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Michael J. Wright Construction Co., Inc. v. Kara Homes

September 25, 2008

MICHAEL J. WRIGHT CONSTRUCTION CO., INC., APPELLANT,
v.
KARA HOMES, INC. AND KARA AT HAWKINS RIDGE, LLC, APPELLEE.
MICHAEL J. WRIGHT CONSTRUCTION CO., INC., APPELLANT,
v.
KARA HOMES, INC. AND KARA AT NAVASINK, LLC, APPELLEE.
MICHAEL J. WRIGHT CONSTRUCTION CO., INC., APPELLANT,
v.
KARA HOMES, INC. AND KARA AT GLEN EYRE, LLC, APPELLEE.
MICHAEL J. WRIGHT CONSTRUCTION CO., INC., APPELLANT,
v.
KARA HOMES, INC. AND COUNTRY CLUB ESTATES BY KARA, LLC, APPELLEE.
MICHAEL J. WRIGHT CONSTRUCTION CO., INC., APPELLANT,
v.
KARA HOMES, INC. AND WINDING RUN RUN ESTATES BY KARA, LLC APPELLEE.
MICHAEL J. WRIGHT CONSTRUCTION CO., INC., APPELLANT,
v.
KARA HOMES, INC. AND HORIZONS AT WOODLAKE GREENS, APPELLEE.
MICHAEL J. WRIGHT CONSTRUCTION CO., INC., APPELLANT,
v.
KARA HOMES, INC. AND BERGEN MILLS ESTATES, LLC, APPELLEE.



The opinion of the court was delivered by: Pisano, District Judge.

FOR PUBLICATION

OPINION

Pursuant to 28 U.S.C. § 158(a), Appellant Michael Wright Construction Co., Inc. ("Wright") has appealed the United States Bankruptcy Court's September 12, 2007 and April 22, 2008 orders granting Appellees Kara Homes, Inc. and its affiliates' (collectively, "Appellees" or "Kara Homes") motions for summary judgment.*fn1 The issue presented in the instant appeal is whether the residential construction contract provisions in the New Jersey Construction Lien Law (the "Lien Law") should govern the subcontractor agreement between Wright and Kara Homes.*fn2

As explained below, the Court holds that the Bankruptcy Court correctly granted Kara Homes' motions for summary judgment declaring Wright's construction liens to be invalid. Accordingly, the orders of the Bankruptcy Court are affirmed.

I. BACKGROUND

On October 6, 2006, Kara Homes, one of the largest residential builders in New Jersey, filed with the Bankruptcy Court a voluntary petition under Title 11, Chapter 11 of the Bankruptcy Code. Over fifty Kara Homes affiliates filed voluntary petitions under Chapter 11 within the following eight months.

Over the course of its residential building activity, Kara Homes entered into numerous subcontractor agreements with various contractors who provided goods and/or services to construct improvements to the projects owned by each of the affiliated debtors. Appellant Wright, for example, provided framing contracting services to Kara Homes for hundreds of dwelling units pursuant to a subcontracting agreement. Prior to the debtors' filing of their bankruptcy petitions, their creditors filed construction lien claims against individual homes and residential condominium units owned by Kara Homes. Wright filed over forty construction lien claims but did not file any "Notices of Unpaid Balance and Right to File Lien" ("NUBs"). Wright's lien claims against Kara Homes and the affiliated debtors totaled $769,141.67.

On January 15, 2007, Kara Homes filed twenty-three adversary proceedings, seven of which are the subject of this appeal, to determine the extent, validity, and priority of various lien claims asserted by its creditors, including Wright. Wright and the other creditors filed answers to the adversary complaints throughout February, and on May 11, 2007, Kara Homes filed its first motion for summary judgment to void its creditors' purported construction liens, including three lien claims asserted by Wright. Wright opposed the summary judgment motion in July 2007.

In an August 29, 2007 opinion, the Bankruptcy Court held that contracts for large-scale residential construction projects with numerous dwelling units, like the subcontractor agreement for framing services to hundreds of dwelling units between Wright and Kara Homes, constitute "residential construction contracts," and that by failing to file NUBs, Wright and other creditors had failed to perfect their liens. The Bankruptcy Court awarded summary judgment against Wright and other creditors, and declared invalid lien claims against Kara Homes and the affiliated debtors, where the creditors failed to comply with the requirements of the Lien Law, N.J.S.A. § 2A:44A-1 et seq., for creating and perfecting construction liens on residential properties. On this basis, summary judgment was awarded to Kara Homes on September 12, 2007. Wright filed a Notice of Appeal as to those three adversary proceedings*fn3 on September 21, 2007. No other creditor filed an appeal of the Bankruptcy Court's September 12 Order.

On September 26, 2007, the affiliated debtors' reorganization plan (the "Plan") was confirmed. Wright received a copy of both the disclosure statement and the Plan. Under the terms of the Plan, a variety of liens were re-classified as unsecured or deficiency claims. Specifically, the Confirmation Order stated that, "Any statutory or equitable lien claims asserted by ... Construction Lienholders ...are extinguished and shall be classified for all purposes under the Plan as Deficiency Claims in Class 5." (Confirmation Order ¶ 13.) The Plan also stated that "no preclusion doctrine", based on the Confirmation Order of the Plan, would apply to claims or causes of action against a claim-holder that are not "expressly waived, relinquished, released or compromised" or otherwise settled in the Plan. At no point in time did Wright attempt to stay implementation of the Plan pending resolution of its appeal.

In February 2008, Kara Homes filed motions for summary judgment in the four adversary proceedings against Wright that remained, which Wright opposed in April 2008. The Bankruptcy Court granted Kara Homes' motion without opinion and ordered summary judgment against Wright on April 22, 2008. Wright filed a notice of appeal of the four cases on May 2, 2008. No other creditor filed an appeal of the Bankruptcy Court's April 22 Order.

II. JURISDICTION AND STANDARD OF REVIEW

The Court has jurisdiction over this appeal pursuant to Rule 8001(a) of the Federal Rules of Bankruptcy Procedure and 28 U.S.C. § 158(a). The issue presented in this appeal is a purely legal one: whether the subcontracting contracts at issue are residential or non-residential construction contracts under the Lien Law. A district court reviews a bankruptcy court's legal conclusions de novo. See J.P. Fyfe, Inc. of Fla. v. Bradco Supply Corp., 891 F.2d 66, 69 (3d Cir. 1989). Factual determinations, however, may be set aside by the district court only if they are clearly erroneous. See Fed. Rule Bankr. Proc. 8013; ...


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