In re Eagleford Recycling Servs.
| Docket Number | 8:21-bk-05810-CPM |
| Decision Date | 03 August 2023 |
| Parties | In re: Eagleford Recycling Services, LLC, Debtor. |
| Court | U.S. Bankruptcy Court — Middle District of Florida |
In determining whether there is a triable issue concerning the applicable interest rate for a claim in this case, the Court must predict how the Texas Supreme Court would interpret Texas statutory law on construction payment disputes. Under the Texas Prompt Payment Act ("TPP Act"), which generally incentivizes owners to promptly pay contractors for properly performed work, "unpaid amount[s] required under the Act" accrue prejudgment interest at 18 percent per annum.[1] The ultimate question for the Court in the present case is when an unpaid amount is required, so as to accrue interest at the 18 percent rate.
In this case, PetroSwift, LLC has filed a $428,503.93 proof of claim arising out of a Texas state court "Agreed Judgment." One, by the way, that was not agreed to by the Debtor, as the judgment deals only with liability to PetroSwift by another party to the same action. The judgment is for amounts due on a construction contract. In its proof of claim, PetroSwift seeks prejudgment interest at 18 percent under the TPP Act and as included in its final judgment. The Debtor has objected because it says the TPP Act does not subject to interest accrual at 18 percent amounts withheld because of a good-faith dispute. PetroSwift now asks the Court to determine that it is entitled to prejudgment interest at 18 percent under the Act as a matter of law.[2]
At this point, you may be wondering how this Court has authority to review a state court judgment. The Court wondered similarly as it must.[3] After all, doesn't the Rooker-Feldman doctrine bar federal courts from reviewing state court judgments?[4]The Eleventh Circuit has made clear that Rooker-Feldman applies only if the state court proceeding has ended before the federal court proceeding began.[5] Here, the state court proceeding has not ended. Under Texas law, a final judgment is "final" for appellate purposes only if it actually disposes of all parties and all claims in the proceeding or expressly states that it disposes of all parties and all claims even if it does not actually do so.[6] The agreed final judgment here does not dispose of all claims between all parties (nor does it say it does). Indeed, PetroSwift concedes that it has unadjudicated fraudulent transfer claims pending in the Texas state court proceeding.[7]
Because the Texas state court proceeding has not ended, Rooker-Feldman does not apply. And of course, given that Rooker-Feldman is no bar to the exercise of jurisdiction over this dispute, the resolution of an objection to a proof of claim is well within the Court's jurisdiction over bankruptcy cases and disputes arising under the Bankruptcy Code.[8] Thus, this Court may consider whether PetroSwift is entitled to prejudgment interest at 18 percent under the TPP Act.
Sections 28.002 and 28.003 of the TPP Act create an exception to the general rule that owners must promptly pay contractors: owners are entitled to withhold from payment any amount that is subject to a good-faith dispute. Because an amount that is subject to a good-faith dispute is not required to be paid under the TPP Act, it is not yet due and thus does not accrue prejudgment interest at 18 percent - even if it is later found to be owing to the contractor. PetroSwift has failed to demonstrate as a matter of law that the amount owed on its final judgment was not the subject of a good-faith dispute. Therefore, the Court cannot determine that PetroSwift is entitled to prejudgment interest at 18 percent as a matter of law.
Sometime before April 2015, Dewitt Recyclable Products ("DRP") was permitted by the Railroad Commission of Texas to operate an oilfield waste disposal facility.[9] In April 2015, DRP contracted with PetroSwift to construct the facility on property it owned in Cuero, Texas.[10] Between June 2015 and February 2016, PetroSwift invoiced DRP a total of $783,754.06 for its work on the project.[11] DRP paid the invoiced amount in full. But, according to DRP, as the project was nearing completion in late spring or early summer 2016, PetroSwift walked off the job.[12] DRP also believed there was an issue with some of PetroSwift's work.[13] So DRP refused to pay the final three invoices, which totaled $205,444.39.[14]
When DRP refused to pay, PetroSwift recorded a mechanic's and materialmen's lien against the property and later sued DRP in Texas state court to foreclose the mechanic's lien and recover damages for breach of contract and open account.[15] DRP counterclaimed for breach of contract and breach of the Texas Deceptive Trade Practices Act.[16]
While the action was pending, the property was transferred three times - first to Jim Wright and then to Cuero Land Management, LLC, then ultimately to the Debtor.[17] Both Cuero Land Management and the Debtor intervened in the lien foreclosure action and asserted claims against PetroSwift.[18] Those claims were largely predicated on the same allegations: PetroSwift built the main waste-receiving pit using only half as much rebar as provided for in the engineering drawings; and PetroSwift failed to adequately wet and vibrate the concrete, causing damages to the waste receiving pit.[19] Ultimately, the Texas state court disposed of Cuero Land Management's and the Debtor's claims on summary judgment or on motions to strike.[20]
PetroSwift and DRP then agreed to entry of final judgment in PetroSwift's favor on PetroSwift's claims against DRP. On October 6, 2021, the Texas state court entered an agreed final judgment in PetroSwift's favor and against DRP in the principal amount of $205,444.39, plus $108,142 in attorney's fees, as well as prejudgment interest at 18 percent under Texas Property Code Chapter 28.
One month later, the Debtor filed for chapter 11 bankruptcy.[21] PetroSwift has filed a $428,503.93 proof of claim in the case comprising $205,444.39 in principal, $108,142 in attorney's fees awarded under the final judgment, and $114,917 in additional attorney's fees and costs incurred since entry of the final judgment.[22]PetroSwift's proof of claim also seeks prejudgment interest at 18 percent as stated in the final judgment.[23] The Debtor objected to PetroSwift's proof of claim.[24] Among other grounds, the Debtor argued that PetroSwift failed to cite any support for its claim to prejudgment interest at 18 percent per annum.[25]
PetroSwift moved for summary judgment on the Debtor's claim objection.[26]With respect to prejudgment interest, PetroSwift contends that interest accrues on the judgment amount at 18 percent under the TPP Act.[27] According to PetroSwift, the TPP Act mandates that an owner must pay a contractor within 35 days of a written request for payment.[28] And any unpaid amount required under the TPP Act accrues interest at the rate of 1½ percent per month (or 18 percent annually).[29] Thus, PetroSwift contends that 18 percent is the applicable prejudgment interest rate as a matter of law.
In response, the Debtor argues that the obligation to pay 18 percent interest does not apply when there is a good-faith dispute over the amount owed under a contract, including a good-faith dispute over whether the contractor properly performed its work.[30] Here, the Debtor argues there was a good-faith dispute over PetroSwift's work on the project, as evidenced by the fact that DRP denied the allegations of PetroSwift's complaint and asserted a counterclaim for damages in the Texas state court litigation, which the parties litigated for five years before settling their dispute.[31] The Debtor contends, therefore, the existence of a good-faith dispute precludes prejudgment interest at 18 percent as a matter of law.
PetroSwift does not dispute that DRP had the right to withhold payment under the TPP Act if there had been a good-faith dispute over its work.[32] But, according to PetroSwift, "it would clearly not be sufficient evidence [for the Debtor] to support the existence of a good faith dispute to merely refer to the docket in the Texas Action."[33] What's more, PetroSwift points out that all PetroSwift's claims against DRP were resolved in PetroSwift's favor by the agreed judgment.[34] So PetroSwift denies the existence of a good-faith dispute. And, in any event, PetroSwift contends the TPP Act does not exempt the withheld amount from prejudgment interest at 18 percent - even if withheld because of a good-faith dispute - if the withheld amount is ultimately found to be owed to PetroSwift. So PetroSwift contends that this Court should determine that the applicable prejudgment interest rate is always 18 percent, regardless of the existence of a good-faith dispute.
Rule 56 of the Federal Rules of Civil Procedure governs the parties' cross motions for summary judgment.[35] Under Rule 56(a), summary judgment is appropriate when the moving party shows that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law.[36] In reviewing a motion for summary judgment, this Court must review the record and all its inferences in the light most favorable to the nonmoving party.[37]
Because the parties filed cross motions for summary judgment, this Court must review each motion separately under the Rule 56(a) standard.[38] And in doing so, the standard is the same: each moving party must show that there are no genuine disputes as to any material fact that would preclude judgment as a matter of law.[39]"The filing of cross motion[s] does,...
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