In re Bdc 56 LLC
| Decision Date | 21 May 2003 |
| Docket Number | No. 02-5029.,02-5029. |
| Citation | 330 F.3d 111 |
| Parties | In Re: BDC 56 LLC, Debtor. Key Mechanical Inc., Appellant, v. BDC 56 LLC, Appellee, DWF Inc., Mesta Construction, Inc., Defendants. |
| Court | U.S. Court of Appeals — Second Circuit |
John H. Hall, Jr., (Adam Levy, on the brief) Shaw, Licitra, Bohner, Esernio, Schwartz & Pfluger, P.C., Garden City, NY, for Appellant.
Andrew P. Brozman, (Jennifer C. DeMarco and Seven Rivera, on the brief) Chadbourne & Parke LLP, New York, NY, for Appellee.
Before: CALABRESI, POOLER, and B.D. PARKER, JR., Circuit Judges.
Appellant Key Mechanical Inc. appeals from a consolidated judgment of the United States District Court for the Southern District of New York (Robert W. Sweet, Judge), affirming orders of the Bankruptcy Court (Richard L. Bohanon, Judge) dismissing an involuntary petition against appellee BDC 56 LLC and denying a motion for reconsideration.
Key is a construction company that performed heating and ventilation work at the Chambers Hotel in Manhattan. After a dispute over payment with BDC, the owner of the hotel, Key joined with DWF, Inc. and Mesta Construction, Inc., two other construction companies that claimed to be owed various amounts by BDC for work performed at the hotel, in filing an involuntary petition against BDC under Chapter 7 of the Bankruptcy Code. See 11 U.S.C. § 303(b)(1) (1993).
BDC contended that it was not insolvent, that differences existed with the petitioning creditors over the quality of their work and that the petition was simply an effort to coerce payment of monies not due. BDC moved to dismiss, contending that the petitioning creditors' claims were subject to bona fide disputes. See id. The Bankruptcy Court agreed and dismissed the petition. The petitioning creditors moved for reconsideration and the Bankruptcy Court denied the motion. They appealed both orders to the District Court, which affirmed. Key appealed. We affirm.
The Chambers Hotel is owned and managed by BDC. Starting in 1999, Key performed heating, ventilation, and air-conditioning ("HVAC") work at the hotel under a contract with HRH Construction, which at the time was BDC's construction manager. During construction, HRH suspended work and BDC assumed direct responsibility for the project. At that time, HRH's contracts with Key and with other contractors working at the site were assigned to BDC.
In late 2000, a dispute arose between Key and BDC. Key claimed that it had substantially performed and was owed $231,938 by BDC. BDC claimed that Key's work was defective and incomplete and insisted that Key complete performance. BDC ultimately hired another contractor, Dyn-aire, to complete the work. Key demanded the contract balance, but BDC, citing added costs and damages resulting from Key's breach, refused and threatened to recover any shortfall under Key's performance bond.
DWF installed wood flooring under a contract with HRH that, like Key's, was subsequently assigned to BDC. In early 2001, a dispute arose between BDC and DWF over its flooring work at the hotel. BDC and DWF agreed on a "punch list" of outstanding items for DWF to remedy, but because of these and other unresolved issues, BDC withheld the contract balance. DWF claims to be owed $45,939.
Mesta was a subcontractor of the tiling contractor Tveter Carpet Co., with whom BDC had contracted directly. Mesta alleged that it fully performed under its subcontract with Tveter, but that Tveter paid only $33,000 of the $84,674 due under the contract. Mesta therefore sought the balance of $51,674 from BDC through a mechanic's lien. See N.Y. Lien Law § 3 (McKinney 1993).
In May 2001, Key, DWF, and Mesta filed an involuntary bankruptcy petition against BDC alleging that it owed them $231,938, $45,939, and $51,674, respectively. See 11 U.S.C. § 303(b)(1). Section 303 permits such a filing by three petitioning creditors whose unsecured claims aggregate at least $11,625 and are neither contingent as to liability nor subject to a "bona fide dispute." See id.; 11 U.S.C. § 104 (Supp.2002). In June 2001, six additional creditors sought to join the petition, asserting claims for plumbing materials, metal supplies, or other construction-related services.1 At the time they sought to join, these six creditors held only secured claims arising from mechanic's liens filed against the hotel.2
BDC moved to dismiss the petition, pointing to the existence of a longstanding dispute with Key concerning its performance under the contract. See Fed. R. Bankr.P. 1011; Fed.R.Civ.P. 12(b)(1) & (6). BDC also contended that DWF's right to payment had not yet arisen under its contract, and that its claims was therefore subject to a bona fide dispute. In addition, BDC claimed that Mesta lacked standing because: (1) it was a subcontractor of Tveter, a party with whom BDC had contracted directly, and, consequently, was not in privity with BDC, and (2) BDC had tendered complete payment to Tveter for services and materials provided by Mesta. See N.Y. Lien Law § 4(1) (). With respect to the six new petitioning creditors, BDC contended that none qualified because none held unsecured claims as required by § 303(c), and, in any event, all of their claims were subject to bona fide disputes.
The Bankruptcy Court concluded that the claims of Key and DWF were subject to bona fide disputes and that Mesta lacked standing. The court saw no need for an evidentiary hearing, concluding that the documentary evidence supported BDC's claim of a preexisting dispute with Key, and that, because the contractual prerequisites to DWF's payment had not been satisfied, its claim was also subject to a bona fide dispute. The court noted that privity between BDC and Mesta did not exist and determined that "Mesta lack[ed] standing to pursue its claim against BDC as a petitioning creditor ... or, at a minimum, there is a bona fide dispute concerning whether or not BDC owes anything to Mesta." (Order, July 2, 2001, at 4.) Finally, the Bankruptcy Court concluded that the six additional petitioning creditors did not qualify because their claims were secured. The court treated BDC's motion as one for summary judgment, granted it, and dismissed the petition.
The petitioning creditors moved for reconsideration and, in support, offered the contract between HRH and BDC, related documents, and additional affidavits. The Bankruptcy Court denied the motion, finding that the petitioning creditors had not "presented any new evidence that is admissible, not already considered by the Court[,] or material to the outcome." (Order Denying Petitioning Creditors' Mot. to Reconsider the Dismissal of the Involuntary Pet., Oct. 12, 2001, at 3.) The court also found that the petitioning creditors had not shown the existence of "extraordinary circumstances or extreme hardship" justifying reconsideration. (Id. at 5.)
The petitioning creditors appealed both orders to the District Court, which, reviewing for clear error, affirmed the Bankruptcy Court's conclusion that the claims of Key and DWF were subject to bona fide disputes. Key Mechanical Inc. v. BDC 56 LLC., No. 01 Civ. 10169(RWS), 2002 WL 449856, at *3-4 (S.D.N.Y. Mar.22, 2002) ("Key I"). With respect to Mesta, however, the District Court found that genuine issues of material fact existed as to whether BDC had paid Tveter in full for the work done by Mesta, precluding a finding that Mesta lacked standing. Id. at *5.
The District Court affirmed the Bankruptcy Court's holding that the six additional petitioning creditors were ineligible because their claims were secured. Id. at *5-6. While the court found limited authority for the proposition that the six creditors could have waived all or a portion of their secured claims in order to qualify under § 303(c), see CC Britain Equities, L.L.C. v. Allen-Main Assocs. Ltd. P'ship (In re Allen-Main Assocs. Ltd. P'ship), 223 B.R. 59, 61 (1998), it found dispositive the fact that none had actually done so before the petition was dismissed. Key I, 2002 WL 449856, at *6. Finding fewer than three eligible petitioning creditors, the District Court affirmed the dismissal of the involuntary petition. See 11 U.S.C. § 303(b)(1). In a separate opinion, the District Court held that the Bankruptcy Court had not abused its discretion in denying the motion for reconsideration. Key Mechanical Inc. v. BDC 56 LLC., No. 01 Civ. 10173(RWS), 2002 WL 467664, at *4 (S.D.N.Y. Mar.26, 2002) ("Key II"). Following the entry of judgment, Key appealed.
On appeal, Key contests the Bankruptcy Court's finding that bona fide disputes existed and faults it for failing to hold an evidentiary hearing. Key also contends that the District Court used an incorrect standard — clearly erroneous as opposed to de novo — in reviewing the Bankruptcy Court's order of dismissal. Our review of a judgment of a district court sitting as an appellate court on bankruptcy matters is plenary. See Mazzeo v. Lenhart (In re Mazzeo), 167 F.3d 139, 142 (2d Cir.1999). We independently review the factual findings and legal conclusions of the bankruptcy court. Id. "On an appeal from an order granting a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1), we review the district court's factual findings for clear error and its legal conclusions de novo." Zappia Middle East Constr. Co. Ltd. v. Emirate of Abu Dhabi, 215 F.3d 247, 249 (2d Cir.2000) (per curiam).
As explained more fully below, a bankruptcy court's determination that a petitioning creditor's claim is the subject of a bona fide dispute will entail either a factual finding, a legal conclusion, or a mixed question of...
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