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In re Phillips Rental Properties, LLC

United States District Court, E.D. Tennessee, Greeneville

April 10, 2015



CURTIS L. COLLIER, District Judge.

Before the Court is an appeal by Phillips Rental Properties, LLC ("Appellant") from the order of the United States Bankruptcy Court for the Eastern District of Tennessee allowing Arthur S. Roberts, Jr d/b/a Country Aire Construction ("Roberts" or "Appellee") to recover in quantum meruit. Appellant and Appellee filed respective briefs (Court File No. 4 & 8, respectively). After holding a hearing and giving careful consideration to the parties' arguments, the relevant case law, and the evidentiary record, the Court AFFIRMS the order of the bankruptcy court.


Appellant Phillips Rental Properties, LLC is a real estate development and apartment leasing business; Gary Phillips Construction ("GPC") is a building company; and Appellee Roberts is a subcontractor. In 2006 GPC and Appellee entered into a master agreement for Appellee to provide fill dirt hauling services. Starting in April 2008, GPC directed Appellee to haul fill dirt from a Johnson City municipal project known as the Brush Creek Water and Sewer Project ("Bush Creek") to a GPC site located at 2018 and 2020 Indian Ridge Road in Johnson City, Tennessee (the "Property"). Appellant owned the Property. Appellee agreed to haul the fill for $20 per load.[1] Appellee sent periodic invoices to GPC for a few months, but they went unpaid. In September 2008, Appellee stopped hauling fill to the Property because of continued nonpayment. GPC failed to pay for 1, 842 loads between April and September 2008. GPC and Appellant contend the fill dirt was useless.

In April 2009, Appellee filed a complaint in Washington County Court to enforce a materialman's lien for the unpaid hauling services. Appellant filed an answer and some discovery was taken. In December 2010, however, Appellant and GPC both filed for Chapter 11 bankruptcy (GPC's appeal to this Court was Case No. 2:12-CV-420, which concluded in a settlement between Appellee and GPC).

In April 2011, Appellee filed a proof of claim in the bankruptcy court before the claims bar closed. Appellant, the Debtor in possession, filed an objection in January 2012 to Appellee's second amended proof of claim. Appellant asserted the materialman's lien had expired for failure to comply with Tenn. Code Ann. §§ 66-11-101, et seq. In February 2012, the bankruptcy court agreed with Appellant and ruled that Appellee was not entitled to a materialman's lien because he failed to properly attach the property in state court.

However, after ruling that Appellee was not entitled to the lien, the bankruptcy court allowed him to file a third and final amendment to his proof of claim so he could seek recovery in quantum meruit. Appellee filed his third amended proof of claim in March 2012. Appellant did not object to this on procedural grounds, but it filed an objection to the quantum meruit claim on the merits. The bankruptcy court held a trial on the claim in July 2012.[2] The bankruptcy court denied Appellant's objection to the third amended proof of claim and allowed Appellee to recover in quantum meruit. The court determined Appellant owed Appellee $36, 440 (1, 822 loads at $20 each). Appellant now appeals from the bankruptcy court's order allowing recovery in quantum meruit (Court File No. 1-41).


The district court has appellate jurisdiction to hear appeals from final judgments and orders of the bankruptcy court pursuant to 28 U.S.C. § 158(a)(1). The bankruptcy court's factual findings are reviewed for clear error and its conclusions of law are reviewed de novo. In re Behlke, 358 F.3d 429, 433 (6th Cir. 2004). A finding of fact is considered clearly erroneous if "the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." Heights Cmty. Cong. v. Hilltop Realty, Inc., 774 F.2d 135, 140 (6th Cir. 1985).


Appellant raises four appeal issues, which the Court will address in turn.

A. Amendment to Claim of Proof

Appellant first argues that the bankruptcy court erred in allowing Appellee to raise the quantum meruit theory in an amended proof of claim, long after the claims bar, once he received an adverse decision on his materialman's lien claim. As an initial matter, the Court observes that while Appellant objected before the bankruptcy court to the merits of the quantum meruit claim ( see Court File No. 1-25), it does not appear Appellant ever objected to the procedural propriety of allowing the amended proof of claim in general or the inclusion of the quantum meruit claim in particular. Appellate courts ordinarily do not consider issues a party fails to raise in the court below, and this rule applies equally to district courts hearing bankruptcy appeals. See In re De Jounghe, 334 B.R. 760, 766 (B.A.P. 1st Cir. 2005). For this reason alone, the Court has grounds to reject the instant appeal ground. To the extent the issue could be considered properly before the Court, however, Appellant's arguments are unavailing.

The bar date in a Chapter 11 case is important for providing the debtor and creditors with finality. However, amendments coming after the bar date to timely creditor proofs of claim are liberally permitted "[1] to cure a defect in the claim as originally filed, [2] to describe the claim with greater particularity or [3] to plead a new theory of recovery on the facts set forth in the original claim. " In re Kolstad, 928 F.2d 171, 175 (5th Cir. 1991) (quoting In re Int'l Horizons, Inc., 751 F.2d 1213, 1216 (11th Cir. 1985)); see also In re Miller, 118 B.R. 76, 79 (E.D. Tenn. 1989) (applying same standard in Chapter 13 case). Still, "the court must subject post-bar date amendments to careful scrutiny to assure that there was no attempt to file a new claim under the guise of amendment." In re Miller, 118 B.R. at 79 (citing In re International Horizons, Inc., 751 F.2d at 1216).

If the amendment falls within one of the above categories, the Could goes to the second step and balances several equitable factors: "(i) undue prejudice to the opposing party; (ii) bad faith or dilatory behavior on the part of the claimant; (iii) whether other creditors would receive a windfall where the amendment not allowed; (iv) whether other claimants might be harmed or prejudiced; and (v) the justification for the inability to file the amended claim at the time the original claim was filed." In re Andover Togs, Inc., 231 B.R. 521, 549 (Bankr. ...

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