In re Kara Homes, Inc., Bankruptcy No. 06-19626 (MBK),

• Decision Date: 29 August 2007
• Docket Number: Adversary No. 07-1069(MBK).,Adversary No. 07-1067(MBK).,Adversary No. 07-1064(MBK).,Adversary No. 07-1057 (MBK).,Adversary No. 07-1058(MBK).,Bankruptcy No. 06-19626 (MBK),,Adversary No. 07-1066(MBK).
• Citation: 374 B.R. 542
• Parties: In re KARA HOMES, INC., et al., Debtors. Kara Homes, Inc. and Kara at Hawkins Ridge, LLC, Plaintiffs. v. Century Kitchens, Inc., et al., Defendants. Kara Homes, Inc. and the Landings at Manahawkin, LLC, Plaintiffs. v. Century Kitchens, Inc., et al., Defendants. Kara Homes, Inc. and Kara at Buckley Estates, LLC, Plaintiffs. v. Century Kitchens, Inc., et al., Defendants. Kara Homes, Inc. and Kara at Mt. Arlington I, LLC, Plaintiffs. v. Century Kitchens, Inc., et al., Defendants. Kara Homes, Inc. and Kara at Navesink, LLC, Plaintiffs. v. Century Kitchens, Inc., et al., Defendants. Kara Homes, Inc. and Kara at Glen Eyre, LLC, Plaintiffs. v. Builders Firstsource — North East Group, Inc., et al., Defendants.
• Court: U.S. Bankruptcy Court — District of New Jersey

Page 542

374 B.R. 542

In re KARA HOMES, INC., et al., Debtors.

Kara Homes, Inc. and Kara at Hawkins Ridge, LLC, Plaintiffs. v. Century Kitchens, Inc., et al., Defendants.

Kara Homes, Inc. and the Landings at Manahawkin, LLC, Plaintiffs. v. Century Kitchens, Inc., et al., Defendants.

Kara Homes, Inc. and Kara at Buckley Estates, LLC, Plaintiffs. v. Century Kitchens, Inc., et al., Defendants.

Kara Homes, Inc. and Kara at Mt. Arlington I, LLC, Plaintiffs. v. Century Kitchens, Inc., et al., Defendants.

Kara Homes, Inc. and Kara at Navesink, LLC, Plaintiffs. v. Century Kitchens, Inc., et al., Defendants.

Kara Homes, Inc. and Kara at Glen Eyre, LLC, Plaintiffs. v. Builders Firstsource — North East Group, Inc., et al., Defendants.

Bankruptcy No. 06-19626 (MBK),

Adversary No. 07-1057 (MBK).

Adversary No. 07-1058(MBK).

Adversary No. 07-1064(MBK).

Adversary No. 07-1066(MBK).

Adversary No. 07-1067(MBK).

Adversary No. 07-1069(MBK).

United States Bankruptcy Court, D. New Jersey.

August 29, 2007.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

David L. Bruck, Esquire, Greenbaum, Rowe, Smith, et. al., Woodbridge, NJ, attorneys for the debtors.

Russell S. Burnside, Esquire, Greenberg Dauber Epstein & Tucker, Newark, NJ, attorneys for R & R Construction Co., Inc.

Ronald M. MacFarland, Esquire Woodbine, NJ, attorneys for Fortune Insulation Contractors.

Melinda D. Middlebrooks, Esquire, Middlebrooks Shapiro & Nachbar, P.C., Union, NJ, attorneys for Mac Electrical Contractors, Inc.

Joseph H. Mulherin, Esquire, Large, Scammell & Danziger, Flemington, NJ, attorneys for Samuel Stothoff Co., Inc.

Timothy P. Neumann, Esquire, Broege, Neumann, Fischer & Shaver, Manasquan, NJ, attorneys for Michael J. Wright Construction Co., Inc.

Steven I. Pfeffer, Esquire, Levin, Shea & Pfeffer, Jackson, NJ, attorneys for A & M Harrison Construction Co., Inc.

Jerrold N. Poslusny, Jr., Esquire, Cozen O'Connor, Cherry Hill, NJ, attorneys for Wagner Electric Corporation.

Martha Suhayda-Vogt, Esquire, Law Office of Martha A. Vogt, Matawan, NJ, attorney for the Esposito Group, Sakoutis Brothers Disposal, Marlboro Lawn & Landscaping and James R. Ietile, Inc.

Peter E. Zimnis, Esquire, Law Office of Peter E. Zimnis, Trenton, NJ, Attorney for PKP Contracting Inc.

OPINION MEMORANDUM DECISION

MICHAEL B. KAPLAN, Bankruptcy Judge.

I. JURISDICTION

This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and the Standing Order of Reference issued by the United States District Court for the District of New Jersey on July 13, 1984. This is a "core proceeding" pursuant to 28 U.S.C. § 157(b)(2)(A) and (K). Venue is proper in this Court pursuant to 28 U.S.C. § 1409(a).

II. FACTS AND PROCEDURAL HISTORY

On October 5, 2006 (the "Petition Date"), Kara Homes, Inc. ("Kara") filed with the Court a voluntary petition under Title 11, Chapter 11, United States Code (the "Bankruptcy Code"). On several dates thereafter, fifty-six (56) of Kara's affiliates¹ (the "Affiliated Debtors," and collectively with Kara, the "Debtors") filed voluntary petitions under Chapter 11 of the Bankruptcy Code. The Affiliated Debtors, with but one exception, own separate real estate development projects for the construction of single family homes and condominiums (the "Projects"). The Debtors' bankruptcy cases have not been substantively consolidated but are jointly administered pursuant to orders previously entered in these cases. Since the filing dates, the Debtors have remained in possession of their assets as debtors-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code. On October 23, 2006, the United States Trustee appointed the Official Committee of Unsecured Creditors.

Prior to the Petition Date, Kara entered into Subcontractor Agreements with various contractors (the "Defendants") who provided goods and/or services to construct improvements to the Projects owned by each of the Affiliated Debtors. When the Debtors failed to make payment for the goods and/or services, the Defendants took steps to protect their rights pursuant to the requirements of New Jersey Construction Lien Law (the "Lien Law"). In most cases, the Debtors filed their respective petitions before the Defendants could fully complete all of the requirements set forth under the Lien Law.

On January 15, 2007 the Affiliated Debtors filed twenty-three (23) adversary proceedings to determine the extent, validity and priority of liens and, in essence, to void the Defendants' construction lien claims. On May 11, 2007, the Debtors filed Motions for Partial Summary Judgment in six (6) of the adversary proceedings seeking to determine the validity of the Defendants construction liens and recoup expenses and damages, in some instances. In its moving papers, Debtors separate the Defendants into four (4) categories based upon the Defendants' prepetition collection and lien enforcement efforts: those that (a) filed Construction Liens ("CL's") only, (b) filed CL's and Notices of Unpaid Balance ("NUB's"), (c) filed NUB's only and (d) filed NUB's and proceeded with AAA arbitration². The extent and priority of any liens determined to be valid are issues the Debtors plan to deal with at confirmation, currently scheduled for September 12, 2007, or at some point thereafter. Several Defendants, including all of those falling into category (d), above, entered into settlement agreements with the Affiliated Debtors. Some remaining Defendants cross moved for summary judgment or opposed the Motion. Oral argument on the motions was heard on August 24, 2007. On that date the Debtors agreed to defer, until a later date, the issue of the attorneys fees sought in their motions.

III. DISCUSSION

Summary judgment is appropriate where "there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). "In deciding a motion for summary judgment, the judge's function is to determine if there is a genuine issue for trial." Josey v. John R. Hollingsworth Corp., 996 F.2d 632, 637 (3d Cir.1993). The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. Huang v. BP Amoco Corp., 271 F.3d 560, 564 (3d Cir.2001) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). Once the moving party establishes the absence of a genuine issue of material fact, however, the burden shifts to the non-moving party to "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (citations omitted). In determining whether a factual dispute warranting trial exists, the court must view the record evidence and the summary judgment submissions in the light most favorable to the non-movant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Issues of material fact are those "that might affect the outcome of the suit under the governing law." Anderson, 477 U.S. at 248, 106 S.Ct. 2505. An issue is genuine when it is "triable," that is, when reasonable minds could disagree on the result. Matsushita, 475 U.S. at 587, 106 S.Ct. 1348.

The parties have not identified any material issues of fact which would bear upon the issues presented to the Court or would be necessary for the Court to consider in deciding these motions,

1. Residential versus Commercial Liens.

The threshold issue in this matter is whether the Subcontractor Agreements are "residential construction contracts" ("RCC") as defined in the Lien Law. N.J.S.A. 2A:44A-3 entitles contractors, subcontractors or suppliers who provide work, services, material, or equipment pursuant to a contract to a lien for the value of work or services performed, or materials or equipment furnished in accordance with the contract. The purpose of the Lien Law is to help secure payment to those who provide work, services, material or equipment pursuant to a written contract, and protect the rights of property owners who have met their financial obligations under the contract so that they do not become responsible for double payment for work and materials. Labov Mechanical, Inc. v. East Coast Power, L.L.C., 377 N.J.Super. 240, 244, 872 A.2d 142 (App.Div.2005).

Where goods and/or services are provided pursuant to a non-residential construction contract, the construction lien attaches when filed. N.J.S.A. 2A:44A-10. However, when services are provided pursuant to a "residential construction contract," separate provisions of the Lien Law apply, which are found in N.J.S.A. 2A:44-20 and 21, and require completion of the process outlined therein before a lien can be filed. N.J.S.A, 2A:44A-2 defines "residential construction contract" as "any written contract for the construction or improvement to a one or two family dwelling, or any portion of the dwelling, which shall include any residential unit in a condominium subject to the provisions of P.L.1969, c. 257 (C. 46:8B-1 et seq.), any residential unit in a housing cooperative, any residential unit contained in a fee simple townhouse development, any residential unit contained in a horizontal property regime as defined in section 2 of P.L.1963, c. 168 (C. 46:8A-2), and any residential unit contained in a planned unit development as defined in section 3.3 of P.L.1975, c. 291 (C. 40:55D-6)."

N.J.S.A. 2A:44A-5 (c) specifically prohibits a lien claim from attaching, or even being filed for that matter, "for work, services, material or equipment furnished pursuant to a residential construction contract unless there is strict compliance with sections 20 and 21 of this act." The aforementioned sections offer a form for a NUB and the process according to which it is determined whether the lien claim is valid. Clearly, any lien claim arising from a residential construction contract will fail if the party does not follow the...