MEMORANDUM OPINION ON AME-GY BANK NATIONAL ASSOCIATION’S ORIGINAL COMPLAINT FOR DECLARATORY JUDGMENT AND TO DETERMINE EXTENT, VALIDITY AND PRIORITY OF M & M LIENS [Adv. Docket No. 1]
I. Introduction
This suit concerns three creditors— plaintiff Amegy Bank National Association
The trial took place on June 29, 2011, June 30, 2011, July 1, 2011, and July 8, 2011. Seven witnesses testified at the trial, and numerous exhibits were admitted. After closing arguments were made, the Court took the matter under advisement.
The Court now makes the following findings of fact and conclusions of law pursuant to Federal Rules of Bankruptcy Procedure 9014 and 7052. To the extent that any finding of fact is construed as a conclusion of law, it is adopted as such. Moreover, to the extent that any conclusion of law is construed as a finding of fact, it is adopted as such. The Court reserves its right to make additional findings of fact and conclusions of law as it deems appropriate or as may be requested by any of the parties.
II. Status of the Main Case
On October 30, 2009, Bigler LP (Bigler), Bigler Land, LLC (Land), Bigler Petrochemical, LP, Bigler Plant Services, LP, and Bigler Terminals, LP (collectively, the Debtors) filed voluntary Chapter 11 petitions. [Finding of Fact No. 4]. The cases were jointly administered under Case No. 09-38188. [Finding of Fact No. 4]. The Debtors owned and operated a petrochemical plant in Pasadena, Texas.
On November 11, 2010, the Debtors filed their Fourth Amended Joint Plan of Liquidation. [Finding of Fact No. 13], On November 18, 2010, this plan was confirmed, and on November 29, 2010, the plan became effective. [Finding of Fact No. 13]. Since November 29, 2010, the terms of the plan have been — and still are being — effectuated. What primarily remains to be done under the plan is to complete the claims objection process so as to establish which claims will be paid and in what amounts. [Main Case Docket No. 742]. Included in this process is the completion of the adversary proceeding pending before this Court. 1 Indeed, the plan expressly sets forth that, after trial of this adversary proceeding, Amegy will pay Halgo’s claim if this Court rules that Hal-go’s lien on the boilers is superior to the liens that Amegy held on all of the Debtors’ assets. Conversely, according to the plan, if Amegy’s liens are superior to Hal-go’s lien, then Halgo will receive nothing. Thus, the plan’s treatment of Halgo is an “all or nothing” proposition. The plan treats Shaw in the same manner.
Accordingly, the purpose of this adversary proceeding is to determine which
III. Findings of Fact
A. The Parties
1. Amegy, the plaintiff in this suit, is a banking institution that extended revolving credit loans and term loans to Bigler and issued letters of credit for the benefit of the Debtors. The Debtors granted to Ame-gy first priority liens on, and security interests in, substantially all of the Debtors’ assets, including the real property and improvements located at 1500 North South Street, Pasadena, Texas 77503. 2 [Adv. Docket No. 156-6, p. 2; Adv. Docket No. 172, p. 2; Adv. Docket No. 173, p. 1; Stipulation by parties].
2. Shaw, one of the defendants in this suit, is a pipe fabrication and installation company that fabricated and installed a process piping system at the HPIB Facility. [Adv. Docket No. 156, p. 15; Adv. Docket No. 156-6, p. 2; Adv. Docket No. 172, p. 2; Adv. Docket No. 173, p. 1; Stipulation by parties].
3. Halgo, another defendant in this suit, furnished boilers and related equipment to the HPIB Facility. [Adv. Docket No. 156, p. 16; Adv. Docket No. 156-6, p. 2; Adv. Docket No. 172, p. 2; Adv. Docket No. 173, p. 1; Stipulation by parties].
B. Relevant Facts in the Main Case
4. The Debtors each filed a voluntary Chapter 11 petition on October 30, 2009 (the Petition Date). [Main Case Docket No. 1; Adv. Docket No. 156, p. 9; Adv. Docket No. 156-6, p. 2; Adv. Docket No. 172, p. 2; Adv. Docket No. 173, p. 1; Stipulation by parties]. The cases were jointly administered under Case No. 09-38188. [Main Case Docket No. 31; Adv. Docket No. 156, p. 9; Adv. Docket No. 156-6, p. 2; Adv. Docket No. 172, p. 2; Adv. Docket No. 173, p. 1; Stipulation by parties].
5. On March 11, 2010, Halgo filed a secured proof of claim in the amount of $544,918.68 for two boiler units it had supplied to the HPIB Facility. [Claims Register No. 26; Adv. Docket No. 156, p. 9; Adv. Docket No. 156-6, p. 2; Adv. Docket No. 172, p. 2; Adv. Docket No. 173, p. 1; Stipulation by parties]. In the Summary of Claim of Halgo Power, Inc. — which was attached to the Proof of Claim — Hal-go stated that it was entitled to recover attorneys’ fees under § 38.001 of the Texas Civil Practice & Remedies Code and 11 U.S.C. §§ 502 and 506. [Claims Register No. 26].
6. On May 6, 2010, Shaw filed a secured proof of claim in the amount of $1,447,557.09 for, among other work and materials provided, the process piping system that it supplied and installed at the HPIB Facility. [Claims Register No. 6; Adv. Docket No. 156, p. 10; Adv. Docket No. 156-6, p. 2; Adv. Docket No. 172, p. 2; Adv. Docket No. 173, p. 1; Stipulation by parties].
7. Halgo and Shaw both filed a Notice of Perfection of Liens in accordance with 11 U.S.C. § 546(b). [Main Case Docket Nos. 261 & 334; Adv. Docket No. 156, p. 10; Adv. Docket No. 156-6, p. 2-3; Adv. Docket No. 172, p. 2; Adv. Docket No. 173, p. 1; Stipulation by parties].
8. On May 11, 2010, the Debtors filed a motion (the Sale Motion) seeking the following relief: (1) approving the bidding and notice procedures related to the sale of substantially all the Debtors’ assets; and (2) approving the sale of substantially all the Debtors’ assets. [Main Case Docket No. 309; Adv. Docket No. 156, p. 10; Adv. Docket No. 156-6, p. 2-3; Adv. Docket No. 172, p. 2; Adv. Docket No. 173, p. 1; Stipulation by parties]. Both Halgo and Shaw filed Objections to the Sale Motion, asserting, among other things, superior liens on “remova-bles.” [Main Case Docket Nos. 317 & 336; Adv. Docket No. 156, p. 10; Adv. Docket No. 156-6, p. 3; Adv. Docket No. 172, p. 2; Adv. Docket No. 173, p. 1; Stipulation by parties]. The Court refused to allow Halgo and Shaw to remove the two boilers and piping system, respectively, but rather granted the Sale Motion on May 28, 2010. [Main Case Docket No. 356], As a result of the Court granting the Sale Motion, the Court ordered that: (1) all of the Debtors’ assets — which include the materials provided by Halgo and Shaw — be sold “free and clear of all liens ... or other interests of any kind or nature whatsoever ... ”; and (2) all liens will attach to the proceeds “with the same validity, force and effect, and in the same order of priority, that such Interests [which includes Hal-go’s lien and Shaw’s lien] had prior to the Sale ...” [Main Case Docket No. 428]. Moreover, the Court expressly set forth that Halgo and Shaw could credit bid at the auction. Finally, the auction in no way barred Halgo and Shaw from litigating with Amegy to determine whether their respective liens were superior to Amegy’s liens. [Main Case Docket No. 356].
9.On May 12, 2010, Amegy filed a secured proof of claim in the amount of $68,483,026.00. [Claims Register No. 58; Adv. Docket No. 156, p. 10; Adv. Docket No. 156-6, p. 3; Adv. Docket No. 172, p. 2; Adv. Docket No. 173, p. 1; Stipulation by parties].
10. Pursuant to the Court’s order, an auction was conducted on June 16, 2010, to sell substantially all of the Debtors’ assets. [Main Case Docket No. 405; Adv. Docket No. 156, p. 10; Adv. Docket No. 156-6, p. 3; Adv. Docket No. 172, p. 2; Adv. Docket No. 173, p. 1; Stipulation by parties].
11. Bigler accepted Amegy’s credit bid of $38,000,000.00 for the HPIB Facility. [Main Case Docket No. 405; Adv. Docket No. 156, p. 10; Adv. Docket No. 156-6, p. 3; Adv. Docket No. 172, p. 2; Adv. Docket No. 173, p. 1; Stipulation by parties]. Following the June 16, 2010 auction, Amegy assigned its winning bid for the HPIB Facility to Enterprise Products (Enterprise). [Adv. Docket No. 156, p. 10; Adv. Docket No. 156-6, p. 3; Adv. Docket No. 172, p. 2; Adv. Docket No. 173, p. 1; Stipulation by parties].
12. The sale to Enterprise closed on November 18, 2010, and Enterprisenow operates the HPIB Facility. [Adv. Docket No. 156, p. 10-11; Adv. Docket No. 156-6, p. 3; Adv. Docket No. 172, p. 2; Adv. Docket No. 173, p. 1; Stipulation by parties]. Amegy’s claim was not fully satisfied from the proceeds of the sale of the HPIB Facility; after the sale, Amegy was still owed approximately $30,000,000. [Adv. Docket No. 156, p. 14; Adv. Docket No. 156-6, p. 7; Adv. Docket No. 172, p. 2; Adv. Docket No. 173, p. 2; Stipulation by parties].
13. On November 11, 2010, the Debtors filed their Fourth Amended Joint Plan of Liquidation (the Plan). [Main Case Docket No. 642; Adv. Docket No. 156, p. 10; Adv. Docket No. 156-6, p. 3; Adv. Docket No. 172, p. 2; Adv. Docket No. 173, p. 2; Stipulation by parties]. On November 18, 2010, the Plan was confirmed, and on November 29, 2010, the Plan became effective. [Main Case Docket Nos. 659 & 677; Adv. Docket No. 156, p. 11; Adv. Docket No. 156-6, p. 3-4; Adv. Docket No. 172, p. 2; Adv. Docket No. 173, p. 2; Stipulation by parties]. Article 14.16 of the Plan provides, in pertinent part, that Texas law governs “[u]nless a rule of law or procedure is supplied by federal law (including the Bankruptcy Code and Bankruptcy Rules) or by the general corporation law, limited partnership law or limited liability company law or the law of the jurisdiction of organization of any entity governing the internal affairs of such entity.” [Main Case Docket No. 642],
14. Article 3.3 of the Plan provides, in pertinent part, for the treatment of Halgo and Shaw’s claims such that if the claims should be determined to be superior to Amegy’s liens, then: “[E]ach holder of an Allowed Removables Claim shall receive ... payment in Cash by Amegy equal to the value of the Collateral securing its Lien, as determined by the Bankruptcy Court in [the] M & M Lien Priority Adversary....” [Main Case Docket No. 642; Adv. Docket No. 156, p. 11; Adv. Docket No. 156-6, p. 4; Adv. Docket No. 172, p. 2; Adv. Docket No. 173, p. 1; Stipulation by parties].
15. Article 1.1.74 of the Plan defines the “M & M Lien Priority Adversary” as “the adversary proceeding styled Amegy Bank National Association v. Brazos M & E, Ltd., et al., pending in the Bankruptcy Court under Adv. Pro. No. 10-03304.” 3 [Main Case Docket No. 642].
16. Article 1.1.31 of the Plan defines “Collateral” to be “any property or interest in property of a Debtor’s Estate that is subject to a Lien to secure the payment or performance of a Claim, which Lien is not subject to avoidance under the Bankruptcy Code.... ” [Main Case Docket No. 575],
17. Article 1.1.102 of the Plan defines “Removables Claim” to be “any mechanic’s and materialmen’s lien claim that is a Secured Claim which is determined by Final Order to be superior to the Pre-Petition Lender [i.e., Amegy] Secured Claim pursuant to the M & M Lien Priority Adversary.” [Main Case Docket No. 575; Adv. Docket No. 156, p. 11; Adv. Docket No. 156-6, p. 4;Adv. Docket No. 172, p. 2; Adv. Docket No. 173, p. 1; Stipulation by parties]. Thus, the effect of Articles 3.3, 1.1.31, and 1.1.102 of the Plan is that if this Court holds that Halgo’s lien is valid and superior to Amegy’s liens, then Amegy must pay cash to Halgo in the amount of the value of Halgo’s collateral. The same result applies if this Court holds that Shaw’s lien is valid and superior to Amegy’s liens. Conversely, if this Court holds that Amegy’s liens are superior to Hal-go and Shaw’s liens, then Amegy owes nothing to Halgo and Shaw; and, pursuant to the Plan, Halgo and Shaw receive nothing. 4
C. Amegy’s Liens That Were Granted Pre-Petition
18. On May 18, 2007, Bigler entered into a loan agreement with Amegy (the Pre-Petition Loan Agreement). On April 17, 2008, Bigler entered into an Amended and Restated Credit Agreement with Am-egy (the Pre-Petition Credit Agreement). [Adv. Docket No. 156, p. 12; Adv. Docket No. 156-6, p. 5; Adv. Docket No. 172, p. 2; Adv. Docket No. 173, p. 1; Stipulation by parties].
19. Pursuant to the Pre-Petition Loan Agreement and the Pre-Petition Credit Agreement, Amegy: (1) extended revolving credit loans and term loans (the Pre-Petition Loans) to Bigler in the aggregate principal amount of $67,000,000.00; and (2) issued letters of credit for the benefit of the Debtors in the amount of $1,200,000.00. [Adv. Docket No. 156, p. 12-13; Adv. Docket No. 156-6, p. 5; Adv. Docket No. 172, p. 2; Adv. Docket No. 173, p. 2; Stipulation by parties].
20. Under both the Pre-Petition Loan Agreement and the Pre-Petition Credit Agreement, all of the Debtors except Bigler and Land (in the case of the obligations under the Pre-Petition Credit Agreement), Bigler (in the case of the Pre-Petition Loan Agreement), and certain non-debtor subsidiaries and affiliates became liable as guarantors for payment of the obligations arising under the Pre-Petition Loan Agreement and the Pre-Petition Credit Agreement (collectively, the Pre-Petition Obligations). [Adv. Docket No. 156, p. 13; Adv. Docket No. 156-6, p. 5; Adv. Docket No. 172, p. 2; Adv. Docket No. 173, p. 2; Stipulation by parties].
21. The Debtors granted Amegy first priority liens on, and security interests in, substantially all of the Debtors’ assets — tangible and intangible, real and personal. This was done in order to secure thePre-Petition Obligations. [Adv. Docket No. 156, p. 13; Adv. Docket No. 156-6, p. 5-6; Adv. Docket No. 172, p. 2; Adv. Docket No. 173, p. 2; Stipulation by parties].
22. As of the Petition Date: (1) the amount due and owing under the revolving credit facility of the Pre-Petition Loan Agreement was $10,040,278.00 (consisting of $10,000,000.00 in principal, plus accrued and unpaid interest), together with all fees, costs, and expenses authorized under the Pre-Petition Loan Agreement and associated documents; (2) the outstanding amount due and owing under the letters of credit issued under the Pre-Petition Loan Agreement and Pre-Petition Credit Agreement equaled $1,050,000.00, plus accrued and unpaid fees, costs and expenses authorized under the same loan documents; and (3) the amount due and owing under the term loans made pursuant to the Pre-Petition Credit Agreement equaled $57,237,594.00 (consisting of $57,000,000.00 in principal, plus accrued and unpaid interest), together with all fees, costs and expenses authorized under the Pre-Petition Credit Agreement and associated documents. [Adv. Docket No. 156, p. 14; Adv. Docket No. 156-6, p. 6-7; Adv. Docket No. 172, p. 2; Adv. Docket No. 173, p. 2; Stipulation by parties].
23. The total amount of Amegy’s claim as of the Petition Date was $68,327,872.00. [Adv. Docket No. 156, p. 14; Adv. Docket No. 156-6, p. 7; Adv. Docket No. 172, p. 2; Adv. Docket No. 173, p. 2; Stipulation by parties].
24. Amegy’s liens are valid and properly perfected liens on the Debtors’ assets. [Adv. Docket No. 156, p. 14; Adv. Docket No. 156-6, p. 7; Adv. Docket No. 172, p. 3; Adv. Docket No. 173, p. 2; Stipulation by parties]. 5
D. Halgo Enters Into a Pre-Petition Contract with Bigler
25. On October 14, 2008, Halgo signed a purchase order (the Contract) with Bigler to provide and furnish two boiler units and related equipment to the HPIB Facility for a total price of $5,929,264.50. The Contract set forth a progress payment plan by which Bigler was to pay Halgo. [Halgo Ex. 1],
26. The boiler units were delivered to the HPIB Facility on or before April 20, 2009, timely and in accordance with the Contract. [Adv. Docket No. 156, p. 17; Adv. Docket No. 156-6, p. 13; Adv. Docket No. 173, p. 2; Stipulation by parties]. Halgo supplied the following to the HPIB Facility: two industrial boiler units (Boiler # 1 and Boiler # 2) 6 and related equipment, including ladders and platforms, sample stations, vent control valves, a deaerator, a water softening system, a boiler blowdown tank, forceddraft fans, selective catalytic reductions, burners, ammonia injection grids, duct-work, economizers, stacks, dampers and steam vent silencers, and miscellaneous instrumentation (collectively, the Boiler System). 7 [Adv. Docket No. 156, p. 16; Adv. Docket No. 156-6, p. 12; Adv. Docket No. 173, p. 2; Stipulation by parties].
27. Halgo is considered an equipment packager integrator, which means that it sizes and packages boiler units to meet a customer’s system demands. [Adv. Docket No. 156, p. 16; Adv. Docket No. 156-6, p. 12; Adv. Docket No. 173, p. 2; Stipulation by parties]. Halgo’s witness at trial testified that the package boilers are “built for the specific operating parameters of the customer,” which is why Halgo specifies the “capacity that they require — the steam pressure, the steam temperature they need — and that kind of dictates the size of the boiler, how much surface area it has in it, et cetera.” [June 29, 2011 Tr. 49:17-24, Roger S. Freeman]. 8 Halgo bought the boilers and related equipment from several different manufacturers. [June 29, 2011 Tr. 59:20-60:9, Roger S. Freeman; Adv. Docket No. 156, p. 10; Adv. Docket No. 156-6, p. 12; Adv. Docket No. 173, p. 2; Stipulation by parties].
28. Halgo is a “materialman” but not a “mechanic” or “artisan.” [Adv. Docket No. 156, p. 24; Stipulation by parties].
29. While Bigler “ultimately told Halgo what they wanted in the boilers,” Bigler was not sure what type of boilers it needed at the beginning; Halgo helped Bigler determine the capacity requirements and the types of fuels needed. [June 29, 2011 Tr. 51:6-20, Roger S. Freeman]. Halgo, however, did not manufacture, fabricate, or assemble Boiler # 1 or Boiler # 2, nor did it supply these boilers from its general inventory. [Adv. Docket No. 156, p. 16; Adv. Docket No. 156-6, p. 12; Adv. Docket No. 173 p. 2; Stipulation by parties]. These boilers were manufactured and assembled by an entity named Babcock and Wilcox. [June 29, 2011 Tr. 59:23-25, 65:8-10,100:4-9, Roger S. Freeman].
30. Boiler # 1 and Boiler # 2 were transported by railcar to the HPIB Facility and then lifted into place by cranes. [Halgo Ex. 51; June 29, 2011 Tr. 80:8-10, 93:13-94:7, Roger S. Freeman].
31. Halgo did not install the Boiler System at the HPIB Facility. [Adv. Docket No. 156, p. 16; Adv. Docket No. 156-6, p. 12; Adv. Docket No. 173, p. 2; Stipulation by parties].
32. On April 20, 2009, Bigler and Halgo signed a subcontract change order (the Subcontract), in which Halgo and Bigler agreed upon the services and payment for the start-up and commissioning of Boiler # 1. [Halgo Ex. 12; Adv. Docket No. 156-6, p. 13; Adv. Docket No. 173, p. 2; Stipulation by Halgo and Am-egy]. The services required by the Subcontract were completed in June of 2009. [Adv. Docket No. 156, p. 8; June 29, 2011 Tr. 72:11-13, Roger S. Freeman]. Halgo was paid in full for the services it provided under the Subcontract. [June 29, 2011 Tr. 119:22-120:2, Roger S. Freeman; Adv. Docket No. 156-6, p. 13; Adv. Docket No. 173, p. 2; Stipulation by Halgo and Amegy]. The amount due under the Subcontract was $46,528.00. [Halgo Ex. 12].
33. The work done under the Subcontract was anticipated in the Contract, which mandated a “5% retainer to be invoiced upon completion of field testing, not to exceed 120 days after shipment.” [Halgo Ex. 1; June 29, 2011 Tr. 58:2-15, Roger S. Freeman]. 9 On June 11, 2009, Halgo sent Bigler its final invoice under the Contract. [Halgo Ex. 63; June 29, 2011 Tr. 73:12-13, Roger S. Freeman].
34. On July 9, 2009, Bigler issued a promissory note to Halgo in the amount of $533,472.45 for the remaining balance Bigler owed Halgo under the Contract for the Boiler System. [Halgo Ex. 15].
E. Pre-petition Actions Taken by Hal-go to Establish its Statutory and Constitutional Liens
35. On September 14, 2009, Halgo recorded its affidavit claiming statutory and constitutional liens in the real property records of Harris County, Texas for two industrial boilers, under clerk’s file number 20090417567, in the amount of $533,472.45. [Halgo Ex. 3; Adv. Docket No. 156, p. 17; Adv. Docket No. 156-6, p. 13; Adv. Docket No. 173, p. 2; Stipulation by parties].
36. The affidavit contained the following:
a. A sworn statement that the claim is for the amount of $533,472.45;
b. A signature by Jeff Guillot, President of Halgo (Claimant);
c. Claimant’s physical business and mailing address — 811 E. Piano Parkway, Suite 101, Piano, Texas 75074;
d. “[C]laimant furnished materials generally described as two (2) industrial boilers;”
e. Bigler’s address — 1920 N. Memorial Way, Suite 201, Houston, Texas 77007; and
f. A real property description of the property upon which Halgo asserted a lien, located at 1000 N. South Street (or alternatively, 1500 N. South Street) 10 , Pasadena, Texas 77503. [Halgo Ex. 3].
37. Halgo’s affidavit was recorded pri- or to the Petition Date. [Adv. Docket No. 156, p. 17; Adv. Docket No. 156-6, p. 13; Adv. Docket No. 173, p. 2; Stipulation by parties].
F. Shaw Enters into a Pre-Petition Agreement with Bigler
38. On October 10, 2008, Shaw entered into an agreement with Bigler to install pipe spools for the HPIB Facility. [Shaw Ex. 1; Adv. Docket No. 156, p. 14; Adv. Docket No. 156-6, p. 7; Adv. Docket No. 172, p. 2; Stipulation by parties]. Bigler subsequently entered into a three change orders with Shaw for the fabrication of the pipe spools in addition to their installation. [July 1, 2011 Tr. 120:14-17, Marcus Deal; Shaw Exs. 2, 3, 4 & 5]. Shaw also installed the Boiler System delivered by Halgo. [June 29, 2011 Tr. 60:19-22, Roger S. Freeman].
39. Shaw fabricated and installed the pipe spools based upon engineering specifications provided by Bigler. [Adv. Docket No. 156, p. 14; Adv. Docket No. 156-6, p. 7; Adv. Docket No. 172, p. 2; Stipulation by parties].
40. The steam piping system fabricated and installed by Shaw is located in the outside battery limits (OSBL) area of the HPIB Facility. 11 [Adv. Docket No. 156, p. 15; Adv. Docket No. 156-6, p. 7; Adv. Docket No. 172, p. 2; Stipulation by parties].
41. Insulation was subsequently applied to a portion of the process piping system, and a portion of the piping system was also painted. [Adv. Docket No. 156, p. 15, Stipulation by parties]. Shaw neither installed the insulation nor painted the piping system. [June 29, 2011 Tr. 192:25-193:1, Michael K. Irish; Adv. Docket No. 156, p. 15; Adv. Docket No. 156-6, p. 8; Adv. Docket No. 172, p. 2; Stipulation by parties]. Third parties did these jobs. [June 29, 2011 Tr. 169: 2-4, 172:11-14, Michael K. Irish; Adv. Docket No. 156, p. 15; Adv. Docket No. 156-6, p. 8; Adv. Docket No. 172, p. 2; Stipulation by parties].
42. Shaw completed the fabrication and installation of the process piping system on March 23, 2009. [Adv. Docket No. 156, p. 15; Adv. Docket No. 156-6, p. 8; Adv. Docket No. 172, p. 2; Stipulation by parties]. On July 17, 2009, Bigler issued a promissory note to Shaw in the amount of $1,396,295.39 for the balance Bigler owed Shaw under the agreement and the subsequent three change orders. [Shaw Ex. 9].
G. Pre-Petition Actions Taken by Shaw to Establish its Constitutional and Statutory Liens
43. On September 14, 2009, Shaw recorded its affidavit for a mechanic’s lien in the real property records of Harris County, Texas, under clerk’s file number 20090419145, in the amount of $1,400,544.99. 12[Shaw Ex. 11; Adv. Docket No. 156, p. 15; Adv. Docket No. 156-6, p. 8; Adv. Docket No. 172, p. 2; Stipulation by parties]. Shaw asserts statutory and constitutional liens on Bigler’s property located at 1500 North South Street, Pasadena, Texas 77503 (i.e. at the HPIB Facility) for “labor, materials and equipment necessary for the boiler installation work, pipe spools fabrication work and janitorial work for construction....” [Shaw Ex. 11],
44. Shaw’s affidavit was recorded prior to the Petition Date. [Adv. Docket No. 156, p. 15; Adv. Docket No. 156-6, p. 8; Adv. Docket No. 172, p. 2; Stipulation by parties].
45. The principal amount owed under the promissory note, $1,396,295.39, issued by Bigler to Shaw remains unpaid. [Shaw Ex. 9; Adv. Docket No. 156, p. 5]. Of the total amount owed to Shaw of $1,400,544.99, the amount of $829,651.00 is attributable to the fabrication and installation of the process piping system at the HPIB Facility. [Shaw Ex. 8; Adv. Docket No. 156, p. 16; Adv. Docket No. 156-6, p. 8; Adv. Docket No. 172, p. 2; Stipulation by parties]. The remaining amount of $570,893.99 is attributable to other labor, materials, and equipment necessary for the services and materials provided by Shaw regarding matters not related to the process piping system — for example, installation work relating to the boilers and janitorial work for construction. [Shaw Ex. 11].
46. Shaw admits that it failed to timely perfect its statutory lien. 13 [Adv. Docket No. 156-6, p. 16; Adv. Docket No. 172, p. 2; Adv. Docket No. 173, p. 3; Stipulation by parties],
47. Shaw is a “mechanic” or “artisan.” [Adv. Docket No. 156, p. 24; Adv. Docket No. 156-6, p. 17; Adv. Docket No. 173, p. 2; Stipulation by parties].
48. Shaw is entitled to a constitutional lien on the process piping system that it fabricated and installed at the HPIB Facility. [Adv. Docket No. 156, p. 24; Adv. Docket No. 156-6, p. 18; Adv. Docket No. 173, p. 2; Stipulation by parties].
H. Background of the Pending Adversary Proceeding
49. On July 8, 2010, Amegy filed its Complaint for Declaratory Judgment and to Determine Extent, Validity, and Priority of M & M Liens (the Complaint) against multiple defendants. [Adv. Docket No. 1]. The Complaint seeks a judicial determination as to the extent, validity, and priority of certain mechanics’ and materialmen’s liens claimed by all of the defendants — including Halgo and Shaw — for amounts owed for materials supplied to the HPIB Facility. [Adv. Docket No. 1]. Prior to trial, Amegy reached settlements with all defendants except Halgo and Shaw; Halgo and Shaw remain the only defendants in this suit.
50. On July 29, 2010, Halgo filed its Answer to the Complaint. [Adv.Docket No. 54]. This answer asserts that Halgo has a perfected and superior lien on “removables” it supplied to the HPIB Facility and seeks the following relief: (1) a declaratory judgment that it has a valid lien on the two boilers and that this lien is superior to Amegy’s liens; and (2) its attorneys’ fees. [Adv. Docket No. 54]. On August 6, 2010, Shaw filed its Answer and Counterclaim in Response to the Complaint. [Adv. Docket No. 56]. This answer similarly asserts that Shaw has a superior lien on “re-movables” it supplied and seeks the following relief: (1) a declaratory judgment that the process piping system it installed is a “removable,” that Shaw has a validly perfected mechanic’s lien, and that this lien is superior to Amegy’s liens; and (2) its attorneys’ fees. [Adv. Docket No. 56].
I. The Removability of Hal go’s Boiler System or, Alternatively, Boiler # 1 and Boiler # 2 14
51. Boiler # 1 and Boiler # 2 sit on concrete pads that are physically separated from the remainder of the HPIB Facility. [Adv. Docket No. 156, p. 8]. Boiler # 1 and Boiler # 2 are located in the OSBL area of the HPIB Facility. 15 [June 29, 2011 Tr. 165:10-12, Michael K. Irish].
52. After Halgo supplied the Boiler System, parts of the Boiler System were insulated, including the economizers and the duct-work; however, insulation was not added to the boilers themselves. [June 29, 2011 Tr. 213:24-214:9, Michael K. Irish]. Halgo did not supply the added insulation. [Halgo Exs. 13 & 14; June 29, 2011 Tr. 214:2-9, Michael K. Irish],
53. In order to remove Boiler # 1 and Boiler #2, Halgo would need to unbolt the equipment from the concrete pad and disconnect various pipes and conduits. [Adv. Docket No. 156, p. 8]. The boilers could then be lifted up from the concrete pads by cranes or pulled off the pads horizontally by a rig. [June 29, 2011 Tr. 82:1-10, 92:20-96:20, Roger S. Freeman].
54. Boiler # 1 and Boiler # 2 have permanent metal rungs on the top of the units that are specifically designed to assist in their removal by crane. [Amegy Ex. 1, Ex. A, photos 29 & 30; June 29, 2011 Tr. 94:3-12, Roger S. Freeman; June 30, 2011 Tr. 33:11-34:4, Robert G. James].
55. If the boilers were removed, Halgo would be able to cap the remaining exposed pipes and wires. [June 29, 2011 Tr. 79:2-10, 139:111, Roger S. Freeman].
56. To remove the auxiliary equipment (i.e., the deaerator, burners, duct-work, and economizers), Halgo would need to remove the metal jacketing covering the insulatedportion of the equipment used for heat conservation and personnel protection, as well as disconnect the tubing and piping connecting the instruments. The equipment that is attached to the boiler units and the ground, either by anchor bolts and grout at the concrete foundations or by bolts attached to an elevated steel support structure, would need to be unbolted. The duct-work would need to be torch-cut or unbolted into shippable sections. [Amegy Ex. 1, p. 37-38].
57. Boiler # 2 has never been used and can be sold as new. Boiler # 1 can be re-sold as a used boiler. [June 29, 2011 Tr. 76:15-22, 77:2-13, Roger S. Freeman],
58. It is not uncommon for Halgo to rent boiler units. [June 29, 2011 Tr. 102:314, Roger S. Freeman]. Halgo is currently in the process of removing a “surplus or used boiler” for a client at a different facility, in which the boilers will be disassembled and moved to a new facility. [June 29, 2011 Tr. 50:7-13, Roger S. Freeman].
59. Removal of the Boiler System would require: (a) dissembling the tubing and piping for removal of instruments and valves; and (b) breaking of grouted surfaces. [Adv. Docket No. 156-6, p. 13; Adv. Docket No. 173, p. 2; Stipulation by Halgo and Amegy],
60. Opened flanges for piping at Boiler # 1 and Boiler # 2 and tubing connections for instrumentation would suffer loss of non-reusable stud bolts, stainless flange gaskets and tubing bushings and ferrules if removed from their installed assembly. [Adv. Docket No. 156-6, p. 13-14],
61. The collective value of Boiler # 1 and Boiler #2 is $2,000,000.00. [Adv. Docket No. 156-6, p. 15; Adv. Docket No. 173, p. 3; June 29, 2011 Tr. 77:2-13, Roger S. Freeman; June 30, 2011 Tr. 126:7-127:7, 133:9-20, Robert S. Nall]. 16
62. Shaw supplied and installed 306 pipe spools at the HPIB Facility. [Shaw Ex. 25]. The piping system is completely installed and operable. [June 30, 2011 Tr. 10:14, Robert G. James; Adv. Docket No. 156-6, p. 10; Adv. Docket No. 172, p. 2; Stipulation by Shaw and Ame-gy]-
63. Individual pipe spools are periodically removed and replaced in the ordinary course of repair work [July 1, 2011 Tr. 134:10-135:7, Marcus Deal]; however, the assembled process piping system is not designed to be replaced as part of ordinary maintenance. [Amegy Ex. 1, p. 26; June 30, 2011 Tr. 9:18-25, Robert G. James].
64. To remove its process piping system, Shaw would need to saw and/or torch-cut the pipes at the welding seams and break apart the flanged connections to reduce the pipes into a transportable size. [June 29, 2011 Tr. 236:2-9, 237:1-3, Robert G. James].
65. Sawing and torch-cutting the pipes at the welding seams would result in a loss of pipe of approximately one and a half feet to fifteen feet. 17
66. If the process piping system was removed, the remaining pipes, valves, and tanks would not be harmed by environmental elements if properly capped. [June 30, 2011 Tr. 61:16-25, Robert G. James].
67. Shaw did not supply or install the insulation covering the process piping system. [July 1, 2011 Tr. 79:16-18, Gerald Morrow; Adv. Docket No. 156, p. 15; Adv. Docket No. 156-6, p. 8; Adv. Docket No. 172, p. 2; Stipulation by parties]. The insulation covers approximately forty percent of Shaw’s process piping system. [June 29, 2011 Tr. 187:15-17, Michael K. Irish],
68. Some of the process pipe is covered with detachable insulation blankets, which can be unstrapped and removed and then stacked on site. [Shaw Ex. 28, p. 3; June 29, 2011 Tr. 235:6-15 & 236:15-20, Robert G. James].
69. In order to remove the insulation from the pipes, the metal bands securing the insulation would need to be cut and the metallic jackets covering the insulation would need to be set aside. [July 1, 2011 Tr. 32:7-17, Gerald Morrow], The insulation is not designed for removal and replacement; therefore, removing the insulation would destroy it, and render it unusable. 18 [Amegy Ex. No. 1, p. 29].
70. The primer and paint — materials that were not applied by Shaw— cannot be feasibly isolated from the pipes. [Amegy Ex. No. 1, p. 29; June 30, 2011 Tr. 6:8-15, Robert G. James].
71. The 2,700 bolts securing the flanged connections can be removed and undone in the ordinary course of maintenance. [Amegy Ex. 3].
72. It is not standard industry practice to re-use bolts, and the bolts would not likely be re-used in a subsequent project, as the bolts may suffer stress upon tightening and loosening. [June 30, 2011 Tr. 73:21-74:5, Robert G. James; Amegy Ex. No. 1, p. 27]. 19
73. The flanged connections are designed to be opened for repairs and maintenance. [Shaw Ex. 29, p. 2; June 30, 2011 Tr. 43:17-23, Robert G. James].
74. The metal flange gaskets have been compressed to seal the flange connections. Breaking the flanged connections would destroy the gaskets, and the gaskets would be unusable once the seams are broken apart. [Amegy Ex. No. 1, p. 27; June 29, 2011 Tr. 238:14-18, Robert G. James; Adv. Docket No. 156, p. 16].
75. There are approximately 300 gaskets of various sizes in the flanged connections. [Amegy Ex. 3].
76. The various instruments and gauges attached to the piping system that Shaw did not supply can be removed and set aside without damaging the instruments. [June 30, 2011 Tr. 8:20-9:13, Robert G. James].
77. Removal of the piping system would not materially injure the land on which the HPIB Facility is located. [Adv. Docket Nos. 156, p. 16; Stipulation by parties].
78. Removal of any piece of the process piping system would result in a shutdown of the HPIB Facility. [June 30, 2011 Tr. 9:14-17, Robert G. James].
IV. Exhibits Introduced at Trial, Credibility of Witnesses, and Weight Given to Their Testimony
A. Exhibits
At the pretrial conference, the Court admitted into evidence the following exhib
B. Witness Credibility and Weight Given to Testimony
“It is this court’s duty to assess and weigh the credibility of witnesses.”
Andrews v. United States,
The following witnesses testified:
1.Roger S. Freeman
Roger S. Freeman (Freeman) is the Vice President of Sales at Halgo. [June 29, 2011 Tr. 47:7-8, Freeman]. Freeman testified on June 29, 2011. 20 The Court finds that Freeman is a very credible witness, and thus gives substantial weight to his testimony.
2. Michael K. Irish
Michael K. Irish (Irish), a witness for Amegy, testified on June 29, 2011. Irish is presently employed at Enterprise (i.e. the entity that ended up owning the assets of the Debtors). [June 29, 2011 Tr. 161:12-16, Irish]. He was formerly employed by Bigler, but lost his job when the assets of these entities were sold in the course of the Chapter 11 case. [June 29, 2011 Tr. 161:20-22, Irish]. While working for Bigler, he was the lead program manager in overseeing the installation of the boilers and the piping system. [June 29, 2011 Tr. 167:11-19,168:3-6 & 175:14-20, Irish].
Irish was a testy witness who was not particularly enamored with either Halgo or Shaw; apparently he was unhappy with the unwillingness of these two creditors to give the Debtors more time to pay off their debts so as to preserve the business (and obviously his job). 21 From time to time during his testimony, he seemed bent on trying to give testimony that, in his mind, would be harmful to Halgo and Shaw. Nevertheless, Irish is clearly knowledgeable about the HPIB Facility, and he was responsive to several questions about various aspects of the Facility. Accordingly, the Court finds Irish to be a credible witness and gives a fair amount of weight to his testimony.
3. Robert G. James
Robert G. James (James), the first expert witness called by Amegy, testified on June 29, 2011 and June 30, 2011. James is a Registered Professional Engineer in
In sum, the Court finds James to be a credible witness and gives substantial weight to his testimony.
4. Roberts. Nall
Robert S. Nall (Nall), an expert witness for Amegy, testified on June 30, 2011. Nall has a B.A. in Mechanical Engineering and does cost estimates for Ventech Appraisal Services. [June 30, 2011 Tr. 85:8-86:5, Nall]. Amegy retained him to opine on the value of the items supplied by Shaw and Halgo to the HPIB Facility. [June 30, 2011 Tr. 83:6-16, Nall]. The Court finds that Nall is a credible witness and gives substantial weight to his testimony.
5. Gerald Morrow
Gerald Morrow (Morrow) is a project manager for Shaw. [July 1, 2011 Tr. 6:4, Morrow]. Morrow testified on July 1, 2011. He has approximately twenty-eight years of experience in pipe fabrication for process plants such as the HPIB Facility. [July 1, 2011 Tr. 8:3-5, Morrow]. He was also a pipefitter at one time and has also been a pipefitter supervisor. He is presently the manager of pipe fabrication for Shaw. [July 1, 2011 Tr. 8:6-11, Morrow]. His testimony concerned almost entirely issues regarding the piping system at the HPIB Facility. He had no involvement Shaw’s installation of the boilers. [July 1, 2011 Tr. 49:22-24, Morrow], Morrow answered questions forthrightly and was a credible witness. The Court gives substantial weight to his testimony.
6. Marcus Deal
Marcus Deal (Deal) is the regional Vice President of Shaw. [July 1, 2011 Tr. 117:20. Deal], Deal testified on July 1, 2011. He is responsible for the maintenance and capital construction of Shaw’s office in LaPorte, Texas. In the past, he was a pipefitter for several years. He is familiar with the materials that Shaw provided to Bigler at the HPIB Facility. [July 1, 2011 Tr. 117:19-119:3, Deal], Deal answered questions forthrightly and was a credible witness. The Court gives substantial weight to his testimony.
7. Dr. Claude R. Mount
Dr. Claude R. Mount (Mount), an expert witness for Shaw, testified on July 1, 2011. Mount is a metallurgical engineer and a Registered Professional Engineer in Louisiana. He received his B.S. in Physics from LSU in 1971, a Master’s degree in Mechanical Engineering in 1977, and a Ph.D. in Engineering Science in 2000. [July 1, 2011 Tr. 156:20-157:23, Mount], Presently, he is the principal metallurgical engineer for PAI Engineering and Piping Analysis, Inc. [July 1, 2011 Tr. 156:18-
8. Transcripts of Deposition Testimony Read into the Record
Portions of the deposition transcripts of Sandra Terry (Terry) 22 were read into the record by Amegy’s and Shaw’s counsel. [June 30, 2011 Tr. 174:10-185:7], Portions of the deposition transcripts of Freeman were also read into the record by Halgo’s counsel. [June 30, 2011 Tr. 185:4-188:13]. The Court cannot assess Terry’s credibility, as she did not give live testimony in the courtroom, and the testimony that she gave which was read into the record was very abbreviated. The Court has already found Freeman to be a very credible witness, and sees no reason to give his deposition testimony, which was also very abbreviated, the same substantial weight that it gave to his live testimony.
V. Conclusions of Law
A. Jurisdiction, Constitutional Authority to Enter a Final Judgment, and Venue
The Court has subject matter jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 1334(b) and 157(a). This particular dispute is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(E) & (O).
Having made this conclusion of law as to subject matter jurisdiction, this Court nevertheless notes that the Supreme Court has recently issued its watershed opinion in
Stem v. Marshall.
This decision set forth certain limitations on the constitutional authority of bankruptcy courts to enter final judgments.
Stern v.
Marshall, - U.S. ,
Stern concerned a bankruptcy court's authority to enter a final judgment over a debtor's common law counterclaim to a proof of claim filed against the estate. Id. at 2600-01. The debtor had brought the counterclaim pursuant to 28 U.S.C. § 157(b)(2)(C)-which, up until Stern, was a dispute in which a banKruptcy court could sign a final judgment in accordance with 28 U.S.C. § 157(b)(1). See icZ. In Stern, the Supreme court held that contrary to § 157(b)(1), a bankruptcy court may not constitutionally enter a final judgment on a counterclaim that would not necessarily be resolved through adjudication of the proof of claim. Id. at 2621. Importantly, the particular counterclaim in Stern did not constitute a "public rights" dispute. Id. at 2611. A public rights dispute may be decided by non-Article III tribunals, but such a dispute must involve rights "integrally related to a particular federal government action." Id. at 2613. Entering a final judgment with respect to the counterclaim based upon a private right would be an impermissible exercise
The broader applicability of the Supreme Court’s decision remains unclear. Other types of disputes frequently decided by bankruptcy courts may now also require final adjudication by Article III courts. A bankruptcy court’s authority over matters involving state law causes of action is particularly questionable. Indeed, just as the debtor’s counterclaim in Stem was based entirely upon state law, the law governing the dispute in this adversary proceeding is based entirely upon state law. 23 Accordingly, at first blush, it would appear that the undersigned Article I judge does not have the constitutional authority to enter a final judgment in this adversary proceeding. However, for the reasons set forth below, this Court concludes that it does have such authority.
This Court may exercise authority over matters integral to the bankruptcy scheme under the “public rights” exception articulated in
Stern.
Under
Thomas v. Union Carbide Agric. Prods. Co.,
a right closely integrated into a public regulatory scheme may be resolved by a non-Article III judge.
Here, this suit concerns a dispute that must be resolved in order to determine the appropriate distribution among the Debtors’ creditors. The determination of lien priority on assets that were once property of the bankruptcy estate are part of the “public rights” exception, as it involves the exercise of the Bankruptcy Court’s in rem jurisdiction over the estate. 24 Id. at 2618 (noting that when determining whether Congress may bypass Article III, “the question is whether the action at issue stems from the bankruptcy itself or would necessarily be resolved in the claims adjudication process.”).
Moreover, disputes over rights created by the Bankruptcy Code itself as part
Hence, resolution of the lawsuit pending in this Court arises from an express provision of the Plan, the very purpose of which is to distribute cash to the prevailing party or parties — thereby accomplishing the very objective of the public right known as the bankruptcy process (i.e. paying claims of creditors).
See Fin. Sec. Assurance, Inc. v. T-H New Orleans Ltd. P’ship (In re T-H New Orleans Ltd. P’ship),
Venue is proper pursuant to 28 U.S.C. § 1409.
B. Mechanics’ and Materialmen’s Liens
Under Texas law, there are two types of mechanics’ and materialmen’s liens: (1) statutory liens; and (2) constitutional liens. Mechanic’s and materialman’s lien statutes are liberally construed to protect laborers and materialmen.
See Page v. Structural Wood Components, Inc.,
1. Statutory Liens
Under the Texas Property Code, an individual has a valid statutory mechanic’s and materialman’s lien if “the person labors, specially fabricates the material, or furnishes the labor or materials under or by virtue of a contract with the owner or the owner’s agent.” Tex. Prop.Code § 53.021(a) (West 2007). In order to perfect a lien, a party must “file an affidavit with the county clerk of the county in which the property is located ... not later than the 15th day of the fourth calendar month after the day on which the indebtedness accrues.” Id.
a. Halgo has a Valid Statutory Materialman’s Lien
This Court concludes that Halgo has a valid and properly perfected statutory lien. First, Halgo furnished the Boiler System pursuant to the Contract with Bi
Third, under the Texas Property Code, indebtedness to an original contractor accrues “on the last day of the month in which the original contract has been completed, finally settled, or abandoned.” Prop. § 53.053(b)(2). Moreover, “ ‘Completion’ of an original contract means the actual completion of the work, including any extras or change orders reasonably required or contemplated under the original
contract....” Id.
§ 53.001(15). In the suit at bar, the Contract could not be completed or settled until the conditions of the five percent retainer were fulfilled— either via the passage of time or completion of the commissioning work.
Page,
With the Court having concluded that Halgo timely filed its affidavit, the Court must now determine whether the contents of the affidavit are sufficient. Under the Texas Property Code, an affidavit must substantially contain: (1) a sworn statement as to the dollar amount of the claim; (2) the name and address of the owner or reputed owner; (3) a general statement of the kind of work done and materials furnished by the claimant; (4) the name and address of the person by whom the claimant was employed or to whom the claimant furnished the materials or labor; (5) the name and address of the original eontrac
Moreover, an affidavit is not required “to set forth individual items of work done or material furnished or specially fabricated.” Id. § 53.054(c). This Court concludes that the content of Hal-go’s affidavit sufficiently complies with § 53.054, including a satisfactory “general statement” when it generally described the materials furnished. 27 See id. § 53.054(a)(3), (c).
Halgo’s omission of the statement of labor completed during the commissioning and delivery of the boiler units does not offend the substantial compliance standard required by the statute.
28
See id.
§ 53.054 (noting that lien affidavits must substantially contain the required information);
Truss World, Inc. v. ERJS, Inc.,
Substantial compliance requires that the two contracting parties are not prejudiced by the omission in the affidavit.
See Ready Cable, Inc. v. RJP S. Comfort Homes, Inc.,
In
Milner v. Balcke-Durr, Inc.,
the Texas Court of Appeals held that compliance with § 53.054(a)(3) was essential to the perfection of a statutory lien. No. 03-05-00547-CV,
This suit does not involve a lien dispute between a contractor and subcontractor. Such a dispute might require more information in its “general statement” in order to determine what work was actually performed at which time.
See id.
(requiring such a determination to prove validity). The parties in this suit had actual and uncontroverted knowledge of the work and labor provided by Halgo.
29
Halgo’s affidavit sufficiently described the property to which Halgo’s lien attached in light of the technical dispute surrounding the Contract and Subcontract.
See Richardson v. Mid-Cities Drywall, Inc.,
For all of the foregoing reasons, this Court concludes that Halgo timely filed a sufficiently detailed affidavit so as to obtain a valid and properly perfected statutory materialman’s lien on Boiler # 1 and Boiler # 2.
b. Shaw does not have a Valid Statutory Mechanic’s Lien
Pursuant to the Texas Property Code, Shaw needed to file an affidavit with the county clerk on the 15th day of the fourth calendar month after the day on which the indebtedness accrues in order to timely perfect its lien. See Prop. § 53.052(a). On March 23, 2009, Shaw completed the fabrication and installation of the process piping system. [Finding of Fact No. 42]. Shaw did not file its affidavit until September 14, 2009 [Finding of Fact No. 43]; therefore it was not timely. Indeed, Shaw has admitted that it filed an untimely Affidavit for Mechanic’s Lien. [Finding of Fact No. 46]. Accordingly, the Court concludes that Shaw does not have a valid statutory mechanic’s lien on the piping system.
2. Constitutional Liens
Even if a statutory lien cannot be proven, there is an alternative avenue. A constitutional lien is self-executing and arises “independently and apart from any legislative act.”
Ralph M. Parsons Co. v. S. Coast Supply Co. (In re A & M Operating Co.),
A party is entitled to a constitutional lien if it: (1) qualifies as a “mechanic,” an “artisan,” or a “materialman;” and (2) makes or repairs an “article” or “building.” Tex. Const, art. XVI, § 37;
In re Hydro-Action, Inc.,
Mechanics, artisans and material men, of every class, shall have a lien upon the buildings and articles made or repaired by them for the value of their labor done thereon, or material furnished therefore; and the Legislature shall provide by lawfor the speedy and efficient enforcement of said liens.
Tex. Const, art. XVI, § 37 (emphasis added).
a. Mechanic, artisan, or materialman
A “mechanic” is “a person skilled in the practical use of tools, a workman who shapes and applies material in the building of a house or other structure mentioned in the statutes; a person who performs manual labor.”
A & M Operating Co.,
An artisan is “one skilled in some mechanical craft; one who is employed in an industry or mechanic art or trade,” or “one trained for manual dexterity in some mechanic art or trade.”
Id.
(citing
Warner Mem’l Univ.,
A materialman is “a person who does not follow the business of building or contracting to build homes for others, but who manufactures, purchases or keeps for sale materials which enter into buildings and who sells or furnishes such material without performing any work or labor installing or putting them in place.”
Id.
(citing
Huddleston v. Nislar,
The parties have stipulated that Halgo is a “materialman” but not a “mechanic” or “artisan.” [Finding of Fact No. 28]. Hal-go purchased materials from various manufacturers and furnished the materials to Bigler without performing any work or labor installing or putting them in place; indeed, it was Shaw who installed the Boiler System. [Finding of Fact Nos. 27, 29, 31 & 38].
b. Buildings and Articles Made or Repaired
(i) Buildings
The Texas Constitution does not define what constitutes a “building.” Some courts have defined “building” as “only those structures having a capacity to contain and which are designed for the habitation of man or animals or the shelter of property.”
Lodal & Bain Eng’rs, Inc. v. Bayfield Pub. Util. Dist.,
This Court concludes that the HPIB Facility is a building because it is a structure that contains and shelters property — for example, the piping system.
(ii) Articles
This Court looks to the usual and ordinary definition of “articles” and “made” because they are not technical terms.
The term “article” is commonly defined as a “particular object or substance, a material thing or a class of things.”
Hydro-Action,
The term “made” is defined as “produced or manufactured artificially” and “put together of various ingredients.”
Hydro-Action,
A few courts have defined “articles made.” The District Court for the Eastern District of Texas has articulated a broad definition:
[A] century of jurisprudence can be distilled as follows: a materialman is entitled to a constitutional lien if it can prove that: (1) the debtor is the owner of a building or article; (2) the material-man had privity of contract with the debtor; (3) the materialman made or repaired the building or article by (a) supplying goods and constructing all or part of the building or article, (b) supplying goods and repairing the building or article, (c) supplying unique goods manufactured in accordance with the debtor’s specifications, or (d) furnishing off-the-shelf general inventory goods with the intent of both the materialman and debtor that such goods be incorporated into specified buildings or articles; (4) the materialman actually supplied those goods to the debtor; and (5) the goods were incorporated into the building or article.
A & M Operating Co.,
In
Ball,
the Texas Supreme Court, in rejecting a constitutional lien asserted by two men installing well casings, adopted a restrictive interpretation of “articles made.” The court held that the mere connection of pre-manufactured articles did not constitute “making” an article.
Ball,
Applying the Texas Supreme Court’s interpretation of “articles made,” the court in
Boots Builders
held that the defendant who supplied labor and materials to install an air conditioning system did not have a valid constitutional lien because the air conditioning system was not an “article made.”
Boots Builders, Inc. v. Hobson Air Conditioning, Inc. (In re Boots Builders, Inc.),
The Texas Supreme Court has held that , the “constitutional lien attaches to buildings and
special-order
articles that are made or repaired by mechanics, material men, and artisans who have a direct contractual relationship with the owner of the property,”
In re Kellogg Brown & Root, Inc.,
c. Halgo does not have a Valid Constitutional Materialsman’s Lien
Halgo would be entitled to a constitutional lien if it made or repaired an “article” or “building.” See Tex. Const, art. XIV, § 37. This Court concludes that Halgo did not make or repair either the HPIB Facility or the Boiler System.
(i) Halgo did not make or repair the HPIB Facility
Although the HPIB Facility is a building, this Court concludes that Halgo did not make or repair the HPIB Facility. The extent of Halgo’s work under the Contract and Subcontract was to provide and furnish two boiler units and related equipment and to provide start-up and commissioning of Boiler # 1. [Finding of Fact Nos. 25, 26, 32 & 33]. Halgo and Bigler simply did not contract for Halgo to construct the HPIB Facility or repair the building itself.
(ii) The Boiler System constitutes an “article”
This Court concludes that the entire Boiler System that Halgo provided is comprised of “articles” because they are par-' ticular objects or a class of things.
See Hydro-Action,
(iii) Halgo did not make or repair the Boiler System
Although the Boiler System is comprised of “articles,” Halgo did not repair the Boiler System nor did Halgo “make” the articles which comprise the Boiler System. Rather, Halgo purchased the equipment from different manufacturers. [Finding of Fact Nos. 27 & 29]. Halgo is . considered an equipment packager integrator, which means that it sizes and packages the boiler units to meet the customer’s system demands. [Finding of Fact No. 27].
In
Boots,
the contractor was not entitled to a constitutional lien, even though the contractor supplied materials and installed an air conditioning system.
Boots,
(iv) The Boiler Units are not “Special-order” Articles
Halgo contracted directly with Bigler to supply the boiler units to the HPIB Facility. [Finding of Fact No. 25], Even if this Court is incorrect and the Boiler System is comprised of “articles made,” Halgo would .not be entitled to a constitutional lien because none of the “articles made” were special-order articles. While Bigler “ultimately told Halgo what they wanted in the boilers,” Bigler was not sure what type of boilers it needed at the beginning; Halgo helped Bigler determine the capacity requirements and the types of fuels needed. [Finding of Fact No. 29]. The fact that Halgo had to assist Bigler in determining what type of boilers Bigler needed underscores this Court’s conclusion that the boilers were not special-order boilers; this Court is of the view that for the boilers to be special-order articles, Bigler would have had to provide Halgo with definite specifications of exactly the type of boilers that it wanted. Moreover, Freeman testified that both of Halgo’s boilers can be easily sold as either new or used. [Finding of Fact No. 57]. Although the package boilers that Halgo sells are “built for the specific operating parameters of the customer” [Finding of Fact No. 27], the boilers can be easily re-used by another company. [See Finding of Fact No. 58]. Thus, this Court concludes that the boilers must not have been made especially for Bigler pursuant to a special order and in accordance with Halgo’s plans or specifications.
Based on the aforementioned reasons, this Court concludes that Halgo is not entitled to a constitutional lien.
d. Shaw has a valid constitutional mechanic’s lien
The parties stipulated that Shaw is a “mechanic” or “artisan.” [Finding of Fact No. 47]. The parties also stipulated that Shaw is entitled to a constitutional lien on the process piping system that it fabricated and installed at the HPIB Facility. [Finding of Fact No. 48]. Therefore, unlike Halgo, Shaw has a valid constitutional lien.
C. Removables and Priority of Liens
A mechanic’s and material-man’s lien “is superior to a prior recorded deed of trust lien if the materials furnished can be removed without material injury to (i) the land, (ii) the preexisting improvements, or (iii) the materials themselves.”
Exch. Sav. & Loan Ass’n v. Monocrete Pty. Ltd.,
Even if the mechanic’s lien-holder or the materialman’s lienholder shows that the removal of its improve
(1) Is the item merely attached to the structure in such a manner that it is obvious that removal and/or replacement is always possible?
(2) Is the item one which is removed and/or replaced as part of ordinary maintenance?
(3) Is the item one which is removed and/or replaced as part of the ordinary operation of the building?
(4) Is removal, while not usual, or even usually contemplated, so simple and so nondestructive of item, structure or freehold, that to deny removability (or separateness) would violate the purpose of the mechanic’s lien statutes?
(5) Is the item, though easily removable, such a part of the finished structure that no party would ever contemplate removal and/or replacement during the ordinary operation and maintenance of the building?
Wall,
In the suit at bar, Shaw asserts that the process piping system is removable, while Halgo contends that the Boiler System is removable. Not surprisingly, Amegy argues that neither are removable. For the reasons set for the below, this Court finds that: (1) Shaw’s piping system is not removable; (2) Halgo’s Boiler System is not removable; and (3) Boilers # 1 and Boiler # 2 are removable.
1. Shaw’s Process Piping System is not Removable
While removal of the piping system would not materially injure the land [Finding of Fact No. 77], the pipes themselves, or the instruments attached to the pipes, removal would materially damage the preexisting improvements at the HPIB Facility. [Finding of Fact Nos. 70, 72, 74, 76 & 78]. Specifically, the insulation, the primer and paint covering a portion of the pipes, as well as the bolts and gaskets, would all be materially damaged upon Shaw’s removal of the piping system. [Finding of Fact Nos. 70, 72 & 78]. While the Court finds that some of the preexisting improvements — insulation blankets and various instruments attached to the pipes — are removable, they are part of the assembled piping system, and removal of the system would materially injure other pre-existing improvements at the HPIB Facility.
a. Removable Instruments
(i) Detachable Insulation Blankets
Portions of Shaw’s process piping system are covered with detachable insulation blankets. [Finding of Fact Nos. 67
&
68]. The blankets are merely attached and can be simply removed by unstrapping them and setting them aside. [Finding of Fact No. 68]. When instruments “are so easy to remove, it is difficult to find ‘incorporation’
(Monocrete).” Wall,
There are various instruments and gauges attached to the process piping system that would need to be removed if Shaw were to remove its pipes. [See Finding of Fact No. 76]. At trial, the testimony indicated that removing the pipes would expose the instruments and any remaining equipment—-including the remaining pipes and valves-—to the environment. [See Finding of Fact No. 66]. The Court does not, however, find persuasive Amegy’s arguments that the instruments or remaining equipment are at risk of exposure to elements. Removal of the instruments and the remaining equipment does not violate the Whirlpool Material Injury test. [See Finding of Fact No. 66]. Nor does the Court conclude that the Monocrete Incorporation test demands consideration of the risk of exposure to elements. Id. at 447 (holding that removal of exterior doors would not violate the Monocrete Incorporation test because “[i]njury to the structure exists (i.e. exposure to the elements), but removal of any item may result in this problem ... Monocrete would apparently have allowed this type of injury.”). Since the instruments and remaining equipment attached to the pipes are not “integral,” this Court concludes that both tests allow removal.
b. Norir-Removable Improvements
(i) Insulation
Shaw neither supplied nor installed the insulation covering approximately forty percent of its process piping system. [Finding of Fact Nos. 41 & 67]. In order to remove the insulation covering Shaw’s process piping system, Shaw would need to cut the metal bands securing the insulation and set aside the metallic jackets covering the insulation; only then could the insulation could be peeled off of the pipes. [Finding of Fact No. 69]. While removal of the insulation is simple, it would damage the insulation and render it unusable. [Finding of Fact No. 69]. This would violate the Whirlpool Material Injury test. In sum, the Court concludes that the insulation is a pre-existing improvement, removal of the process piping system is not possible without material damage to the insulation.
(ii) Primer and Paint
Shaw did not supply the primer and paint which now rests on its process piping system, nor did it apply the primer and paint. [Finding of Fact Nos. 41 & 70]. Shaw is not entitled to the paint, and it cannot separate the paint from pipes—the paint has become an integral part of the pipes. [Finding of Fact No. 70]. Indeed, the court in
Quinn v. Dickinson
found that the paint and wallpaper supplied by the materialman could not be detached “without materially injuring the property.”
(iii) Bolts
There are approximately 2,700 bolts securing the process piping system. [Finding of Fact No. 71]. Shaw will need to unbolt the flanges securing the pipes and equipment to dismantle the piping system, and while the bolts themselves may not break or suffer visible damage, it is the industry standard not to re-use previously tightened bolts due to unknown stress the bolts may undergo when removed. [Finding of Fact No. 72], As such, although the bolts could be removed, the potential and unknown stress to the bolts upon removal leads this Court to conclude that the bolts
(iv) Gaskets
Shaw will need to break the sealed, flanged connections in order to dismantle the piping system into manageable-sized pipe spools. [Finding of Fact No. 64], Once the flanged connections are broken, the compressed gaskets are damaged and not reusable. [Finding of Fact No. 74]. While the average cost of each gasket is relatively de minimus, and the flanged connections are designed to be broken in the course of repairs, the gaskets will be materially damaged upon removal of the process piping system. [Finding of Fact Nos. 73, 74 & 75].
c. Integrated Process Piping System
Upon removal of the process piping system, the insulation, primer and paint, bolts, and gaskets discussed above would all be materially damaged. This indicates that the process piping system is not removable, as all of these materials are part of the assembled system. Such removal would thus violate the
Whirlpool
Material Injury test.
See Wall,
The piping system is segregated from the main HPIB Facility in the OSBL such that removal would be possible.
31
See
[Finding of Fact No. 40], However, the process piping system, which is the subject of Shaw’s mechanic’s lien, is not designed to be removed or replaced in the ordinary course of maintenance. [Finding of Fact No. 63]. Nor is removal of the process piping system “easy” and “so non-destructive” of the items “that to deny removability (or separateness) would violate” public policy.
Wall,
The court in
Wall
came to a similar conclusion in evaluating the removability of a suspended ceiling.
See Wall,
Similarly, in this suit, although certain pipe spools within the piping system may be replaced periodically, the system as a whole was never intended to be replaced as part of ordinary operations. [Finding of Fact No. 63]. Indeed, the photographs of the HPIB Facility portray an intricate, interconnected system of piping not easily removable and not ordinarily replaced. [Amegy Exs. 32, 36 & 51; Shaw Ex. 46]. Removal of even one pipe spool, let alone the entire process piping system, would result in a shutdown of the HPIB Facility and a loss in production. [Finding of Fact No. 78]. Of course, this is not something a company in the business of turning a profit would engage in on a routine basis unless absolutely necessary.
2. Halgo’s Boilers are Removable
This Court concludes that the boiler units themselves are removable, but the remaining equipment, such as the duct-work, deaerator, economizers, and stacks are not removable. 32
a. Halgo’s Boiler # 1 and Boiler # 2 are Removable
Halgo’s Boiler # 1 and Boiler # 2 arrived at the Bigler HPIB Facility by railcar and were lifted into place by crane onto the concrete pads. [Finding of Fact No. 30], Indeed, the units have permanent metal rungs attached to the top of the units in contemplation of removal or replacement. [Finding of Fact No. 54]. The design and installation of the boiler units alone suggest to this Court that the units are not integral to the HPIB Facility and are therefore removable. Further, the fact that it is not uncommon for Halgo to rent boiler units is highly suggestive of their removable nature. [Finding of Fact No. 58].
The boiler units are similar to an air conditioning unit, which courts have previously found to be removable. For example, in
Cornerstone Bank,
the court found that air conditioning compressors installed on a roof were removable because “they could be removed by unscrewing them from their bases and disconnecting them from the electrical and refrigerant lines.
In this suit, Halgo’s disconnection of Boiler # 1 and Boiler # 2 would entail a process similar to that of the air conditioning units. There are several pipes that would need to be detached and capped, as well as some electrical wiring. [Finding of
Moreover, the potential environmental damage to the remaining improvements as a result of the removal of the boilers is irrelevant because it is not a consideration under the
Monocrete
test.
See id.; Cornerstone Bank,
Alternatively, this Court concludes that even if Boiler # 1 is not removable because it is presently used in the operation of the HPIB Facility [Finding of Fact No. 57]—and is therefore incorporated into the Facility—nevertheless Boiler #2 has never been used. [Finding of Fact No. 57]. As such, this Court concludes that Boiler #2 could not possibly be considered to be incorporated into the Facility, and therefore constitutes a removable.
b. Halgo’s Remaining Equipment is Not Removable
This Court has already held that Halgo does not have a valid lien on the remaining equipment because Halgo’s affidavit did not reference this equipment, but only referenced the two boilers. [See Finding of Fact No. 36], However, even if this Court is incorrect, and Halgo does have a valid lien on the remaining equipment, this Court would still hold that this hen is not superior to Amegy’s liens because the equipment is not removable.
Removal of the auxiliary equipment that Halgo supplied to the HPIB Facility would materially damage the pre-existing improvements. The auxiliary equipment is attached to the structure either by anchor bolts and grout at the concrete foundations or by bolts attached to an elevated steel support structure. [Finding of Fact No. 56]. The insulation covering some of the auxiliary equipment was not supplied by Halgo. [Finding of Fact No. 52], In order to remove the duct-work, the deaerator, the outlet steam piping, and other auxiliary equipment, Halgo would need to disassemble the metal jacketing to remove the insulation, disassemble tubing and piping, break grouted surfaces, and unbolt the items. [Finding of Fact No. 56].
Removal of the auxiliary equipment would damage the insulation and metal jacketing, rendering it unusable [Finding of Fact No. 56], which clearly violates the
Whirlpool
Material Injury test. The insu
D. Value of Halgo’s Boiler Units
Halgo is owed the principal balance of $533,472.45. [Finding of Fact Nos. 34 & 35]. Boiler # 1 and Boiler # 2 are valued at $2,000,000.00, collectively. [Finding of Fact No. 61].
Under Texas law, contracts “should be interpreted so as to avoid meanings that produce unreasonable, oppressive, or absurd results in favor of meanings that render the operation of the contract fair and reasonable.”
Cont’l Sav. Ass’n v. U.S. Fid. & Guar. Co.,
Article 3.3 in the Plan provides that “[E]ach holder of an Allowed Removables Claim shall receive ... payment in Cash by Amegy equal to the value of the Collateral securing its Lien, as determined by the Bankruptcy Court in M & M Lien Priority Adversary....” [Finding of Fact No. 14] (emphasis added).
The Plan explicitly states that Halgo is entitled to the “value of the Collateral” securing its lien. [Finding of Fact No. 14]. Because the value of Halgo’s collateral is $2,000,000.00. [Finding of Fact No. 61], the plain meaning of the applicable Plan provision is that Amegy must pay Halgo the sum of $2,000,000.00.
See United States v. Ron Pair Enters., Inc.,
Finally, in the alternative, if this Court is incorrect that both Boiler # 1 and Boiler # 2 are removable, this Court has nevertheless concluded that Boiler # 2 is a removable because has never been used and therefore cannot be considered to be incorporated into the Facility. This Court has found that Boiler # 2 has a value of at least $650,000.00. [Finding of Fact No. 61, Footnote No. 16]. Thus, even if Halgo’s lien is superior to Amegy’s lien on only Boiler # 2, Halgo is still entitled to receive payment in cash totaling $533,472.45, plus attorneys’ fees. Indeed, under the plain reading of the Plan, Halgo is entitled to receive cash equal to the value of its Collateral, which means that Halgo would entitled to receive $650,000.00 from Amegy. However, as already discussed above, this Court concludes that it would be unreasonable to award Halgo any amount in excess of $533,472.45, plus attorneys’ fees. 34
E. Attorneys’ Fees 35
Under Texas law, attorneys’ fees may not be recovered unless provided by statute or by contract between the parties. Da
ll. Cent. Appraisal Dist v. Seven Inv. Co.,
1. The Texas Property Code Allows Halgo to Recover its Attorneys’ Fees
Pursuant to § 53.156 of the Texas Property Code, in any action to foreclose a lien or to declare any lien or claim invalid, the court is authorized, in its discretion, to award costs and reasonable attorneys’ fees as “are equitable and just.” Prop. § 53.156;
Wesco Distrib., Inc. v. Westport Grp., Inc.,
However, a different section of the Texas Property Code calls into question whether this Court may award any attorneys’ fees to Halgo. Specifically, § 53.023 of the Texas Property Code expressly sets forth the types of obligations that are secured by a lien. The first category described by § 53.023 does indeed include “material furnished”—which certainly includes such items as Boiler # 1 and Boiler #2. See Prop. § 53.023. Importantly, § 52.023 makes no reference to attorney’s fees and costs as part of the obligations that are secured by a materialman’s lien. Prop. § 53.023. Therefore, inferentially, it is not unreasonable to conclude that the Texas Property Code prohibits holders of materialmen’s liens from recovering attorneys’ fees and costs.
Indeed, the court in
Palomita, Inc. v. Medley
concluded that when reading § 53.023 together with § 53.156, “[h]ad the legislature intended the lien to secure payment for attorney’s fees and court costs, it logically should have added these to § 53.023....”
This Court disagrees with
Palo-mita
and its progeny. And, because this Court is not bound by the holdings in these cases
38
, this Court rejects the holdings for the reasons set forth herein. Section 53.156 is a very specific statute, whereas § 53.023, while specific, is not as specific as § 53.156. Section 311.026 of the Texas Government Code states, “If the conflict between the general provision and the special or local provision is irreconcilable, the special or local provision prevails as an exception to the general provision, unless the general provision is the later enactment and the manifest intent is that the general provision prevail.” Tex. Gov’t Code Ann. § 311.026(b) (West 2010). Moreover, several Texas courts have held that a specific statute governs over a general statute, regardless of the order in which the statutes were enacted.
Powell v. State,
Moreover, several Texas courts have expressly awarded attorneys’ fees and costs
Even if this Court is bound by
Palomita
and its progeny, the
Palomita
holding regarding § 53.023 can still be harmonized with the language of § 53.156 so as to award attorneys’ fees and costs — at least in instances such as the one before this Court. This is so because § 53.156 of the Texas Property Code clearly provides for collection costs and attorneys’ fees for the pursuit of a lien foreclosure as long as they are not paid from the proceeds of the lien foreclosure itself.
Dossman,
In the suit at bar, Halgo’s fees are not being paid from the proceeds of any lien foreclosure. Rather, they are being paid by Amegy, pursuant to an express provision of the Plan. [Finding of Fact Nos. 14, 16 & 17]. Indeed, by virtue of this Court’s granting of the Sale Motion, Halgo’s materialman’s lien was removed from the HPIB Facility and attached to the sale proceeds from Bigler’s sale to Amegy of this Facility. [Finding of Fact No. 8], However, because Amegy did not actually pay any cash to Bigler, but rather purchased the Facility by making a credit bid, Halgo’s lien attached to the extent that if Halgo prevails in the M & M Lien Priority Adversary, then Amegy must pay cash to Halgo. [Finding of Fact No. 17]. Thus, Amegy agreed to pay the debt owed by Bigler to Halgo if Halgo prevailed in the M & M Lien Priority Adversary. [Finding of Fact No. 17]. Because Amegy agreed to assume this obligation, any proceeds paid to Halgo for its attorneys’ fees are not paid from the proceeds of any lien foreclosure sale — which means that § 53.023 as construed by
Palomita
would not be violated.
See Blanco, Inc. v. Porras,
2. The Texas Civil Practice & Remedies Code also Provides a Basis for Halgo to Recover its Attorneys’ Fees
Finally, even if this Court is wrong and the conflict between § 53.023 and § 53.156 cannot be reconciled, Halgo may still recovers its attorneys’ fees under Texas Civil Practice and Remedies Code § 38.001, which unambiguously provides that a person may recover attorneys’ fees if the claim is for furnished material. Tex. Civ. Prac.
&
Rem.Code Ann. § 38.001 (West 2010). Case law supports this view. In
West v. Triple B Services,
the court, in upholding the trial court’s award of attorneys’ fees, expressly noted that the appel-lee had pleaded for attorneys’ fees under both § 53.156 of the Property Code and § 38.001 of the Civil Practice and Remedies Code: “However, we need not address Classic’s contention that the trial court erred in awarding the full amount of attorney’s fees under Chapter 53, because the record supports an alternative basis for awarding the full amount of attorney’s fees against Classic. Triple B’s petition included a claim for breach of contract, and Triple B pleaded for attorney’s fees under both Property Code section 53.156 and Civil Practice and Remedies Code section 38.001, which allows a party to recover reasonable attorney’s fees for a valid claim on an oral or written contract.”
W. v. Triple B Servs., LLP,
3. To Determine the Amount of Attorneys’ Fees to Award to Halgo, this Court Must Consider Several Factors
In exercising its discretionary power to award attorneys’ fees, this Court must consider the following factors when determining the reasonableness of attorneys’ fees and expenses, including:
(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill required to perform the legal service properly;
(2) the likelihood ... that the acceptance of the particular employment will preclude other employment by the lawyer;
(3) the fee customarily charged in the locality for similar legal services;
(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by the circumstances;
(6) the nature and length of the professional relationship with the client;
(7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and
(8) whether the fee is fixed or contingent on results obtained or uncertainty of collection before the legal services have been rendered.
Arthur Andersen & Co. v. Perry Equip. Corp.,
F. Pre-judgment Interest
In closing arguments, Halgo’s counsel conceded that Halgo is not entitled to prejudgment interest. [July 8, 2011 Tr. 7:18-24], Accordingly, this Court will not award prejudgment interest to Halgo.
G. Post-judgment Interest
The Fifth Circuit has held that federal law (i.e., 28 U.S.C. § 1961) applies to an award of post-judgment interest, not Texas law.
See Travelers Ins. Co. v. Liljeberg Enters., Inc.,
A bankruptcy court proceeding is a “civil case;” hence, a judgment in a bankruptcy proceeding is subject to post-judgment interest as provided for in § 1961.
See Ocasek v. Manville Corp. Asbestos Disease Comp. Fund,
In the suit at bar, although Halgo did not specifically plead for post-judgment interest, it is entitled to it under § 1961.
See id.; see also Miller v. Artistic Cleaners,
In closing arguments, Amegy’s counsel implied that this Court should, as one factor in its decision-making process, consider the fact that Halgo did in fact receive some payment for the goods and services it provided under the Contract with Bigler [Finding of Fact No. 32]; and that, therefore, the remaining amount that Halgo is attempting to collect in this lawsuit represents a 100% profit to which the equities dictate Halgo should not receive. According to Amegy’s counsel, it is inequitable for Halgo to receive its complete profit under the Contract because Amegy lent millions of dollars to Bigler and has taken a huge hit insofar as the deficiency owed by Bigler to Amegy is millions of dollars more than the aggregate amount still owed to Halgo and Shaw. [See July 8, 2011 Tr. 15:14 — 16:6]. 41 In the wake of the huge loss suffered by Amegy, so the argument goes, Halgo and Shaw should not be allowed to recover any of their profit.
While the Court gives Amegy’s counsel credit for zealously representing her client, whether Halgo’s lien and Shaw’s lien trump Amegy’s liens must be determined through proper application of the extensive and specific laws of the State of Texas on mechanics’ and materialmen’s liens and re-movables, not on whether any party will wind up making a profit if that party prevails.
See Morrison v. State Trust Co.,
A final judgment consistent with the findings and conclusions set forth in this Memorandum Opinion will be entered on the docket after this Court holds a hearing on the amount of attorneys’ fees to be awarded to Halgo.
Notes
. Amegy actually initiated this lawsuit prior to confirmation of the plan, and there were initially several defendants in addition to Hal-go and Shaw. That is why the style of this suit refers to Brazos M & E Ltd. as opposed to Halgo and Shaw. This suit had not been adjudicated by the date of the plan confirmation hearing, and the plan therefore contemplates that the suit will be tried after confirmation. Meanwhile, since confirmation, Amegy has reached settlements with all of the defendants except Halgo and Shaw. Hence, by the time trial was held, the only remaining defendants were Halgo and Shaw.
. The real property and improvements located at this particular address constitute the HPIB Facility, which, as noted in the Introduction, refers to the Debtors' high purity isobutylene facility.
. See Footnote No. 1.
. Typically, any lienholder who loses a suit over who has the superior lien nevertheless receives some payment under a plan by virtue of being an unsecured creditor (i.e. the losing lienholder becomes an unsecured creditor because there typically is insufficient equity in the property securing the senior lien and junior lien to pay both liens). For example, here, under Article 3.4 of the Plan, Class 4 claimants — which are "Allowed Other Secured Claims” — are entitled to be treated as Class 6 (i.e. unsecured) claimants if they fail to prevail in litigation with Amegy over who has a superior lien. [Main Case Docket No. 642]. However, under Article 3.3 of the Plan, Class 3 claimants — which hold "Allowed Remova-bles Claims” such as Halgo and Shaw — do not receive Class 6 treatment if they lose in their suit with Amegy over who has a superior lien. [Main Case Docket No. 642]. Thus, the Plan’s treatment of Halgo and Shaw is equivalent to a high stakes poker game of "winner takes all.”
. While the parties have stipulated to this Finding of Fact, Halgo and Shaw disagree with Amegy that Amegy’s liens are “non-avoidable first priority liens,” which was included in Amegy’s Proposed Findings of Fact and Conclusions of Law but was not included in the Pre-Trial Statement. [Adv. Docket No. 156-6, p. 7; Adv. Docket No. 172, p. 3; Adv. Docket No. 173, p. 2],
. At trial, there were several color photographs introduced into evidence showing Boiler # 1 and Boiler # 2. [See, for example, Halgo Exs. 7, 8, 77 & 79].
. The Court distinguishes between "the Boiler System” and "Boiler # 1 and Boiler # 2.” The former is a reference to Boiler # 1, Boiler # 2, and all of the equipment related thereto; whereas the latter is a reference to solely the two boiler units themselves. Any reference in this Memorandum Opinion to "the boilers” or "the industrial boilers" or “the boiler units” or "the two boilers” or "these boilers” is a reference to only Boiler # 1 and Boiler # 2, and not to the Boiler System.
. Whenever there is a reference to the transcript, the name of the witness whose testimony is being cited is set forth after the citation to the page and line number of the transcript.
. The labor described as "field testing” in the Contract is the same labor performed under the Subcontract and was referred to at trial by Halgo’s witness as "start-up and commissioning.” [June 29, 2011 Tr. 58:2-59:8, Roger S. Freeman].
. It is unclear to this Court why Halgo's affidavit refers to 1000 N. South Street, but then immediately refers, in the alternative, to 1500 N. South Street. No explanation was given at trial. Nor did Amegy mention this discrepancy. In any event, the Court finds that the affidavit is in no way invalidated due to this apparent inconsistency.
. At trial, there were several color photographs introduced into evidence showing the piping systems. [See, for example, Shaw Exs. 35, 38, 39, 46 & 49],
. The amount of $1,400,544.99 is greater than the principal amount of $1,396,295.39 set forth in the promissory note that Bigler issued to Shaw. The difference is $4,249.60. Because the interest rate on the note is 10% per annum, and because the effective date of the note is June 17, 2009 and the date of the affidavit is September 14, 2009, the amount of interest that accrued during these 89 days was $34,046.65. It is unclear to this Court why only $4,249.60 of interest was added to
. Contrary to its statement in its affidavit for mechanic’s lien, by the close of trial, Shaw admitted that it failed to timely perfect its statutory lien.
. As set forth in Finding of Fact No. 26 and Footnote No. 7, the phrase "Boiler System" refers to Boiler # 1 and Boiler # 2, plus all of the related equipment; whereas reference to "Boiler # 1 and Boiler # 2" concerns solely these two boiler units. At trial, Halgo's counsel argued that the Boiler System is removable; however, he made an alternative argument that even if the Boiler System does not constitute a removable, the two boiler units (i.e. Boiler # 1 and Boiler # 2) alone each constitute a removable.
As already notedj ‘-0SBL area” refers to the area known as outside battely Hmits
. Halgo's sole witness, Roger S. Freeman, credibly testified that one of the boilere — the new unit (i.e. Boiler # 2) — could be sold for as much as $3.0 million, and for as little as $2.5 million; and that the used boiler (i.e. Boiler # 1) could be sold for as much as $2.5 million and as little as $1.75 million. [June 29, 2011 Tr. 77:2-13, Roger S. Freeman], One of Amegy’s expert witnesses, Robert S. Nall, credibly testified that the two boilers collectively could be sold for as much as $1.4 million and as little as $1.3 million. [June 30, 2011 Tr. 126:7-9, Robert S. Nall]. Because both of these witnesses were credible witnesses who are knowledgeable about the value of boilers in this industry, the Court finds that the approximate value of the boilers in the aggregate is at least $2.0 million. Furthermore, the Court finds that the approximate value of the new unit (i.e. Boiler # 2) is at least $650,000.00.
The Court would note that even if it completely disregarded Roger S. Freeman’s testimony and accepted only Robert S. Nail’s testimony, the net result of the Court’s finding would not change the result of the decision as to Halgo in this lawsuit. Amegy’s own expert (i.e. Robert S. Nall) testified that the collective value of the two boilers is at least $1.3 million. [June 30, 2011 Tr. 126:7-9, Robert S. Nall]. There is absolutely no dispute that the amount of Halgo’s claim is $533,472.45. Accordingly, there can be no doubt that even using the lowest value given by Amegy's own expert appraiser, Halgo is a vastly oversecured creditor. Accordingly, under the terms of the Plan, if Halgo proves that its materialman’s lien is superior to Amegy's liens, then the entire $533,472.45 will be paid to Halgo.
The Court notes that under a plain reading of the Plan, Amegy would have to pay not the $533,472.45, but rather cash “equal to the value of the Collateral” — i.e. $2.0 million (the value of Halgo’s collateral). However, for reasons subsequently discussed in this Opinion, this Court will require that Amegy only pay Halgo the amount of its claim (plus fees), not cash in the amount of the value of the two
. At trial, there was conflicting testimony as to the amount of pipe that would be lost upon removal. Dr. Claude R. Mount, Shaw’s expert witness, testified that approximately one and a half feet would be lost [July 1, 2011 Tr. 172-24173:4 Dr. Claude R. Mount]; however, Robert S. Nall, Amegy’s expert witness, testified that the removal process would result in a loss of twelve to fifteen feet, [June 30, 2011 Tr. 55:6-9, Robert S. Nall]. Even if this Court accepts Nail’s estimate — up to fifteen feet of pipe loss — the Court finds that a loss of fifteen feet of pipe is not a material loss in comparison to the 4,515 feet of total pipe that Shaw installed at the HPIB Facility. [June 30, 2011 Tr. 157:5-8, Robert S. Nall; July 1, 2011 Tr. 172:15-18, Dr. Claude R. Mount],
. There was conflicting testimony at trial as to whether the insulation would be reusable upon removal. Robert G. James and Robert S. Nall — Amegy’s expert witnesses — testified that the insulation would be damaged and unusable while Marcus Deal — Shaw's witness — testified that the insulation, if carefully removed, could be reusable [June 30, 2011 Tr. 63:16-22, Robert G. James; June 30, 2011 Tr. 155:11156:4, Robert S. Nall; July 1, 2011 Tr. 137:6138:2 Marcus Deal]. Interestingly, and in seeming conflict to Marcus Deal's testimony, Dr. Claude R. Mount — Shaw’s expert'— testified that he considered the insulation “waste material,’’ and in his expert report, he noted that "no special effort [would] be made to remove/preserve the insulation.” [Shaw Ex. 28, p. 3; July 1, 2011 Tr. 18923-1915 Dr. Claude R. Mount]. Moreover, Gerald Morrow — another one of Shaw’s witnesses — testified that the insulation would be damaged. [July 1, 2011 Tr. 47:57, Gerald Morrow], Having heard all of the testimony, this Court finds that removal of the insulation would destroy it and render it unusable.
. James' report expressly states that: "Because previously tightened stud bolts (ASTM grade B7) at equipment flanges have undergone unknown stresses and possible elongation, these items are considered damaged and unacceptable by most users — not reusable once removed.”
. Halgo’s witness was taken out of turn due to scheduling conflicts.
. For example when Halgo's attorney asked Irish a question which expressly assumed that one of the boilers was nonfunctional — a reasonable question in this particular suit — Irish refused to accept that assumption and insisted that Bigler had sufficient maintenance forces to repair the boiler. And, even when Halgo’s lawyer once again asked Irish to assume that the boiler could not be repaired, Irish cut off the question being posed to him and insisted that: "It can be repaired. It’s just that Bigler ran out of money and we didn’t get a chance to finish it. There’s nothing wrong with the boiler.” [June 29, 2011 Tr. 185:13-186:1, Irish].
. Terry is the Project Accounting Manager for Halgo. [June 30, 2011 Tr. 177:411],
. The Plan is a contract and is binding on all parties involved, including Amegy, Halgo, and Shaw.
In re Nat’l Gypsum Co.,
. In simpler terms, if a bankruptcy court can enter a final judgment on anything, it would be a final order resolving a dispute as to who gets a slice of the pie and how big that slice is.
. Because Halgo’s affidavit states "Claimant furnished materials generally described as two (2) industrial boilers” and did not mention the related equipment [Finding of Fact No. 36d], Halgo’s statutory lien does not extend to the Boiler System, but is limited to Boiler # 1 and Boiler # 2.
. Reference to "the Contract” necessarily includes reference to “the Subcontract” because the Subcontract was a change order relating to the Contract. Thus, the work anticipated under the 5% retainer (i.e. the field testing, otherwise known as the "start-up and commissioning”) means that the deadline for filing the affidavit is not determined by reference to April 20, 2009 (i.e. the date the two boilers were delivered), but rather by reference to June 11, 2009 (i.e. the date that Halgo sent Bigler a final invoice after Halgo had completed the field testing in early June of 2009).
See Page,
. The relevant section of Halgo’s affidavit stated: "[c]laimant furnished materials generally described as two (2) industrial boilers.” [Finding of Fact No. 36d].
. The omission of a statement of labor and its relation to the sufficiency of the affidavit was neither argued nor brought to the attention of this Court by the parties. Nevertheless, the Court believes it has an independent duty to ensure that the statutory requirements are met for protection of a materialman's lien.
. Moreover, actual knowledge of the information at issue in the lien dispute is sufficient to defeat an accusation of prejudice.
Id.
Bigler paid the Subcontract (which outlined the labor to be provided) in full. [Finding of Fact No. 32], This fact provides sufficient evidence that the timing of the labor provided is not an issue with regards to Halgo's affidavit.
See Mustang,
. While the Fifth Circuit affirmed the district court’s decision, it determined that the opinion is not binding precedent pursuant to Local Rule 47.5.4 of the Fifth Circuit. Moreover, this Court is not bound by the decisions from the District Court of the Eastern District of Texas.
See In re MPF Holding U.S. LLC,
. This removal would cause little damage to the pipes themselves — at most, fifteen feet of pipe loss. [Finding of Fact No. 65]. The slight loss in pipe, however, is not the determinative factor. The pre-existing improvements, such as the paint and insulation, as well as the gaskets and bolts, would all be damaged upon removal. Therefore, although the pipes themselves would not suffer material damage, this fact is not determinative. What counts is the damage to the paint, insulation, bolts, and gaskets.
. This Court has already held that Halgo does not have a valid statutory lien on the Boiler System—i.e. on both the boilers and the related equipment. [See Footnote No. 25], Further, this Court has already held that Halgo does have a valid statutory lien on Boiler # 1 and Boiler # 2. Therefore, the Court could focus solely on whether Boilers # 1 and # 2 are removable and not even discuss if the related equipment is removable. However, out of an abundance of caution, in the event this ruling is ever on appeal, the Court will discuss the reasons that it believes the related equipment, even if Halgo did have a valid statutory lien thereon, is nevertheless not removable.
. One of Shaw's witnesses, upon examination by Halgo’s attorney, credibly testified that the boiler units on which Halgo has a lien are similar to an air conditioning compressor. [July 1, 2011 Tr. 149:17-20, Marcus Deal],
. The difference between $650,000.00 and $533,472.45 is $116,527.55. The Court will be surprised if Halgo's attorneys’ fees exceed $116,527.55, but if they do, then the Court will not award any fees in excess of $116,527.55. This is so because there is no question that the ceiling for the amount that Amegy must pay to Halgo under Article 3.3 of the Plan is "Cash ... equal to the value of the Collateral....”
. This Court is aware that under § 506(b) of the Bankruptcy Code, an oversecured creditor is entitled to recover attorneys’ fees if the charges are: (i) provided for under the agreement or State statute under which such claim arose; and (ii) reasonable. 11 U.S.C. § 506(b) (2006);
Ryker v. Current,
. Halgo did not request its costs; it only requests its attorneys’ fees. Therefore, the Court will only award attorneys’ fees.
. Absent a mandatory statute, a trial court's jurisdiction to render a judgment for attorneys’ fees must be invoked by pleadings.
Alan Reuber Chevrolet, Inc. v. Grady Chevrolet, Ltd.,
.
See Packard v. OCA, Inc.,
. This Court takes notice of the amended Prop. § 53.156, which was passed by the Texas legislature in its most recent session and goes into effect on September 1, 2011 and amends as follows: "[i]n any proceeding to foreclose a lien or to enforce a claim against a bond issued under Subchapter H, I, or J or in any proceeding to declare that any lien or claim is invalid or unenforceable in whole or in part, the court shall [may] award costs and reasonable attorneys’ fees as are equitable and just.” See Act of September 1, 2011 82nd Leg., ch. 51, § 53.156, 2011 (S.B.539) (emphasis/alteration added). Thus, to the extent that there was any doubt about whether a holder of a materialman’s lien could recover its attorney’s fees and costs in a dispute over the validity of its lien, the Texas legislature has now erased such ambiguity.
. Initially, the Fifth Circuit ruled that the mechanic’s lienholder could not recover its attorneys’ fees and costs because the bank which had foreclosed on the property had not assumed the obligation owed to the mechanic’s lien holder by the debtor.
Porras,
. There is no question that Amegy has taken a huge hit. Its claim was for approximately $68.0 million, and Bigler’s assets were sold for approximately $38.0 million — thereby leaving a deficiency of approximately $30.0 million. Meanwhile, the total price of the Boiler System under the Contract between Bigler and Halgo was approximately $5.9 million [Finding of Fact No. 25]. Because Halgo is now owed $533,472.45, this means that Halgo has already been paid approximately $5.4 million. For its part, Shaw has received no monies and is owed $1,400,544.99. [Finding of Fact No. 45]. The sum of $533,472.45 plus $1,400,544.99 equals $1,934,017.44, which represents the aggregate amount presently owed to Halgo and Shaw. Needless to say, this last figure is substantially less than the approximate $30.0 million still owed to Amegy.