Gold Star Construction, Inc. v. Cavu/Rock Properties Project I, LLC (In re Cavu/Rock Properties Project I, LLC)
530 B.R. 349
| W.D. Tex. | 2015Background
- Cavu/Rock (debtor) contracted with Gold Star (general contractor) to develop a residential subdivision in Bakersfield, CA; the Development Agreement disclaimed agency/joint-venture relationships.
- Gold Star performed work but recorded a mechanic’s lien for $1,084,950.90 after Cavu/Rock fell behind on payments; Cavu/Rock filed Chapter 11 and Gold Star filed a proof of claim for $753,382.29 asserting the lien secured that claim.
- Cavu/Rock brought an adversary proceeding seeking to void Gold Star’s lien and disallow or recharacterize Gold Star’s claim; it moved for partial summary judgment under 11 U.S.C. § 506 asserting Gold Star’s claim was unsecured due to superior Wells Fargo liens.
- Bankruptcy Court granted partial summary judgment (holding any claim unsecured), later held Gold Star’s claim allowable but unsecured in the amount of $743,382.29, and ruled the recorded mechanic’s lien invalid as prematurely recorded under California law.
- Both parties appealed: Gold Star challenged venue denial, refusal to apply judicial estoppel and res judicata, and lien invalidation; Cavu/Rock challenged the allowed claim amount and denial of attorney’s fees.
Issues
| Issue | Gold Star's Argument | Cavu/Rock's Argument | Held |
|---|---|---|---|
| Motion to transfer venue | Transfer to Eastern District of CA is warranted because the Property and witnesses are in CA | Venue in W.D. Tex. was proper and Bankruptcy Court should deny transfer based on judicial economy and other factors | Denial of transfer affirmed; court did not abuse discretion |
| Judicial estoppel re: valuation | Cavu/Rock should be estopped from a low §506 valuation because it previously projected higher lot values under §1129 feasibility | §1129 feasibility projections are different in purpose from §506 valuation; no inconsistent positions on the same issue | No judicial estoppel; different statutory valuations serve different purposes |
| Res judicata re: valuation | Plan confirmation adopting feasibility projections precludes relitigation of value | Plan confirmation is not a final adjudication of §506 valuation; issue was not litigated earlier | Res judicata does not apply; relitigation permitted |
| Validity of mechanic’s lien | Lien valid because Gold Star was excused from further performance by debtor’s payment breaches | Gold Star recorded lien before completing contract; under Cal. Civ. Code §3115 lien recording was premature | Lien invalid: recorded before completion/discharge of contractual obligations, so statute’s timing not met |
| Allowed claim amount | Bankruptcy Court erred in allowing claim or miscalculated amount | Court relied on business records, invoices and checks; claim allowable but unsecured | Amount of $743,382.29 upheld; factual findings not clearly erroneous |
| Attorney’s fees and costs | (Gold Star not seeking) | Cavu/Rock sought fees after prevailing on lien invalidation | Denial of fees affirmed; each party bore its own costs as each prevailed in part |
Key Cases Cited
- Century Indem. Co. v. NGC Settlement Trust (In re Nat’l Gypsum Co.), 208 F.3d 498 (affirming standards for review of bankruptcy findings)
- Anderson v. City of Bessemer City, 470 U.S. 564 (evidentiary standard for clearly erroneous factual findings)
- United States v. United States Gypsum Co., 333 U.S. 364 (defining clearly erroneous standard)
- Gulf States Exploration Co. v. Manville Forest Prods. Corp. (In re Manville Forest Prods. Corp.), 896 F.2d 1384 (interest-of-justice factors for venue transfer)
- Marbury-Pattillo Constr. Co. v. Bayside Warehouse Co., 490 F.2d 155 (abuse-of-discretion standard for venue transfer)
- In re Volkswagen of Am., Inc., 545 F.3d 304 (no single dispositive factor for transfer analysis)
- Browning Mfg. v. Mims (In re Coastal Plains, Inc.), 179 F.3d 197 (bankruptcy judicial estoppel principles)
- New Hampshire v. Maine, 532 U.S. 742 (judicial estoppel as equitable doctrine applied at court’s discretion)
- Assocs. Commercial Corp. v. Rash, 520 U.S. 953 (§506 splits claims into secured and unsecured portions)
- Eubanks v. FDIC, 977 F.2d 166 (plan confirmation treated as final judgment for preclusion in some contexts)
- Allen v. McCurry, 449 U.S. 90 (res judicata bars relitigation of issues that were or could have been raised)
- Howard S. Wright Constr. Co. v. BBIC Investors, LLC, 136 Cal.App.4th 228 (California law on completion/discharge for mechanic’s lien timing)