KEVIN J. CAREY, Bankruptcy Judge.
Before the Court are cross-motions for summary judgment filed by Plaintiff, The Newhall Land and Farming Company (A California Limited Partnership)
The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 157 and 1334. Consideration of this matter constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(B) and (K). Venue is proper in this Court pursuant to 28 U.S.C. §§ 1408 and 1409(a).
Newhall, a land management company, executed pre-petition contractual agreements with AHL, a landscape contractor, and R & R, a general engineering contractor. The Defendants hold mechanic's liens, arising out of those pre-petition contractual agreements, against property purportedly owned by Newhall. On May 23, 2008, AHL recorded three mechanic's liens for "labor and material for landscaping and irrigation work": lien numbers 20080921053, 20090921054, and 20080921055. Compl. Ex. A, D.I. # 1. The AHL Liens are in the amount of $398,217.32. AHL lien number 20080921055 describes the encumbered property as "West Creek C Recreation Center — Lot 366, Tract 52455-01 (the "AHL Recreational Center Lien").
On June 6, 2008, R & R recorded three mechanic's liens against Newhall's property, for "supplying and installing pipeline and related services and materials": lien
On June 8, 2008, LandSource Communities Development LLC and its affiliated debtors, including Newhall (collectively, the "Debtors"), each filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in this Court. At the same time, the Debtors filed a Notice of Filing of Creditor Matrix, which included the Defendants. List of Creditors, p. 4(AHL), p. 71 (R & R), Main D.I. # 8.
The business of the Debtors, together with the non-debtor subsidiaries (referred to as "The LandSource Group"), was described in the Declaration of Donald L. Kimball ("First Day Declaration," Main D.I. # 10) as follows:
First Day Declaration ¶¶ 5-6.
On June 9, 2008, the Debtors filed a Motion to Approve Debtor-in-Possession Financing (the "DIP Motion"). Main D.I. # 18. The First Day Declaration described the proposed debtor-in-possession ("DIP") facility as follows:
First Day Declaration ¶¶ 55-57. On June 10, 2008, the Court entered an Interim Order on the DIP Motion. On June 11, 2208, the Debtors filed a Notice of the Interim DIP Order and Final DIP Hearing.
On July 7, 2008, the Committee of Unsecured Creditors filed an objection to the Debtors' proposed DIP financing (the "Committee Objection," Main D.I. # 167), arguing that the DIP Motion was unclear about whether the Lender was seeking to prime existing mechanic's liens, and opposing the priming of existing mechanic's liens if such relief was being requested. Lennar Homes of California, Inc. ("Lennar Homes") also filed a statement objecting to the adequacy of notice regarding the proposed priming of existing mechanic's liens. Main D.I. # 185. A hearing to consider entry of a final order on the DIP Motion was held on July 14, 2008. Objections to the DIP financing were resolved, and a revised order was submitted under Certification of Counsel on July 18, 2008. Main D.I. # 290.
The Defendants, respectively, filed notices of perfection of their mechanic's liens pursuant to section 546(b) of the Bankruptcy Code: AHL's was filed on July 14, 2008
Newhall initiated this adversary proceeding on June 23, 2009, when it filed a complaint (the "Complaint," D.I. # 1), seeking a determination that the Defendants do not hold valid secured claims against Newhall's estate. Compl. ¶ 2. Newhall's Complaint also asserted claims against two other mechanic's lien-holders, Granite Construction Company and C.A. Rasmussen, Inc., in addition to the Defendants. These other claims were disposed of before the filing of the present cross-motions.
The Second Amended Chapter 11 Plan of Reorganization was confirmed on July 20, 2009. The Defendants had filed timely Proofs of Claim and were listed as "Disputed Permitted Liens" in the Confirmed Plan.
On August 21, 2009, the Defendants filed separate Answers and Defenses to Newhall's Complaint. The parties engaged in discovery in accordance with the Scheduling Order. D.I. # 25. On March 31, 2010, the parties attended a mediation conference, but failed to resolve their disputes.
The Defendants and Newhall filed cross-motions for summary judgment on April 16, 2010. In their respective motions, Newhall asserts that the Defendants' mechanic's liens were primed by the DIP Liens pursuant to the Final DIP Order, while the Defendants contend that their
Rule 56(a) of the Federal Rules of Civil Procedure, made applicable to adversary proceedings by Rule 7056 of the Federal Rules of Bankruptcy Procedure, provides that "[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). Materiality "is determined by the substantive law," and a dispute over a material fact is "genuine" only "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The Court must resolve all doubts and consider the evidence in the light most favorable to the nonmoving party. Id. at 255, 106 S.Ct. 2505 ("the evidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn in his favor"); see also United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962).
The moving party always bears the burden of establishing the absence of a genuine dispute as to a material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). ("[A] party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of `the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact.") (citing Rule 56). Where the nonmoving party bears the burden of persuasion at trial, the moving party "may meet its burden ... by showing that the nonmoving party's evidence is insufficient to carry that burden." Foulk v. Donjon Marine Co., Inc., 144 F.3d 252, 258 n. 5 (3d Cir.1998) (quoting Wetzel v. Tucker, 139 F.3d 380, 383 n. 2 (3d Cir. 1998)).
Once the moving party has carried its initial burden, the opposing party "must do more than simply show that there is some metaphysical doubt as to material facts." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Summary judgment, cannot be avoided by introducing only "a mere scintilla of evidence," Sarko v. Penn-Del Directory Co., 968 F.Supp. 1026, 1031 (E.D.Pa.1997) (citation omitted), aff'd, 189 F.3d 464 (3d Cir.
Consideration of competing motions for summary judgment does not change this standard. As stated by the Third Circuit, "`[c]ross-motions are no more than a claim by each side that it alone is entitled to summary judgment, and the making of such inherently contradictory claims does not constitute an agreement that if one is rejected the other is necessarily justified or that the losing party waives judicial consideration and determination whether genuine issues of material fact exist.'" Lawrence v. City of Philadelphia, 527 F.3d 299, 310 (3d Cir.2008) (quoting Rains v. Cascade Indus., Inc., 402 F.2d 241, 245 (3d Cir.1968)).
Newhall seeks a declaration that the Defendants do not hold valid secured claims against the Debtors' estate under section 506(a) of the Bankruptcy Code. Newhall does not contest the amounts of the Defendants' mechanic's liens, or that the liens arose out of contractual agreements between Newhall and the individual Defendants, or that the work was done on Newhall's behalf.
The Defendants argue that their mechanic's liens should be considered "Permitted Liens," not "Primed Liens," as those terms are defined in the DIP Credit Agreement. Permitted Liens are defined as:
DIP Credit Agreement, p. 19, Main D.I. # 18, Ex. A. Primed Liens are defined as:
Id., p. 20-21. Alternatively, the Defendants contend that their liens were not primed by the DIP Liens due to the inadequacy of notice. Finally, AHL argues that the AHL Recreation Center Lien is valid because it attaches to the property rights that Newhall retained in the land, as well as to the surrounding lots in the same common development scheme.
Newhall contends that the Defendants' liens fall under the category of Primed Liens because neither AHL nor R & R filed an objection to the DIP Motion. Newhall argues that the Defendants' failure to file a formal objection constitutes tacit consent to the priming of the mechanic's liens by the DIP Liens.
In response, the Defendants deny that they were required to file objections to preserve their priority; but assert that, even if a filing was required, the filing of their section 545(b) Notices of Perfection prior to the entry of the Final DIP Order was sufficient to deem their liens part of the Permitted Liens. The Defendants argue that the Notices of Perfection "indisputably manifest Defendants' intentions to maintain the priority of their mechanic's liens" and "are `other responsive pleadings' that were filed prior to the entry of the Final DIP Order."
The context in which this dispute arose must be considered against the backdrop of debtor-in-possession financing, particularly as it relates to the Debtors' business. A leading treatise describes DIP lending dynamics as follows:
Collier on Bankruptcy ¶ 364.04[2][d] (Alan N. Resnick & Henry J. Sommer eds., 16th ed.) (emphasis added). DIP lenders expect, understandably, to be able to rely on the efficacy of final financing orders. Here, due especially to the nature of the Debtors' business, the importance of identifying valid, pre-existing liens, which, if "Permitted Liens," would fall ahead of any DIP financing liens, is obvious. It is also
In the particular circumstances before me, I conclude that the section 546(b) notices filed by the Defendants were sufficient to alert Newhall that they opposed the priming of their liens by the DIP Liens. The Defendants' Notices of Perfection were sent and filed before entry of the Final DIP Order. Here, the record does not support a finding that the Defendants waived their rights or consented tacitly to the priming of their liens. The Defendants hold Permitted Liens; therefore, I need not address the parties' other arguments with respect to Claims 1 and 3 of the Complaint.
In Claim 2 of the Complaint, Newhall disputes AHL's Recreation Center Lien, arguing that it neither owns, nor has any interest in the encumbered real property. That issue is not ripe for summary judgment because the parties dispute the relevant material facts.
California law permits a lien on a common area to attach to other lots in a common interest development if the use of the larger area "is required for the necessary and convenient use" of the common area. Anselmo v. Sebastiani, 219 Cal. 292, 26 P.2d 1, 3 (1933). Section 3128 of the California Civil Code describes the property upon which a mechanic's lien may attach, and provides, in relevant part, that "[t]he liens provided for in this chapter shall attach to the work of improvement and the land on which it is situated together with a convenient space about the same or so much as may be required for the convenient use and occupation thereof...." Cal. Civil.Code § 3128 (West 2012).
According to Newhall, the AHL Recreation Center Lien encumbers property that was not owned by Newhall as of the date on which that lien was recorded. AHL argues that Newhall retained some ownership interest in the land associated with the AHL Recreation Center Lien, and therefore, AHL's lien attached to the property rights that Newhall retained with respect to the land, including rights to minerals, oil, hydrocarbons, natural gas, water, and rights of way. Newhall contends that under California law, the AHL Recreation Center Lien does not attach to those property interests because such "land" is not required for the necessary and convenient use of the recreation center.
Resolving this issue requires a factual determination whether the land associated with the Recreation Center Lien is essential for the convenient use and occupation of the surrounding lots. The Court finds that this issue is not ripe for determination because the factual dispute over the use of the land in question precludes a decision on summary judgment.
Accordingly, with regard to Claims 1 and 3 of the Complaint, as the Court has determined that the Defendants' liens
