Rok Builders, LLC v. 2010-1 SFG Venture LLC (In re Moultonborough Hotel Grp., LLC)

• Decision Date: 18 July 2013
• Docket Number: No. 12–2182.,12–2182.
• Citation: Rok Builders, LLC v. 2010-1 SFG Venture LLC (In re Moultonborough Hotel Grp., LLC), 726 F.3d 1 (1st Cir. 2013)
• Parties: In re MOULTONBOROUGH HOTEL GROUP, LLC, Debtor. Rok Builders, LLC, Appellant, v. 2010–1 SFG Venture LLC, Appellee.
• Court: U.S. Court of Appeals — First Circuit

726 F.3d 1

In re MOULTONBOROUGH HOTEL GROUP, LLC, Debtor.Rok Builders, LLC, Appellant,

v.2010–1 SFG Venture LLC, Appellee.

No. 12–2182.

United States Court of Appeals, First Circuit.

July 18, 2013.

William S. Gannon, for appellant.

Gary D. Ticoll, with whom Paul T. Martin, Greenberg Traurig, LLP, Edmond J. Ford, and Ford & Associates, P.A., were on brief for appellee.

Before TORRUELLA, THOMPSON and KAYATTA, Circuit Judges.

KAYATTA, Circuit Judge.

This appeal presents two competing claims to the assets of the bankrupt Moultonborough Hotel Group, LLC. Appellant ROK Builders, LLC constructed a hotel for Moultonborough and has a mechanic's lien on the property. Appellee 2010–1 SFG Venture, LLC, is the assignee of the construction lender and has a mortgage on the hotel. When Moultonborough filed for bankruptcy, SFG sought a declaration that its mortgage was senior to ROK's lien to the extent the construction lender had disbursed loan funds to ROK. ROK responded by seeking a declaration that its lien was senior to SFG's mortgage and by advancing various additional counterclaims. The New Hampshire bankruptcy court and district court ruled for SFG. We now affirm.

I. Background

This dispute has its origins in a project that began in 2006 to build a Hampton Inn & Suites in Tilton, New Hampshire. On December 1, 2006, ROK signed a contract with Moultonborough to construct the hotel. ROK began work, but the project stalled when Moultonborough proved unableto pay its bills. In April 2007, ROK terminated the contract due to nonpayment of roughly $1.6 million. ROK signaled its willingness to resume work if Moultonborough secured adequate financing and paid the balance due, with interest.

On June 26, 2007, Moultonborough signed an agreement letter with Specialty Finance Group in which Specialty committed to extending up to $8.7 million in new funding to restart the project. ROK claims to have then immediately taken steps to resume construction. On September 21, ROK signed a new construction agreement with Moultonborough. Less than a month later, on October 10, Specialty signed a formal construction financing agreement with Moultonborough, as anticipated by the commitment letter. As security, Moultonborough executed a mortgage on the property, which Specialty recorded the next day. In conjunction with the financing agreement, Specialty paid ROK more than $1.8 million to settle the amount due, with interest, to ROK under its original 2006 construction agreement with Moultonborough.

ROK then set about finishing the hotel. For its work, it received loan disbursements from Specialty, in conjunction with at least two of which it executed lien waivers. In its final waiver, executed for the period ending May 31, 2008, ROK acknowledged past payments from Specialty of $5,751,419.39 for work done under its 2007 agreement with Moultonborough, and listed a balance due of $954,571.03. The waiver provided,

In consideration of the payment of the above stated sums currently due and amounts previously paid, the receipt of which is hereby acknowledged, [ROK] ¹ hereby waives, relinquishes, and releases any and all liens, rights, claims and interests (including, without limitation, all rights to mechanic's and materialmen's liens) owned, to be owned, claimed or held by [ROK] in and to the [Hampton Inn & Suites in Tilton] ... by reason of the labor performed and/or materials furnished by [ROK] ... prior to and including the Payment Date....

At the time it submitted the waiver, ROK was unaware that Specialty had decided to stop payments due to Moultonborough's failure to secure additional financing, as its loan agreement with Specialty required. Indeed, Specialty did not inform ROK of this decision even when it received the waiver, and ROK performed further work in June, still unaware that it would not be paid. ROK's briefs do not dispute that it received an additional $682,655.01 from Specialty, presumably after the May waiver, yielding a total payout of $6,434,074.40 for work performed under the 2007 construction contract. However, ROK maintains that it is still owed $2,487,411.94 for work under that contract, secured by a mechanic's lien.²

Despite the unresolved payment issue, the hotel opened successfully in June of 2008. Moultonborough and Specialty, however, soon found themselves in financial trouble. In May of 2009, Specialty's parent company, Silverton Bank, N.A., failed, and Specialty assigned the construction mortgage on the hotel to the Federal Deposit Insurance Corporation, the receiver for Silverton. Soon after, the FDIC assigned the mortgage to SFG. Later in 2009, Moultonborough filed a petition in New Hampshire bankruptcy court for reorganization under chapter 11 of the bankruptcy code.

On March 15, 2011, SFG initiated an adversary proceeding against ROK in bankruptcy court, seeking a declaration that $6,434,074.40 of the construction mortgage—the amount Specialty had disbursed to ROK for work performed under the 2007 construction contract—was senior to ROK's mechanic's lien. In response, ROK filed a dozen counterclaims: two seeking a determination that its lien was senior to SFG's mortgage, and an additional ten advancing causes of action sounding in tort, contract, and equity. SFG filed a motion to dismiss, which the bankruptcy court granted as to the ten secondary counterclaims. SFG then filed a motion for summary judgment on the competing seniority claims, which the bankruptcy court granted. ROK timely appealed to the district court, see28 U.S.C. § 158(a)(1), which affirmed following de novo review. ROK Builders, LLC v.2010–1 SFG Venture, LLC, No. 12–cv–57–PB, 2012 WL 3779669 (D.N.H. Aug. 30, 2012). On September 28, 2012, ROK filed a timely notice of appeal to this court.

II. Analysis

On appeal, ROK challenges the grant of summary judgment on the competing seniority claims and the dismissal of three of its secondary counterclaims—specifically, those for breach of an implied contract, promissory estoppel, and unjust enrichment. Although we constitute the second tier of appellate review in this case arising out of a decision by the bankruptcy court in an adversary proceeding, “we cede no special deference to the determinations made by the ... district court” and instead “assess the bankruptcy court's decision directly.” City Sanitation, LLC v. Allied Waste Servs. of Mass., LLC ( In re Am. Cartage, Inc.), 656 F.3d 82, 87 (1st Cir.2011). In doing so, we “scrutinize that court's findings of fact for clear error, and afford de novo review to its conclusions of law.” Brandt v. Repco Printers & Lithographics, Inc. ( In re Healthco Int'l, Inc.), 132 F.3d 104, 107 (1st Cir.1997).

The legal standards traditionally applicable to motions for summary judgment and motions to dismiss apply without change in bankruptcy proceedings. See Soto–Rios v. Banco Popular de P.R., 662 F.3d 112, 115 (1st Cir.2011); Banco Santander de P.R. v. López–Stubbe ( In re Colonial Mortg. Bankers Corp.), 324 F.3d 12, 15 (1st Cir.2003). Accordingly, in reviewing the bankruptcy court's summary judgment ruling, our inquiry is whether any “genuine issue of material fact exists” and whether “the moving party is entitled to judgment as a matter of law.” Soto–Rios, 662 F.3d at 115;see alsoFed. R. Bankr.P. 7056; Fed.R.Civ.P. 56. As for the court's ruling on the motion to dismiss, “we assume the truth of all well-pleaded facts and indulge all reasonable inferences that fit the plaintiff's stated theory of liability,” and we affirm “if the plaintiff's factual averments hold out no hope of recovery” on that theory. Banco Santander de P.R., 324 F.3d at 15;see alsoFed. R. Bankr.P. 7012(b); Fed.R.Civ.P. 12(b)(6). As our analysis below makes plain, the bankruptcy court had ample bases for ruling as it did.

A. A. The Competing Seniority Claims.

We turn first to the competing seniority claims. As assignee of the mortgage, SFG advances the unremarkable position that, to the extent Specialty paid ROK for its work, and to that extent only, the mortgage is senior to any remaining mechanic's lien that ROK has. ROK counters that its lien for later work on the project for which it was not paid takes precedence over the mortgage. In support of this position, ROK asserts that because it began work on the project before the mortgage was recorded, any lien arising out of work on the project performed at any time, whether prior to or after recording of the mortgage, remains senior to the mortgage, even to the extent the mortgagee paid for work. For the following reasons, we find that New Hampshire law plainly rejects ROK's position.³

First, the New Hampshire statutory scheme that recognizes mechanics' liens, provides the procedure for their perfection, and specifies their relative priority over other encumbrances, runs directly against ROK's position. The New Hampshire recording statute, N.H.Rev.Stat. Ann. § 477:3–a, acknowledges by negative implication the rule that the first party to record without notice of a prior party's claim has priority. It provides that any “instrument which affects title to any interest in real estate” must be recorded and “shall not be effective as against bona fide purchasers for value until so recorded.” Id. In Amoskeag Bank v. Chagnon, 133 N.H. 11, 572 A.2d 1153, 1155 (1990), the New Hampshire Supreme Court quoted section 477:3–a, as well as N.H.Rev.Stat. Ann. § 477:7, which provides that conveyances of real estate are not valid against anyone but the grantor and his heirs unless recorded, and then explained:

New Hampshire is a “race-notice” jurisdiction. That is, a purchaser or creditor has the senior claim if he or she records without notice of a prior unrecorded interest. The purpose then of the recording statutes recited above is to provide notice to the public of a conveyance of or encumbrance on real estate. The statutes serve to protect both those who already have interests in land and those who would like to acquire such interests.

In a...