In re The Prospect-Woodward Home
| Decision Date | 06 January 2023 |
| Docket Number | Bk. 21-10523-BAH |
| Parties | In re: The Prospect-Woodward Home dba Hillside Village Keene, Debtor |
| Court | United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of New Hampshire |
Jeremy R. Fischer, Esq. Kellie W. Fisher, Esq. Drummond Woodsum Manchester, New Hampshire Attorneys for The MacMillin Company, LLC
Frank P. Spinella, Esq. Wadleigh, Starr & Peters, PLLC Manchester, New Hampshire Attorney for Denron Plumbing & HVAC, LLC
Bruce J. Marshall, Esq. Bruce J. Marshall Law Offices, PLLC Bow New Hampshire Attorney for Wallace Building Products Corporation
Alan L. Braunstein, Esq. Riemer & Braunstein LLP Boston Massachusetts Attorney for J.N.R. Gutters, Inc.
Daniel S. Bleck, Esq. Eric R. Blythe, Esq. Mintz, Levin, Cohn Ferris, Glovsky and Popeo, P.C. Boston, Massachusetts Attorneys for UMB Bank, N.A. as Successor Bond Trustee to U.S. Bank National Association
Peter N. Tamposi, Esq. The Tamposi Law Group, PC Nashua, New Hampshire Attorney for UMB Bank, N.A. as Successor Bond Trustee to U.S. Bank National Association
Jason A. Manekas, Esq. Bernkopf Goodman LLP Boston, Massachusetts Attorney for UMB Bank, N.A. as Successor Bond Trustee to U.S. Bank National Association
The MacMillin Company, LLC (on behalf of itself and as assignee of Wayne J. Griffin Electric, Inc., Pro Stock Kitchens, LLC, Schindler Elevator Corporation, and Metro Walls, Inc.) (collectively, "MacMillin") filed a motion seeking a determination, pursuant to 11 U.S.C. § 506(a) and Federal Rule of Bankruptcy Procedure 3012,[1] that (1) its mechanic's lien has priority over the mortgage of UMB Bank, N.A. (the "Bond Trustee") as successor bond trustee to U.S. Bank National Association (the "Original Bond Trustee") for all amounts due under MacMillin's construction contract with the Debtor; and (2) all amounts due MacMillin under the contract are fully secured (Doc. No. 400) (the "Motion"). Denron Plumbing & HVAC, LLC ("Denron"), Wallace Building Products Corporation ("Wallace"), and J.N.R. Gutters, Inc. (on behalf of itself and as assignee of American Builders and Contractors Supply Co.) (together, "JNR") (collectively, the "Subcontractors") have joined in the Motion and filed their own pleadings requesting that the secured status of their mechanics' liens also be established (Doc. Nos. 403, 406, and 417) (the "Joinders"). The Bond Trustee has objected to the relief requested by MacMillin and the Subcontractors and has requested that the Court find that its allowed secured claim has priority over MacMillin's and the Subcontractors' mechanics' liens for the amounts that the Bond Trustee paid for work performed on the Debtor's property (Doc. No. 463) (the "Objection"). The parties agreed that the Court could decide the issues based on a stipulated factual record, which MacMillin has filed with the Court (Doc. Nos. 401 and 438). The Court held a hearing on May 6, 2022, on the Motion, the Joinders, the Objection, and the various responses and replies thereto and took the matters under advisement (Doc. No. 500).
This Court has jurisdiction of the subject matter and the parties pursuant to 28 U.S.C. §§ 1334 and 157(a) and Local Rule 77.4(a) of the United States District Court for the District of New Hampshire. This is a core proceeding in accordance with 28 U.S.C. § 157(b).
At the time the Debtor filed a chapter 11 bankruptcy petition on August 20, 2021, the Debtor was a not-for-profit corporation that owned and operated a licensed continuing care retirement facility known as Hillside Village Keene, located in Keene, New Hampshire (the "Facility"). Development of the Facility was financed through the issuance of bonds by the New Hampshire Health and Education Facilities Authority (the "Authority") in the principal amount of $93,015,000.00. On or about April 14, 2017, MacMillin and the Debtor executed a contract whereby MacMillin agreed to serve as the Debtor's construction manager for the construction of the Facility (the "Contract"). MacMillin agreed to a "guaranteed maximum price" for the project as long as construction commenced by June 30, 2017. MacMillin and some of its subcontractors commenced preliminary work at the Facility site on or about May 15, 2017. On or before June 19, 2017, MacMillin's subcontractors (including some of the Subcontractors) prepared numerous submittals and engineered drawings. None of the Subcontractors performed any work on site at the Facility before June 19, 2017.
The Original Bond Trustee signed a loan agreement, dated as of June 1, 2017, pursuant to which the Authority agreed to lend the proceeds of the bonds to the Debtor. On June 19, 2017, the Original Bond Trustee recorded its mortgage against the Facility. As part of the closing, the Debtor submitted five disbursements requests, which included documentation referencing a timber cut and tree cutting work, which of necessity had commenced prior to June 1, 2017, due to a wetlands permit issued in connection with the project that prohibited tree clearing between June 1 and July 31, 2017.[3]
From 2017 and continuing into 2019, MacMillin provided labor and materials under the Contract, both directly and through its subcontractors, and proceeds of the bonds were used to pay MacMillin, less retainage. During the course of construction, the Bond Trustee paid MacMillin not less than $55 million for labor and materials. In connection with the payments, MacMillin executed partial lien waivers which expressly reserved MacMillin's mechanic's lien for unpaid retainage, interest, pending unresolved change order requests, unresolved claims, and amounts not yet billed by MacMillin's subcontractors and suppliers. As construction neared completion in 2019, the Debtor stopped paying MacMillin, taking the position that it was entitled to withhold further payments because of alleged construction defects.
Between July 2019 and October 2019, MacMillin and various subcontractors filed suit for breach of contract and to preserve and perfect their mechanics' liens, by writ of attachment under New Hampshire statute, to secure their right to payment for labor and materials. On October 25, 2019, after contested hearings, the state court determined that MacMillin and the Subcontractors were likely to prevail on their claims and were therefor entitled to attachments. The state court approved lien requests for MacMillin and the Subcontractors in the following amounts:
MacMillin
$3,615,775.46[4]
Griffin:
$687,414.12
Pro Stock:
$130,000.00
Denron:
$139,308.00
American:
$121,779.69
Wallace:
$325,579.64
On October 31, 2019, MacMillin recorded the writ of attachment and the state court's order.
After commencement of this bankruptcy case, MacMillin and the Subcontractors filed proofs of claim asserting secured claims in the following amounts:
Effective July 2, 2020, the Bond Trustee was named successor trustee to the Original Bond Trustee. As of the commencement of this case, by virtue of its mortgage, the Bond Trustee holds an allowed claim, secured to the extent of the value of its lien on the Facility, in the amount of $64,659,386.30. On November 22, 2021, the Court approved a sale of the Facility for $33,000,000.00. The sale order provided that the various secured claims asserted against the Facility attached to the sale proceeds.
The Bond Trustee holds an allowed claim totaling more than $64 million, secured by its construction mortgage on the Facility, which was recorded with the registry of deeds on June 19, 2017. MacMillin and the Subcontractors also have allowed claims for which the state court, on October 25, 2019, allowed attachments to secure their mechanics' liens on the Facility in an amount totaling more than $5.7 million (Stipulated Ex. R). The Bond Trustee's mortgage and MacMillin's and the Subcontractors' mechanics' lien attachments all attached to the proceeds of the sale of the Facility with "the same validity, priority and extent as existed prior to such sale" in accordance with the Court's November 21, 2021, order approving the sale (Doc. No. 317). The Court is faced with a priority dispute between the Bond Trustee as construction mortgagee and MacMillin and the Subcontractors as mechanics' lienholders. The crux of the dispute is which law governs the priorities of their claims: New Hampshire's general "race-notice" rule or New Hampshire Revised Statutes Annotated ("RSA") 447:12-a.
MacMillin and the Subcontractors argue that RSA 447:12-a is inapplicable and that the race-notice rule applies. The Bond Trustee argues that RSA 447:12-a governs the dispute and deprives the contractors of race-notice priority. MacMillin and the Subcontractors contend that their claims have priority over the Bond Trustee's claim and that all amounts due them under the Contract are fully secured pursuant to § 506(a) of the Bankruptcy Code. The Bond Trustee disagrees and contends that its claim has priority over MacMillin's and the Subcontractors' claims.
The Bankruptcy Code provides in relevant part:
An allowed claim of a creditor secured by a lien on property in which the estate has an interest … is a secured claim to the extent of the value of such creditor's interest in the estate's interest in such property … and is an unsecured claim to the extent that the value of such creditor's interest … is less than the amount of such allowed claim. Such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property, and in conjunction with any hearing on such disposition or use … affecting such...
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