Linear Electric Co Inc v. , 852 F.3d 313 ( 2017 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________
No. 16-1477
____________
In Re: LINEAR ELECTRIC COMPANY, INC.,
Debtor
COOPER ELECTRIC SUPPLY CO. and
SAMSON ELECTRICAL SUPPLY CO., INC.,
Appellants
On Appeal from the United States District Court
for the District of New Jersey
(D. C. Civil Action No. 2-15-cv-06429)
District Judge: Honorable Susan D. Wigenton
Submitted under Third Circuit LAR 34.1(a)
on October 7, 2016
Before: SHWARTZ, COWEN and ROTH, Circuit Judges
(Opinion filed: March 30, 2017)
Michael Nord, Esquire
Michael J. Stafford, Esquire
Nord & DeMaio
190 State Highway 18
Turnpike Metroplex, Suite 201
East Brunswick, NJ 08816
Counsel for Appellants
Leonard C. Walczyk, Esquire
Wasserman, Jurista & Stolz
110 Allen Road
Suite 304
Basking Ridge, NJ 07920
Counsel for Appellee
OPINION
ROTH, Circuit Judge:
This case concerns the relationship between the New
Jersey Construction Lien Law and federal bankruptcy law.
Under New Jersey law, if a supplier sells materials on credit
to a construction contractor and the contractor incorporates
those materials into property owned by a third party without
paying the supplier, the supplier can file for a lien on the
2
third-party property. 1 In essence, the supplier can step into
the shoes of the contractor and collect a debt owed to the
contractor from the third-party property owner in order to
recoup what the contractor owes to the supplier.
The question this case presents is whether a supplier
can file a construction lien under New Jersey law when the
contractor has filed a petition for bankruptcy, which
automatically stays any act to create or perfect any lien
against the contractor’s property.
The suppliers here argue that the construction liens did
not attach to the contractor’s accounts receivable but attached
to the interests of the owners of the third-party properties;
thus, creating the liens was not an act against the property of
the bankruptcy estate. On the other hand, the contractor
contends that the creation of the liens was intended to collect
the portion of the accounts receivable owed by the owners of
the third-party properties to the contractor so that the creation
of the liens was an act against the property of the bankruptcy
estate.
The District Court set out in its opinion how, under
New Jersey law, the value of the liens depended on the
amount that the contractor owed to the suppliers under their
contracts and on the value of the contractor’s accounts
1
This lien is called a “construction lien” under current New
Jersey law, but in the past, New Jersey—like many other
states—referred to this kind of lien as a “mechanic’s lien.”
See N.J. Stat. Ann. § 2A:44A-1 et seq. (describing the New
Jersey Construction Lien Law). See generally 56 C.J.S.
Mechanics’ Liens § 1 et seq. (describing mechanic’s liens).
3
receivable. The District Court then affirmed the Bankruptcy
Court’s conclusion that the accounts receivable were part of
the bankruptcy estate because they complied with the
definition of property of the estate under 11 U.S.C. § 541 and
because the ability of a supplier to create a construction lien
depended on the existence of the bankrupt contractor’s
accounts receivable. 2 For that reason, the Bankruptcy Court
held that the automatic stay prevented filing the liens. The
District Court affirmed We agree and will also affirm.
I. Background
A. Statutory Background
In order to understand the events in this case, some
review of the New Jersey Construction Lien Law and of
bankruptcy law is helpful.
1. New Jersey Construction Lien Law
Under New Jersey law, in general, “[a]ny contractor,
subcontractor or supplier who provides work, services,
material or equipment pursuant to a contract, shall be entitled
to a lien for the value of the work or services performed, or
materials or equipment furnished in accordance with the
contract and based upon the contract price . . ..” 3 As relevant
here, “[t]he lien shall attach to the interest of the owner or
unit owner of the real property development . . ..” 4 The lien
itself is “limited to the amount that [the owner] agreed in
2
See N.J.S.A. § 2A: 44A-9.
3
N.J. S. A. § 2A:44A-3(a).
4
Id.
4
writing to pay, less payments made by or on behalf of that
person in good faith prior to the filing of the lien.” 5
In general, an owner discharges a lien by paying into a
lien fund, from which claimants recover what they are owed. 6
A “claimant” is “a person having the right to file a lien claim
on real property pursuant to [the Construction Lien Law].” 7
The claimants themselves are split into different tiers. A
“first tier claimant” is “a claimant who is a contractor.” 8 A
“second tier claimant” is “a claimant who is, in relation to a
contractor: (1) a subcontractor; or (2) a supplier.” 9
Numerous limitations on the lien fund and lien claims
exist. As relevant here, “the lien fund shall not exceed: in the
case of a first tier lien claimant or second tier lien claimant,
the earned amount of the contract between the owner and the
contractor minus any payments made prior to service of a
copy of the lien claim . . ..” 10 In addition, generally, “no lien
fund exists, if, at the time of service of a copy of the lien
claim, the owner or community association has fully paid the
contractor for the work performed or for services, material or
equipment provided.” 11 Finally, each claimant’s claim is
limited to “the unpaid portion of the contract price of the
5
N.J. S. A. § 2A:44A-3(f).
6
N.J. S. A. § 2A:44A-23(a) (“All lien claims established by
judgment are valid claims that shall be concurrent and shall
be paid as provided in subsection c. of this section.”).
7
N.J. S. A. § 2A:44A-2.
8
Id.
9
Id.
10
N.J. S. A. § 2A:44A-9(b)(1).
11
N.J. S. A. § 2A:44A-9(d).
5
claimant’s contract for the work, services, material or
equipment provided.” 12
In the allocation process, if there are both first and
second tier claimants, the lien fund is allocated to first tier
claimants “in amounts equal to their valid claims.” 13
Thereafter, “[f]rom the allocation to each first tier lien
claimant, amounts shall be allocated equal to the valid claims
of second tier lien claimants whose claims derive from
contracts with that first tier lien claimant.” 14 If money is left
over in a first tier claimant’s allocation after the second tier
claimants within that allocation are paid, then the first tier
claimant receives the rest. 15 However, if there are only
second tier claimants, “the lien fund for second tier lien
claimants shall be allocated in amounts equal to that second
tier’s valid claims.” 16 In any event, if the total claims exceed
the maximum liability of the owner or the maximum
allocation to a tier, the allocations are reduced pro rata to the
allowable maximum. 17
2. Bankruptcy Law
A debtor in need of relief may file a voluntary
bankruptcy petition, which commences a bankruptcy case. 18
“The commencement of a [bankruptcy] case . . . creates [a
12
N.J. S. A. § 2A:44A-9(a).
13
N.J. S. A. § 2A:44A-23(c)(1).
14
N.J. S. A. § 2A:44A-23(c)(2).
15
Id.
16
N.J. S. A. § 2A:44A-23(c)(4).
17
N.J. S. A. § 2A:44A-23(c)(1), (2), (4).
18
11 U.S.C. § 301.
6
bankruptcy] estate” that generally consists of all of the
property of the debtor. 19 Filing the petition also automatically
stays, among other things, “any act to create, perfect, or
enforce any lien against property of the estate . . ..” 20 In
general, we interpret the breadth of the stay broadly. 21
B. Factual and Procedural Background
Cooper Electrical Supply Co. and Samson Electrical
Supply Co., Inc., sold electrical materials to Linear Electric
Co., Inc., which Linear Electric incorporated into several
construction projects. As of July 1, 2015, the development
owners had not fully paid Linear Electric for its work on these
projects, and Linear Electric had not fully paid Cooper and
Samson for their materials. 22
19
11 U.S.C. § 541; accord Law v. Siegel, 134 S. Ct. 1188,
1192 (2014).
20
11 U.S.C. § 362(a)(4).
21
Westmoreland Human Opportunities, Inc. v. Walsh, 246
F.3d 233, 241 (3d Cir. 2001) (“§ 541(a)’s legislative history
demonstrates that the language of this provision was intended
to sweep broadly . . ..”); United States v. Whiting Pools, Inc.,
462 U.S. 198, 204-05 (1983) (“The House and Senate Reports
on the Bankruptcy Code indicate that § 541(a)(1)’s scope is
broad.”).
22
Specifically, Linear Electric owed Cooper $1,234,100.48
and Samson $142,980.17 for electrical materials that Linear
Electric had purchased. Since that time, Cooper has been
paid $257,026.63, and Samson has been paid $15,755.54.
They have reduced their claims accordingly.
7
On July 1, 2015, Linear Electric filed a voluntary
petition for relief under Chapter 11 of the Bankruptcy Code.
Two weeks later, on July 15, Cooper and Samson filed
construction liens on the developments into which Linear
Electric had incorporated the materials that it had purchased
from Cooper and Samson. On July 20, Linear Electric filed a
motion with the Bankruptcy Court to discharge the liens as
violating the automatic stay that resulted from the bankruptcy
petition. On July 31, after hearing argument, the Bankruptcy
Court granted the motion. Linear Electric then collected the
full amounts owed to it by the development owners. On
August 13, the Bankruptcy Court held that the construction
liens were void ab initio for violation of the automatic stay.
Linear Electric has continued to operate as a debtor-in-
possession.
Cooper and Samson appealed the Orders of the
Bankruptcy Court of July 31 and August 13, 2015. The
District Court affirmed. Cooper and Samson then appealed to
this Court.
II. Discussion 23
Both parties raise procedural issues for the first time in
this Court. Linear Electric argues that the case is moot, and
Cooper and Samson argue that the Bankruptcy Court could
not constitutionally resolve the issue in this case in the first
23
The Bankruptcy Court had jurisdiction over this matter
pursuant to 28 U.S.C. §§ 157(a) and (b)(1). The District
Court had jurisdiction over this matter pursuant to 28 U.S.C.
§ 158. We have jurisdiction over this appeal under 28 U.S.C.
§ 1291.
8
instance. We will address those issues before proceeding to
the merits of this appeal.
A. Mootness
When the Bankruptcy Court issued an order to
discharge the construction liens, Cooper and Samson
requested a stay but were not granted one. Linear Electric
then collected full payment from the development owners.
Linear Electric argues that, as a result, the value of the
constructions liens is zero. Hence, Linear Electric concludes
that this case is moot and subject to dismissal.
Linear Electric is correct that we generally cannot
resolve a dispute once the dispute has become moot, even if
mootness was not raised below (as it was not here). 24 “In
general a case becomes moot when the issues presented are
no longer live or the parties lack a legally cognizable interest
in the outcome.” 25 Here, Cooper and Samson would have no
cognizable interest in the liens if no money could be collected
through them.
Furthermore, Linear Electric is correct that, under New
Jersey law, payments from the development owners to Linear
Electric could potentially reduce or eliminate the value that
could be collected under the constructions liens. However,
such payments do not always do so, and they do not do so
24
See Rendell v. Rumsfeld, 484 F.3d 236, 240-41 (3d Cir.
2007).
25
Murphy v. Hunt, 455 U.S. 478, 481 (1982) (internal
quotation marks omitted) (quoting United States Parole
Comm’n v. Geraghty, 445 U.S. 388, 396 (1980)).
9
here. In general, the value of the lien, the lien fund, and any
claimant’s claim are all determined at the time of filing the
lien or service of a copy of the lien claim. 26 Thus, payments
from the development owners after the filing of the lien and
the service of a copy of the lien claim do not reduce the value
of the lien, the lien fund, or the lien claims.
Here, Linear Electric was paid in full after the
Bankruptcy Court decision, which came after filing and
service occurred. Thus, the payments to Linear Electric do
not affect the amounts that Cooper and Samson would
recover if the liens were proper. As we discuss supra, Cooper
26
See N.J. S. A. § 2A:44A-9(b)(1) (providing that the lien
fund shall not exceed “the earned amount of the contract
between the owner and the contractor minus any payments
made prior to service of a copy of the lien claim”) (emphasis
added); N.J. S. A. § 2A:44A-9(d) (“[N]o lien fund exists, if,
at the time of service of a copy of the lien claim, the owner or
community association has fully paid the contractor for the
work performed or for services, material or equipment
provided.”) (emphasis added); N.J. S. A. § 2A:44A-3(f)
(providing that the lien is “limited to the amount that [the
owner] agreed in writing to pay, less payments made by or on
behalf of that person in good faith prior to the filing of the
lien”) (emphasis added); N.J. S. A. § 2A:44A-8 (providing
that the lien claim form subtracts “Amount Paid to Date” to
find the “TOTAL LIEN CLAIM AMOUNT”); see also Craig
v. Smith, 37 N.J.L. 549, 550-51 (N.J. 1875) (“to entitle the
workman or materialman to an action against the owner,
under the [New Jersey Mechanic’s Lien Law], there must be a
debt due from the owner to the contractor at the time the
notice is given”) (emphasis added).
10
and Samson, as creditors of Linear Electric, may recover
some amount in relation to the lien amounts under the
approved plan of liquidation. Moreover, in its Order of
August 13, 2015, the Bankruptcy Court, while discharging the
liens, recognized that the “filing of the Liens shall be deemed
to have occurred on the date of each such filing and treated as
notices under 11 U.S.C. § 546(b) for the purposes of
determining whether (a) such Lien was timely filed under
applicable state law and (b) any such Supplier is entitled to
the protections of 11 U.S.C. § 546(b) or other applicable
law.” As a result, Cooper and Samson still have an interest in
the outcome of this bankruptcy proceeding. The case is not
moot.
B. Constitutionality
Cooper and Samson argue that the Bankruptcy Court
could not constitutionally enter an order invalidating the
construction liens. Their argument is based on the limitations
imposed by Article III of the Constitution. Article III vests
“[t]he judicial Power of the United States” in the judicial
branch, the judges of which “shall hold their Offices during
good Behaviour, and shall, at stated Times, receive for their
Services, a Compensation, which shall not be diminished
during their Continuance in Office.” 27 Because of this clause,
“in general, Congress may not withdraw from judicial
cognizance any matter which, from its nature, is the subject of
a suit at the common law, or in equity, or admiralty.” 28
27
U.S. Const. art. III, § 1.
28
Stern v. Marshall, 564 U.S. 462, 484 (2011) (quoting
Murray’s Lessee v. Hoboken Land & Improvement Co., 59
U.S. 272 (1856)) (internal quotation marks omitted).
11
Hence, courts outside the scope of Article III—that is, courts,
such as bankruptcy courts, whose judges do not have the life
tenure and salary protection guaranteed to Article III
judges—cannot conclusively resolve certain state common
law claims between private parties without the consent of
both parties. 29 However, Congress may assign cases
involving “public rights” to non–Article III courts. 30 Public
rights cases include “cases in which the claim at issue derives
from a federal regulatory scheme, or in which resolution of
the claim by an expert government agency is deemed
essential to a limited regulatory objective within the agency’s
authority.” 31
Cooper and Samson argue that the Bankruptcy Court
here, as a non–Article III court, could not resolve any claim
regarding their construction liens, because Cooper and
Samson describe the rights at issue with regard to the
construction liens as private rights that are entrusted to Article
29
Id. at 493; N. Pipeline Const. Co. v. Marathon Pipe Line
Co., 458 U.S. 50, 84 (1982) (holding that the Bankruptcy Act
of 1978 was unconstitutional in part because it allowed
bankruptcy courts to adjudicate state common law claims);
Wellness Int’l Network, Ltd. v. Sharif, 135 S. Ct. 1932, 1942
(2015) (“Our precedents make clear that litigants may validly
consent to adjudication by bankruptcy courts.”)
30
Stern, 564 U.S. at 485.
31
Id. at 484.
12
III courts. 32 However, Linear Electric brought claims
alleging violations of the automatic stay imposed by the filing
of its bankruptcy. Those claims arise under the federal
bankruptcy laws. 33 As such, any rights at issue are rights
created by Congress, and such rights are public rights. 34
Article III does not prevent a non–Article III court from
resolving cases regarding public rights; thus, the Bankruptcy
32
Linear Electric argues that this argument is waived because
Cooper and Samson did not raise this issue below. However,
waiver does not apply; we must consider this issue because it
implicates the jurisdiction of the Bankruptcy Court and
therefore our appellate jurisdiction. See Tech. Automation
Servs. Corp. v. Liberty Surplus Ins. Corp., 673 F.3d 399, 401
(5th Cir. 2012); see also In re Guild & Gallery Plus, Inc., 72
F.3d 1171, 1182 (3d Cir. 1996) (holding sua sponte that,
because the bankruptcy court lacked jurisdiction, the case
should be remanded to the bankruptcy court for dismissal);
United States v. Cotton, 535 U.S. 625, 630 (2002) (“defects in
subject-matter jurisdiction require correction regardless of
whether the error was raised in district court”).
33
Houck v. Substitute Tr. Servs., Inc., 791 F.3d 473, 481 (4th
Cir. 2015) (“A claim under § 362(k) for violation of the
automatic stay is a cause of action arising under Title 11, and
as such, a district court has jurisdiction over it.”); see also In
re Quigley Co., Inc., 676 F.3d 45, 52 (2d Cir. 2012)
(“Enjoining litigation to protect bankruptcy estates during the
pendency of bankruptcy proceedings, unlike the entry of the
final tort judgment at issue in Stern, has historically been the
province of the bankruptcy courts.”).
34
See Stern, 564 U.S. at 489 (“Congress may set the terms of
adjudicating a suit when the suit could not otherwise proceed
at all.”).
13
Court could constitutionally determine whether the liens
violated the automatic stay.
C. The Construction Lien and the Automatic Stay
With regard to the ultimate question, whether the filing
of the construction liens violated the automatic stay, we
review de novo the legal conclusions of the Bankruptcy Court
and the District Court. 35
Linear Electric filed for bankruptcy on July 1, 2015,
which stayed any act to create or perfect a lien on Linear
Electric’s property. 36 On July 15, Cooper and Samson filed
their construction liens—an act to perfect the liens that,
before then, were “inchoate merely.” 37 The question we
decide here is whether filing those liens violated the
automatic stay. We hold that it did. As we will explain, the
lien claim payment process allows Cooper and Samson to
collect their recovery by subtracting it from Linear Electric’s
accounts receivable which are due for the value of the
materials provided under the contracts. Thus, Cooper and
Samson’s lien was against Linear Electric’s property. This
analysis is consistent with the reasoning in numerous prior
cases, in this Court and elsewhere, as well as with the purpose
35
In re Nortel Networks, Inc., 669 F.3d 128, 136-37 (3d Cir.
2011) (“We exercise plenary review of an order from a
district court sitting as an appellate court in review of a
bankruptcy court and we will review both courts’ legal
conclusions de novo.”)
36
See 11 U.S.C. § 362(a)(4).
37
Friedman v. Stein, 71 A.2d 346, 349 (N.J. 1950).
14
of the automatic stay. Cooper and Samson’s arguments to the
contrary are unpersuasive.
1. The Lien Claim Payment Process and Linear Electric’s
Accounts Receivable
The lien claim payment process makes clear that
Cooper and Samson’s liens were against Linear Electric’s
property—specifically, its accounts receivable. Under New
Jersey law, if Linear Electric did not file its own lien claims
alongside Cooper and Samson’s, 38 the lien allocation would
be as follows. Cooper and Samson would be second tier
claimants, and the lien fund would be allocated in amounts
equal to their valid claims. 39 Thus, Cooper and Samson
would be fully paid, and the amount that Linear Electric is
owed by the development owners would be reduced
accordingly. 40 That is, on its balance sheet, Linear Electric’s
accounts receivable—which are an asset of Linear Electric—
would be reduced by the amount paid to Cooper and Samson.
In effect, the lien claim payment process would transfer a
38
If Linear Electric did file its own lien claims alongside
Cooper and Samson’s, the effect would be much the same,
with Linear Electric as a first tier claimant and Cooper and
Samson as second tier claimants. See N.J. S. A. § 2A:44A-
23(c)(1)-(2).
39
N.J. S. A. § 2A:44A-23(c)(4).
40
See N.J. S. A. § 2A:44A-12 (“Any . . . payment [of the
amount of a lien claim to a lien claimant] made by the owner .
. . shall constitute a payment made on account of the contract
price of the contract with the contractor . . . against whose
account the lien is filed.”).
15
portion of an asset of Linear Electric to Cooper and Samson.
Where, as here, a lien will be paid by transferring part or all
of an asset from the bankruptcy estate to the lienholder, the
lien is against the property of the bankruptcy estate. Thus,
Cooper and Samson’s filing to perfect their liens violated the
automatic stay.
2. Prior Cases and Statutory Purpose
Both prior cases and the purpose of the automatic stay
support the conclusion that we reach here. In In re Yobe
Electric, Inc., 41 the pertinent facts were analogous: A
subcontractor filed a mechanic’s lien, similar to the
construction lien here, after a general contractor declared
bankruptcy. However, in Yobe, the subcontractor filed the
lien under Pennsylvania law, under which the date of filing
the mechanic’s lien related back to “the date of visible
commencement upon the ground of the work of erecting or
constructing the improvement.” 42 Hence, the post-petition
lien related back to a time before the petition and fell within
an exception to the automatic stay. 43
41
728 F.2d 207 (3d Cir. 1984).
42
Matter of Yobe Elec., Inc., 30 B.R. 114, 117 (Bankr. W.D.
Pa. 1983) (quoting 49 Pa. Stat. Ann. § 1508(a)).
43
See 11 U.S.C. § 546(b)(1)(A) (“[The automatic stay is]
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 perfection .
. ..”).
16
The bankruptcy court in Yobe, in analysis that we
approved, 44 distinguished two New Jersey cases in which
filing a mechanic’s lien did violate the stay. 45 New Jersey
mechanic’s liens were effective as of filing, and no relation
back applied, so the liens in those two cases were post-
petition liens and violated the stay. 46 The bankruptcy court
distinguished those cases on the basis of the different state
laws: Pennsylvania liens relate back, and New Jersey liens do
not. This distinction would have been unnecessary, however,
if the liens were not against property of the bankruptcy estate,
because liens that are not against property of the bankruptcy
estate are not subject to the automatic stay. If the liens were
not against property of the bankruptcy estate, the New Jersey
cases would have been wrong, not merely distinguishable,
and the entire discussion of relation back would have been
irrelevant.
Thus, Yobe supports the conclusion that we draw here.
Its discussion implies that the liens were against the property
of the bankruptcy estate, and it suggests that construction or
mechanic’s liens that do not fall within an exception to the
44
We affirmed in a short opinion “on the basis of the well-
reasoned opinion of the bankruptcy judge.” Yobe, 728 F.2d at
208.
45
See Matter of Valairco, Inc., 9 B.R. 289 (Bankr. D.N.J.
1981); In re Shore Air Conditioning & Refrigeration, Inc., 18
B.R. 643 (Bankr. D.N.J. 1982).
46
Yobe, 30 B.R. at 117-18.
17
automatic stay by, for example, relating back to a pre-petition
time—as the liens here do not 47—violate the automatic stay. 48
Also supporting our conclusion are numerous cases
from other courts that have considered enforcement (rather
than creation or perfection) of mechanic’s liens in similar
factual circumstances. In all of these cases, courts have either
held or assumed that the liens are against the bankruptcy
47
Since Yobe, New Jersey has repealed the Mechanic’s Lien
Law and replaced it with the Construction Lien Law.
However, no party has suggested, and we cannot find any
reason to believe, that any of the changes in the statute affect
the outcome of the case. For example, none of the changes
would make the liens relate back to a time before their filing.
48
The exception to the automatic stay in 11 U.S.C. §
546(b)(1) is broader than relation back, see In re 229 Main St.
Ltd. P’ship, 262 F.3d 1, 10-11 (1st Cir. 2001), but the
exception does not apply here in any event. The exception
generally provides that “if an interest holder against whom
the trustee would have rights still has, under applicable
nonbankruptcy law, and as of the date of the petition, the
opportunity to perfect his lien against an intervening interest
holder, then he may perfect his interest against the trustee.”
In re Grede Foundries, Inc., 651 F.3d 786, 791 (7th Cir.
2011) (quoting Makoroff v. City of Lockport, 916 F.2d 890,
891-92 (3d Cir.1990)) (internal quotation marks omitted).
New Jersey law gives no such opportunity to Cooper and
Samson.
18
estate’s property interests. 49 We agree: The liens here were
against Linear Electric’s interests in property.
Finally, the purpose of the automatic stay supports our
conclusion. In a Chapter 11 bankruptcy such as Linear
Electric’s, a debtor proposes a plan of repayment “which
divides claims against the debtor into separate ‘classes’ and
specifies the treatment each class will receive.” 50 A plan
typically specifies that at least some creditors will receive less
than the full value that they were originally owed, because a
bankrupt entity generally has inadequate assets to cover its
liabilities. A court will approve such a plan, even over the
objections of the creditors, “if the plan does not discriminate
unfairly, and is fair and equitable, with respect to each class
49
See, e.g., In re Hunters Run Ltd. P’ship, 875 F.2d 1425,
1427 (9th Cir. 1989) (rejecting the argument that a
mechanic’s lien “is not ‘against the debtor’ but is instead
‘against the realty or security for the debt’”); In re Baldwin
Builders, 232 B.R. 406, 412-13 (B.A.P. 9th Cir. 1999)
(holding that post-petition commencement of a mechanic’s
lien foreclosure action by a subcontractor violates the
automatic stay from a general contractor’s bankruptcy
petition); In re Concrete Structures, Inc., 261 B.R. 627, 643
(E.D. Va. 2001) (rejecting the argument that “a suit to enforce
a mechanic’s lien is an action in rem” rather than “against the
debtor”); In re Richardson Builders, Inc., 123 B.R. 736, 741
(Bankr. W.D. Va. 1990) (“[W]hen a general contractor files a
bankruptcy petition, [§] 362(a) stays the filing and
prosecution of mechanic’s lien enforcement actions by
subcontractors.”).
50
RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 132
S. Ct. 2065, 2069 (2012).
19
of claims or interests that is impaired under, and has not
accepted, the plan.” 51 The purpose of the automatic stay is to
give breathing room for the development of such a plan. 52
Here, if Cooper and Samson were allowed to receive
full repayment via New Jersey’s Construction Lien Law, they
would be fully repaid, and Linear Electric would receive less
as a result. Thus, there would be less total money to go into
the plan of repayment, and other creditors of Linear Electric
would suffer. Cooper and Samson would be effectively
circumventing the bankruptcy case in order to unfairly
advantage themselves at the expense of other creditors. For
better or for worse, the automatic stay requires that Cooper
and Samson wait as Linear Electric’s bankruptcy case
proceeds and receive whatever they will receive under
bankruptcy law without resort to other mechanisms to claim
greater payments.
3. Cooper and Samson’s Arguments
Cooper and Samson argue that their liens did not
violate the automatic stay because the liens attached to the
property interests of the development owners and did not
51
11 U.S.C. § 1129(b)(1).
52
In re VistaCare Grp., LLC, 678 F.3d 218, 231 (3d Cir.
2012) (“[The automatic stay’s] primary purpose was to give
the debtor a ‘breathing spell’ from creditors, to allow the
debtor to begin the process of discharging his debts, and
where applicable, to develop a repayment or reorganization
plan”).
20
attach to the interests of Linear Electric. 53 Therefore, they
conclude, the liens were proper. However, their argument is
not persuasive. First of all, we agree with the cogent
reasoning of the District Court that liens were against Linear
Electric’s accounts receivable. Futhermore, the stay applies
to any lien “against” Linear Electric’s interests in property,
not solely those that “attach” to Linear Electric’s interests in
property, 54 and the Construction Lien Law expressly
contemplates that a lien may be against something to which it
does not attach. For example, it refers to “the contractor or
subcontractor against whose account the lien is filed . . ..”55
Hence, the text of the Construction Lien Law provides no
reason to believe that the liens are not also against Linear
Electric’s accounts receivable (in addition to attaching to the
development owners’ real property interests).
53
See N.J. S. A. § 2A:44A-3(a) (providing that a construction
lien “shall attach to the interest of the owner or unit owner of
the real property development”). Cooper and Samson
contrast this wording with New Jersey’s Municipal
Mechanic’s Lien Law, which allows public contractors to file
a lien upon “moneys” of the public agency that hired the
contractor under circumstances similar to those in which a
private contractor could file a construction lien. See N.J. S.
A. § 2A:44-128(a).
54
“Attach” and “against” are not synonyms. Compare
Black’s Law Dictionary 152 (10th ed. 2014) (defining
“attach”) with Merriam-Webster’s Collegiate Dictionary
(11th ed.), available at http://www.merriam-
webster.com/dictionary/against (defining “against”).
55
N.J. Stat. Ann. § 2A:44A-12 (emphasis added).
21
Cooper and Samson also argue that their liens may not
have been against Linear Electric’s interests in property
because Linear Electric may have had no interests in the debts
from the development owners. Cooper and Samson suggest
that the contracts between Linear Electric and the
development owners, which were never submitted into
evidence, may have provided that Linear Electric’s paying its
suppliers was a condition precedent to Linear Electric’s right
to repayment for its construction work. Cooper and Samson
allege that such a provision is standard throughout the
industry. They argue that if this provision were part of the
contract, then Linear Electric would have no property interest
in anything from the development owners, so the liens would
not violate the automatic stay. Hence, they request a remand
for contract interpretation. However, their argument is
mistaken on a crucial point of law. New Jersey’s
Construction Lien Law provides that the value of the lien
fund cannot exceed the amount that the owner actually owed
the contractor at the time of filing or service. 56 Thus, if the
contract provides as Cooper and Samson have suggested and
if, as a result, Linear Electric has no right to repayment from
the development owners, then the value of the lien fund is
zero. In such circumstances, the Bankruptcy Court would
have been correct to order the liens discharged. Cooper and
Samson therefore have provided no reason to remand this
case.
56
See N.J. S. A. § 2A:44A-9(b)(1) (providing that the lien
fund shall not exceed “the earned amount of the contract
between the owner and the contractor”).
22
III. Conclusion
For the foregoing reasons, we will affirm the judgment
of the District Court.
23