position. In Bluefield Supply Co. v. M.P. Smith Constr. Co., 115 W.Va. 537, 177 S.E. 296 (1934), a creditor argued it should be allowed interest from the date that sums payable to it from a subcontractor became due, rather than from the date of the filing of its notice of lien. Id. at 301. In considering the creditor's position, the court held that "[i]nterest, when properly . . . claimed in the notice of lien, is lienable." Id. But because the creditor "did not specifically claim[ ] interest from the due dates of the . . . invoices" in its notice of lien, the Bluefield court determined that the lower courts properly restricted the allowance of interest to the time of the filing of the notice of lien. Id.
The creditor in Bluefield provided the amount of interest it claimed in its notice of lien. But Wayne's Notices of Workman's Lien fail to state the amount of interest Wayne's claims; in fact, the Notices fail to mention interest or finance charges at all. See Notices of Workman's Lien, Doc. 2939-1 at 21, 24, 58. While each Notice identifies the invoice number on which the lien is based, the invoices state only how interest would be calculated in the event of nonpayment. See, e.g., Invoice, Doc. 2939-1 at 19 (stating that "a[ll] past due invoices are subject to a finance charge of 1.5% per month" with an annual rate of 18%); Invoice, Doc. 2939-1 at 20 (same). And neither the Notices nor their underlying invoices provide an amount of interest charged or claimed. Wayne's Notices of Workman's Liens, which fail to mention interest at all, would not put any third party on notice of the amount of interest claimed by Wayne's liens, and could not possibly "properly" or "specifically" claim those amounts. Bluefield, 177 S.E. at 301. Under Bluefield, then, Wayne's has therefore failed to properly claim its interest in its notice of lien.
Because Wayne's failed to call for the payment of interest amounts in the Work Contract and did not refer to the charges at all in the Notices of Workman's Lien, it is not entitled to claim priority status for interest of $2,820.52.
V. Conclusion
For the reasons set forth above, Wayne's motion for summary judgment is GRANTED as to the $97,036.30 principal amount stated in Claim 1780 and the $209,922.85 principal amount stated in Claim 1801. The Plan Administrator's request for summary judgment on the issue of the allowance of these claims—as to which the Court deferred a ruling until the parties were afforded an opportunity to comply with the directives set forth in the WV-Eligibility Opinion—is DENIED. Because both principal amounts stated in Claims 1780 and 1801 fall within the one-month period specified in Section 31, those sums shall be allowed as secured claims and shall not be reclassified as general, unsecured claims.
The Plan Administrator's request for summary judgment on the issue of whether the interest charges included in invoices attached to Claims 1780 and 1801 are entitled to priority status (which, again, the Court deferred a ruling on pending the parties' compliance with the WV-Eligibility Opinion) is GRANTED, and Wayne's motion for summary judgment is DENIED as to interest charges in the amount of $2,820.52. The interest amount shall be reclassified as a general, unsecured claim.
IT IS SO ORDERED.