Peggy D. Williams

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
IN RE:
PEGGY D. WILLIAMS
DEBTOR
CASE NO.
06-00141-5-ATS
ORDER REGARDING OBJECTION TO CLAIM
The matter before the court is the debtor's objection to the claim
filed by Carolina Building Systems, Inc. ("CBSI"), Claim No. 18. A
hearing took place in Raleigh, North Carolina on January 9, 2007.
Peggy D. Williams filed a petition for relief under chapter 11 of
the Bankruptcy Code on February 6, 2006, and her plan of reorganization
was confirmed on September 29, 2006. Ms. Williams scheduled CBSI as an
unsecured creditor with a disputed claim in an unknown amount. On May
4, 2006, CBSI filed its unsecured proof of claim in the amount of
$196,203.98, consisting of a claim for goods sold and services
performed in the amount of $170,612.16 plus $25,591.82 in attorney's
fees.
SO ORDERED.
SIGNED this 17 day of January, 2007.
________________________________________
A. Thomas Small
United States Bankruptcy Judge
____________________________________________________________
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On May 25, 2004, Ms. Williams and CBSI entered a Design/Build
Contract Agreement in which Ms. Williams engaged CBSI to construct a
"Pre-engineered wood post frame building system shell." Debtor Ex. 1.
The contract price was $450,000, and the parties entered one written
change order in the amount of $29,647. Debtor Ex. 3. Ms. Williams
paid a $5,000 deposit invoiced on June 1, 2004, and made progress
payments in the amounts of $100,000 invoiced in June 18, 2004, $50,000
invoiced on July 8, 2004, $90,000 invoiced on July 28, 2004, and
$100,000 invoiced on September 24, 2004. Debtor Ex. 4. CBSI issued
another invoice in the amount of $100,000, Invoice No. 966, dated
November 2, 2004, and a final invoice in the amount of $55,350, Invoice
No. 999, dated January 19, 2005, neither of which has been paid by Ms.
Williams. Debtor Ex. 5. Invoice No. 999 reflected the written change
order as well as certain other items that were added to the contract
and a credit back to Ms. Williams for an unused door. CBSI filed its
claim to collect the balance owing on the two unpaid invoices, plus
interest at the rate of 1.5 percent, and attorney's fees.
Ms. Williams' objection states that CBSI failed to complete the
construction of the building and that the work was not completed in a
workmanlike manner. Specifically, she testified that there were no
HVAC units installed, pickets were not constructed, the roof leaked and
there is standing water. Ms. Williams acknowledged that the additional
items in Invoice No. 999 should be paid, but she believed there were
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additional unused items (doors and windows) for which she should be
given credit. Ms. Williams also testified that she paid $166,390.16 to
have certain items completed by other contractors due to the
shortcomings of CBSI, including some of the subcontractors used by CBSI
to construct the building. Though Ms. Williams was never clear as to
the amount she believed she owed CBSI, ultimately she admitted that she
owed the $55,350 on Invoice No. 999 but not the remaining $100,000
balance reflected on Invoice No. 966.
Dale Sparks, president of CBSI, testified that Ms. Williams had
never expressed dissatisfaction with the building until he aggressively
pursued collection of the balance due by filing a lawsuit. Some time
before the lawsuit was filed, Ms. Williams did call about the leaking
roof, and Mr. Sparks sent his business associate, George Griffin, to
repair it. Ms. Williams would not let Mr. Griffin into the building to
inspect the leak because he did not have an appointment, and no further
attempts were made to repair the roof. Otherwise Mr. Sparks believed
Ms. Williams was happy with the construction. Several of the
subcontractors also testified that Ms. Williams had expressed only
satisfaction with the project. No complaints were ever made in
writing.
With respect to the specific items cited by Ms. Williams, it is
clear that the contract excludes installation of HVAC units. The
reference to HVAC is for electrical wiring to support two HVAC units,
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which was completed. The contract shows and Mr. Sparks testified that
the project was only to construct a "building shell," and not a
finished building. This is bolstered by Mr. Sparks' testimony that
another proposal was drafted for a completed building, for a total
purchase price of $800,000, but that contract was not executed. CBSI
Ex. 8. Accordingly, the court finds that HVAC units were not required
by the contract, and that part of the contract was performed as agreed.
Ms. Williams also testified that pickets were to be installed in
front of the building. Mr. Sparks testified that the drawings related
to the contract do not show pickets, and that a drawing reflecting the
pickets was made separately. The only drawings provided to the court
do show pickets (Debtor Ex. 2), and absent any evidence to the
contrary, the court finds that those drawings are the drawings
incorporated into the contract. Accordingly, pickets are required by
the contract.
The contract does require the work to be completed in a
workmanlike manner, and the work is guaranteed for 2 years. The roof
is apparently still leaking, and it must be repaired.
Ms. Williams questioned the value of the door for which she was
given credit, and she believes that there are two additional doors and
four windows for which she should be given credit. She did not know
the value of any of these items. Mr. Sparks testified that the value
of the door was $700, as reflected in Invoice No. 999. He also
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testified that while the invoices may not reflect any other items not
used, Ms. Williams was given many additional items for which she was
not charged. The other subcontractors also testified that they
provided her with goods and services for which she was not charged.
Absent any credible evidence to the contrary, the court finds that the
credit of $700 is the proper credit on Invoice No. 999, and that the
invoiced amount of $55,350 is correct.
Based on the foregoing, the court concludes that Ms. Williams does
owe CBSI the balances shown on Invoice Nos. 966 and 999; provided,
however, that CBSI must repair the roof and install the pickets.
The outstanding balance on the invoices totals $155,350. The
proof of claim shows a balance due of $170,612.16. Mr. Sparks
testified that the difference of $15,262.16 is attributable to interest
at 1.5 percent through June 3, 2005. Paragraph 10 of the Terms and
Conditions of the Design/Build Contract provides
Payments for labor, material, and equipment furnished on the
job each month will be invoiced at different stages of the
job in accordance with Article 5 of the Proposal - Contract
Agreement and payment shall be due upon invoicing. A
service charge of 1 1/2% per month will be charged on late
payment plus costs incidental to collection, including
reasonable attorney's fees. It is understood that failure
to comply with payment terms will be grounds for stopping
work progress. Final payment shall be invoiced upon
substantial completion and due upon occupancy or not later
than ten days after final inspection by the building
inspector.
Debtor Ex. 1 at 7.
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It is not clear to the court how the mathematical calculation was
made by CBSI to arrive at $15,262.16. The court will allow a 1.5
percent "service charge" as part of the claim, but CBSI must provide to
the court the specifics of its calculation of the service charge due
before that component of its claim will be allowed.
The remainder of the claim is for attorney's fees in the amount
of $25,591.82. This amount is 15 percent of the total claim of
$170,612.16 (contract balance plus the claimed interest of $15,262.16),
which CBSI contends is per se a reasonable fee pursuant to North
Carolina General Statute § 6-21.2. Ms. Williams questions whether the
fees sought are reasonable. She also contends that there is no
documentation to show whether some of the requested fees are for
services rendered postpetition. Ms. Williams maintains that the fees
seem high for the prepetition litigation, given that the only documents
of record are a demand letter, a complaint, and an answer and
counterclaim, after which the bankruptcy petition was filed.
North Carolina General Statute § 6-21.2 is the first hurdle for
determining whether a contractual provision for attorney’s fees is
enforceable. It reads, in relevant part,
Obligations to pay attorneys' fees upon any note,
conditional sale contract or other evidence of indebtedness,
in addition to the legal rate of interest or finance charges
specified therein, shall be valid and enforceable, and
collectible as part of such debt, if such note, contract or
other evidence of indebtedness be collected by or through an
attorney at law after maturity, subject to the following
provisions:
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(1) If such note, conditional sale contract or other
evidence of indebtedness provides for attorneys' fees in
some specific percentage of the "outstanding balance" as
herein defined, such provision and obligation shall be valid
and enforceable up to but not in excess of fifteen percent
(15%) of said "outstanding balance" owing on said note,
contract or other evidence of indebtedness.
(2) If such note, conditional sale contract or other
evidence of indebtedness provides for the payment of
reasonable attorneys' fees by the debtor, without specifying
any specific percentage, such provision shall be construed
to mean fifteen percent (15%) of the "outstanding balance"
owing on said note, contract or other evidence of
indebtedness.
* * *
(5) The holder of . . . a note and chattel mortgage or other
security agreement . . . or his attorney at law, shall,
after maturity of the obligation by default or otherwise,
notify the . . . party sought to be held on said obligation
that the provisions relative to payment of attorneys' fees
in addition to the "outstanding balance" shall be enforced
and that such . . . party sought to be held on said
obligation has five days from the mailing of such notice to
pay the "outstanding balance" without the attorneys' fees.
If such party shall pay the "outstanding balance" in full
before the expiration of such time, then the obligation to
pay the attorneys' fees shall be void, and no court shall
enforce such provisions . . . .
N.C. Gen. Stat. § 6-21.2.
Though § 6-21.2(2) appears to say that 15 percent is per se
reasonable, the case law differs. In Institution Food House, Inc. v.
Circus Hall of Cream, 107 N.C. App. 552, 558, 421 S.E.2d 370, 374
(1992), the court stated, "We first note that reasonableness is the key
factor under all attorney’s fees statutes." (Citations omitted).
Similarly, the court of appeals remanded 15 percent attorney’s fees
awards for a determination of reasonableness in Jennings Communication
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Corp. v. PCG of the Golden Strand, Inc,, 126 N.C. App. 637 (1997), and
West End III Ltd. Partners v. Lamb, 102 N.C. App. 458, 402 S.E. 2d 472
(1991). Thus, the North Carolina statute cannot be read to dictate
that 15 percent of the outstanding balance is per se reasonable.
In this case, it is not possible for the court to determine
whether the requested fees are reasonable without more information,
including a summary of the work performed, the time spent, the
attorney's hourly rate, and the total fees actually charged to CBSI.
Accordingly, CBSI may file materials in support of its claim for
attorney's fees within 15 days of the date of this order, after which
the court will make a determination as to whether the requested fees
are reasonable.
Based on the foregoing, the objection to claim is DENIED with
respect to the contract balance of $155,350, subject to CBSI's
obligation to repair the building's roof and to install the pickets.
The objection to claim is held open with respect to the attorney's fees
and the amount of the service fee pending submission of further
documentation from CBSI.
SO ORDERED.
END OF DOCUMENT
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