Bodwell v. FDIC

• Court: District Court, D. New Hampshire
• Decided: July 5, 1996
• Docket: CV-96-021-B
• Status: Published

Opinion

Bodwell v. FDIC CV-96-021-B 07/05/96 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

In re Bodwell Development Trust Civil No. 96-021-B

Bodwell Development Trust

v.

Federal Deposit Insurance Corporation as Liquidating Agent for First Service Bank; Robie Construction, et al.

O R D E R

This bankruptcy appeal involves the competing claims of two

secured creditors to a fund of $250,000 remaining from the sale

of the debtor's real estate project. The Federal Deposit

Insurance Corporation ("FDIC"), as successor in interest to the

First Service Bank for Savings ("the Bank"), bases its claim on

the Bank's mortgage and the FDIC's payment of delinguent real

estate taxes on the Bodwell property. Robie Construction, Inc.

seeks payment for its work on the project secured by a mechanic's

lien attachment. The bankruptcy court held that Robie's

mechanic's lien attachment was timely as to all of its unpaid

work and had priority over both the FDIC's construction mortgage and its claim for reimbursement of the taxes paid. For the

reasons that follow, I affirm.

I. BACKGROUND

The background facts are taken from the bankruptcy court's

factual findings.1 The parties do not dispute the bankruptcy

court's factual findings on appeal, nor could they as they have

not provided a complete transcript or a full record of the

proceedings below. See In re Abiioe Realty Corp., 943 F.2d 121,

123 n.1 (1st Cir. 1991).

In October 1987, Bodwell Development Trust purchased a

multi-lot subdivision in Manchester. Bodwell intended to

complete single family houses on twenty-five lots in the first

phase of the development and to build a planned unit development

on the remaining parcel in the second phase.2 The first phase of

1 The bankruptcy court made factual findings in both its findings of fact order dated April 28, 1995, and in its memorandum opinion. In re Bodwell Development Trust, 187 B.R. 63 (Bankr. D.N.H. 1995). The findings of fact order references particular numbered exhibits that were not appended to the document and were not included in the record on appeal although some of the same documents seem to have been submitted as part of the "defendant's exhibits."

2 The second phase of the project is not at issue in this appeal.

2 the project was financed by the Bank in a series of mortgages

with security agreements executed in 1987 and 1988. Bodwell

hired Lexro Development Company as its general contractor.

Robie Construction contracted with Lexro to provide

materials and labor for site work on the Bodwell project. The

first contract, dated April 14, 1988, (the April contract),

specified work on lots 11, 12, 13, 14, 23, and 25 listing

separate prices for each lot totalling $25,625.00. The second

contract, dated May 19, 1988, (the May contract), specified work

and prices for lots 5, 6, 7, 8, 9, and 10 for a total of

$82,901.75. Robie last worked on a lot listed in the April

contract on December 15, 1988, and last worked on a lot listed in

the May contract on December 14, 1988. Robie was not paid for

its materials and labor and brought suit against Bodwell and

Lexro in Hillsborough County Superior Court on February 3, 1989.

Robie recorded an ex parte mechanic's lien attachment on

February 21, 1989,3 in the amount of $200,000 on Bodwell's first

3 The bankruptcy court's factual findings state that Robie obtained ex parte permission from Hillsborough County Superior Court on February 22, 1989, to record the attachment. See Findings of Fact No. 19. The bankruptcy court also found that Robie filed its ex parte attachment on February 21, 1989, referencing "Exhibit 7," which is not included in the record on appeal. See Findings of Fact No. 35. As the parties do not

3 phase lots numbered one through fourteen, sixteen, eighteen

through twenty-six, and twenty-eight. The attachment was

recorded within ninety days of work done on only one lot listed

in the April contract and two lots in the May contract. On

November 6, 1989, the state court granted Robie a final default

judgment against Bodwell, and Robie recorded a writ of execution

against Bodwell on January 10, 1990.

The FDIC was appointed liguidating agent for the Bank in

March 1989. Thereafter, the FDIC paid delinguent real estate

taxes to the City of Manchester for the years 1988 through 1990

on the lots in the first phase of the project after Robie

recorded its mechanic's lien attachment. Bodwell filed a Chapter

11 bankruptcy petition on November 8, 1993. At the time Bodwell

filed its petition, the FDIC's claim against Bodwell for the

Bank's first phase mortgages exceeded one million dollars. The

first phase lots in Bodwell's development project were sold

pursuant to the reorganization plan for a total of $625,000.00.

Bodwell brought an adversary proceeding in the bankruptcy

court to resolve the claims of several creditors to the proceeds

dispute the date or validity of Robie's mechanic's lien attachment, I merely note the apparent inconsistency in the factual findings.

4 of the sale of the property. The parties submitted a statement

of stipulated and disputed facts, and a hearing was held in

August 1994. After the hearing, the FDIC filed a motion to

reopen the hearing record for new evidence pertaining to the type

of mortgage the Bank granted to Bodwell. The bankruptcy court

held a hearing on the FDIC's motion in December 1994 and denied

the motion to reopen in an oral order.

After the claims of several creditors were resolved,

$250,000.00 remained in the fund subject to the FDIC's mortgage

claims, which exceed the amount of the fund, the FDIC's claim for

payment of real estate taxes of $117,153.81, and Robie's

mechanic's lien claim for $108,525.00. The bankruptcy court

issued findings of fact dated April 28, 1995, and heard the

parties' oral arguments in June. The bankruptcy court issued its

memorandum decision on August 3, 1995, in which it determined

that Robie's claim, based on its mechanic's lien attachment, was

prior to the FDIC's claims for the Bank's mortgages and for

payments of real estate taxes on the mortgaged property. The

FDIC appeals.

5 II. ANALYSIS

On appeal, the FDIC contends that the bankruptcy court

abused its discretion in denying its motion to reopen the hearing

record on the relative priority of its mortgage claims with

respect to Robie's claim. The FDIC also contends that the

bankruptcy court erred in determining that Robie's mechanic's

lien attachment was timely as to work done more than ninety days

before the lien was perfected, and by determining that Robie's

mechanic's lien attachment was entitled to priority over the

FDIC's claims for payment of the delinguent property taxes. I

begin with the bankruptcy court's decision not to reopen the

hearing record to allow additional evidence.

A. FDIC's Motion to Reopen the Hearing

A trial court is granted broad discretion in determining

whether to reopen the evidentiary record, and its decision is

reviewed only for abuse of that discretion. Blinzler v. Marriott

Intern., Inc., 81 F.3d 1148, 1160 (1st Cir. 1996) (citing Zenith

Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 331-32

(1971)). Fairness is the guiding principle in making and

reviewing a decision on reopening the record, and the "trial

court abuses its discretion if its refusal to reopen works an

'injustice' in the particular circumstances." Rivera-Flores v.

6 Puerto Rico Tel. Co., 64 F.3d 742, 746 (1st Cir. 1995). In

evaluating the potential for injustice in particular

circumstances, the court should assess whether:

(1) the evidence sought to be introduced is especially important and probative; (2) the moving party's explanation for failing to introduce the evidence earlier is bona fide; and (3) reopening will cause no undue prejudice to the nonmoving party.

Id.; see also Blinzler, 81 F.3d at 1160. I review the bankruptcy

court's decision only to determine whether it abused its

discretion.

New Hampshire law provides that a mechanic's lien attachment

shall have priority over a construction mortgage. N.H. Rev.

Stat. Ann. § 447:12-a (1991). The FDIC stipulated that the each

of the Bank's mortgages to Bodwell was a "Construction Mortgage

and Security Agreement." The bankruptcy court held a hearing on

the relative priorities of the mortgagee's and mechanic's

lienholders' claims to the Bodwell fund in August 1994. The FDIC

did not argue or present evidence in its pleadings or at the

hearing that the Bank's mortgages were other than construction

mortgages.

After the hearing but before the bankruptcy court decided

the parties' priorities, the New Hampshire Supreme Court issued

Lewis v. Shawmut Bank, 139 N.H. 50 (1994), in which the court

7 enforced an exception to the priority rule imposed by § 447:12-a

when the loan was made for both the land purchase and

construction. The FDIC then moved to introduce evidence that the

Bank's mortgage loan to Bodwell was a "mixed" loan intended to

finance both the property purchase and project construction

arguing only that the record should be reopened because the Lewis

decision was a new interpretation of the priority rule.

The bankruptcy court denied the FDIC's motion on the grounds

that the Lewis decision did not present a sufficiently new

interpretation of the priority statute to justify allowing the

FDIC to withdraw its stipulation that the Bank's loans to Bodwell

were construction mortgages. As noted by the bankruptcy court,

the decision in Lewis, followed Gerritv Co., Inc. v. Laconia

Savings Bank, 120 N.H. 304 (1980), in which the court considered

the bank's claim of an exception to the priority rule under §

447:12-a if the mortgage payments were made for purposes other

than financing construction. In Gerritv, the court held that the

bank's advancement of funds in part for the mortgagor's land

purchase did not exempt that portion of the mortgage from the

priority rule in § 447:12-a because the purpose of the loan was

determined by the loan agreement, which was to finance

construction, not by the disbursements. Id. at 307. Although the Lewis decision may have focused attention on the "mixed

mortgage" exception to the priority rule and may have clarified

the proof necessary to meet the exception, it did not change the

law. Therefore, when the FDIC stipulated that the bank's loans

were construction mortgages and presented evidence at the August

hearing, it should have known the significance of evidence

suggesting that the loan agreement was to finance the purchase of

the property as well as for construction. Thus, the FDIC did not

fall into erroneous and prejudicial stipulations based on a

justifiable legal mistake. See, e.g., I I Federal Credit Union

v. Delbonis, 72 F.3d 921, 928 (1st Cir. 1995) (parties are not

free to extricate themselves from stipulations absent "a clear

mistake" or "a manifest injustice"); Wheeler v. John Deere Co.,

935 F.2d 1090, 1097-98 (10th Cir. 1991) (stipulation must be

based on a reasonable mistake of law for relief to be

appropriate).

The FDIC's stipulations may have been erroneous and

certainly had a significant effect on the priority of its claim

behind Robie's mechanic's lien pursuant to § 447:12-a. In

addition, the bankruptcy court acknowledged that reopening the

record would not cause unfair prejudice to Robie. Nevertheless,

the bankruptcy court decided that it was inappropriate to relieve the FDIC from its stipulations because such stipulations would be

of little value to the parties or the court in future cases if a

party could avoid the enforcement of a stipulation merely by

demonstrating that its decision to enter into the stipulation was

based on an incorrect legal judgment. Although I might reach a

different conclusion if I were reviewing the matter de novo, the

bankruptcy court did not abuse its discretion in balancing the

competing interests in the way that it did.

B. Timeliness of Robie's Mechanic's Lien Attachment

Under New Hampshire law, a subcontractor, who performs labor

or provides materials for construction "by virtue of a contract

with an agent, contractor or subcontractor of the owner" and who

meets the other statutory reguirements, has a lien on the

materials, the buildings, and the land where the project is

located. N.H. Rev. Stat. Ann. § 447:5 (1991) . A mechanic's lien

may be secured "by an attachment of the property upon which it

exists at any time while the lien continues." N.H. Rev. Stat.

Ann. § 447:10 (1991). When Robie obtained its mechanic's lien

attachment in February 1989, the mechanic's lien statute provided

10 that the lien would continue for ninety days4 after the

subcontractor provided services or materials. N.H. Rev. Stat.

Ann. § 447:9 (1991) .

Robie filed its attachment after it completed all of the

work described in the two contracts, rather than filing

attachments as it completed the specified work on each lot. When

the attachment was filed, Robie had worked on only three lots

within the preceding ninety days, one lot specified in the April

contract and two lots specified in the May contract. The FDIC

argues that Robie's mechanic's lien attachment was untimely and

invalid as to the lots not worked on within the statutory ninety

day period.

The New Hampshire Supreme Court has not addressed the

timeliness of a mechanic's lien attachment in this context.

Other jurisdictions generally have held that an attachment filed

within the statutory period following the last work on a project

is timely as to the property as a whole when the property is

owned by a single owner and the construction contract provides

for work on a single project although it consists of separate

4 The statute was amended effective January 1, 1992, to allow the lien to continue for 120 days.

11 lots or buildings. See, e.g. S.K. Drvwall, Inc. v. Developers

Financial Group, Inc., 819 P.2d 931, 933-35 (Ariz. 1991) (single

lien may be filed within statutory period following end of work

on a single project under a single contract and discussing cases

from other jurisdictions); see also First Nat. Bank v. Hemingway

Center Ltd., 846 F. Supp. 186, 189 (D. Conn. 1994) (materials and

labor provided for two of three condominium buildings benefitted

entire project so that lien was properly recorded on entire

property); Annotation, Mechanic's Lien for Work on or Material

for Separate Buildings of One Owner, 15 A.L.R.3d 73, § 11 (1967

and Supp. 1995). The FDIC does not dispute that the Bodwell

development was a single project consisting of a subdivision of

individual lots all owned by a single owner.

The FDIC argues, however, that the Robie contracts are

divisible and should be construed as individual contracts for the

work on each separate lot specified. Under New Hampshire law,

"[i]f the parties gave a single assent to the whole transaction,

the contract is indivisible, while it is divisible if they

assented separately to several things." In re Trailer and

Plumbing Supplies, 133 N.H. 432, 435 (1990) (guotation omitted).

The bankruptcy court found that in the context of

construction financing, a developer must get a construction

12 lending commitment and the lender requires proof that the project

is moving forward to continue to advance money. As a result,

subcontractors' contracts often include "progress payment

accounting" features, such as the work and prices specified for

individual lots in the Robie contracts, to show what will be

charged for work on each lot. The bankruptcy court also found

that Robie's contracts covered all of the site work for the

Bodwell project, and that Robie was obligated to provide all of

the work specified. The court found that Robie could have been

sued for breach if it failed to perform any part of the specified

work even if it completed all other specifications, and Robie

could have sued Lexro if it breached its commitment to Robie for

all of the work specified. Bodwell, 187 B.R. at 65.

Thus, while each of the two contracts specified particular

work on particular lots, the facts show that the parties agreed

to the work specified in each contract as a single transaction.

In addition, because Robie was hired to provide all of the site

work for the project, the work benefitted the entire project, not

just the individual lots. The FDIC has presented no facts to

support a contrary conclusion. Under these circumstances, the

FDIC's arguments fail, and I affirm the bankruptcy court's

13 decision that Robie's lien attachment was timely filed.

C. Priority of Claim for Property Taxes

The FDIC argues that its claim for payment of the delinquent

property taxes is entitled to priority over Robie's mechanic's

lien claim. Because the remaining fund of $250,000 is sufficient

to pay both Robie's claim of $108,525.00 and the FDIC's property

tax claim of $117,153.81, the issue of their relative priority is

now immaterial and, therefore, moot. Accordingly, I need not

determine their relative priority.

The FDIC apparently presented a different argument to the

bankruptcy court claiming a right to reimbursement from Robie for

the amount of the taxes which would completely offset Robie's

claim leaving the entire $250,000 fund available to the FDIC. In

re Bodwell, 187 B.R. at 66. The FDIC has not pressed this

argument on appeal. Therefore, I do not address the bankruptcy

court's decision on the question.

CONCLUSION

For the foregoing reasons, the decision of the bankruptcy

court is affirmed.

14 SO ORDERED.

Paul Barbadoro United States District Judge

July 5, 1996

cc : Jennifer Rood, Esq. Douglas Mclninch, Esq. George Vannah, USBC