Holt Tex., Ltd. v. Zayler (In re T.S.C. Seiber Servs., L.C.)

Citation771 F.3d 246
Decision Date03 November 2014
Docket NumberNo. 13–41153.,13–41153.
PartiesIn the Matter of T.S.C. SEIBER SERVICES, L.C., Debtor. Holt Texas, Limited, doing business as Holt Cat; Transamerican Underground, Limited, Appellants v. Stephen J. Zayler, Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)

Guy Wade Caldwell, James S. Wilkins, Barton, East & Caldwell, P.L.L.C., San Antonio, TX, Vemon Childs Howerton, Jr., Gray Reed & McGraw, P.C., Dallas, TX, for Appellants.

Jason Riley Searcy, Joshua Powers Searcy, Searcy & Searcy, P.C., Longview, TX, for Appellee.

Appeal from the United States District Court for the Eastern District of Texas.

Before JOLLY, SOUTHWICK, and HAYNES, Circuit Judges.

Opinion

E. GRADY JOLLY, Circuit Judge:

Holt Texas, Ltd. (Holt) and Transamerica Underground Limited (TAUG), subcontractors of the bankrupt T.S.C. Seiber (“Seiber”), appeal the September 24, 2013, district court judgment affirming a prior bankruptcy court order. The district court held that funds of an interpleader action, filed by EnCana Oil & Gas (USA) Inc. (“EnCana”), were property not of EnCana, but property of the bankruptcy estate of Seiber because the interpleader action extinguished the earlier construction liens of Holt and TAUG. Thus, on appeal they challenge the district and bankruptcy courts' reasoning and conclusions that: (1) the Texas Construction Trust Funds Act did not apply, because EnCana's deposit of the funds was not a qualifying payment triggering creation of a trust fund; and (2) Appellants did not have valid, perfected mineral liens under chapter 56 of the Texas Property Code. We consider Appellants' contentions de novo and, for the reasons that follow, we VACATE the district court's judgment and REMAND for further proceedings not inconsistent with this opinion.

I.

The facts are undisputed. In 2008, EnCana engaged Seiber to build a natural gas pipeline in Robertson County, Texas, known as the Camp Creek 12–inch Pipeline Project (“the project”). Holt and TAUG were among the subcontractors of Seiber, the primary contractor. Holt provided heavy machinery, parts, and services; TAUG installed over two thousand linear feet of pipe. The agreement between EnCana and Seiber provided that if a subcontractor notified EnCana that it had not been paid by Seiber, EnCana would withhold all sums remaining and make no further payments to Seiber.

In due course, EnCana made two payments to Seiber for exactly half of the total contract price. Following those payments, however, in August 2009, TAUG notified EnCana that it was not being paid and, under Texas law, would look to EnCana for payment of the $96,300 that TAUG claimed it was owed. Accordingly, EnCana withheld the remaining half of the contract payments. It later received reports that Seiber failed to pay other subcontractors as well.

In September 2009, EnCana filed an interpleader, naming Seiber and the project's subcontractors, including Holt and TAUG, as defendants, in the Northern District of Texas. EnCana sought protection of its property and a declaration shielding it from further liability for the unpaid amounts owed by Seiber to its subcontractors and deposited just more than $345,000 into the district court registry, disclaiming any interest in the interpleader funds.

In October 2009, Seiber filed a voluntary petition for bankruptcy relief under Chapter 11 of the Bankruptcy Code in the Eastern District of Texas. The petition was quickly converted to a Chapter 7 petition, and Appellee Stephen Zayler was appointed trustee of the bankruptcy estate. Shortly thereafter, Holt, like TAUG earlier, formally notified EnCana that it had not been paid for work done on the project and would look to EnCana for payment of the $207,480.80 it was owed. It is undisputed that EnCana was already aware Holt had performed work and not been paid because EnCana included Holt as a defendant in the earlier-filed interpleader action.

In November 2009, TAUG filed its Affidavit Claiming Mineral Lien, against property of EnCana, in the public records of Robertson County, Texas. Holt filed its Affidavit Claiming Mineral Lien in March 2010.

Later that year, the interpleader action was transferred to the Eastern District, and the case was referred to the bankruptcy court of that district. After dismissal of certain defendants, the court determined that EnCana had tendered all required funds into the registry and fulfilled all other statutory duties. In April 2012, EnCana was discharged from the action. No party appealed that discharge order.

The remaining parties filed competing motions for summary judgment, agreeing that no genuine issues of material fact existed and requesting resolution of their rights to the interpleader funds as a matter of law. Holt and TAUG argued that two Texas statutory schemes protecting subcontractors required that the interpleader funds be awarded to them: Chapter 56 of the Texas Property Code and the Construction Trust Funds Act (“CTFA”). The bankruptcy court held that, based on the plain language of the statutes, neither applied, and the interpleader funds were therefore part of the bankruptcy estate. Holt and TAUG appealed to the district court, which affirmed the judgment of the bankruptcy court and adopted its reasoning. Holt and TAUG now appeal the judgment of the district court.

II.

The overarching question in this appeal is whether the district court erred in holding that the disputed funds were property of the bankruptcy estate. The subcontractors and Zayler in essence argue which as between the two has “superior rights” to the disputed funds. Under section 541 of the Bankruptcy Code, at the time of filing the bankruptcy petition, the bankruptcy estate is created and includes “all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a)(1). If Appellant subcontractors can demonstrate that, as of the time of the bankruptcy filing, either Seiber, the prime contractor, had no legal or equitable interest in the disputed funds or Appellants held a superior interest to Seiber, Zayler, the trustee, must yield. As noted earlier, the interpleader action was filed about a month before the petition for bankruptcy was filed.

When reviewing “a decision of a district court, sitting as an appellate court, [the court of appeals] applies the same standards of review to the bankruptcy court's findings of fact and conclusions of law as applied by the district court.” In re ProEducation Int'l, Inc., 587 F.3d 296, 299 (5th Cir.2009). A bankruptcy court's conclusions of law are reviewed de novo. In re ASARCO, L.L.C., 650 F.3d 593, 601 (5th Cir.2011).

The bankruptcy court decided this case on summary judgment. Under the Bankruptcy Code, the standard for granting summary judgment is the same as Federal Rule of Civil Procedure 56. See Fed. R. Bankr.P. 7056. Accordingly, [s]ummary judgment is proper when there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law.” In re SeaQuest Diving, LP, 579 F.3d 411, 417 (5th Cir.2009). As noted, the facts of this case are undisputed by the parties. The only dispute is whether either of the Texas statutory schemeschapter 56 or the CTFA—apply to provide Holt and TAUG with a superior right to the funds, as judged in the background of the interpleader action and the petition for bankruptcy.

III.
A.

Generally, the determination of the nature of a debtor's interest in property is a matter of state law.See Butner v. United States, 440 U.S. 48, 54–55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979) (Congress has generally left the determination of property rights in the assets of a bankrupt's estate to state law.... Unless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding.”).

So, under Texas law, the question is who had legal possession of the funds after the funds were deposited in the registry of the court, but before there was any action of the district court with respect to the interpleader funds. We first turn to Texas law that provides special protection to unpaid subcontractors through a variety of statutory schemes. Those schemes include two at issue in this action. First, chapter 56 of the Texas Property Code provides mineral subcontractors with a statutory lien “to secure payment for labor or services related to the mineral activities.” Tex. Prop.Code § 56.002. Further, Texas “lien statutes ... [should] be liberally construed for the purpose of protecting laborers and materialmen.” Hayek v. Western Steel Co., 478 S.W.2d 786, 795 (Tex.1972) (stating “the primary object of [the lien statute] ... is to afford security and protection to laborers and materialmen”).

Second, chapter 162 of the Texas Property Code, the CTFA, states: “Construction payments are trust funds under this chapter if the payments are made to a contractor or subcontractor ... under a construction contract for the improvement of specific real property in this state.” Tex. Prop.Code § 162.001(a). The CTFA was enacted to “supplement[ ] the remedies ... available to laborers and materialmen.” In re HLW Enters. of Tex., Inc., 157 B.R. 592, 597 (Bankr.W.D.Tex.1993) (citing Texas cases in support). “Prior to the enactment of this statute, the statutory remedies ... were limited to the right to sue on a contractor's performance and payment bond ... and the right to file a lien against the real property.” Id. (internal citations omitted). Section 162.001, however, protects subcontractors without requiring notice or other action, such as filing of an affidavit, as a prerequisite. Id. Similar to Texas's remedial lien statutes, the CTFA “was enacted for the protection of [subcontractors], and is a remedial statute that should be given a broad construction.” Dealers Elec. Supply Co. v. Scroggins Const. Co., 292 S.W.3d 650, 658 (Tex.2009).

Holt and TAUG, in urging the reversal of the district...

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  • LEGAL DEVELOPMENTS IN 2014 AFFECTING THE OIL AND GAS EXPLORATION AND PRODUCTION INDUSTRY
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    • FNREL - Journals Legal Developments in 2014 Affecting the Oil and Gas Exploration and Production Industry (FNREL)
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    ...2014, pet. filed). [179] 421 S.W.3d 690 (Tex. App.--Austin 2014, no pet.). [180] 9 F. Supp. 3d 735 (S.D. Tex. 2014) (mem. op.). [181] 771 F.3d 246 (5th Cir. 2014). [182] 765 F.3d 507 (5th Cir. 2014). [183] 739 F.3d 215 (5th Cir. 2014). [184] 743 F.3d 895 (4th Cir. 2014). [185] Civ. Act. No.......

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