Diamond Hill Investment Co v. Shelden

767 P.2d 1005, 1989 Wyo. LEXIS 15, 1989 WL 1600

• Court: Wyoming Supreme Court
• Decided: January 13, 1989
• Docket: 88-43
• Status: Published

Opinions

MACY, Justice.

This is an appeal from a summary judgment in favor of appellee Thomas A. Shel-den, d/b/a Atria Architects, authorizing him to foreclose his contractors’ lien and declaring that his lien is superior to the mortgage of appellants Diamond Hill Investment Company and Sage Capital Corporation, thereby effectively foreclosing appellants’ interest in the subject property. At issue are the determinations by the district court that, pursuant to provisions of the federal Bankruptcy Code, the petition in bankruptcy filed by the owner of the property stayed any action by appellee to foreclose his lien, including the filing of an amended complaint to include appellants as defendants, and that the Wyoming statute of limitations for commencing a foreclosure action was tolled during the pendency of the bankruptcy proceedings.

We affirm.

The parties agree that the issue is:

Did the Trial Court err in finding that the automatic stay provided by 11 U.S.C. § 362 issued in connection with the bankruptcy case filed by W.A.S., Inc. (landowner/developer), Debtor, stayed an action by Appellee against the non-debtor Appellants (mortgage holders) and therefore the First Amended Complaint to Foreclose Lien filed by Appellee to join the Appellants, after the statute of limitations provided by Wyoming Statutes § 29-2-109 had run, was nonetheless timely filed?

We would add, as a related or sub-issue:

If 11 U.S.C. § 362 (1982 & Supp. IV 1986) effectively stayed the filing of the first amended complaint by appellee, did that section, in conjunction with 11 U.S. C. § 108(c) (1982 & Supp. IV 1986), operate to toll the statute of limitations found in Wyo.Stat. § 29-2-109 (1977) requiring commencement of an action to foreclose a contractors’/materialmen’s lien within 180 days after filing the lien statement?

The relevant facts in this case involve its procedural framework, and these facts are not in dispute. Appellee initiated the action by filing a complaint on June 17, 1986, against W.A.S., Inc. (W.A.S.), a Wyoming corporation, George M. Wilson (Wilson), and Thelma Hickman (Hickman) to foreclose a contractors’ lien for architectural and engineering services provided pursuant to a contract for the improvement of certain properties owned by the named defendants. Defendants Wilson and Hickman answered’, but default was entered against W.A.S. on July 14, 1986. On August 11,1986, a default judgment and judgment authorizing foreclosure of the lien was entered against W.A.S. Thereafter, on September 8, 1986, W.A.S. filed a motion to stay enforcement of the judgment and a motion for relief from judgment. On that same date, the district court signed an order granting a stay of enforcement pending resolution of the motion for relief from judgment.

All proceedings in the case came to a halt on September 12,1986, when W.A.S. filed a voluntary petition in the United States Bankruptcy Court for the District of Colorado pursuant to chapter 11 of the Bankruptcy Code, 11 U.S.C. §§ 1101-1174 (1982 & Supp. IV 1986). The bankruptcy court dismissed the chapter 11 petition on January 20, 1987. On January 30, 1987, appel-lee filed a request to amend his complaint to add appellants as defendants pursuant to W.R.C.P. 15. Appellee indicated in this request that, as a result of the preparation of a foreclosure guaranty, he became aware of a mortgage held by appellants against the property owned by W.A.S. An order allowing appellee to file his amended complaint was entered on February 9,1987, and the amended complaint was filed on that date. In his amended complaint, ap-pellee alleged that his contractors’ lien was prior and superior to the mortgage of appellants, and he requested that the district court so declare and order the mortgage of appellants to be forever barred and terminated. After their motion to dismiss was denied, appellants answered the amended complaint.

On April 9, 1987, the district court entered an order dismissing defendants Wilson and Hickman from the suit pursuant to a stipulation among the parties. Appellee then filed a motion for summary judgment against appellants, and appellants renewed their motion to dismiss. After further denials and renewals of the motions, the district court held a hearing on November 23, 1987, on appellee’s motion for summary judgment. An order granting summary judgment to appellee was entered on December 31, 1987. The order provided in pertinent part:

IT IS HEREBY ORDERED that Summary Judgment be granted in favor of Plaintiff, Thomas A. Shelden, d/b/a Atria Architects, and against the Defendants, Diamond Hill Investment Company and Sage Capital Corporation;

IT IS FURTHER ORDERED that the Motion to Dismiss and defense of Failure to State a Cause of Action for Which Relief can be Granted of Diamond Hill Investment and Sage Capit[a]l Corporation are hereby denied;

IT IS FURTHER ORDERED that the lien of Thomas A. Shelden, d/b/a Atria Architects, is superior and prior to the mortgage held by Diamond Hill Investment Company and Sage Capital Corporation;

IT IS FURTHER ORDERED that the Plaintiff, Thomas A. Shelden, d/b/a Atria Architects, have judgment on his lien in the amount of $93,816.06 and declaratory relief against Diamond Hill Investment Company and Sage Capital Corporation;

IT IS FURTHER ORDERED that * * * Plaintiff, Thomas A. Shelden, d/b/a Atria Architects, is hereby authorized to foreclos[ ]e his mechanic’s lien against the following described property:

[A specific description of the subject property was inserted here.]

IT IS FURTHER ORDERED that the property and all improvements thereon above-described be sold at a public sale by the Sheriff of Laramie County or one of his deputies in accordance with the applicable statutes, with the proceeds used to pay the lien and any excess proceeds applied as provided by law.

In appealing from this order, appellants do not challenge the determination by the district court that the lien of appellee was prior and superior to the mortgage of appellants. Appellants limit their appeal, rather, to the question of whether, despite the intervening bankruptcy proceedings involving the owner of the property, the statute of limitations for commencing a foreclosure action on a contractors’ lien had run in relation to the claim against appellants, thereby barring appellee from adding appellants as party defendants and foreclosing appellants’ interest in the subject property.¹ This is purely a question of law.

Summary judgment is properly granted only upon the dual findings that there is no genuine issue of material fact and that the prevailing party is entitled to judgment as a matter of law. Farr v. Link, 746 P.2d 431 (Wyo.1987). Where, as in this case, the facts are not in dispute and the issue involves only a question of law, we accord no special deference to, and are not bound by, the decision of the district court. Id. Thus, we must determine whether the district court, in applying the relevant statutes, correctly found that appellee was entitled to judgment as a matter of law.

Wyo.Stat. § 29-l-201(a)(i)(A)(I) (1977) provides that, for purposes of the Wyoming lien statutes, an architect is a contractor. Architects, therefore, are included in the provisions regarding liens of contractors and materialmen. Wyo.Stat. §§ 29-2-101 to -109 (1977). These liens are commonly referred to as mechanics' liens.² Appellee properly perfected his lien against the subject property by filing a lien statement with the county clerk in compliance with Wyo.Stat. §§ 29-1-301, 29-2-106, and 29-2-107 (1977). Crucial to the issue in this case is the effect of § 29-2-109, which provides:

All actions to foreclose or enforce a lien under this chapter shall be commenced within one hundred eighty (180) days after the filing of the lien statement. No lien shall continue to exist except by virtue of the provisions of this chapter for more than one hundred eighty (180) days after the lien is filed unless an action to foreclose the lien is instituted.

Appellee filed his lien statement on April 28, 1986. The 180 days within which he had to commence an action to foreclose or enforce his lien expired on October 27, 1986. W.R.C.P.-3(a) provides that an action is commenced by the filing of a complaint with the court, and paragraph (b) of that rule further states in relevant part:

For purposes of statutes of limitation, an action shall be deemed commenced on the date of filing the complaint as to each defendant, if service is made on him or on a co-defendant who is a joint contractor or otherwise united in interest with him, within sixty (60) days after the filing of the complaint.

(Emphasis added.) In Peters v. Dona, 49 Wyo. 306, 324, 54 P.2d 817, 822-23 (1936) (quoting Hiller v. Schulte, 184 Mo.App. 42, 167 S.W. 461, 462 (1913)), we said:

“And it is well settled that, where parties are thus brought in by an amendment, the suit as to them is begun at the time of such amendment making them parties. The amended petition as to them is the filing of a new suit. And, as an action to enforce a mechanic’s lien must be brought within 90 days after the filing of the lien, after the lapse of that time new parties cannot be brought in by amendment and be thus affected by the proceeding.”

Quoted in Seafirst Mortgage Corporation v. Specialty Concrete Construction, 708 P.2d 1245, 1247 (Wyo.1985).

Appellee timely brought an action to foreclose his lien against the property of defendants W.A.S., Wilson, and Hickman by filing his “COMPLAINT TO FORECLOSE LIEN” against those parties on June 17, 1986. This original complaint, however, did not name appellants as defendants and, in accordance with W.R.C.P. 3(b) and Seafirst Mortgage Corporation, it was not effective to commence an action against appellants. The amended complaint joining appellants as defendants was not filed until February 9,1987, beyond the 180-day statutory limit. In Seafirst Mortgage Corporation, we held that the interest of a mortgagee was not affected by a mechanics’ lien foreclosure action where the plaintiff failed to join the mortgagee in the suit within the prescribed 180 days. Thus, unless the applicable provisions of the Bankruptcy Code stayed the filing of appellee’s amended complaint and tolled the running of § 29-2-109, appellee’s amended complaint joining appellants as defendants was untimely, and the foreclosure was ineffective as against them.

We turn, therefore, to the Bankruptcy Code to determine the effect of its relevant provisions upon the issue. We must first ascertain whether the automatic stay afforded by 11 U.S.C. § 362(a) (1982 & Supp. IV 1986) stayed the filing of appellee’s amended complaint. Section 362(a) provides in pertinent part:

Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title, or an application filed under section 5(a)(3) of the Securities Investor Protection Act of 1970 (15 U.S.C. 78eee(a)(3)), operates as a stay, applicable to all entities, of—

(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debt- or that arose before the commencement of the case under this title;

(2) the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title;

(3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate;

(4) any act to create, perfect, or enforce any lien against property of the estate;

(5) any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title;

(6)any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title[.]

As appellee points out in his brief, both the appellants and the appellee were creditors of the debtor in bankruptcy, W.A.S., each claimed a debt from the debtor in bankruptcy, and each claimed an interest in the same property of the debtor which was part of the bankruptcy estate.³ In addition to the obvious purpose of the automatic stay to provide debtor protection, it also serves to protect the rights of creditors. This second purpose of the stay was discussed in the case of In re Paul, 67 B.R. 342, 345-46 (Bankr.D.Mass.1986), wherein the court stated:

One of the primary goals of the automatic stay is to sort out creditors into an order of priority untainted by post-petition jockeying for position. Congress has stated that the automatic stay gives protection to both the debtor and the creditors. * * * The intended effect of the stay, therefore, is to fix rights and priorities as of the time of petition filing and to prohibit any further acts to advance those rights and priorities.

The stay not only fixes priorities, but also protects them. The Supreme Court in Isaacs v. Hobbs Tie and Timber Co., 282 U.S. 734, 51 S.Ct. 270, 75 L.Ed. 645 (1931), stated that “valid liens existing at the time of the commencement of a bankruptcy proceeding are preserved ...” Id. at 738, 51 S.Ct. at 272. The Second Circuit has held that the effect of filing a petition is a two way street for creditors and debtors: “[I]n general no creditors’ liens acquire validity after the filing of the petition ... It should equally follow, we believe, that liens good at this time do not lose their validity_” Lockhart v. Garden City Bank & Trust Co., 116 F.2d 658, 661 (2d Cir.1940). The freezing of priorities is consistent with the needs of the automatic stay. Just as a creditor’s actions after the petition will not affect the priority of other creditors’ claims, his inaction during the stay should not affect his own priority. To hold otherwise would encourage the unequal “race of diligence” Congress wanted to avoid.

(Emphasis added.) The § 362(a) stay has been described as being extremely broad in scope, applicable to any type of formal or informal action against the debtor or the property of the bankruptcy estate. 2 W. Collier, Collier on Bankruptcy 11362.04 (15th ed. 1988). See also Baldwin-United Corporation v. Paine Webber Group, Inc., 57 B.R. 759 (S.D.Ohio 1985). The filing of a suit to enforce or foreclose a lien violates the automatic stay. H.T. Bowling, Inc. v. Bain, 64 B.R. 581 (W.D.Va.1986); Meek Lumber Yard, Inc. v. Houts, 23 B.R. 705 (Bankr.W.D.Mo.1982).

It is forcefully urged by appellants, however, that the stay should not apply in this situation. Appellants argue that the action commenced by appellee with his amended complaint was only an action to foreclose the interest owned by the nondebtor appellants in the subject property rather than the commencement or continuation of an action against the debtor, the property of the debtor, or the property of the bankruptcy estate as envisioned by the automatic stay of § 362(a). Although at first blush this argument is attractive, a thorough analysis reveals that it cannot be sustained.

It is true that the § 362(a) automatic stay is limited to actions against debtors and does not include actions against non-bankrupt co-defendants. Hamel v. American Continental Corporation, 713 P.2d 1152 (Wyo.1986); Teachers Insurance and Annuity Association of America v. Butler, 803 F.2d 61 (2d Cir.1986); Fortier v. Dona Anna Plaza Partners, 747 F.2d 1324 (10th Cir.1984); 2 W. Collier, supra. In arguing that the amended complaint represented the commencement of an action against only nondebtor co-defendants, appellants rely upon our holding in Hamel as support for their contention that the stay does not apply under the circumstances of this case. Their reliance on Hamel, however, is misplaced.

In Hamel, the unpaid employees of a contractor brought a mechanics’ lien foreclosure action against the property owner 183 days after the filing of the lien statement. The contractor had filed a bankruptcy petition which stayed any action by the employees against the contractor. After discharge of the contractor from bankruptcy, the foreclosure complaint against the owner was filed. In upholding the district court’s dismissal of the employees’ action, we held that the bankruptcy stay involving the contractor did not stay the employees from filing their foreclosure action against the owner, and therefore the time limit mandated by § 29-2-109 had expired. Critical to our holding in Hamel, however, was the fact that the contractor was not, as unsuccessfully argued by the employees in that case, an indispensable party in a lien foreclosure action against the owner. As we pointed out in Hamel, under Wyoming law a contractor is not an indispensable party to a lien foreclosure except when the owner insists that he be made a party. Hamel, 713 P.2d 1152.

The opposite situation is presented in the instant case. Here, the amended complaint sought foreclosure against a competing creditor. As implied in Hamel, such action requires that the owner be joined as an indispensable party. The rule is succinctly stated in 53 Am.Jur.2d, Mechanics’ Liens § 361 at 886 (1970): “The owner of the premises against which a mechanic’s lien is sought to be foreclosed is a necessary party, and no foreclosure may be had without joining him.” Thus, appel-lee could not have pursued an independent foreclosure action against appellants. The Supreme Court of Illinois was faced with a similar situation in Garbe Iron Works, Inc. v. Priester, 99 Ill.2d 84, 75 Ill.Dec. 428, 457 N.E.2d 422 (1983). Under Illinois law, both the owner and the contractor are necessary parties to a lien foreclosure. The contractor in Garbe Iron Works, Inc. filed a bankruptcy petition. The subcontractor, therefore, delayed filing his suit until obtaining a modification of the automatic stay from the bankruptcy court, by which time the limitation period for filing the action had expired — a fact relied upon by the property owner in seeking dismissal. In affirming a decision for the subcontractor, the Illinois Supreme Court held that, where a necessary party in an action to foreclose a mechanics’ lien files a bankruptcy petition, the amount of time in which the subcontractor has to file suit is extended. That court further stated, in language particularly relevant to the instant case:

Also unpersuasive is defendant’s contention that the automatic stay provision in section 362 of the Bankruptcy Act is not applicable to the present facts since no direct relief from [the contractor] was sought. Section 362, however, broadly and plainly prohibits the commencement of any type of proceeding against the debtor (11 U.S.C. sec. 362 (Supp.1979)), and this action, under the statute, could not have been commenced without joining the debtor as a party defendant. Plaintiff was unquestionably subject to the automatic stay and correctly delayed filing suit until it was lifted.

Id. 75 Ill.Dec. at 431, 457 N.E.2d at 425.

We conclude, therefore, that, since W.A.S., as owner, was an indispensable party to a foreclosure action against appellants as mortgage holders and since any action against W.A.S. was stayed by § 362(a) of the Bankruptcy Code, appellee correctly determined he was stayed from filing his amended complaint joining appellants as party defendants until after dismissal of the bankruptcy proceedings involving W.A.S. If appellee had filed the amended complaint during the pendency of the bankruptcy proceedings, the action would have been void and of no effect. Emerson Quiet Kool Corporation v. Marta Group, Inc., 33 B.R. 634 (Bankr.E.D.Pa. 1983); 2 W. Collier, supra at 11362.11.

Having determined that § 362(a) stayed appellee from filing his amended complaint, we must next examine the effect of 11 U.S.C. § 108(c) (1982 & Supp. IV 1986)⁴ upon appellee’s late filing of the amended complaint. That section provides:

Except as provided in section 524 of this title, if applicable nonbankruptcy law, an order entered in a nonbankruptcy proceeding, or an agreement fixes a period for commencing or continuing a civil action in a court other than a bankruptcy court on a claim against the debtor, or against an individual with respect to which such individual is protected under section 1201 or 1301 of this title, and such period has not expired before the date of the filing of the petition, then such period does not expire until the later of — •

(1) the end of such period, including any suspension of such period occurring on or after the commencement of the case; or

(2) 30 days after notice of the termination or expiration of the stay under section 362, 922, 1201, or 1301 of this title, as the case may be, with respect to such claim.

In the instant case, the statute clearly operated to extend the time limit found in § 29-2-109 for appellee to file his amended complaint against the debtor, W.A.S., to include appellants as defendants. The extent of the additional time afforded by the statute, however, is less clear. A survey of the cases addressing the question reveals a division in authority as to whether § 108(c) operates to suspend the running of any applicable limitation period, thereby extending the creditor’s time to act for a period equal to the time the action was stayed by the Bankruptcy Code, or whether it merely provides an additional thirty days to commence or continue an action once the stay is lifted. See Garbe Iron Works, Inc., 75 Ill.Dec. 428, 457 N.E.2d 422, and Grotting v. Hudson Shipbuilders, Inc., 85 B.R. 568 (W.D.Wash.1988), as cases representing the two divergent views on this question. In this case, however, it is not necessary that we adopt either interpretation. The bankruptcy case involving W.A.S. was dismissed on January 20,1987, and appellee’s amended complaint was filed on February 9,1987; thus, it was timely filed under either view of § 108(c).

Our decision in this case is consistent with a basic purpose of the automatic stay provision — that valid liens in existence at the commencement of bankruptcy proceedings be preserved. Isaacs v. Hobbs Tie & Timber Company, 282 U.S. 734, 51 S.Ct. 270, 75 L.Ed. 645 (1931); Bond Enterprises, Inc. v. Western Bank of Farmington, 54 B.R. 366 (Bankr.D.N.M.1985); In re Paul, 67 B.R. 342. The cases involving a conflict between the automatic stay and state law time constraints imposed upon creditors for taking some action (by article 9 of the Uniform Commercial Code or otherwise) have consistently held that the time limitations are tolled during the pendency of the bankruptcy proceeding. See In re Paul, 67 B.R. 342 (time for renewal of attachment tolled by filing of bankruptcy petition); Bond Enterprises, Inc., 54 B.R. 366 (period for filing a continuation statement tolled during pendency of bankruptcy proceedings); Meek Lumber Yard, Inc., 23 B.R. 705 (filing of suit to enforce mechanics’ lien violates automatic stay, but statute of limitations for filing such suit is tolled); and H.T. Bowling, Inc., 64 B.R. 581 (§ 108(c) tolls any statute of limitations imposed by state law on a claim against a debtor in bankruptcy).

In conclusion, we hold that appellee’s amended petition to foreclose his lien was subject to the automatic stay of the Bankruptcy Code, § 362(a), and that, pursuant to § 108(c) of the Code, the statute of limitations for commencing or continuing the action, § 29-2-109, was tolled during the pendency of W.A.S.’ bankruptcy proceedings. As a result, we hold that appellee’s amended petition was timely filed and that the foreclosure against the interests of appellants was effective.

AFFIRMED.

URBIGKIT, J., files a dissenting opinion in which THOMAS, J., joins.

1 . The fact that default judgment had been entered against W.A.S. did not prevent appellee from amending his original complaint in this action. Although default judgment had been entered against W.A.S., the suit was not terminated as to any of the parties because of the unresolved claims against defendants Hickman and Wilson. W.R.C.P. 54(b) provides that, when multiple parties are involved, the court may direct the entry of final judgment as to fewer than all of the parties

only upon an express determination that there is no just reason for delay and upon an express direction for the entry of judgment. In the absence of such determination and direction, any order or other form of decision, however designated, which adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties shall not terminate the action as to any of the claims or parties, and the order or other form of decision is subject to revision at any time before the entry of judgment adjudicating all the claims and the rights and liabilities of all the parties.

(Emphasis added.) A W.R.C.P. 54(b) determination of finality was not made in the default judgment entered against W.A.S., thus the action continued as to all parties. See also 10 C. Wright, A. Miller & M. Kane, Federal Practice and Procedure: Civil 2d § 2660 at 116-17 (1983).

2 . The generic term "mechanics’ lien” extends to others than mechanics and is sometimes specifically referred to as a "contractors’ lien,’’ a "subcontractors’ lien," a "materialman’s lien,” or a "laborer’s lien." 53 Am.Jr.2d, Mechanics’ Liens § 1 at 513 (1970).

3 . The commencement of a bankruptcy case creates an estate (the bankruptcy estate), which is comprised of, inter alia, "all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a)(1) (1982).

4 . Section 108(c) was amended in 1986 to include the references to § 1201 of chapter 12 dealing with bankruptcies of family farmers. The 1986 amendment became effective after commencement of this action and thus was not applicable to this case. Pub.L. 99-554. The 1986 changes, in any event, are immaterial to the issues presented in this case.