In Re South Bay Expressway, Bankruptcy No. 10-04516-A11.

• Decision Date: 28 July 2010
• Docket Number: Bankruptcy No. 10-04516-A11.,Adversary No. 10-90180-A11.
• Citation: 434 B.R. 589
• Parties: In re SOUTH BAY EXPRESSWAY, L.P. and California Transportation Ventures, Inc., Debtors.South Bay Expressway, L.P. and California Transportation Ventures, Inc., Plaintiffs,v.Otay River Constructors; Wells Fargo Bank, National Association, as Collateral Agent on behalf of various lenders, including Banco Bilbao Vizcaya Argentaria, S.A., Depfa Bank plc, and the United States Department of Transportation, acting through the Federal Highway Administration; and Intrans Group, Inc., Defendants.
• Court: U.S. Bankruptcy Court — Southern District of California

434 B.R. 589

In re SOUTH BAY EXPRESSWAY, L.P. and California Transportation Ventures, Inc., Debtors.South Bay Expressway, L.P. and California Transportation Ventures, Inc., Plaintiffs,v.Otay River Constructors; Wells Fargo Bank, National Association, as Collateral Agent on behalf of various lenders, including Banco Bilbao Vizcaya Argentaria, S.A., Depfa Bank plc, and the United States Department of Transportation, acting through the Federal Highway Administration; and Intrans Group, Inc., Defendants.

Bankruptcy No. 10-04516-A11.

Adversary No. 10-90180-A11.

United States Bankruptcy Court S.D. California.

July 28, 2010.

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Robert Pilmer, Kirkland & Ellis LLP, Los Angeles, CA, for Plaintiffs.

David L. Osias, Allen Matkins Leck Gamble Mallory Natsis, Gerald N. Sims, Kathleen A. Cashman-Kramer, Pyle Sims Duncan & Stevenson, APC, Robert J. Hanna, Shannon Erickson, Best, Best & Krieger, LLP, Dennis J. Wickham, Seltzer Caplan McMahon Vitek, Thomas W. McNamara, La Bella & McNamara, Beth A. Clukey, United States Attorney, San Diego, CA, H. James Wulfsberg, Wulfsberg Reese Colvig & Firstman PC, Oakland, CA, Glenn Douglas Gillett, U.S. Department of Justice, Washington, DC, for Defendants.

MEMORANDUM DECISION

LOUISE DE CARL ADLER, Bankruptcy Judge.

I.INTRODUCTION

Plaintiffs and Debtors, South Bay Expressway, L.P. (“SBX”) and California Transportation Ventures, Inc. (“CTV”), collectively (“Debtors”), move for summary judgment that the mechanic's liens asserted against the toll road portion of State Route 125, also known as the South Bay Expressway (the “SR 125 Tollway”), are invalid as a matter of law. The SR 125 Tollway is one of the four experimental privately constructed public toll road projects authorized by Streets and Highways Code § 143, which the legislature enacted to help solve the State's urgent transportation needs.

Debtors argue that, as a matter of law, no mechanic's lien can attach to any interest in the SR 125 Tollway because it is “public property” and a “public work.” They argue that Streets and Highways Code §§ 143(b) and ( o ) deem the SR 125 Tollway to be public property. Further, they argue that Labor Code § 1720(a)(6) supports a finding that the SR 125 Tollway is a public works project. It is well-established under California law that no mechanic's lien remedy is available against public property, or for a public works project. Defendant Wells Fargo Bank, N.A. (“Wells Fargo”), in its capacity as Collateral Agent for certain senior lenders ¹ and the United States Department of Transportation acting through the Federal Highway Administrator, collectively (“Senior Lenders”), joins in the Debtors' motion (collectively, “Movants”).

Defendants, Otay River Constructors (“ORC”) and Intrans Group, Inc. (“Intrans”) are mechanic's lien claimants who oppose the motion (“ML Defendants”). They argue that SBX's motion is based upon the false premise they have asserted mechanic's liens against public property. In fact, they have asserted mechanic's liens only against SBX's distinct private real property interests in the SR 125 Tollway arising from the franchise agreement between Caltrans and SBX, and an accompanying 35-year lease agreement. It is settled law that a mechanic's lien can attach to less than a fee simple estate, such as a leasehold interest. They contend the result does not change simply because the fee interest is owned by a public entity.

Further, the ML Defendants emphasize their mechanic's lien remedy is constitutional in origin. Because of its origin, the Court must endeavor to construe Streets and Highways Code § 143 in a manner consistent with their constitutional lien rights. Additionally, they contend the SR 125 Tollway is not a public works project within the applicable definition of “public work” in Civil Code § 3100 of the Mechanic's Lien Law ² because Caltrans did not “contract for” the work on this project. Movants' reliance on the definition of “public works” in Labor Code § 1720(a)(6) is misplaced since the definition in the Mechanic's Lien Law controls. Therefore, by process of elimination, the SR 125 Tollway is a private work for purposes of permitting mechanic's liens against SBX's private real property interests in the SR 125 Tollway.

For the reasons more fully set forth below, the Court finds the Debtors own distinct private property interests in the public SR 125 Tollway arising from their franchise rights and their accompanying 35-year lease. These distinct property rights are not deemed to be public property, and the SR 125 Tollway is not a public work for purposes of exempting the Debtors' property interests from mechanic's liens. Since the record establishes the mechanic's liens are asserted only against Debtors' property interests, they are not invalid as a matter of law. Accordingly, the Court denies the motion, and grants summary judgment in favor of the ML Defendants on the limited issues presented in this motion. Portsmouth Square, Inc. v. Shareholders Protective Committee, 770 F.2d 866, 869 (9th Cir.1985)( sua sponte summary judgment appropriate where one party moves for summary judgment, and it appears from all the evidence presented that there is no genuine issue of material fact and the non-moving party is entitled to judgment as a matter of law).

II.ISSUES

1. Whether the Debtors' interest in the SR 125 Toll way is deemed to be public property exempt from the enforcement of mechanic's liens.

2. Whether the SR 125 Tollway is deemed to be a “public work” exempt from the enforcement of mechanic's liens.

III.FACTUAL BACKGROUND

A. Legislative Background.

In 1989, the California Legislature enacted emergency legislation authorizing Caltrans to enter into experimental agreements with four private developers to finance, design, construct and operate lease-back public transportation facilities to solve the State's urgent transportation needs due to the State's lack of public revenue. Assem. Bill No. 680 (1989-90 Reg. Sess.), enacted as Stats.1989, ch. 107, pp. 1017-1019, eff. July 10, 1989 (“A.B.680”). In Section 1 of A.B. 680, the legislature found and declared that:

• Public revenue sources have not kept pace with California's growing transportation needs, so alternative sources should be developed to supplement available public sources of revenue.

• An alternative is privately funded projects whereby private entities obtain exclusive development agreements to build, with private funds, all or a portion of public transportation projects.

• The private entity will have the right to lease the facility for up to 35 years and charge tolls sufficient to retire their private investment (including a reasonable profit), operate and police the facility, maintain the facility, and to make lease payments to the State.

• Privately financed projects allow for private and public joint ventures that take advantage of private sector efficiencies, allow for rapid funding of transportation projects, and more quickly reduces congestion in existing transportation corridors.

Stats.1989, ch. 107, § 1(summary).

Section 2 of A.B. 680 is codified as California Streets and Highways Code § 143. It provides, in pertinent part:

(a) [Caltrans] may solicit proposals and enter into agreements with private entities ... for the construction by, and lease to, private entities of four public transportation demonstration projects ....

(b) For the purpose of facilitating those projects, the agreements may include provisions for the lease of rights-of-way in, and airspace over or under, state highways, for the granting of necessary easements, and for the issuance of permits or other authorizations to enable the private entity to construct transportation facilities supplemental to existing state-owned transportation facilities. Facilities constructed by a private entity pursuant to this section shall, at all times, be owned by the state. The agreement shall provide for the lease of those facilities to the private entity for up to 35 years. In consideration therefor, the agreement shall provide for complete reversion of the privately constructed facility to the state at the expiration of the lease at no charge to the state.

(Emphasis added.) Streets and Highways Code § 143 was amended in 1989, 2002, 2006, 2007 and 2009. With the exception of § 143( o ) added in 2006, these amendments are not relevant to the issues presented in this motion. Streets and Highways Code § 143( o ) provides:

A lease to a private entity pursuant to this section is deemed to be public property for a public purpose and exempt from leasehold, real property, and ad valorem taxation, except for the use, if any, of that property for ancillary commercial purposes.

(Emphasis added.)

B. The Franchise Agreement-Development Rights

Pursuant to Streets and Highways Code § 143, Caltrans solicited proposals for the SR 125 Tollway. It selected CTV to be the franchisee-developer for the SR 125 Tollway, and entered into an agreement entitled “Development Franchise Agreement for a Privatized Transportation Project,” effective as of January 6, 1991. Subsequently, CTV assigned its franchise rights to San Diego Expressway L.P., and then to “SBX,” with the consent of Caltrans.³ The original agreement, as amended, is collectively the “Franchise Agreement.”

Section II of the Franchise Agreement defines the original development project to be the SR 125 Tollway comprising the section of State Route 125 spanning from the border crossing at Otay Mesa to San Miguel Road in Bonita. Thereafter, the parties expanded the development project to include acquisition, design and construction of the GAP/Connector portion of State Route 125 which connects the SR 125 Tollway to State Route 54. This GAP/Connector portion was primarily constructed with public funds, and the parties agreed the public's use of the GAP/Connector would always be toll-free.

Section III of the Franchise Agreement defines the “franchise.” Section 3.1 expresses ...