First National Bank v. Crescent Electric Supply Co. (In Re Renaissance Hospital Grand Prairie Inc.) , 713 F.3d 285 ( 2013 )

Case: 12-10386 Document: 00512198882 Page: 1 Date Filed: 04/05/2013
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
April 5, 2013
No. 12-10386
Lyle W. Cayce
Clerk
In the Matter of: RENAISSANCE HOSPITAL GRAND PRAIRIE
INCORPORATED,
Debtor.
----------------------------------------------------------------------------------
FIRST NATIONAL BANK; METROBANK N.A.,
Appellees,
v.
CRESCENT ELECTRIC SUPPLY COMPANY; HAJOCA CORPORATION,
doing business as Easter & Sons Supply; INNOVATIVE PLUMBING
SERVICES, INCORPORATED; METROPOLITAN PROFESSIONAL
ELECTRICAL SERVICES, INCORPORATED, doing business as Metro
Electric,
Appellants.
Appeals from the United States District Court
for the Northern District of Texas
Before STEWART, Chief Judge, and DAVIS and CLEMENT, Circuit Judges.
CARL E. STEWART, Chief Judge:
Plaintiffs-Appellants, Innovative Plumbing Services, Inc. (“IPS”) and
Metropolitan Professional Electrical Services, Inc. (“MPES”) challenge the
district court’s final judgment, reversing and vacating the bankruptcy court’s
Case: 12-10386 Document: 00512198882 Page: 2 Date Filed: 04/05/2013
No. 12-10386
amended judgment, that their mechanics’ liens on the property of Debtor,
Renaissance Hospital Grand Prairie Inc. (“RHGP”)1 did not pertain to materials
or labor supplied before September 1, 2006, the date on which Defendant-
Appellee, MetroBank N.A. (“MetroBank”) perfected its deed of trust lien.
Additional Plaintiffs-Appellants, Hajoca Corp. (“Hajoca”) and Crescent Electric
Supply Co. (“Crescent”) challenge the bankruptcy court’s determination that
their mechanics’ liens also did not pertain to materials or labor supplied before
September 1, 2006, which the district court upheld.2 Additional Defendant-
Appellee, First National Bank (“FNB”) is a party to this litigation as a
participant in MetroBank’s loan to RHGP.3
For the reasons provided herein, we AFFIRM the final judgment of the
district court, which previously had reversed and vacated the amended judgment
of the bankruptcy court.
I. BACKGROUND
A. Facts
On August 31, 2006, RHGP purchased an abandoned hospital site (the
“Hospital”) with the proceeds of a secured $7,000,000 purchase money note from
MetroBank. In order to perfect its deed of trust lien, MetroBank recorded the
deed of trust and a security agreement in the Tarrant County, Texas land
records on September 1, 2006.4
1
Renaissance Healthcare Systems, Inc. (“RHS”) is a distinct corporate entity to which
RHGP is related. Another hospital related to RHS is Renaissance Hospital Dallas (“RHD”).
In their briefs, the parties refer to RHGP and RHS indiscriminately. For simplicity, we refer
to both as RHGP, except where it is necessary to distinguish between RHGP, RHD, and RHS.
2
Collectively, we refer to IPS, MPES, Hajoca, and Crescent as the “Lien Claimants.”
3
Collectively, we refer to MetroBank and FNB as the “Lenders.”
4
The deed of trust contained a future advances clause.
2
Case: 12-10386 Document: 00512198882 Page: 3 Date Filed: 04/05/2013
No. 12-10386
At the time of the purchase, RHGP intended to renovate the Hospital,
which was without water supply or electrical power. To this end, RHGP
contracted with IPS to provide plumbing services for the renovation project.
Similarly, RHGP contracted with MPES to provide electrical services.5
To fund the renovation project, RHGP secured $26,000,000 in additional
financing from MetroBank on February 6, 2007. The deed of trust secured both
loans, which amounted to $34,033,053.37 as of the date of RHGP’s bankruptcy
petition. On February 14, 2007, MetroBank sold FNB an undivided
participation in the loans.
On January 15, 2008, MPES recorded a mechanic’s lien on the Hospital
site in the Tarrant County land records. MPES did not pay its subcontractor,
Crescent, for electrical materials used in the renovation project. Instead, on
March 14, 2008, Crescent recorded its own mechanic’s lien on the Hospital site.
On February 13, 2008, IPS recorded a mechanic’s lien on the Hospital site
in the Tarrant County land records. IPS did not pay its subcontractor, Hajoca,
for plumbing materials used in the renovation project. Instead, on February 1,
2008, Hajoca recorded its own mechanic’s lien on the Hospital site.
B. Proceedings Before the Bankruptcy Court
1. RHGP’s Filing for Bankruptcy Protection
RHGP filed for reorganization under Chapter 11 of the U.S. Bankruptcy
Code on August 21, 2008. On September 23, 2009, the bankruptcy court
converted RHGP’s case into a Chapter 7 liquidation. Thus, the Hospital
renovation project never was completed.
2. The Bankruptcy Court’s Compromise Order
a. MetroBank’s Trustee’s Sale
5
An additional electrical contractor named J.W. Electric, which is not a party to this
appeal, also provided electrical services for the renovation project.
3
Case: 12-10386 Document: 00512198882 Page: 4 Date Filed: 04/05/2013
No. 12-10386
On January 2, 2009, RHGP and the Lenders jointly moved, pursuant to
Federal Rule of Bankruptcy Procedure 9019, for the bankruptcy court’s approval
for the Lenders to foreclose on the Hospital. The bankruptcy court granted the
joint motion and, on January 30, 2009, entered a compromise order that (i) lifted
the automatic stay with respect to the Hospital; and (ii) allowed the Lenders to
foreclose; but (iii) required the Lenders to credit bid the Hospital for at least
$27,000,000. MetroBank conducted a trustee’s sale in March 2009, in which it
credit bid the Hospital for $27,000,000.
b. The Lenders’ Objections to Liens Claimed by MPES,
Crescent, and Hajoca
The bankruptcy court’s compromise order additionally provided for the
Lenders to file notice of their objections to any party claiming a superior interest
in the proceeds of the trustee’s sale. MPES, Hajoca, and Crescent, inter alios,
claimed liens with priority over the deed of trust. Accordingly, on February 18,
2009, the Lenders filed notice of their objections.
Of note, IPS did not directly claim a lien. In 2008, IPS had assigned its
lien to Hajoca in consideration for Hajoca forbearing its right to immediate suit
for payment from IPS. While Hajoca did directly claim its own recorded lien,
Hajoca did not assert its rights as IPS’s assignee until later at trial.6
3. The Parties’ Scheduling Agreement Concerning Priority-of-
Liens Issues
In order to narrow the outstanding priority-of-liens issues for trial, the
various parties reached a scheduling agreement. Pursuant to that agreement,
the Lenders moved for partial summary judgment as to the date the deed of
trust related back, and the Lien Claimants entered into stipulations regarding
the dates that they first supplied visible materials or labor to the renovation
6
Hajoca represents that its own recorded lien (in contrast to the lien assigned by IPS)
is “derivative” to IPS’s recorded lien (the assigned lien). Similarly, Crescent represents that
its recorded lien is “derivative” to MPES’s recorded lien.
4
Case: 12-10386 Document: 00512198882 Page: 5 Date Filed: 04/05/2013
No. 12-10386
project. The parties reached this agreement at a stage prior to the close of
discovery. Counsel for MetroBank drafted the stipulations.
a. The Lien Claimants’ Stipulations
i. IPS and Hajoca
IPS stipulated: “The date that [IPS] performed its first visible work or
delivered its first visible materials (as defined by section 53.124 of the Texas
Property Code and Texas case law) was on or after October 9, 2006 but before
February 22, 2009.”
Hajoca similarly stipulated: “The date that [Hajoca] performed its first
visible work or delivered its first visible materials (as defined by section 53.124
of the Texas Property Code and Texas case law) was on or after October 9, 2006
but before February 22, 2009.”
Misti Beanland, counsel for Crescent and Hajoca—but not IPS, executed
both stipulations. In executing the stipulations, Beanland specifically referred
to herself as “Counsel for Crescent Electric Supply Company, Hajoca
Corporation d/b/a Easter & Sons Supply and Innovative Plumbing Services” in
her signature block.7
ii. MPES and Crescent
MPES stipulated: “The date that [MPES] performed its first visible work
or delivered its first visible materials (as defined by section 53.124 of the Texas
Property Code and Texas case law) was before September 1, 2006.”
Crescent stipulated: “The date that [Crescent] performed its first visible
work or delivered its first visible materials (as defined by section 53.124 of the
7
As discussed below, since IPS did not directly claim a lien, but Hajoca ultimately
asserted its rights as IPS’s assignee, the Lenders (on the one hand) and the Lien Claimants
(on the other) presently dispute whether Beanland’s stipulation, which she purports to have
executed on behalf of Hajoca, can be imputed to IPS. MPES, which has separate counsel, is
not a party to this specific sub-dispute.
5
Case: 12-10386 Document: 00512198882 Page: 6 Date Filed: 04/05/2013
No. 12-10386
Texas Property Code and Texas case law) was on or after September 2, 2006 but
before October 9, 2006.”
Thus, all Lien Claimants other than MPES stipulated that they performed
their first visible work or delivered their first visible materials after September
1, 2006.
b. MPES’s Representations to Counsel for the Lenders
and Response to MetroBank’s Interrogatories
On February 5, 2009, counsel for MPES submitted a letter to counsel for
the Lenders, in which MPES represented that it had “commenced work on the
[hospital] project on or about September 18, 2006.” MPES added that “materials
were first delivered to the project . . . on or about September 4, 2006.” In the
letter, Counsel for MPES specifically linked MPES’s above representations to the
date that MPES’s lien incepted: “[T]he inception of [MPES’s] mechanic’s and
materialman’s lien relates back to the date labor was first performed or
materials were first delivered to the project.”
More than six months later, on September 11, 2009, MPES responded to
interrogatories from MetroBank with a sworn statement from its President that
MPES had “commenced construction on or about September 13, 2006.” Thus,
MPES confirmed that it had not delivered materials or commenced labor before
September 1, 2006.
MPES presently submits that it “timely supplemented” its interrogatory
response, on November 20, 2009, to state instead that it had “[begun] work on
the project” in June 2006.
4. The Bankruptcy Court’s Disposition of the Lenders’ Pre-
Trial Motion for Partial Summary Judgment
On January 26, 2010, the bankruptcy court granted the Lenders’ motion
for partial summary judgment. The following issues remained for trial: (i)
whether IPS or MPES had supplied visible materials or labor to the renovation
6
Case: 12-10386 Document: 00512198882 Page: 7 Date Filed: 04/05/2013
No. 12-10386
project before September 1, 2006;8 and (ii) whether there had been a “general
contractor arrangement” within the meaning of McConnell v. Mortgage
Investment Co. and its progeny, 305 S.W.2d 280, 283-86 (Tex. 1957), which would
have allowed the various claimants’ liens to relate back regardless.9
5. The Bankruptcy Court’s August 2010 Trial Decision
After a five-day trial, conducted in April and May 2010, the bankruptcy
court issued its decision on August 25, 2010.
The bankruptcy court determined, inter alia: (i) that IPS and MPES had
supplied materials and labor before September 1, 2006 but, in light of their
stipulations, Hajoca and Crescent had not; (ii) that there had been no general
contractor arrangement; (iii) that Beanland’s stipulation could not be imputed
to IPS because IPS was not her client; and (iv) that Beanland had referred to
herself as “Counsel for . . . [IPS]” in her signature block only because IPS had
assigned its lien to Hajoca.
Accordingly, on October 12, 2010, the bankruptcy court entered its
judgment, overruling the objections of the Lenders as to the priority of IPS and
MPES’s liens.
At the request of MPES, the bankruptcy court issued a decision on
December 29, 2010 to amend its judgment, to allow for MPES to recover the
amount of its lien jointly and severally from the Lenders. The bankruptcy court
entered its amended judgment on January 31, 2011.
8
As documented above, Hajoca and Crescent stipulated that they had not supplied
visible materials or labor before September 1, 2006. IPS did as well, but the bankruptcy court
reserved judgment—as to whether Beanland’s stipulation on behalf of Hajoca bound IPS—for
its August 25, 2010 trial decision.
9
No party has appealed the bankruptcy court’s January 26, 2010 ruling on partial
summary judgment.
7
Case: 12-10386 Document: 00512198882 Page: 8 Date Filed: 04/05/2013
No. 12-10386
C. Proceedings Before the District Court
The Lenders appealed the bankruptcy court’s decision—as to the priority
of IPS and MPES’s liens—to the district court. In a March 12, 2012 decision, In
re Renaissance Hospital Grand Prairie, Inc., No. 4:11-cv-311-A, 2012 WL 826334(N.D.Tex. Mar. 12, 2012), the district court reversed the bankruptcy court as to
the respective dates IPS and MPES had first supplied materials or labor.10
1. Texas’s Statutory “Visible from Inspection” Requirement for
the Inception of Mechanic’s Liens
In holding that neither IPS nor MPES had supplied materials or labor
before September 1, 2006, the district court noted that under Section 53.124 of
the Texas Property Code:
(a) Except as [otherwise] provided . . . for purposes of
Section 53.123, the time of inception of a mechanic’s lien is
the commencement of construction of improvements or
delivery of materials to the land on which the
improvements are to be located and on which the materials
are to be used. (b) The construction or materials under
Subsection (a) must be visible from inspection of the land
on which the improvements are being made. . . .
Tex. Prop. Code Ann. §§ 53.124(a)-(b) (West 2007) (emphasis added). Thus, any
materials delivered or labor commenced would have had to be “visible from
inspection.” In re Renaissance, 2012 WL 826334, at *5.
2. Additional Diversified Mortgage Requirements Pertaining to
“Notice” for Secured Lenders
Moreover, the district court noted that under Section 53.123 of the Texas
Property Code:
10
IPS had not directly participated in the bankruptcy court proceedings. Nevertheless
(i) the bankruptcy court’s decision had the potential to affect IPS’s financial interests; (ii) the
Lenders had designated IPS as a party-opponent in their subsequent district court brief; and
(iii) IPS had filed a district court brief in response. In re Renaissance, 2012 WL 826334, at *1
n.1. For these reasons, the district court permitted IPS to intervene in the proceedings. Id.
8
Case: 12-10386 Document: 00512198882 Page: 9 Date Filed: 04/05/2013
No. 12-10386
(a) Except as [otherwise] provided . . . a mechanic’s lien
attaches to the . . . [real] property in preference to any
prior lien, encumbrance, or mortgage on the land on which
it is located, and the person enforcing the lien may have
the . . . property sold separately. (b) The mechanic’s lien
does not affect any lien, encumbrance, or mortgage on the
land or improvement at the time of the inception of the
mechanic’s lien, and the holder of the lien, encumbrance,
or mortgage need not be made a party to a suit to foreclose
the mechanic’s lien.
Tex. Prop. Code Ann. § 53.123 (West 2007). The district court explained that, in
Diversified Mortgage Investors v. Lloyd D. Blaylock General Contractor, Inc., 576
S.W.2d 794 (Tex. 1978), the Texas Supreme Court had interpreted the precursor
to Section 53.123, when read together with the precursor to Section 53.124, to
have “clearly provide[d] additional standards or conditions which must exist
before a mechanic’s lien is incepted. Diversified Mortg., 576 S.W.2d at 801.
With respect to the delivery of materials, Diversified Mortgage held that,
in order to incept a lien, the material (i) must have been delivered to the
construction site; (ii) must be “visible from inspection”; and (iii) must constitute
“either . . . material which will be consumed during construction or . . . material
which will be incorporated in the permanent structure.” Id. at 803. With
respect to the commencement of labor, Diversified Mortgage held that, in order
to incept a lien, the labor (i) must have been conducted on the construction site;
(ii) must be “visible from inspection”; and (iii) must constitute “the placing of
something of permanent value on the land,” rather than mere “preliminary or
preparatory activities or structures.” In re Renaissance, 2012 WL 826334, at *6
(interpreting Diversified Mortg., 576 S.W.2d at 802).
The District Court surveyed the property law of other American
jurisdictions before concluding that Diversified Mortgage was consistent with
them in ensuring that secured lenders be provided sufficient notice of ongoing
9
Case: 12-10386 Document: 00512198882 Page: 10 Date Filed: 04/05/2013
No. 12-10386
construction activities, that might give rise to future mechanic’s liens, before
those lenders were to provide potentially subordinate financing. See In re
Renaissance, 2012 WL 826334, at *7-8.
3. The District Court’s Application of the Above Standards
Applying the above standards, the district court reversed the bankruptcy
court with respect to IPS and MPES. The district court held that any delivery
of materials or commencement of labor, by IPS or MPES, was no more than
“preliminary or preparatory” before September 1, 2006.
The district court further held that the bankruptcy court had failed to
make findings as to the “visibility from inspection” of any materials delivered or
labor commenced. However, rather than remand back to the bankruptcy court,
the district court itself found that any materials delivered or labor commenced,
by either IPS or MPES, had not been “visible from inspection.”11
As a separate ground for reversal, with respect to IPS, the district court
observed that it would hold that Beanland’s stipulation could be imputed to IPS
on the basis of the privity of its assignment contract with Hajoca. See In re
Renaissance, 2012 WL 826334, at *4 n.9 (citing Sprint Commc’ns Co. v. APCC
Servs., Inc., 554 U.S. 269, 285-92 (2008)). Nevertheless, the district court noted
that it did not have to make a definitive holding on the issue because it already
had determined that IPS had not sufficiently delivered materials or commenced
labor before September 1, 2006. See id. at *15.
The district court upheld the bankruptcy court with respect to Hajoca and
Crescent.
11
As discussed below, it is evident that neither IPS nor MPES supplied cognizable
materials or labor before September 1, 2006, whether “visible from inspection” or not.
Therefore, we need not reach the issue of whether the district court should have remanded to
the bankruptcy court to make the findings in the first instance.
10
Case: 12-10386 Document: 00512198882 Page: 11 Date Filed: 04/05/2013
No. 12-10386
Accordingly, the district court vacated the amended judgment of the
bankruptcy court and entered final judgment in favor of the Lenders. The Lien
Claimants timely appealed.
II. STANDARD OF REVIEW
A. Applicable Standard to the District Court in Reviewing the
Bankruptcy Court
“When reviewing a bankruptcy court’s decision in a ‘core proceeding,’ a
district court functions as a appellate court and applies the standard of review
generally applied in federal court appeals.” Matter of Webb, 954 F.2d 1102,
1103-04 (5th Cir. 1992) (citation and footnote omitted). Under this standard of
review, “[f]indings of fact, whether based on oral or documentary evidence, shall
not be set aside unless clearly erroneous, and due regard shall be given to the
opportunity of the bankruptcy court to judge the credibility of the witnesses.”
Fed. R. Bankr. P. 8013. Factual findings “based on determinations regarding the
credibility of witnesses” demand “even greater deference” because “only the trial
judge can be aware of the variations in demeanor and tone of voice that bear so
heavily on the listener’s understanding of and belief in what is said.” Anderson
v. Bessemer City, N.C., 470 U.S. 564, 575 (1985) (citation omitted).
“A ‘core proceeding’ is one that invokes a substantive right provided by .
. . the Bankruptcy Code . . . [or] is a proceeding that by its nature could arise
only in the context of a bankruptcy case.” Webb, 954 F.2d at 1104 n.1 (citation
and internal quotation marks omitted). “Core proceedings include, but are not
limited to . . . determinations of the validity, extent, or priority of liens.” 28
U.S.C. § 157(b)(2)(K) (2006).
The U.S. Supreme Court has construed the term “clearly erroneous” as
follows:
Although the meaning of the phrase “clearly erroneous” is
not immediately apparent, certain general principles . . .
11
Case: 12-10386 Document: 00512198882 Page: 12 Date Filed: 04/05/2013
No. 12-10386
may be derived from our cases. The foremost of these
principles . . . is that a finding is “clearly erroneous” when
although there is evidence to support it, the reviewing
court on the entire evidence is left with the definite and
firm conviction that a mistake has been committed. This
standard plainly does not entitle a reviewing court to
reverse the finding of the trier of fact simply because it is
convinced that it would have decided the case differently.
. . . If the [trial] court’s account of the evidence is plausible
in light of the record viewed in its entirety, the [reviewing]
court . . . may not reverse it even though convinced that
had it been sitting as the trier of fact, it would have
weighed the evidence differently. Where there are two
permissible views of the evidence, the factfinder’s choice
between them cannot be clearly erroneous.
Anderson, 470 U.S. at 573-74 (citations and internal quotation marks omitted).
“Generally, a bankruptcy court’s findings of fact are reviewed for clear
error and conclusions of law are reviewed de novo.” In re Gerhardt, 348 F.3d 89,
91 (5th Cir. 2003) (citation omitted). However, for a “mixed question of law and
fact,” the “factual premises” are reviewed for clear error but the ultimate “legal
conclusion” is reviewed de novo. Whitehouse Hotel Ltd. P’ship v. C.I.R., 615 F.3d
321, 333 (5th Cir. 2010) (citations omitted).12
12
In light of the U.S. Supreme Court’s decision in Stern v. Marshall, ___ U.S. ___, 131
S. Ct. 2594, 2620 (2011), the parties dispute whether the district court should have applied de
novo or clear error review to the bankruptcy court’s lien inception date findings. The Lenders
correctly note that Stern invalidated 28 U.S.C. § 157(b)(2)(C) (“Core proceedings include, but
are not limited to . . . counterclaims by the estate against persons filing claims against the
estate”), at least with respect to “state law counterclaim[s] that [are] not resolved in the
process of ruling on a creditor’s proof of claim.” 131 S.Ct. at 2620. Despite Stern’s express
instruction that its holding applied only “in one isolated respect,” the Lenders argue that the
logic of Stern would apply equally to Section 157(b)(2)(K) (. . . determinations of the validity,
extent, or priority of liens).
Were we to adopt the Lenders’ reading of Stern, the appropriate standard of review for
the bankruptcy court’s factual findings, as to the respective dates IPS and MPES first supplied
materials or labor, would be de novo rather than clear error. The Lenders’ reading, however,
is highly implausible. While Stern’s “in one isolated respect” language may understate the
totality of the encroachment upon the Judicial Branch posed by Section 157(b)(2), which
enumerates a list of “core proceedings,” the determination of the priority of liens is not likely
12
Case: 12-10386 Document: 00512198882 Page: 13 Date Filed: 04/05/2013
No. 12-10386
B. Applicable Standard to This Court in Reviewing the District Court
This Court “review[s] the decision of a district court, sitting as an appellate
court, by applying the same standards of review to the bankruptcy court’s
findings of fact and conclusions of law as applied by the district court.”
Gerhardt, 348 F.3d at 91 (citation omitted).
III. DISCUSSION
A. Introduction
At issue is whether the bankruptcy court clearly erred in determining that
IPS and MPES had supplied materials or labor before September 1, 2006, but
Hajoca and Crescent had not. We find that it did.
In short, IPS’s stipulation created a strong presumption that IPS had not
supplied anything more than “preliminary or preparatory” materials or labor
before September 1, 2006. The same can be said of MPES with respect to its
representations to the Lenders’ counsel and initial interrogatory response. Even
on highly deferential Anderson/Webb review, the bankruptcy court’s factual
findings cannot overcome these presumptions.
Moreover, Hajoca and Crescent themselves have acknowledged that their
claims are “derivative” to those of IPS and MPES. Therefore, Hajoca and
Crescent’s claims fall for the same reasons that IPS and MPES’s claims do.
Accordingly, the bankruptcy court’s determinations concerning IPS and
MPES were clearly erroneous, but its determinations concerning Hajoca and
Crescent were correct.
such an encroachment. See, e.g., In re Bigler LP, 458 B.R. 345, 370-71 & n.24 (Bankr. S.D.Tex.
Aug. 19, 2011); In re Quality Props., LLC, Bankr. No. 10-42783, Adversary No. 10-40132, 2011
WL 6161010, at *4, 6 (Bankr. N.D.Ala. Nov. 29, 2011) (unpublished).
Nevertheless, the bankruptcy court’s determination that IPS and MPES supplied
materials or labor before September 1, 2006 cannot withstand either de novo or clear error
review. Thus, we leave it for future courts to flesh out the effect of Stern more definitively.
13
Case: 12-10386 Document: 00512198882 Page: 14 Date Filed: 04/05/2013
No. 12-10386
B. Analysis
1. Whether IPS Is Bound by Beanland’s Stipulation
To recap, during the pre-trial partial summary judgment proceedings, IPS
stipulated: “The date that [IPS] performed its first visible work or delivered its
first visible materials (as defined by section 53.124 of the Texas Property Code
and Texas case law) was on or after October 9, 2006 but before February 22,
2009.” Misti Beanland, counsel of record for Crescent and Hajoca—but not IPS,
executed the stipulation. In executing the stipulation, Beanland specifically
referred to herself as “Counsel for . . . Innovative Plumbing Services” in her
signature block.
The bankruptcy court and district court differed as to how to treat this odd
set of circumstances. The bankruptcy court noted that Beanland was not
counsel for IPS, and therefore could not bind IPS with the stipulation. See 7 Am.
Jur. 2d Attorneys at Law § 147 (2013) (“A lawyer may not act beyond the scope
of the contemplated representation without additional authorization from the
client.”).
By contrast, the district court noted that it did not need to reach this
stipulation issue. However, the district court added that, if it did, it would hold
that Beanland’s identical stipulation for Hajoca would bind IPS under Sprint,
554 U.S. at 285-92, on account of the privity of their assignment contract.
Our approach to this issue differs from that of either court below. It is
grounded in the specific and unusual facts of this case. First, Beanland’s
stipulation is signed “Counsel for . . . Innovative Plumbing Services.” In and of
itself, this is probative, especially since the record evidences no contemporaneous
objection by IPS to Beanland’s (i) characterization of herself as its counsel; or (ii)
characterization of the date that IPS first supplied materials or labor.
Second, Glenn Smith, IPS’s President, was Beanland’s primary witness at
trial with respect to proving the date that IPS first supplied materials or labor.
14
Case: 12-10386 Document: 00512198882 Page: 15 Date Filed: 04/05/2013
No. 12-10386
Without Smith’s testimony for Hajoca, Beanland would have had little evidence
to present on this point. After all, IPS did not have alternative counsel during
the bankruptcy proceedings. If not for Hajoca, there would have been no party
with an interest in eliciting Smith’s testimony. Yet, IPS too benefitted from
Hajoca’s prosecution of the assigned lien. Were Beanland unsuccessful for
Hajoca, IPS still would be liable to Hajoca for Hajoca’s costs as a subcontractor
on IPS’s contract with RHGP. In these unique circumstances, where the parties’
interests were significantly aligned and IPS did not have record counsel of its
own, Beanland in essence was IPS’s counsel.
Finally, even in these Fifth Circuit proceedings, IPS has relied on
Beanland’s advocacy when it suits IPS’s purposes. See, e.g., Oct. 5, 2012 Letter
from IPS’s Counsel (joining in and adopting large parts of Hajoca’s reply brief in
lieu of submitting its own reply brief). This is not consistent with a party
sincerely contesting the imputation of Beanland’s stipulation to it.
On these specific and unusual facts, the argument that Beanland could not
bind IPS is unavailing. Accordingly, IPS is bound by Beanland’s stipulation.13
2. Whether the Lien Claimants’ Stipulations, Which Preceded
the Close of Discovery, Were Limited to the Pre-Trial Partial
Summary Judgment Proceedings
As documented above, IPS, Hajoca, and Crescent all entered into
stipulations that they had not supplied materials or labor before September 1,
13
In light of the unique circumstances of this case, which make clear that Beanland’s
stipulation should be imputed to IPS, we need not make a categorical pronouncement as to
when an attorney may bind a party who is not her “client” in the strictest sense of the word.
Nor need we definitively reach the proposition, set forth in dicta by the district court, that
under Sprint, 554 U.S. at 285-92, Beanland could have bound IPS merely on account of the
privity of its assignment contract with Hajoca.
First and foremost, Sprint is an opinion on the standing—both Article III and
prudential—of an assignee to prosecute its assignor’s claim. At present, it is enough for us to
observe that, despite its arguably broad language, there is minimal written indication that
Sprint extends into a generalized presumption of imputation, between assignor and assignee,
based solely on the privity of their assignment contract.
15
Case: 12-10386 Document: 00512198882 Page: 16 Date Filed: 04/05/2013
No. 12-10386
2006. The Lien Claimants argue that, because discovery had not yet closed, the
stipulations were limited in applicability to the pre-trial partial summary
judgment proceedings at hand and, therefore, are not conclusive.
However, we need not determine whether the stipulations are entirely
conclusive. After all, at a minimum, the stipulations created strong
presumptions that the stipulated work commencement/material delivery dates
were correct. As explained below, IPS, Hajoca, and Crescent cannot overcome
these strong adverse presumptions.14
3. The Effect of MPES’s Representations to the Lenders’
Counsel and Initial Response to MetroBank’s Interrogatories
To recap once again, on February 5, 2009, counsel for MPES submitted a
letter to counsel for the Lenders, in which MPES represented that it had
“commenced work on the [Hospital] project on or about September 18, 2006.”
MPES added that “materials were first delivered to the project . . . on or about
September 4, 2006.”
Furthermore, on September 11, 2009, MPES responded to interrogatories
from MetroBank with a sworn statement from its President that MPES had
“commenced construction on or about September 13, 2006.” Nevertheless, MPES
presently submits that it “timely supplemented” its interrogatory response, on
November 20, 2009, to state instead that it had “[begun] work on the project” in
June 2006.
Similar to IPS, Hajoca, and Crescent, with their adverse stipulations,
MPES cannot altogether escape its adverse representations to Lenders’ counsel
or its adverse initial interrogatory response. That MPES “timely supplemented”
its interrogatory response with self-serving changes that wholly contradicted its
14
To be clear, the tension in this case is between the pre-trial paper record and the
bankruptcy court’s post-trial factual findings. Irrespective of the deference afforded a
bankruptcy court’s factual findings, those findings must reasonably outweigh any undisputed
evidence in the paper record that pre-dated trial.
16
Case: 12-10386 Document: 00512198882 Page: 17 Date Filed: 04/05/2013
No. 12-10386
initial response is of little moment. At a minimum, MPES’s prior
representations created the same strong presumption faced by the other Lien
Claimants that it had not supplied materials or labor before September 1, 2006.
While we acknowledge MPES’s supplemental interrogatory response, it is of
minimal credibility.
4. Whether IPS or MPES Can Overcome the Strong Adverse
Presumptions Discussed Above
Neither IPS nor MPES can overcome the strong adverse presumptions
discussed above, even on deferential clear error review of the bankruptcy court’s
decision. Both IPS and MPES point to factual findings by the bankruptcy court
in support of its decision, and argue that those findings are entitled to deference.
Those findings, and why they are not enough to overcome the above
presumptions, can be summarized as follows.
a. Factual Findings Regarding IPS15
IPS submits that it supplied “copper, cast iron, and miscellaneous fillings”
in order to “restor[e] water service” and “repair[] a bathroom” at the RHGP
Hospital site at “the end of July or beginning of August 2006.” In support of this
assertion, IPS cites to the trial testimony of Smith, IPS’s President. IPS notes
that the bankruptcy court found Smith to be credible, and found IPS’s work to
have been neither “preliminary” nor “preparatory.”
IPS concedes that it billed for this work on September 14, 2006. However,
Smith testified at trial that it was IPS’s standard practice not to bill until “two
or three weeks after work had been completed.”
Smith conceded that IPS did not have a permit for this work, which he
acknowledged would have been necessary had the work been part of the actual
15
For a more exhaustive discussion of the bankruptcy court’s factual findings
regarding IPS, see the district court opinion at In re Renaissance, 2012 WL 826334, at *11-14.
17
Case: 12-10386 Document: 00512198882 Page: 18 Date Filed: 04/05/2013
No. 12-10386
renovation project.16 Rather, IPS’s work during this time period was limited to
pre-renovation tasks such as evaluating the property for renovation suitability
and restoring running water for use by future renovation workers.
In light of the strong presumption created by its stipulation, it is simply
not enough for IPS to rest its case on Smith’s conflicting testimony, as this
testimony revealed that IPS’s work was limited to pre-renovation tasks that
would not remain in the building. That IPS did not bill for its work until
September 14, 2006 only corroborates its stipulation that it did not commence
work before September 1, 2006.
It was unreasonable for the bankruptcy court to give insufficient weight
to IPS’s stipulation, whether dispositive or merely persuasive, in favor of
testimony from IPS’s President that was not wholly to the contrary. It also was
unreasonable for the bankruptcy court to credit IPS’s work as anything other
than “preliminary or preparatory” when IPS’s own President, who the
bankruptcy court deemed to be credible, had conceded in sworn testimony that
IPS had not yet obtained the requisite permit for actual renovation work.17
16
While a contractor’s failure to obtain a permit is not talismanic evidence that the
contractor’s work is merely “preliminary or preparatory,” it is probative evidence to that effect
in the absence of countervailing evidence of comparable weight.
17
In addition to the above-stated reasons why IPS cannot overcome the adverse
presumption created by its stipulation, none of IPS’s evidence, other than the conflicting
testimony of Smith, sheds much light on whether its purported labor or delivery of materials
would have been “visible from inspection.” Thus, even if IPS could overcome the adverse
presumption created by its stipulation, which it cannot, it likely could not satisfy Texas’s
requirement of notice for secured creditors. See Diversified Mortg., 576 S.W.2d at 801-03; Tex.
Prop. Code Ann. §§ 53.123, 53.124(a)-(b) (West 2007). That said, we need not reach the “visible
from inspection” issue, which the bankruptcy court failed to address in the first instance.
18
Case: 12-10386 Document: 00512198882 Page: 19 Date Filed: 04/05/2013
No. 12-10386
b. Factual Findings Regarding MPES18
First, MPES submits that it attempted to repair a switchgear at the RHGP
Hospital site, and made the decision to order a replacement switchgear, in
August 2006. Second, MPES submits that it installed wiring to a “sump pump
motor control center” at the site in June 2006. Third and finally, MPES submits
that it repaired security lights at the site in August 2006.
In support of these assertions, MPES cites to the trial testimony of its
President, Micky Cable, as well as to business records, including time sheets for
employees and invoices for materials. MPES notes that the bankruptcy court
found Cable to be credible, and credited MPES’s business records. In doing so,
the bankruptcy court found that MPES had first commenced construction or
delivered materials to the RHGP Hospital site on June 8, 2006.
Notwithstanding the above, MPES concedes that it did not perform the
actual replacement of the switchgear until after September 1, 2006.
Furthermore, with respect to the installation of the wiring, MPES concedes that
it did not procure the requisite permit for such a project, at least before
September 1, 2006.
All things considered, MPES cannot overcome the strong adverse
presumption created by its prior representations to the Lenders’ counsel and its
initial response to MetroBank’s interrogatories. After all, as documented above,
MPES did not perform the actual replacement of the switchgear until after
September 1, 2006. Moreover, MPES did not procure a permit for the wiring
installation.
As for MPES’s evidence of business records that purportedly establish its
work on the switchgear, wiring, and security lights, many of those records are
18
For a more exhaustive discussion of the bankruptcy court’s factual findings
regarding MPES, see the district court opinion at In re Renaissance, 2012 WL 826334, at
*8-11.
19
Case: 12-10386 Document: 00512198882 Page: 20 Date Filed: 04/05/2013
No. 12-10386
labeled “estimates” rather than “invoices” or “orders,” and appear to refer to
future rather than completed work. Even more significantly, all of the records
are addressed to RHS generally, or to RHD rather than to RHGP.19 Records
addressed to the wrong corporate entity have minimal if any probative value.
Especially in light of MPES’s prior representations, it was not reasonable
for the bankruptcy court to treat the above evidence as sufficient to establish a
work commencement/materials delivery date before September 1, 2006. At best,
like IPS, MPES engaged in evaluative, “preliminary or preparatory” work.20
Thus, even on deferential clear error review of the bankruptcy court’s
decision, neither IPS nor MPES can overcome the strong adverse presumptions
detailed above. Despite the general proposition—set forth in Anderson and
Webb—that factual findings grounded in trial-testimony credibility
determinations are not to be disturbed, we must do so when, as here, we are “left
with the definite and firm conviction that a mistake has been committed.”
Anderson, 470 U.S. at 573 (citation and internal quotation marks omitted).
5. Hajoca and Crescent’s “Derivative” Claims
Finally, as both Hajoca and Crescent acknowledge, their respective claims
are “derivative” to IPS and MPES’s claims. Since neither IPS nor MPES can
establish that it had delivered materials or commenced labor before September
1, 2006, a priori, neither can Hajoca or Crescent. Moreover, just like IPS, both
19
In addition to its work for RHGP, MPES performed work on a separate contract for
RHD.
20
As with IPS, in addition to the above-stated reasons why MPES cannot overcome the
adverse presumption created by its prior representations, none of MPES’s evidence, other than
the conflicting testimony of Cable, sheds much light on whether its purported labor or delivery
of materials would have been “visible from inspection.” Thus, even if MPES could overcome
the adverse presumption created by its prior representations, which it cannot, it likely could
not satisfy Texas’s requirement of notice for secured creditors. See Diversified Mortg., 576
S.W.2d at 801-03; Tex. Prop. Code Ann. §§ 53.123, 53.124(a)-(b) (West 2007).
20
Case: 12-10386 Document: 00512198882 Page: 21 Date Filed: 04/05/2013
No. 12-10386
Hajoca and Crescent are saddled with strong adverse presumptions created by
their respective stipulations.
Thus, the bankruptcy court clearly erred in determining that IPS and
MPES had supplied materials or labor before September 1, 2006. The
bankruptcy court correctly determined that Hajoca and Crescent had not
supplied materials or labor before September 1, 2006.
IV. CONCLUSION
For the foregoing reasons, we AFFIRM the final judgment of the district
court, which reversed and vacated the amended judgment of the bankruptcy
court.
21