Concrete Structures, Inc. v. Tidewater Crane & Rigging Co. (In Re Concrete Structures, Inc.)Concrete Structures, Inc. v. Tidewater Crane & Rigging Co. (In Re Concrete Structures, Inc.)
MEMORANDUM OPINION
This appeal seeks review of the Bankruptcy Court’s decisions: (1) that a mechanics’ lien in Virginia is a statutory lien that is not subject to avoidance under
STATEMENT OF THE CASE
On May 20, 1998, Tidewater, acting pursuant to Va.Code. § 43-4, filed a Memorandum of Mechanics’ Lien in Henrico County, Virginia against two parcels of real estate, (“the Property”), owned by Concrete Structures, Inc., (“CSI”). Tidewater claimed $128,992.21 in unpaid labor and materials for the construction of a commercial production building and a warehouse on the Property.
Shortly thereafter, on July 22, 1998, CSI instituted voluntary Chapter 11 bankruptcy proceedings. When CSI instituted the Chapter 11 proceedings, Tidewater had not filed, under Va.Code § 43-22, a Bill of Complaint to enforce its mechanics’ lien. However, on September 14, 1998, Tidewater filed a proof of claim which it later amended on February 1, 2000.
CSI tendered a Debtor’s Plan of Reorganization, pursuant to which Structural Concrete Products, LLC (“SCP”), would acquire the Property. The reorganization plan, which was confirmed by the Bankruptcy Court on October 27, 1999, 1 provided that holders of any existing mechanics’ liens would retain them and that SCP would assume responsibility for the claims of those creditors holding mechanics’ liens and would pay them in full; provided, however, that CSI and SCP retained the right to “challenge the validity of the mechanics’ liens.”
On November 16, 1999, CSI and SCP filed an Adversary Proceeding in the Bankruptcy Court seeking to avoid Tidewater’s lien.
2
The Bankruptcy Court granted Tidewater’s Motion to Dismiss the Complaint pursuant to Bankr.R. Rule 7012(b) and Fed.R.Civ.P. Rule 12(b)(6) in a Memorandum Opinion entered February 7, 2000. On that date, the Bankruptcy Court also granted Tidewater’s Motion for Relief from Stay.
3
CSI and SCP then
CSI and SCP then appealed both the grant of the Motion to Dismiss and the denial of their motion to amend or alter the judgement, and/or relief from the judgment. This appeal seeks review only of the decision of the Bankruptcy Court dismissing Counts II, II, and IV of the complaint filed by CSI and SCP. Hereinafter, CSI and SCP will be referred to collectively as “CSI.”
DISCUSSION
When reviewing decisions of the Bankruptcy Court, “a district court acts as an appellate tribunal, reviewing the findings of fact of the bankruptcy court for clear error and its legal conclusions de novo.”
In re Pucci Shoes, Inc.,
I. A Mechanics’ Lien is a Statutory Lien
In Count II, CSI sought to avoid Tidewater’s lien as a preference under
Thus, the viability of Count II turns on whether a mechanics’ lien is statutory lien. That determination involves the interplay between state and federal law because the definitions of statutory and judicial liens under the Bankruptcy Code depends upon the operation and effect of state law.
A. The Bankruptcy Code
The Bankruptcy Code explains that a statutory lien arises:
solely by force of a statute on specified circumstances or conditions ... but does not include security interest or judicial lien, whether or not such interest or lien is provided by or is dependent on a statute and whether оr not such interest or lien is made fully effective by statute.
The legislative history of the Bankruptcy Code shows that Congress considered mechanics’ liens to be statutory liens. The House and Senate Reports for the 1978 Bankruptcy Reform Act state:
The definition [of a statutory lien] excludes judicial liens and security interests, whether or not they are provided for or are dependent on a statute, and whether or not they are made fully effective by statute. A statutory lien isonly one that arises automatically, and is not based on an agreement to give a lien or on judicial action. Mechanics’, mate-rialmen’s, and warehousemen’s liens are examples.
S.Rep. No. 95-989 at 27, 95th Cong., 2d Sess. (1978) (emphasis added); H.R.Rep. No. 595 at 314 95th Cong.lst Sess. (1977) (same), U.S.Code Cong. & Admin.News 1978, at 5787, 5813, 6271. Additionally, a leading bankruptcy treatise explains that “a meсhanics’ lienor that perfects its lien within the 90-day period preceding the debtor’s filing of the petition will not have received a preference because this type of lien is not voidable under section 545.” 5 Collier On Bankruptcy, ¶ 547.04[6] (15th ed.1996).
CSI admits, as it must, that, as a general rule, a mechanics’ lien is a statutory lien. It insists, however, that Virginia law is not in accord with the general rule because the filing of a mechanics’ lien is a judicial proceeding in Virginia.
See
B. Virginia Law
“Whether or not [a] lien is statutory is purely a matter of state law.”
In re APC Constr., Inc.
To begin, it is well to rеmember that the mechanics’ lien claimed by Tidewater was unknown at common law.
Neff v. Garrard,
Virginia decisional law has for over a century made clear that “[a] mechanic’s lien is purely a creature of statute.”
Wallace v. Brumback,
Donohoe defended the slander of title claim by asserting that the filing of the memorandum of mechanics’ lien was privileged for the reason that it was filed in a judicial proceeding. Id. In the Donohoe opinion, the language of which gives some comfort to CSI, the Supreme Court of Virginia upheld the privilege. In so doing, the Court held that “the filing of the memorandum of mechanic’s [sic] lien constitutes a judicial proceeding.” Id. at 861. This, says CSI, demonstrates that, in Virginia, the mechanics’ lien is a judicial lien.
CSI’s argument fails, notwithstanding the sentence on which it relies, because, in the very next sentence, the Court went on to explain:
As previously noted, it [the filing of the memorandum of mechanics’ lien] is a prerequisite to a suit to enforce. For a claimant to obtain a remedy provided by statute, he must perfect his lien and, thereafter, sue to enforce it. The two proceedings are inseparable.
Id. (emphasis added).
That explication was clarified recently in
Lockheed Info. Mgmt. Sys. Co. v. Maximus, Inc.,
administrative hearing because the execution of an affidavit was a “judicial act.”
Id.
at 425. The Court rejected this argument for several reasons, one of which was the defendant’s misapprehension of the meaning of the sentence in
Donohoe
on which CSI relies here. The Court explained that, in
Donohoe,
the privilege attached to the mechanics’ lien affidavit only because the “affidavit to perfect the lien is а prerequisite to filing suit to enforce the lien ...”
id.,
and in the Court’s view, “the filing of the lien and the suit to enforce the lien were
inseparable
” and “constituted a
single judicial proceeding.” Id.
(emphasis added). Thus,
Lockheed
explains that
both
the filing of the memorandum
and
the suit to enforce the lien constitute a judicial act or judicial proceeding, not that the mere filing of the memorandum is a judicial proceeding. That interpretation of
Dono-hoe
is fully consistent with earlier decisions of the Supreme Court of Virginia to the effect that the filing of a memorandum is not a proceeding at all.
See Walt Robbins, Inc. v. Damon Corp.,
Moreover, CSI’s argument ignores the differences in the definitions in the Bankruptcy Code. To be a judicial lien under
It should be observed that Code § 43-4 provides that the general contractor, to perfect his lien, shall file his memorandum at any time after the work is done and material furnished by him and before the expiration of sixty days from the time such building is completed, or the work thereon otherwise terminated. This language, when fairly construed, means that an inchoate lien attaches when the work is done and materials furnishes which may be perfected within the specified time.
Hadrup v. Sale,
Likewise, the statute provides that “[a]ll persons performing labor or furnishing materials of the value of fifty dollars or more, for the construction, removal, repair or improvement of any building or structure ...
shall have a lien,
if perfected as hereinafter provided.... ” Va.Code. § 43-3 (emphasis added). Relevant deci-sional law and the plain words of the statute make clear that the lien arises “solely by force of statute on specified circumstances or conditions.”
C. Relevant Federal Case Law
The decision reached here is harmonious with the conclusions of other federal courts considering analogous state law provisions. In the thoughtful decision of
In re ABC Constr. Inc.,
The court then observed that under Vermont law, “the property is charged with a contractor’s hen when the claimant files notice of lien by written memorandum with the town clerk.”
APC Constr.,
Lastly, again similar to Virginia law, the Vermont statute requires the lienor to seek a writ of attachment within a specified time of the filing of the memorandum.
APC Constr,
Thus, like Virginia law, Vermont law provides that a:
mechanic’s lien exists the moment the work on the property begins. Whereas ‘a mechanic’s lien takes effect when the requisite memorandum is filed in the proper office,’ and the owner and the world have notice that the property stands charged with the payment of bills of the creditor. Up to this point, the contractor lienor does not need to resort to any judicial process to obtain his lien on the property.
APC Constr.,
the Bankruptcy Code categorizes а lien by the way it is established, not by how it is preserved. A statutory lien is a lien “arising” because of “specified circumstances or conditions” laid out in the statute. Characterizing a contractor’s lien as “inchoate” before a writ of attachment is obtained does not change the fact that it exists.
Id.
As the Second Circuit, in
In re The Lionel Corp.,
[t]he Code thus contemplates that liens created consensually (such as mortgage liens or UCC security interests) or by judicial action (such as judgment liens, attachments, equitable liens or levies) are not “statutory liens,” while liens that come into being as a result of statutory operation, without consent or judicial action, are “statutory liens.” Given this scheme, we believe that mechanic’s liens qualify as statutory liens. The legislative history to§ 101(53) confirms this conclusion.
Id. at 94 (citing H.R.Rep. No. 95-595 at 314, 95th Cong.1st Sess. (1978); S.Rep. No. 95-989 at 27, 95th Cong.2d Sess. (1978)).
For the foregoing reasons, the law of Virginia and the Bankruptcy Code, given their plain meaning and considered together, make clear that a mechanics’ lien is properly considered to be a statutory lien so that it falls within the exception provid
II. Perfection of a Mechanics’ Lien Under Virginia Law
In Count III of the Complaint, CSI sought to avoid Tidewater’s lien pursuant to
A. The Bankruptcy Code
1. The Automatic Stay of
Tidewater filed its memorandum of mechanics’ lien on May 20, 1998. CSI filed its bankruptcy petition on July 22, 1998. On the date of CSI’s petition, the automatic stay provisions of
2. The 1994 Amendment to
CSI argues that the commencement of an enforcement suit does not fall within the automatic stay provisions of
(1) The rights and powers of a trustee undersections 544 , 545, and 549 of this title are subject to any generally applicable law that—
(A) permits perfection of an interest in property to be effective against an entity that acquires rights in such property before the date of perfection; or
(B) provides for the maintenance or continuation of perfection of an interest in property to be effective against an entity that acquires rights in such property before the date on which the action is taken to effect to maintenance or continuation.
(2) If-
(A) a law describe in paragraph (1) requires ... commencement of an action to accomplish such perfection, or maintenance or continuation оf perfection of an interest in property; and
(B) ... such an action has not been commenced before the date of the filing of the petition;
such interest in such property shall be perfected, or perfection of such interest shall be maintained or continued, by giving notice within the time fixed by such law for ... such commencement.
The analysis of the novel and far-reaching interpretation of
The only comment in the legislative history of the 1994 amendment to
This section sets forth an amendment tosections 362 and 546 of the Bankruptcy Code to confirm that certain actions taken during bankruptcy proceedings pursuant to the Uniform Commercial Code to maintain a secured creditor’s position as it was at the commencement of the case do not violate the automatic stay. Such actions could include the filing of a continuation statement and the filing of a financing statement. The steps taken by a secured creditor to ensure continued perfection merely maintain the status quo and do not improve the position of the secured creditor.
140 Cong.Rec. H10767 (daily ed. Oct. 4, 1994) (emphasis аdded). See also H.R.Rep. No. 103-835 at 45, 103rd Cong.2nd Sess (1994) (same), U.S.Code Cong. & Admin.News 1994, at 3340, 3354. Thus, it would appear that Congress never contemplated that the 1994 amendment would apply to mechanics’ liens, but, instead, requires only that the creditor must give notice instead of taking actions to continue or to maintain an interest under the UCC. The 1994 amendment, viewed in context of its legislative history, thus does not have the novel, far-reaching effect on the enforcement of mechanics’ liens that is CSI’s theory here.
On the other hand, the text of the statute is not as complete as is the explanation found in the legislative history. And, it cannot be said that the statutory text, uninformed by the legislative history, clearly forecloses CSI’s interpretation. However, CSI’s argument fails for the additional reason that Virginia does not treat enforcement actions as part of the perfection process.
B. Virginia Law
CSI’s argument depends upon whether the institution of an enforcement suit is necessary to maintain perfection of the lien. The argument, though novel and creative, misconstrues or ignores relevant decisional law which establishes that perfection of mechanics’ liens is completed upon filing the memorandum required by
CSI urges that the inquiry must be approached through “the federal lens of the bankruptcy code.” However, the Bankruptcy Code merely returns the focus to state law because the Virginia mechanics’ lien statute is the “generally applicable law” referenced in
The law of mechanics’ liens in Virginia is governed by Va.Code § 43-1 et seq. The statutory scheme, and the decisional law interpreting it, clearly bespeak that creation, perfection and enforcеment are distinctly different events.
As explained previously, the mechanics’ lien arises from the contract and exists, as an inchoate right, upon performance of the work. The lien is created, however, by statute; and it is fixed upon perfection. In Virginia, the statute of creation is § 43-3. Then, in § 43-4, the statutory scheme next addresses perfection of the lien created by § 43-3. Section 43-4 is entitled “Perfection of lien by general contractor; recordation and notice;” and, in substance, it provides:
A general contractor, or any other lien claimant ..., in order to perfect the lien given by § 4-3-3, ... shall file a memorandum of lien at any time after the work is commenced or material furnished .... The memorandum shall be filed in the clerk’s office in the county or city in which the building [or] structure ... is located.
Va.Code § 43-4 (emphasis added). The particular requirements for perfection are outlined in §§ 43-4.01 through 43.14.1.
Enforcement of the lien is addressed separately in § 43-22 which requires that enforcement of liens “created and perfected” in accord with the statutory scheme must occur in the equity side of Virginia’s court system. Thus, § 43-22 provides:
How Liens Enforced. The liens created and perfected under this chapter may be enforced in a court of equity by a bill filed in the county or city wherein the building [or] structure ... is situated, or wherein the owner ... resides.
Va.Code § 43-22 (emphasis added).
The statute then fixes a time limit for filing the enforcement suit:
§ 43-17. Limitation on suit to enforce lien. — No suit to enforce any lien perfected under § 43-4 ... shall be brought after six months from the time when the memorandum of lien was recorded or after sixty days from the time the building [or] structure ... was completed or the work thereon otherwise terminated, whichever time shall last occur; provided, however, that the filing of a petition to enforce any such lien in any suit wherein such petition may be properly filed shall be regarded as the institution of a suit under this section; and, provided further, that nothing herein shall extend the time within which such lien may be perfected.
Va.Code § 43-17 (emphasis added).
Thus, the statute demonstrates that a mechanics’ lien is perfected by filing a memorandum in the clerk’s office of the appropriate county or city. Once a memorandum is properly filed in proper form (as was Tidewater’s memorandum) perfection is comрlete.
The plain language of the statute makes clear that enforcement is not a constituent
Outside the context of bankruptcy proceedings, Virginia decisional law also draws a distinction between perfection and enforcement of a mechanics’ lien. For example, in
American Standard Homes Corp. v. Reinecke,
In like fashion, decisions construing Virginia’s mechanics’ lien statute in the context of bankruptcy proceedings certainly have recognized a clear distinction between enforcement and perfection. Indeed, the precise issue was presented in
In re Bain,
More recently,
In re Richardson Builders, Inc.,
Additionally, the general operational effect of the “new” exemption provisions for perfection of mechanics’ hens contained in the 1994 amendment to
Thus, the plain language of the statute, coupled with relevant decisional law, necessitates the conclusion that a suit to enforce a mechanics’ lien is separate from, and not a necessary part of, the perfection of that lien.
C. Virginia’s Statute Compared to Those of Other States
Recognizing the formidable obstacles to the argument presented by the clear statutory language and by the decisions in
In re Bain,
Instead, CSI focuses upon the decision in
In re Baldwin Builders,
[u]nder California law, the filing of a foreclosure suit, an enforcement action, is required to maintain the perfection of a lien: if not suit is timely filed, then the lien becomes void.Section 546(b) unambiguously mandates that, if commencement of an action is required to maintain or continue perfection, notice shall be given instead.
Id. at 411.
As an initial matter, the
Baldwin
court did not confront the precise issue presented here. Instead, the court was аsked to determine whether the filing of a foreclosure action brought on a mechanic’s lien violated the automatic stay provisions of
The other decisions upon which CSI relies аre unpersuasive for the same reason.
See In re Rincon Island Ltd. P’ship,
As explained above, the Virginia statutory scheme is explicit in laying out the steps for enforcement and рerfection and is very careful to maintain the distinctions between the two. Decisions from other jurisdictions construing different state statutes cannot override the clear language of the statute, or the constructions given to that statute by Virginia state and federal courts. And, contrary to CSI’s arguments, the 1994 amendment does not change this well-established difference.
See
5
Collier on Bankruptcy
¶ 546.03[2][c][iii] (“
D. The Extension of Time Under
Because
if applicable nonbankruptcy law ... fixes a period for commencing or continuing a civil action in a court other than a bankruptcy court on a claim against the debtor ... and such period has not expired before the date of the filing of the petition, then such periоd does not expire until the later of—
(1) the end of such period, including any suspension of such period occurring on or after the commencement of the case; or
(2) 30 days after notice of the termination or expiration of the stay undersection 362 , 922, 1201, or 1301 of this title, as the case may be, with respect to such claim.
CSI seeks to avoid the operation of these precepts on two grounds. First, CSI contends that a mechanics’ lien is a liability in rem, therefore the tolling provisions of
1.
To escape the effect of the tolling provisions of
Other Virginia decisions, however, construe
Though the most recent pronouncement by the Supreme Court of Virginia clearly indicates that mechanics’ liens are subject to the tolling provisions of
CSI’s only response to this argument is that the automatic stay of
2. The Lifting of the Automatic Stay
Having concluded that
CSI concedes that the Confirmation Order did not become final until March 8, 2000 when the Bankruptcy Court denied the motion by Driggs Corporation. Yet, CSI still insists that, under
Assuming, without deciding, that the confirmation of the plan took place on October 27, 1999 (as opposed to March 8, 2001) as CSI suggests, the legislative history of
Subsection (c) of Section 362 specifies the duration of the automatic stay. Paragraph (1) terminates a stay of an act against property of the estate when the property ceases to be property of the estate, such as by sale, abandonment, or exemption. It does not terminate the stay against property of the debtor if the property leaves the estate and goes to the debtor. Paragraph (2) terminates the stay of any other act on the earliest of the time the case is closed, the time the case is dismissed, or the time a discharge is granted or denied ....
S.Rep. No. 95-989 at 52, 95th Cong., 2d Sess. (1978) (emphasis added). The House report confirms this understanding.
See
H.R.Rep. No. 95-595 at 343, 95th Cong., 1st Sess. (1977) (same), U.S.Code Cong. & Admin.News 1978, at 5787, 5838, 6299. Thus, the legislative history makes patently clear that the automatic stay is not lifted under
This conclusion accords with the decisions of other courts, which hold that the termination of the automatic stay should not take effect due to the revesting of the property in the debtor because other provisions of
Therefore, “[t]he property, upon confirmation of the plan, became property of the debtor which continues to be protected by the automatic stay provided in
3. Deadline for Filing an Enforcement Action
Tidewater filed is memorandum of lien on May 20, 1998. When CSI filed its bankruptcy petition on July 22, 1998, two months and two days had elapsed on the six months in which Tidewater was required to file a bill of complaint under Va.Code § 43-17. On motion by Tidewater, the Bankruptcy Court granted Tidewater a relief from stay on February 7, 2000 so that Tidewater could pursue its mechanics’ lien in state court. Under
III. Objection to Proof of Claim
The parties agree that Count IV (objection to Tidewater’s Proof of Claim under § 502(d)) depends upon the resolution of Counts II and III. If the lien is not subject to avoidance under
CONCLUSION
For the foregoing reasons, the decisions of the Bankruptcy Court granting Tidewater’s Motion to Dismiss Complaint and denying Plaintiffs’ Motion to Alter or Amend and/or for Relief from Judgment are AFFIRMED.
The Clerk is directed to send a copy of this Memorandum Opinion to all counsel of record.
It is so ORDERED.
Notes
.The Confirmation Order was entered by the Bankruptcy Court on October 27, 1999. On November 5, 1999, the Driggs Corporation (which is not a party to this appeal) filed a Motion to Vacate. That act kept the Cоnfirmation Order from becoming final until the Bankruptcy Court denied the motion to vacate on March 8, 2000, thus finalizing the Confirmation Order.
. At the same time, CSI and SCP sought to avoid another mechanics’ lien held by RIC Industrial Services, Inc. The appeal from the Bankruptcy Court’s decision in that Adversary Proceeding (Civil Action No. 3:00cv313) was heard with this appeal because the two cases raise virtually identical issues of law.
. CSI and SCP explain that they did not oppose the Motion for Relief from Stay because, in their view, the stay was lifted on October
. Section 545 allows the trustee to avoid the fixing of specified statutory liens upon certain circumstances which are not at issue in this appeal.
.
Accord In re Souers,
.
The trustee shall have, as of the commencement of The case, and without regard to any knowledge of the trustee or of any creditor, the rights and powers of, or may avoid any transfer of property of the debtor or any obligation incurred by the debtor that is voidable by—
(1) a creditor that extends credit to the debtor at the time of the commencement of the case, and that obtains, at such time and with respect to such credit, а judicial lien on all property on which a creditor on a simple contract could have obtained such a judicial lien, whether or not such a creditor exists;
(2) a creditor that extends credit to the debtor at the time of the commencement of the case, and obtains, at such time and with respect to such credit, an execution against the debtor that is returned unsatisfied at such time, whether or not such a creditor exists; or
(3) a bona fide purchaser of real property, other than fixtures, from the debtor, against whom applicable law permits such transfer to be perfected, that obtains the status of a bona fide purchaser and has perfected such transfer at the time of the commencement of the case, whether or not such a purchaser exists.
.Although the Bankruptcy Court did not explicitly hold that filing a suit in equity constituted enforcement of a lien, its conclusion that an enforcement suit was subject to the automatic stay provision of
. Before the 1994 amendment,
The rights and powers of a trustee undersections 544 , 545, and 549 of this title are subject to any generally applicable law that permits perfection of an interest in property to be effective against an entity that acquires rights in such property before the date of such perfection. If such law requires seizure of such property or commencement of an action to accomplish such perfection, and such property has not been seized or such action has not been commenced before the date of the filing of the petition, such interest in such property shall be perfected by notice within the time fixed by such law for such seizure or commencement.
. Moreover, even the titles of the distinct sections of the separate the required acts into “perfection” and "enforcement”. See Va. Code §§ 43-4 ("Perfection of a lien by a general contractor, recordation and notice”); 43-17 (“Limitation on suit to enforce lien”); and 43-22 ("How liens enforced ") (emphasis added).
. In its brief, CSI incorrеctly states that Tidewater relies upon Va.Code § 8.01-229(C) as the pertinent state tolling provision. This section provides "[w]hen the commencement of any action is stayed by injunction, the time of the continuance of the injunction shall not be computed as any part of the period within which the action must be brought.” Va.Code § 8.01-229(C). Tidewater relies upon the more relevant tolling provision of § 8.01— 229(D), which applies to obstructions to filings due to bankruptcy proceedings.
Cf. Penn.Mar, Inc.
v.
Fredericksburg Inn Ltd. Partnership,
. "But for the Driggs Corporation’s motion, the property would have been transferred from Concrete Structures to Structural Concrete Products and the requisite nexus between debtor, the property and the lien that is the basis for federal jurisdiction would have evaporated.” Memorandum Opinion, February 7, 2000, pg. 2 fn. 1. The Bankruptcy Court's conclusion apparently was an application of