Rok Builders, LLC v. 2010-1 SFG Venture LLC (In Re Moultonborough Hotel Group, LLC) , 498 F.3d 1 ( 2013 )

United States Court of Appeals
For the First Circuit
No. 12-2182
IN RE MOULTONBOROUGH HOTEL GROUP, LLC,
Debtor.
__________
ROK BUILDERS, LLC,
Appellant,
v.
2010-1 SFG VENTURE LLC,
Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
[Hon. Paul J. Barbadoro, U.S. District Judge]
Before
Torruella, Thompson and Kayatta,
Circuit Judges.
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.
July 18, 2013
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 unable to 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.
-2-
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,
1
The waiver primarily refers to ROK as the "Contractor," but
in one instance refers to the company as the "Subcontractor." On
appeal, neither party argues that this apparent drafting error
changes the waiver's legal effect, and for the sake of clarity we
have replaced references to either the "Contractor" or
"Subcontractor" with "ROK."
-3-
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,
2
The record is somewhat unclear regarding the details of
Specialty's additional $682,655.01 payment. It may represent at
least partial satisfaction of the $954,571.03 balance due as of May
31, 2008. Yet ROK's mechanic's lien of $2,487,411.94 is the sum
of: (i) the May balance, (ii) an additional $1,083,313.22 for work
ROK apparently performed in June, and (iii) $449,527.69 of
retainage. Because we resolve this appeal fully in SFG's favor and
hold that SFG's right to reimbursement of $6,434,074.40 for
mortgage funds disbursed to ROK is senior to ROK's lien, we need
not address whether that lien should be reduced in light of
Specialty's $682,655.01 payment.
-4-
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, see 28
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.
-5-
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
-6-
to judgment as a matter of law." Soto-Rios, 662 F.3d at 115; see
also Fed. 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 also
Fed. 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. 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.
-7-
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, 572 A.2d 1153, 1155 (N.H. 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
3
In this dispute between the builder of a hotel in New
Hampshire and the holder of a mortgage on that hotel, the
bankruptcy and district courts both understandably assumed that New
Hampshire law supplied the substantive rules of decision, with no
objection by any party. No party argues on appeal that a different
choice of law should be made, or that such a choice would make a
difference. Therefore, we, too, rely on New Hampshire's
substantive law. See Jasty v. Med. Tech., Inc., 528 F.3d 28, 34
n.5 (1st Cir. 2008).
-8-
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 subsequent decision, the Supreme Court also linked the
race-notice rule to section 477:3-a. See Mansur v. Muskopf, 977
A.2d 1041, 1046 (N.H. 2009). Specifically, the Court cited
Amoskeag Bank for the proposition that the state is a race-notice
jurisdiction. Id. It then explained that "[t]herefore, a
purchaser with a senior claim in real estate must record such
interest in order to prevail over a bona fide purchaser for value,"
and cited "[i]n particular" section 477:3-a. Id.Here, the race-notice rules favor SFG, because the
mortgage was recorded well before the work for which a lien is
claimed was performed. This fact alone does not defeat ROK's
claim, however, because the statutory scheme in New Hampshire
creates an exception to the race-notice rule for mechanics' liens.
Specifically, a mechanic's lien "shall have precedence and priority
over any construction mortgage." N.H. Rev. Stat. Ann. § 447:12-a;
see also Lewis v. Shawmut Bank, 650 A.2d 744, 745 (N.H. 1994)
(describing section 447:12-a as "[a]n exception to the general
rule" of race-notice). This exception is, however, itself subject
to an important qualification: a mechanic's lien "shall not be
entitled to precedence as provided in this section to the extent
-9-
that the mortgagee shows that the proceeds of the mortgage loan
were disbursed . . . toward payment of invoices from or claims due
subcontractors and suppliers of materials or labor for the work on
the mortgaged premises." § 447:12-a. As the bankruptcy court
concluded, this qualification takes the § 447:12-a exception out of
play in this case. Because ROK does not contest the fact that
Specialty, the original mortgagee, made $6,434,074.40 in such
payments to ROK, the plain text of § 447:12-a demonstrates that the
exception for which the statute provides has no application to the
facts before us.
In response to this conclusion, ROK contends that the
scheme envisioned by § 447:12-a is nonexclusive, and that an
alternative source of priority for mechanics' liens can be found in
older New Hampshire case law. But in support of that proposition,
ROK points only to two nineteenth-century cases, neither of which
establishes any principle at variance with the present statutory
scheme. See Cheshire Provident Inst. v. Stone, 52 N.H. 365 (1872);
Graton & Knight Mfg. Co. v. Woodworth-Mason Co., 38 A. 790 (N.H.
1897). In neither case did the mortgagee pay the mechanic for any
work. Rather, the mortgagee, presumably for some consideration
extended to the owner, acquired a mortgage after work on the
property subject to the mortgage had already commenced. Graton &
Knight Mfg. Co., 38 A. at 790; Cheshire Provident Inst., 52 N.H. at
365. The mortgage thus remained junior to the mechanic's lien for
-10-
whatever unpaid work arose out of the ongoing project. In the
language of the statute, the lien in full "continue[d]." N.H. Rev.
Stat. Ann. § 447:9.
In this case, by contrast, payment was in fact
"previously made" to ROK by Specialty. Therefore, the lien for
that paid work expired, leaving ROK with only a lien for later
work. See N.H. Rev. Stat. Ann. §§ 447:2, 447:9. And Specialty,
unlike the mortgagees in Graton & Knight and Cheshire Provident,
even obtained a written lien waiver, to boot. See Graton & Knight
Mfg. Co., 38 A. at 790; Cheshire Provident Inst., 52 N.H. at 365.
Accordingly, we conclude that the bankruptcy court did
not err in concluding that section 447:12-a establishes the
seniority of SFG's mortgage over ROK's mechanic's lien to the
extent of the $6,434,074.40 that Specialty disbursed to ROK.
B. ROK's Counterclaims.
We turn now to ROK's counterclaims for breach of an
implied contract, promissory estoppel, and unjust enrichment. All
three claims rest on Specialty's course of dealings with ROK as the
hotel neared completion, roughly two years before SFG appeared on
the scene. In essence, ROK maintains that Specialty, eager to have
the value of a finished rather than unfinished hotel as collateral
for its loan, misled ROK into believing that it would be paid for
completing construction. ROK now demands that SFG, as the assignee
of Specialty's mortgage, make good on that alleged commitment.
-11-
1. Assumption of liability for implied contract and
promissory estoppel.
Taking the first two counterclaims together, ROK asserts
that although the doctrines of implied contract and promissory
estoppel are distinct, the same conduct by Specialty entitles it to
recover under either theory. An implied contract is an enforceable
agreement that arises from "the conduct of the parties, apart from
oral and written words." Durgin v. Pillsbury Lake Water Dist., 903
A.2d 1003, 1006 (N.H. 2006). Promissory estoppel, in contrast,
provides a basis for recovery when no contract exists; if a
promisor should reasonably expect a promisee to rely on a promise,
and the promisee in fact does so, courts may enforce the promise to
avoid injustice. See Great Lakes Aircraft Co. v. City of
Claremont, 608 A.2d 840, 853 (N.H. 1992); Panto v. Moore Bus.
Forms, Inc., 547 A.2d 260, 266 (N.H. 1988); see also Restatement
(Second) of Contracts § 90 (1981).
As the bankruptcy court recognized, however, even
assuming that Specialty's actions created an implied contract
between Specialty and ROK or entitled ROK to recover from Specialty
under a theory of promissory estoppel, there is no basis for
holding SFG liable for the actions of Specialty. No language in
the assignments purports to transfer such liabilities to SFG. ROK
is therefore left to contend that SFG "implicitly assumed"
Specialty's liability to ROK when SFG accepted assignment of the
mortgage and loan agreement between Specialty and Moultonborough
-12-
without expressly rejecting any assumption of Specialty's
liabilities. In support of this contention, ROK relies on
section 328 of the Restatement (Second) of Contracts (1981).
With certain exceptions, section 328 treats a general
assignment of all rights under a contract as a delegation of
unperformed duties under the same contract, enforceable against the
assignee by the obligor of the assigned rights. Without commenting
on whether and to what extent section 328 might in some cases apply
to assignments of mortgages and defaulted notes, we can easily
reject any assertion that section 328 helps ROK in this case. The
contract assigned to SFG was an agreement or agreements between
Moultonborough as borrower/mortgagor and Specialty as
lender/mortgagee. If SFG assumed any obligations as a result of
that assignment, they would have been the obligations of the
lender/mortgagee under those agreements. The alleged liability
that ROK seeks to impose on SFG, however, arises from an alleged
implied contract (or promise) between Specialty and ROK. SFG
received no assignment of any rights under any contract such as
that. In short, even if we were to assume that obligations under
a contract follow rights upon assignment absent indication
otherwise, nothing in section 328 would suggest that obligations
under one contract follow rights under another. For this simple
reason, ROK's argument does not get to first base.
-13-
2. Unjust enrichment.
ROK's claim of unjust enrichment fails, too, although for
a reason other than that relied on by the bankruptcy court.
"Unjust enrichment is an equitable remedy" that entitles a party to
restitution from one who has "receive[d] 'a benefit which would be
unconscionable for him to retain.'" Clapp v. Goffstown Sch. Dist.,
977 A.2d 1021, 1024-25 (N.H. 2009) (quoting Kowalski v. Cedars of
Portsmouth Condo. Assoc., 769 A.2d 344, 347 (N.H. 2001)). The
bankruptcy court dismissed ROK's claim for unjust enrichment on the
basis that SFG could not be liable for the conduct of Specialty --
the same basis on which it dismissed ROK's implied contract and
promissory estoppel claims. New Hampshire law is clear, however,
that restitution may be required even if the party receiving the
benefit has not itself engaged in wrongful acts. Gen. Insulation
Co. v. Eckman Constr., 992 A.2d 613, 621 (N.H. 2010). Passive
acceptance of a benefit can be enough, as long as it would be
unconscionable for the recipient to retain the benefit. See id.Having convinced us that SFG's lack of involvement in the
alleged wrongdoing by Specialty is not itself grounds to dismiss
ROK's claim for unjust enrichment against SFG, ROK nevertheless
fails to point to any allegation that would support a finding that
SFG received a benefit, the retention of which would be
unconscionable. ROK relies on the case of Nute v. Blaisdell, 374
-14-
A.2d 923 (N.H. 1977). That case, however, serves simply to show by
contrast what was lacking in ROK's allegations in this case.
In Nute, George Blaisdell acted as a fiduciary for June
McKeage. 374 A.2d at 924. Blaisdell caused McKeage to borrow
funds, which Blaisdell then used to buy a house, which he placed in
his mother's name. Id. There was no evidence that the mother, who
knew McKeage, paid anything for the home. Id. at 924-25. The New
Hampshire Supreme Court held that those facts could support a
finding that the mother had been unjustly enriched. Id. at 925.
After all, she got a house for nothing when it was clear that the
person whose money and credit paid for the house intended no gift.
Here, SFG simply bought a mortgage on a completed hotel, from a
failed bank through the FDIC. ROK alleges no facts plausibly
demonstrating that the purchase transaction was not negotiated at
arm's length. Nor does ROK allege any fact suggesting that SFG
would have paid the same amount for a mortgage on an uncompleted
hotel. Therefore, even assuming that Specialty received a benefit
from the unpaid work, it is certainly not unconscionable for SFG to
retain that which it bought. See Axenics, Inc. v. Turner Const.
Co., 62 A.2d 754, 766-67 (N.H. 2013).
Accordingly, although our analysis differs from that of
the bankruptcy court, the court did not err in dismissing ROK's
unjust enrichment claim.
Affirmed.
-15-