In re Concrete Structures, Inc.

• Decision Date: 30 March 2001
• Docket Number: No. Civ.A. 3:00CV314.,Civ.A. 3:00CV314.
• Citation: 261 BR 627
• Parties: In re CONCRETE STRUCTURES, INC., Debtor. Concrete Structures, Inc. and Structural Concrete Products, LLC, Appellants, v. Tidewater Crane and Rigging Co., Appellee.
• Court: U.S. District Court — Eastern District of Virginia

261 B.R. 627 (2001)

In re CONCRETE STRUCTURES, INC., Debtor Concrete Structures, Inc. and Structural Concrete Products, LLC, Appellants, v. Tidewater Crane and Rigging Co., Appellee.

No. Civ.A. 3:00CV314.

United States District Court, E.D. Virginia, Richmond Division.

March 30, 2001.

COPYRIGHT MATERIAL OMITTED

Daniel M. Press, Chung & Press, P.C., McLean, Virginia, for Structural Concrete Products, LLC.

David K. Spiro, Cantor, Arkema & Edmonds, P.C., Richmond, Virginia, for Concrete Structures, Inc. James J. Burns, E. Livingston B. Haskell, Williams, Mullen, Clark & Dobbins, P.C., Richmond, Virginia, for appellee.

MEMORANDUM OPINION

PAYNE, District Judge.

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 11 U.S.C. § 547(b) ("§ 547(b) of the Bankruptcy Code"); (2) that the filing of an enforcement suit is not necessary to maintain or continue perfection of a mechanics' lien within the meaning of § 546(b)(2)(B) of the Bankruptcy Code; and (3) that Tidewater Crane and Rigging Co. ("Tidewater") timely filed an enforcement suit on its mechanics' lien. For the reasons set forth below, the Bankruptcy Court did not err in those particulars or in granting the Tidewater's Motion to Dismiss and denying the Plaintiffs' Motion to Alter or Amend and/or for Relief from Judgment. Hence, the decision of the Bankruptcy Court is affirmed.

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 filed a Motion to Alter or Amend and/or Relief from Judgment pursuant to Fed. R.Civ.P. Rule 59(e) and/or Rule 60. The Bankruptcy Court declined to alter its order and entered a Memorandum Opinion on March 27, 2000 denying that motion.

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., 120 F.3d 38, 40 (4th Cir.1997). See In re Johnson, 960 F.2d 396, 399 (4th Cir.1992).

I. A Mechanics' Lien is a Statutory Lien

In Count II, CSI sought to avoid Tidewater's lien as a preference under 11 U.S.C. § 547. Tidewater admitted that, for purposes of the motion to dismiss, Count II sufficiently pleaded the elements necessary to establish a preference claim. However, Tidewater contended, and the Bankruptcy Court held, that the mechanics' lien fell within an exception to the trustee's avoidance powers found in § 547(c)(6), which provides that a trustee may not avoid a transfer "that is the fixing of a statutory lien that is not avoidable under section 545 of this title." 11 U.S.C. § 547(c)(6).⁴ CSI admits that, if the mechanics' lien here at issue is a statutory lien, the exception of § 547(c)(6) would apply and Count II was properly dismissed.

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 or not such interest or lien is made fully effective by statute.

11 U.S.C. § 101(53) (emphasis added). The Bankruptcy Code defines a judicial lien as a lien "obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding." 11 U.S.C. § 101(36).

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 is only one that arises automatically, and is not based on an agreement to give a lien or on judicial action. Mechanics\', materialmen\'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.1st Sess. (1977) (same), U.S.Code Cong. & Admin.News 1978, at 5787, 5813, 6271. Additionally, a leading bankruptcy treatise explains that "a mechanics' 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, ¶ 547.046 (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 11 U.S.C. § 101(36) (a judicial lien is one obtained by "legal or equitable process or proceeding"). That argument, of course, necessitates a foray into Virginia's mechanics' lien statute and decisions interpreting it.

B. Virginia Law

"Whether or not a lien is statutory is purely a matter of state law." In re APC Constr., Inc. 132 B.R. 690, 693 (D.Vt.1991). See In re Wisner, 77 B.R. 395, 397 (Bankr.N.D.N.Y.1987) ("In order to determine whether a mechanic's lien is judicial of statutory, it is appropriate to first consider New York state law to see whether the lien is created by operation of statute"). Virginia law clearly concludes that mechanics' lien are statutory in nature.

To begin, it is well to remember that the mechanics' lien claimed by Tidewater was unknown at common law. Neff v. Garrard, 216 Va. 496, 219 S.E.2d 878, 879 (1975). The lien, of course, has its foundation in the mechanics' contract and it is the performance of that contract by the mechanic that gives rise to an inchoate lien which is made choate, i.e., created, by statute. United Masonry, Inc. v. Riggs Nat'l Bank, 233 Va. 476, 357 S.E.2d 509, 511 (1987) (citing Sergeant v. Denby, 87 Va. 206, 12 S.E. 402, 402 (1890); Hadrup v. Sale, 201 Va. 421, 111 S.E.2d 405, 407 (1959); Weaver v. Harland Corp., 176 Va. 224, 10 S.E.2d 547, 549 (Va.1940)).

Virginia decisional law has for over a century made clear that "a mechanic's lien is purely a creature of statute." Wallace v. Brumback, 177 Va. 36, 12 S.E.2d 801, 802 (1941) (holding that the statute requires a memorandum of a mechanic's lien to name the owner of the property at the time the lien is filed, not the owner of the property at the time the materials are furnished). See First American Bank of Virginia v. J.S.C. Concrete Constr., Inc., 259 Va. 60, 523 S.E.2d 496, 497 (2000) ("Although a mechanics' lien is a creature of statute, the lien must have its foundation in a contract, with which the lien must correspond."); Kayhoe Constr. Corp. v. United Virginia Bank, 220 Va. 285, 257 S.E.2d 837, 840 (1979) ("A mechanic's lien is purely a creature of statute. It has no existence in the common law, and, independently of statute, is unknown in equity."); Neff, 219 S.E.2d at 880 (holding that both the right and remedy of a mechanic's lien are creatures of statute); Feuchtenberger v. Williamson, Carroll & Saunders, 137 Va. 578, 120 S.E. 257, 259 (1923) ("the lien and the jurisdiction of the court depend upon the statute, and not upon equitable or ethical rules."); Sergeant, 12 S.E. at 402 ("although the lien is a creature of the statute, it must have its foundation in a contract").

CSI's effort to escape the effect of these long-standing Virginia decisions is based on the decision in Donohoe Constr. Co., Inc. v. Mount Vernon Assocs., 235 Va. 531, 369 S.E.2d 857 (1988). In Donohoe, a contractor filed a...