In re Coretech Indus., LLC

Decision Date31 December 2019
Docket NumberCASE NO. 18-34196-SGJ11
PartiesIN RE: CORETECH INDUSTRIES, LLC, Debtor.
CourtU.S. Bankruptcy Court — Northern District of Texas

The following constitutes the ruling of the court and has the force and effect therein described.

(Chapter 11)

MEMORANDUM OPINION AND ORDER GRANTING SUMMARY JUDGMENT AS TO CREDITOR SOUTHWEST DYNAMICS, INC.'S SECURED STATUS
CONTENTS

MEMORANDUM OPINION AND ORDER GRANTING SUMMARY JUDGMENT AS TO CREDITOR'S SECURED STATUS ................................................................................. 3

I. Procedural Background .................................................................................................... 4

II. The Undisputed Facts According to Each Party ............................................................. 6

A. The Mostly Undisputed Facts Presented by SDI ......................................................... 6
B. The Mostly Undisputed Facts Presented by the Debtor ............................................... 8

III. Jurisdiction ......................................................................................................................... 9

IV. Summary Judgment Standard .......................................................................................... 9

V. Analysis: The Summary Judgment Evidence Establishes SDI's Entitlement to both a Statutory Mechanic's Lien and Constitutional Lien. However, the Amount of SDI's Claim Remains an Open Issue .......................................................................................................... 11

A. SDI is Entitled to a Statutory Mechanic's Lien .......................................................... 11
1. There is No Genuine Dispute of Material Fact that Mr. Bomer Provided Labor and Furnished Materials, Satisfying the First Element of Section 53.021(a) ....................................... 12
2. There is No Genuine Dispute of Material Fact that Mr. Bomer Performed his Services in Dallas, Texas, Satisfying the Second Element of Section 53.021(a) .............................................. 13
3. There is No Genuine Dispute of Material Fact that Mr. Bomer Performed his Services Pursuant to a Contract, Satisfying the Fourth Element of Section 53.021(a) ............................... 14
4. When Section 53.021(a) is Construed Liberally, the Summary-Judgment Evidence Shows There is No Genuine Dispute of Material Fact that Mr. Bomer Provided Labor and Materials for the Construction of a Building ....................................................................................................... 15
5. There is No Genuine Dispute of Material Fact that SDI Properly Perfected its Mechanic's Lien in Accordance with Texas Property Code Sections 53.051-53.054 ....................................... 20
B. SDI is, Alternatively, Entitled to a Lien Under the Texas Constitution ..................... 22
1. SDI Qualifies as a "Mechanic," an "Artisan," and a "Materialman." ............................. 23
2. SDI Furnished Labor and Materials to "Repair" an "Article." ........................................ 25
C. The Amount of SDI's Allowable Claim Remains an Open Question ........................ 27

VI. Conclusion ........................................................................................................................ 28

MEMORANDUM OPINION AND ORDER GRANTING SUMMARY JUDGMENT AS TO CREDITOR'S SECURED STATUS

This contested matter arises in the context of a post-confirmation claim objection. Both the Claimant and the Reorganized Debtor (who is objecting to Claimant's Proof of Claim) have agreed that the court should preliminarily decide whether the underlying claim involved is secured or not, before adjudication of the actual amount of the claim. Specifically, disputed creditor Southwest Dynamics, Inc. ("SDI" or "Claimant") filed a motion for summary judgment ("SDI's MSJ") seeking to establish the validity of an alleged statutory mechanic's lien for services it rendered to install and repair several pieces of industrial equipment in a facility formerly leased by the Debtor CoreTech Industries, LLC ("CoreTech," the "Debtor," or sometimes "Reorganized Debtor" when referring to the post-confirmation time period).1 The Reorganized Debtor filed a cross-motion for partial summary judgment ("Debtor's MSJ") on the issue of whether SDI is a secured creditor.2 SDI then filed a response to Debtor's MSJ, asserting an artisan's lien under the Texas Constitution (hereon, a "constitutional lien") in addition to the statutory mechanic's lien it had originally asserted in SDI's MSJ.3

For the reasons set forth in this Memorandum Opinion and Order, summary judgment to SDI is granted and partial summary judgment to the Reorganized Debtor is denied. With regard to SDI's MSJ, the bankruptcy court has determined that SDI's summary judgment evidence establishes a properly perfected statutory mechanic's lien and, alternatively, a constitutional lien. However, because the Reorganized Debtor has an alleged $150,000 counterclaim that remains unadjudicated, the size of SDI's overall claim and, thus, the enforceability of SDI's lien, cannotyet be determined. Accordingly, further proceedings are necessary to resolve the amount of SDI's secured claim.

I. Procedural Background

The Debtor was formed in 2014 to provide industrial machining services.4 After operating at mere break-even for several years, the Debtor decided to file Chapter 11 bankruptcy on December 18, 2018, to accomplish an orderly sale of all of its assets and use the proceeds to pay creditors.5 SDI filed Proof of Claim No. 6-1 in the Debtor's bankruptcy case on February 8, 2019, asserting secured creditor status for alleged installation and repair services provided by SDI's principal and owner, Mr. Richard Bomer.6 Then, on March 22, 2019, the Debtor filed its Objection to Proof of Claim 6 (hereon, "Objection to POC"), arguing that SDI's proof of claim should be denied because (a) SDI attached no supporting documentation and (b) SDI owed the Debtor $150,000 for damaging the machine it allegedly repaired, which would more than offset the entire $85,308 amount claimed in SDI's Proof of Claim No. 6-1.7 In response, SDI amended its proof of claim on April 24, 2019, adding documentation to support its claim.8 Shortly thereafter, the parties appeared at a nonevidentiary hearing to announce a settlement and, on May 2, 2019, the Debtor filed its Motion of CoreTech Industries, LLC for Approval of Proposed Settlement Agreement (the "Settlement Motion"), in which the parties proposed to allow SDI's secured claim in the amount of $32,500.9

From the outset of the Debtor's bankruptcy case, the Debtor was simultaneously working to confirm a plan and resolve disputes with SDI. Prior to the Settlement Motion, the bankruptcy court entered a final order confirming the Debtor's Amended Plan of Reorganization of CoreTech Industries, LLC Dated March 21, 2019 (the "Chapter 11 Plan").10 The Chapter 11 Plan treated SDI as a disputed secured creditor and asserted that the Debtor owed SDI nothing, but also contemplated paying SDI out of a pool of funds that would otherwise available for general unsecured creditors, in the event that SDI was determined to hold a valid secured claim.11 Thus, general unsecured creditors had a vested interest in ensuring that SDI's claim was either disallowed or treated, at most, as an allowed unsecured claim (so as to participate pro rata in the distribution to general unsecured creditors). KeyStaff, Inc. ("KeyStaff") was one such general unsecured creditor. KeyStaff filed an Objection to the Motion of CoreTech Industries, LLC for Approval of Proposed Settlement Agreement, arguing that the proposed payout of $32,500 to SDI as a "secured creditor" unfairly depleted the distribution to the unsecured creditors in light of the Objection to POC, which, as mentioned, asserted a $150,000 counterclaim against SDI.12

On August 15, 2019, the bankruptcy court held a hearing on the Settlement Motion in which the Debtor, SDI and KeyStaff each made appearances and argued on the record (the "Settlement Motion Hearing"). At the hearing, the Debtor stated that there was approximately $100,000 remaining from the earlier sale of substantially all the Debtor's assets during the case (including assets upon which SDI performed work) to pay unsecured creditors and/or SDI. Although the subject of the Settlement Motion Hearing was the fairness of the Settlement Motion, the Debtor and SDI came prepared to present evidence regarding the underlying dispute over the validity ofSDI's secured claim, in light of the KeyStaff objection. The bankruptcy court ultimately adjourned the hearing, due to time constraints. In doing so, the court announced concerns about the bona fides of the Settlement Motion and the record developed thus far in support. After the hearing, the Debtor withdrew the Settlement Motion. The Debtor and SDI, in subsequent status conferences, announced that they both believed that—rather than setting the Claim Objection for hearing—the court should determine in a Summary Judgment context whether SDI's claim (whatever the amount) was secured or not. The Debtor and SDI thereafter filed their motions for summary judgment and responses and argued before the bankruptcy court on November 25, 2019. At the conclusion of the hearing, the court took the matter under advisement.

II. The Undisputed Facts According to Each Party

For the most part, both parties agree on the underlying facts. Importantly, it is undisputed that, at the time this controversy arose, the Debtor owned the machinery and equipment that SDI was hired to repair and install but did not own the real property on which the machines were installed and on which the Debtor operated its business.13

A. The Mostly Undisputed Facts Presented by SDI14

SDI received a call from the Debtor on or about October 1, 2015, seeking assistance with the installation of machinery and equipment at...

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