Monahan-Pacific Constr. Corp. v. Comm. Creditors (In re MC2 Capital Partners, LLC)
| Decision Date | 25 February 2015 |
| Docket Number | BAP No. NC-14-1190-PaJuTa,Bankr. No. 11-14366 |
| Parties | In re: MC2 CAPITAL PARTNERS, LLC, Debtor. MONAHAN-PACIFIC CONSTRUCTION CORPORATION, Appellant, v. COMMITTEE OF UNSECURED CREDITORS, Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
NOT FOR PUBLICATION
MEMORANDUM1Argued and Submitted on February 19, 2015 at San Francisco
Appeal from the United States Bankruptcy Court for the Northern District of California
Appearances: Wendy McGuire Coats of McGuire Coats LLP argued for appellant Monahan-Pacific Construction Corp; Peter Wakaye Ito of Polsinelli Shughart P.C. argued for appellee Committee of Unsecured Creditors.
Before: PAPPAS, JURY, and TAYLOR, Bankruptcy Judges.
In this appeal, creditor Monahan-Pacific Construction Corporation ("MPCC") challenges certain findings made by the bankruptcy court in an order sustaining the objection of the Official Committee of Unsecured Creditors (the "Committee") to MPCC's claim and the court's order denying MPCC's motion to amend those findings. We AFFIRM the bankruptcy court's findings and orders.
Chapter 112 debtor MC2 Capital Partners, LLC ("MC2") is a California limited liability company formed to develop an eighty-two-unit apartment complex in San Rafael, California (the "Property"). MPCC is the general contractor engaged by MC2 to construct the improvements on the Property. Thomas M. Monahan ("Monahan") controls both MC2 and MPCC, and he controls the accounting for both companies.
On July 18, 2008, Pacific National Bank (together with its successor in interest U.S. Bank, the "Bank") loaned MC2 $35 million on a recourse basis, secured by the Property. The purpose of the loan was to fund construction on the Property. The loan was memorialized in a Promissory Note, a Construction Loan Agreement, and a Construction Deed of Trust. Monahan guaranteed the payment obligations under the Note and performance under the Construction Loan Agreement.
Under the Construction Loan Agreement, MPCC as general contractor would submit a monthly invoice called an "Applicationfor Payment" ("Application") to MC2 and, in turn, MC2 would submit the Application to the Bank as part of a loan draw request. Each Application included an itemization of the costs that MPCC had incurred to date, the amount held back until completion of the project, the amount billed by MPCC from the previous Application, the current payment due MPCC, and the balance to finish the contract. The Bank was to be informed of any credits for construction costs issued by MPCC in favor of MC2.
In late 2010, MPCC lost a lawsuit and a money judgment was entered against it. Subsequently, MCC's contractor's license was terminated by the State of California.
Then, on December 3, 2010, Monahan terminated the construction contract between MC2 and MPCC.
On April 6, 2011, U.S. Bank notified MC2 that it was in default under the loan. U.S. Bank formally declared a default and accelerated the Note in a letter to MC2 dated June 14, 2011.
Next, on December 1, 2011, MC2 filed a chapter 11 petition. Monahan was designated as the responsible person for the corporate debtor-in-possession MC2, and the U.S. Trustee appointed the Committee on January 4, 2012.
MC2's proposed plan of reorganization was confirmed by the bankruptcy court on May 11, 2012. The plan provided for liquidation of the assets of MPCC and for pro rata distribution of the proceeds to unsecured creditors, after payment in full of all secured and priority claimants.
On April 5, 2012, MPCC filed an unsecured proof of claim for $1,614,713.51. This amount represented the total due from MC2 to MPCC for construction costs for the Property, and was comprised of$759,410.22, claimed due for services before the contract was terminated, and $855,303.69 for "post termination transition services."
The Committee objected to MPCC's proof of claim on August 23, 2012; it amended that objection on December 10, 2012. The Committee argued, among other things, that MPCC had lost its contractor's license during the term of the contract, and that under Cal. Bus. & Prof. Code § 7031(b), MPCC was therefore liable to MC2 for all amounts paid to MPCC while it was an unlicensed contractor. The Committee also noted that MPCC had not submitted or attached to its proof of claim any documents to support its claim and that the Committee had not completed discovery.
MPCC responded to the Committee's objection on September 13, 2012, arguing that it was entitled to be paid for its services, and that it was not required to file supporting documents.
On December 5, 2013, the bankruptcy court conducted an evidentiary hearing regarding the Committee's objection to MPCC's claim. At the beginning, the parties agreed that there were two critical issues for consideration by the bankruptcy court: (1) the status of five invoices/Applications that MPCC contends were not paid or only partially paid; and (2) the impact of a credit memo that may have been created by MPCC "after the fact" to create a claim.
The bankruptcy court heard testimony from Jeff Koehler, a vice president of U.S. Bank and custodian of the documents regarding the loan, and Jeanne Zamanillo, controller of MPCC. While the bankruptcy court took the issues under advisement at the conclusion of the hearing, it offered its opinion beforeadjourning that Monahan had engaged in "machinations" regarding some of the relevant transactions. Hr'g Tr. 82:2-10, December 5, 2013.
The bankruptcy court entered a "Memorandum on Objection to Claim 35" on December 16, 2013. In it, the court found that:
Monahan feared that the judgment creditor would seize any progress payments made by MC2 so he terminated the construction contract between MC2 and MPCC, ostensibly (i.e., for the purposes of the judgment creditor) due to poor performance by MPCC. The date of the cancellation was December 3, 2010. Thereafter, MC2 was to pay the subcontractors directly. Monahan had his accountants mark all but one outstanding invoice from MPCC as "PAID" and issued a credit to MC2 for $2,118,586.46. Of course, Monahan saw no need to inform the construction lender, U.S. Bank, about any of his machinations. He continued to present the bank with requests for progress payments in the name of MC2, showing that payments were current.
Based on the evidence and its findings, the bankruptcy court concluded:
A proof of claim is prima facie evidence of its validity until an objector produces evidence to rebut the presumption of validity. The burden then shifts to the claimant to prove its claim. In re Garvida, 347 B.R. 697, 7078 (9th Cir. BAP 2006). In this case, the Creditors Committee has rebutted the presumption of validity by demonstrating that most of the invoices supporting the [proof of] claim were marked "PAID" and that Monahan, on behalf of both MC2 and MPCC, represented to U.S. Bank that the invoices supporting the claim were paid. MPCC is unable to prove its claim. Monahan was manipulating the books and records of both MC2 and MPCC in order to avoid enforcement efforts of a judgment creditor. He controlled both entities, and his accountants kept the books of both. No independent audit was produced. Due to these facts, the evidence produced to substantiate the claim lacks all credibility. The court cannot find by a preponderance of the evidence that the claim has any validity at all.
Memorandum at 2 (emphasis added). The bankruptcy court entered an order sustaining the Committee's objection and disallowing MPCC'sclaim on December 17, 2013.
On December 30, 2013, MPCC filed a motion to amend the order relying on Rule 9023, which incorporates Civil Rule 59(e). The motion did not ask the bankruptcy court to modify or change the order disallowing the claim in any manner. Instead, the motion sought only that the bankruptcy court amend its Memorandum to remove the finding that "Monahan was manipulating the books and records of both MPCC and MC2 . . . as such language could be improperly used in state and/or adversary proceedings to argue this Court had reviewed the books and records of MPCC and MC2, when in fact such a review has not occurred." MPCC sought this relief because it was concerned about the potential preclusive effect of the subject finding.
The bankruptcy court heard the motion to amend on April 11, 2014. During the hearing, the court repeatedly reminded counsel for MPCC that it was not its responsibility to anticipate the preclusive effects of its orders in future proceedings:
I've rendered my decision. I gave my reasons. And if another court decides that they want to give preclusive effect, that's for another court to decide.
Hr'g Tr. 5:6-8, April 11, 2014. However, MPCC's counsel insisted that the alleged offensive finding should be removed from the Memorandum.
The bankruptcy court entered a minute order on April 11, 2014, memorializing its decision to deny the motion to amend and then entered an order denying the motion on June 2, 2014. MPCC filed a timely notice of appeal regarding both the order sustaining the objection to claim, and the minute order denying the motion to amend, on April 14, 2014.
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(2)(B). However, we have concerns about MPCC's standing and, thus, our jurisdiction over this appeal, under 28 U.S.C. § 158.
The constitutional requirements for standing under Article III are jurisdictional, cannot be waived by any party, and may be considered by the court sua sponte. City of L.A. v. Cnty. of Kern, 581 F.3d 841, 845 (9th Cir. 2009). In its most recent discussion of constitutional standing, the Ninth Circuit observed.
The oft-repeated "irreducible constitutional minimum of standing contains three elements." Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S. Ct. 2130, 119 L. Ed. 2d 351 (1992). "First, the plaintiff must have suffered an...
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