Gold Star Construction, Inc. v. Cavu/Rock Properties Project I, L.L.C. (In Re Cavu/Rock Properties Project I, L.L.C.) , 637 F. App'x 123 ( 2016 )

Case: 15-50455 Document: 00513327899 Page: 1 Date Filed: 01/04/2016
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
No. 15-50455
Fifth Circuit
FILED
Summary Calendar January 4, 2016
Lyle W. Cayce
In the Matter of: CAVU/ROCK PROPERTIES PROJECT I, L.L.C Clerk
Debtor
____________________
GOLD STAR CONSTRUCTION, INCORPORATED,
Appellant Cross-Appellee
v.
CAVU/ROCK PROPERTIES PROJECT I, L.L.C.,
Appellee Cross-Appellant
Appeals from the United States District Court
for the Western District of Texas
USDC No. 5:14-CV-987
Before KING, CLEMENT, and OWEN, Circuit Judges.
PER CURIAM:*
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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Creditor Gold Star and debtor Cavu/Rock appeal the rulings of the
bankruptcy court. Gold Star asserts that the bankruptcy court erred (1) by
failing to apply the doctrines of judicial estoppel and res judicata to the
property valuation; (2) by finding its mechanic’s lien to be invalid; and (3) by
denying its motion to transfer venue. Cavu/Rock asserts that the bankruptcy
court erred (1) by finding that Gold Star had an unsecured claim against
Cavu/Rock for $743,382.29; and (2) by assessing costs against each party.
I.
Cavu/Rock owned a residential housing development in Bakersfield,
California (the “Property”). Gold Star entered a development agreement with
Cavu/Rock to construct improvements on the Property. Gold Star commenced
performance under the contract. Cavu/Rock became delinquent in its payments
to Gold Star and eventually filed a Chapter 11 bankruptcy petition. Gold Star
and Wells Fargo Bank filed proofs of claim in the bankruptcy proceeding. Wells
Fargo’s claim was secured by a deed of trust on the Property, while Gold Star
asserted a mechanic’s lien over the improvements. Cavu/Rock then brought an
adversary proceeding challenging Gold Star’s lien and claim. The bankruptcy
court recognized Gold Star’s claim for $743,382.29 but held the mechanic’s lien
invalid, making Wells Fargo the superior—and only—secured creditor. Both
Gold Star and Cavu/Rock appealed to the district court, which affirmed the
bankruptcy court’s opinion and order.
II.
“[A] bankruptcy court's findings of fact are reviewed for clear error and
conclusions of law are reviewed de novo.” In re Gerhardt, 348 F.3d 89, 91 (5th
Cir. 2003). “A finding of fact is clearly erroneous only if on the entire evidence,
the court is left with the definite and firm conviction that a mistake has been
committed.” In re Shankle, 554 F. App’x 264, 266 (5th Cir. 2014).
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III.
a. Judicial Estoppel and Res Judicata
Gold Star first argues that the bankruptcy court erred by failing to use
the same property valuation for both the bankruptcy proceeding and the
adversary proceeding. Gold Star invokes the doctrines of judicial estoppel and
res judicata in support. “The doctrine of judicial estoppel is equitable in nature
and can be invoked by a court to prevent a party from asserting a position in a
legal proceeding that is inconsistent with a position taken in a previous
proceeding.” Love v. Tyson Foods, Inc., 677 F.3d 258, 261 (5th Cir. 2012). “We
review a judicial estoppel determination for abuse of discretion.” Id. at 262.
Under the doctrine of res judicata, “A final judgment on the merits of an
action precludes the parties or their privies from relitigating issues that were
or could have been raised in that action.” Comer v. Murphy Oil USA, Inc., 718
F.3d 460, 467 (5th Cir. 2013) (quoting Federated Dep’t Stores, Inc. v. Moitie,
452 U.S. 394, 398 (1981)). “The res judicata effect of a prior judgment is a
question of law that we review de novo.” Comer, 718 F.3d at 466.
In the bankruptcy proceeding, Cavu/Rock submitted feasibility
projections as part of a reorganization plan pursuant to 11 U.S.C. § 1129.
Cavu/Rock estimated a future value of $60,000 to $75,000 for each lot on the
Property, for a total property value range of $8,040,000 to $10,050,000. The
bankruptcy court accepted these projections and approved the plan. In the
adversary proceeding, Cavu/Rock presented evidence valuing the Property
between $2,100,000 and $2,600,000, pursuant to 11 U.S.C. § 506. Cavu/Rock
argued that because Wells Fargo had a superior lien exceeding the value of the
Property, any claim by Gold Star would be unsecured. Gold Star objects to
these differing valuations under §§ 1129 and 506.
A valuation under § 1129 is “simply a set of projections offered in support
of the plan’s feasibility.” In re Heritage Highgate, Inc., 679 F.3d 132, 142 (3d
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Cir. 2012). A § 1129 reorganization plan “provides for a debtor to retain and
use collateral to generate income with which to make payments to creditors.”
Id. at 141-42. The purpose of § 506, on the other hand, is to provide for the
“division of allowed claims supported by liens into secured and unsecured
portions during the reorganization,” and valuations under this section “must
be based upon realistic measures of present worth.” Id. at 142-43. The district
court correctly held that the valuations under §§ 1129 and 506 are two distinct,
separate valuations required for different purposes. The feasibility projections
under § 1129 were based on Cavu/Rock’s estimate of “monies to be realized
from the sale of lots over time” and anticipated continued development of the
Property. Id. at 143. The estimate under § 506, on the other hand, was based
on an appraisal of the present fair market value of the Property. As a result,
Cavu/Rock did not assume inconsistent positions by presenting two different
valuations for two different purposes, nor does the bankruptcy court’s
acceptance of a § 1129 feasibility plan constitute a final judgment on the value
of the Property under § 506. The doctrines of judicial estoppel and res judicata
are not applicable.
b. Mechanic’s Lien
Gold Star argues that the bankruptcy court erred in holding its
mechanic’s lien invalid under California law. “A ‘mechanic’ in this context is
one who has supplied materials or labor for the improvement of real property
(other than the property’s owner), and includes a contractor.” Howard S.
Wright Const. Co. v. BBIC Inv’rs, LLC, 38 Cal. Rptr. 3d 769, 776 (2006). “To
secure obligations owed by the owner to the mechanic pursuant to contract, the
mechanic may file a lien on the improved property, which is sometimes referred
to as the work of improvement.” Id. At the time Gold Star recorded its lien,
California law required that the lien be filed “after [the mechanic] completes
his contract.” Cal. Civ. Code § 3115, repealed by Stats. 2010, ch. 697 (S.B. 189),
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§ 16, operative July 1, 2012. “[A] contract is complete for purposes of
commencing the recordation period under section 3115 when all work under
the contract has been performed, excused, or otherwise discharged.” Wright,
38 Cal. Rptr. at 769. Here, the bankruptcy court found that Gold Star had not
completed its obligations under the development agreement with Cavu/Rock,
nor had Gold Star been otherwise discharged or excused, at the time it filed its
lien. We find no clear error with this factual determination.
Because Gold Star had neither completed its obligations nor been
discharged at the time of filing, the bankruptcy court determined that the
mechanic’s lien was premature and therefore invalid. This holding is
consistent with California law. See Wright, 38 Cal. Rptr. 3d at 778(“[R]ecordation was premature, unless the contract was ‘complete[d]’ within
the meaning of section 3115 in some other manner before . . . recording.”)
(second alteration in original). Therefore, we find no error in the bankruptcy
court’s legal conclusion.
c. Motion to Transfer Venue
Finally, Gold Star argues that the bankruptcy court erred by denying its
motion to transfer venue to the Eastern District of California. Gold Star
concedes that venue was proper in the Western District of Texas but argues
that the case should have been transferred to the district that encompassed
the Property. A bankruptcy court's refusal to transfer a case is reviewed for
abuse of discretion. Action Indus., Inc. v. U.S. Fid. & Guar. Co., 358 F.3d 337,
339 (5th Cir. 2004). Here, the bankruptcy court held a hearing on the motion
to transfer and thoroughly analyzed the relevant factors such as judicial
economy and the efficient administration of the case, the proximity of creditors,
debtors, and witnesses, the location of the assets, and the necessity of ancillary
administration. The bankruptcy court concluded that all factors, when
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considered together, weighed against transferring the case. We hold the
bankruptcy court did not abuse its discretion in denying the motion to transfer.
IV.
a. Allowed Unsecured Claim
Cavu/Rock argues that the bankruptcy court erred by allowing Gold
Star’s unsecured claim for $743,382.29. “A bankruptcy court’s valuation is
largely a question of fact, as to which considerable latitude must be allowed to
the trier of the facts.” In re Positive Health Mgmt., 769 F.3d 899, 903 (5th Cir.
2014) (internal quotation marks omitted). Here, the bankruptcy court relied on
Gold Star’s construction ledger to determine the amount of the claim. The
bankruptcy court confirmed the ledger’s accuracy by cross-referencing it
against the invoices and checks exchanged by the parties. In contrast, the
bankruptcy court was not able to confirm the accuracy of Cavu/Rock’s own
summary. The bankruptcy court’s “account of the evidence is plausible in light
of the record viewed as a whole.” In re Acosta, 406 F.3d 367, 373 (5th Cir. 2005).
Therefore, the bankruptcy court’s determination that Gold Star holds an
allowable, unsecured claim is not clearly erroneous.
b. Attorney’s Fees and Costs
Cavu/Rock appeals the bankruptcy court’s order that each party bear its
own costs and attorney’s fees. We review orders regarding attorney’s fees for
abuse of discretion. In re Cahill, 428 F.3d 536, 539 (5th Cir. 2005). Here,
Cavu/Rock brought an adversary proceeding to declare Gold Star’s lien invalid
and to disallow its claim. The bankruptcy court found the lien invalid but
allowed the claim. Because the bankruptcy court found for the plaintiff in part
and for the defendant in part, it acted within its discretion in its assessment of
costs. See In re Corrugated Container Antitrust Litig., 756 F.2d 411, 418 (5th
Cir. 1985).
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V.
For the foregoing reasons, the judgment of the district court is
AFFIRMED.
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