518 B.R. 24
Bankr. D.S.D.2014Background
- Northern Beef Packers LP (Debtor) filed Chapter 11; most assets sold; limited funds remain. SDIF entities initiated an adversary proceeding to determine lien priorities; Scott Olson Digging, Inc. (SOD) asserted a mechanic’s lien and filed a proof of claim.
- SOD performed earth-moving work under four written contracts (Oct 2006–July 2007) and additional disputed work; parties’ invoicing and payments were imprecise and partly undocumented.
- SOD’s proof of claim sought $3,311,417 (principal $2,114,975.49 plus statutory interest), supported by 42 invoices totaling $5,096,228.26; Debtor paid SOD $3,109,771.89 through Oct 31, 2007.
- Debtor challenged the amount of SOD’s claim in the adversary proceeding; trial focused on which invoices were owed and the proper measures (e.g., truck counts vs. surveys) for clay fill, topsoil stripping, and several lump-sum items.
- The court found many invoices lacked contemporaneous documentation or were duplicative; it computed allowable amounts from credible survey/payment evidence and testimony, concluding SOD held a secured claim of $205,104.07 (petition-date principal) plus prepetition statutory interest.
- The court preserved SOD’s mechanic’s lien and allowed SOD to file a separate, itemized application for prepetition attorney fees (S.D.C.L. § 44-9-42) and postpetition costs/fees under 11 U.S.C. § 506(b).
Issues
| Issue | Debtor's Argument | SOD's Argument | Held |
|---|---|---|---|
| Whether SOD’s filed claim is presumptively valid and amount must be accepted | Debtor rebutted prima facie validity by showing invoices were unclear, duplicative, or unsupported | SOD relied on proof of claim and attached invoices to establish amount | Court: Debtor rebutted prima facie showing; SOD had to prove claim by preponderance and did so only for certain invoices |
| Proper measure and quantity of clay fill for disputed excavation invoices | Use before/after site surveys and exclude overstatements; Debtor argued lower yardage (c. 242,938) but conceded >200,000 | SOD urged truck-count or engineer McTighe’s larger estimates (up to 650,000) | Court: relied on SOD’s payments to borrow-pit owners and accepted 314,429 cubic yards; awarded $4.50/yd -> $1,414,930.50 |
| Recovery for topsoil stripping (whether within written contract and compensable amount) | Topsoil removal not in written Contract 1; Debtor disputed depth/area and amount | SOD asserted broader removal and sought more compensation based on invoices | Court: topsoil removal not covered by Contract 1; awarded quantum meruit for 12 inches over 19 acres = 30,653 cu yd at $2.50/yd -> $76,632.50 |
| Allowance of various disputed lump-sum, duplicative, or undocumented invoices (mobilization, flooding abatement, sand screening, black dirt, excise tax) | Many disputed invoices unsupported, duplicative, or already paid; Debtor sought disallowance | SOD sought payment on various invoices often without contemporaneous POs/agreements | Court: disallowed duplicative/unsupported items (mobilization, certain black dirt, some lump sums, duplicate flood invoice); allowed screening sand ($41,000); disallowed excise tax already reimbursed; net allowed claim = $3,314,875.96 gross less payments -> $205,104.07 principal plus prepetition interest |
Key Cases Cited
- Raleigh v. Illinois Department of Revenue, 530 U.S. 15 (bankruptcy claim determination follows nonbankruptcy law subject to Code)
- F.D.I.C. v. Union Entities (In re Be-Mac Transport Co.), 83 F.3d 1020 (burden to overcome prima facie proof of filed claim)
- Brown v. I.R.S. (In re Brown), 82 F.3d 801 (creditor must prove claim by preponderance if prima facie validity rebutted)
- R & L Supply, Ltd. v. Evangelical Lutheran Good Samaritan Society, 462 N.W.2d 515 (S.D.) (standard for finding false or exaggerated mechanic’s lien)
- Action Mechanical, Inc. v. Deadwood Historic Preservation Comm’n, 652 N.W.2d 742 (S.D.) (mechanic’s lien extent: agreed price or reasonable value)