FILED NOT FOR PUBLICATION APR 10 2023 UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: 450 S. WESTERN AVE., LLC, No. 21-60060
Debtor, BAP No. 21-1116 ______________________________
PHILMONT MANAGEMENT, INC., MEMORANDUM*
Appellant,
v.
450 S. WESTERN AVE., LLC,
Appellee.
Appeal from the Ninth Circuit Bankruptcy Appellate Panel Lafferty III, Faris, and Spraker, Bankruptcy Judges, Presiding
Argued and Submitted November 15, 2022 Pasadena, California
Before: NGUYEN and H.A. THOMAS, Circuit Judges, and FITZWATER,** District Judge.
* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The Honorable Sidney A. Fitzwater, United States District Judge for the Northern District of Texas, sitting by designation. Philmont Management, Inc. (“Philmont”) appeals a judgment of the Bankruptcy
Appellate Panel (“BAP”)1 affirming a bankruptcy court order dismissing under
Federal Rule of Civil Procedure 12(b)(6) Philmont’s adversary complaint seeking a
determination of the validity, priority, or extent of Philmont’s mechanic’s lien on real
property of chapter 11 debtor 450 S. Western Ave., LLC (the “Debtor”), located in
Los Angeles, California.2 We have jurisdiction under 28 U.S.C. § 158(d)(1), and we
vacate and remand.
“We review decisions of the BAP de novo and apply the same standard of
review that the BAP applied to the bankruptcy court’s ruling.” Boyajian v. New Falls
Corp. (In re Boyajian), 564 F.3d 1088, 1090 (9th Cir. 2009). We independently
review the bankruptcy court’s rulings on appeal from the BAP “without according any
deference to the BAP.” Salazar v. McDonald (In re Salazar), 430 F.3d 992, 994 (9th
Cir. 2005). We review de novo a dismissal under Federal Rule of Civil Procedure
12(b)(6). Tracht Gut, LLC v. L.A. Cnty. Treasurer & Tax Collector (In re Tracht
Gut), 836 F.3d 1146, 1150 (9th Cir. 2016). We review the denial of leave to amend
for abuse of discretion. Id.
1 Philmont Mgmt., Inc. v. 450 S.W. Ave., LLC (In re 450 S.W. Ave., LLC), 633 B.R. 894 (B.A.P. 9th Cir. 2021), aff’g 2021 WL 2528426 (Bankr. C.D. Cal. May 10, 2021). 2 Rule 12(b)(6) is applicable via Federal Rule of Bankruptcy Procedure 7012(b). -2- 1. The bankruptcy court first based its dismissal order on the conclusion that
Philmont’s mechanic’s lien was invalid because it was not recorded within 90 days
of completion of the work, as California Civil Code § 8412 requires, and that
Philmont failed to sufficiently allege facts to support its theory that the Debtor was
equitably estopped from challenging the timeliness of Philmont’s lien.
Philmont alleged in its complaint that: (1) it billed more than $1.8 million in
labor and materials for tenant improvements to the Debtor’s property; (2) when the
Debtor failed to pay as promised, Philmont timely recorded a mechanic’s lien on July
18, 2018; (3) over the next 18 months or so, the Debtor repeatedly reassured Philmont
that the amount due under the mechanic’s lien would be paid; (4) the Debtor informed
Philmont that it was completing a refinance of the property, and Philmont’s
mechanic’s lien would be paid as part of that transaction; (5) the Debtor requested that
Philmont not file a lawsuit to perfect its mechanic’s lien because doing so would
create a cloud on title and potentially jeopardize the pending refinance; (6) the Debtor
and Philmont understood that Philmont would simply re-record its mechanic’s lien if
not paid from the impending refinance within 90 days of the original recording and
that the Debtor would not claim that the successive liens were untimely; (7) Philmont
relied on the Debtor’s representations and promises in not commencing an action to
foreclose its mechanic’s lien, and instead re-recorded its mechanic’s lien four times
-3- between June 2018 and December 2019; (8) Philmont’s multiple recordings of its
mechanic’s lien were consistent with the parties’ understanding, so the Debtor did not
object; (9) the Debtor continued to assure Philmont that its lien would be paid from
the refinance, but that the process required more time; and (10) in reasonable reliance
on the Debtor’s representations and promises, Philmont recorded its fifth and final
mechanic’s lien on December 19, 2019 for the outstanding sum due from the Debtor
(which now exceeded $2.3 million). On January 10, 2020, the Debtor filed a
voluntary chapter 11 bankruptcy petition.
The bankruptcy court was required to accept these factual allegations as true
and construe them in the light most favorable to Philmont as the nonmoving party,
Skilstaf, Inc. v. CVS Caremark Corp., 669 F.3d 1005, 1014 (9th Cir. 2012), and to
draw all reasonable inferences in favor of Philmont, Usher v. City of Los Angeles, 828
F.2d 556, 561 (9th Cir. 1987). We hold that, when viewed under these standards,
Philmont’s complaint pleaded a plausible equitable estoppel theory that excused it
from timely re-recording its mechanic’s lien within 90 days of the completion of the
work. See Holdgrafer v. Unocal Corp., 160 Cal. App. 4th 907, 925-27 (2008); Lantzy
v. Centex Homes, 73 P.3d 517, 532-34 (Cal. 2003).
2. The second basis for the bankruptcy court’s dismissal order was that, even
if Philmont could allege sufficient facts to support a reasonable inference of equitable
-4- estoppel, Philmont’s failure to allege that it timely recorded a notice of perfection
under § 546(b) of the Bankruptcy Code required dismissal. According to the
bankruptcy court, “[e]ven if the Court were to overlook the untimeliness of the
December 19, 2019 lien, dismissal would still be required because Philmont has not
alleged—and cannot allege—that it timely provided the notice necessary to maintain
the perfection of its lien as required by § 546(b).”
But Philmont was not required to give notice under 11 U.S.C. § 546(b)(2), so
the bankruptcy court erred in holding that Philmont’s mechanic’s lien was
unenforceable and dismissing its adversary complaint with prejudice. Section
546(b)(2) of the Bankruptcy Code provides, in pertinent part, that when a law
described in § 546(b)(1) requires commencement of an action to accomplish
perfection or maintenance or continuation of perfection of an interest in property and
that action has not been commenced prior to the bankruptcy petition, the interest in
property shall be perfected, or the perfection of the interest shall be maintained or
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FILED NOT FOR PUBLICATION APR 10 2023 UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: 450 S. WESTERN AVE., LLC, No. 21-60060
Debtor, BAP No. 21-1116 ______________________________
PHILMONT MANAGEMENT, INC., MEMORANDUM*
Appellant,
v.
450 S. WESTERN AVE., LLC,
Appellee.
Appeal from the Ninth Circuit Bankruptcy Appellate Panel Lafferty III, Faris, and Spraker, Bankruptcy Judges, Presiding
Argued and Submitted November 15, 2022 Pasadena, California
Before: NGUYEN and H.A. THOMAS, Circuit Judges, and FITZWATER,** District Judge.
* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The Honorable Sidney A. Fitzwater, United States District Judge for the Northern District of Texas, sitting by designation. Philmont Management, Inc. (“Philmont”) appeals a judgment of the Bankruptcy
Appellate Panel (“BAP”)1 affirming a bankruptcy court order dismissing under
Federal Rule of Civil Procedure 12(b)(6) Philmont’s adversary complaint seeking a
determination of the validity, priority, or extent of Philmont’s mechanic’s lien on real
property of chapter 11 debtor 450 S. Western Ave., LLC (the “Debtor”), located in
Los Angeles, California.2 We have jurisdiction under 28 U.S.C. § 158(d)(1), and we
vacate and remand.
“We review decisions of the BAP de novo and apply the same standard of
review that the BAP applied to the bankruptcy court’s ruling.” Boyajian v. New Falls
Corp. (In re Boyajian), 564 F.3d 1088, 1090 (9th Cir. 2009). We independently
review the bankruptcy court’s rulings on appeal from the BAP “without according any
deference to the BAP.” Salazar v. McDonald (In re Salazar), 430 F.3d 992, 994 (9th
Cir. 2005). We review de novo a dismissal under Federal Rule of Civil Procedure
12(b)(6). Tracht Gut, LLC v. L.A. Cnty. Treasurer & Tax Collector (In re Tracht
Gut), 836 F.3d 1146, 1150 (9th Cir. 2016). We review the denial of leave to amend
for abuse of discretion. Id.
1 Philmont Mgmt., Inc. v. 450 S.W. Ave., LLC (In re 450 S.W. Ave., LLC), 633 B.R. 894 (B.A.P. 9th Cir. 2021), aff’g 2021 WL 2528426 (Bankr. C.D. Cal. May 10, 2021). 2 Rule 12(b)(6) is applicable via Federal Rule of Bankruptcy Procedure 7012(b). -2- 1. The bankruptcy court first based its dismissal order on the conclusion that
Philmont’s mechanic’s lien was invalid because it was not recorded within 90 days
of completion of the work, as California Civil Code § 8412 requires, and that
Philmont failed to sufficiently allege facts to support its theory that the Debtor was
equitably estopped from challenging the timeliness of Philmont’s lien.
Philmont alleged in its complaint that: (1) it billed more than $1.8 million in
labor and materials for tenant improvements to the Debtor’s property; (2) when the
Debtor failed to pay as promised, Philmont timely recorded a mechanic’s lien on July
18, 2018; (3) over the next 18 months or so, the Debtor repeatedly reassured Philmont
that the amount due under the mechanic’s lien would be paid; (4) the Debtor informed
Philmont that it was completing a refinance of the property, and Philmont’s
mechanic’s lien would be paid as part of that transaction; (5) the Debtor requested that
Philmont not file a lawsuit to perfect its mechanic’s lien because doing so would
create a cloud on title and potentially jeopardize the pending refinance; (6) the Debtor
and Philmont understood that Philmont would simply re-record its mechanic’s lien if
not paid from the impending refinance within 90 days of the original recording and
that the Debtor would not claim that the successive liens were untimely; (7) Philmont
relied on the Debtor’s representations and promises in not commencing an action to
foreclose its mechanic’s lien, and instead re-recorded its mechanic’s lien four times
-3- between June 2018 and December 2019; (8) Philmont’s multiple recordings of its
mechanic’s lien were consistent with the parties’ understanding, so the Debtor did not
object; (9) the Debtor continued to assure Philmont that its lien would be paid from
the refinance, but that the process required more time; and (10) in reasonable reliance
on the Debtor’s representations and promises, Philmont recorded its fifth and final
mechanic’s lien on December 19, 2019 for the outstanding sum due from the Debtor
(which now exceeded $2.3 million). On January 10, 2020, the Debtor filed a
voluntary chapter 11 bankruptcy petition.
The bankruptcy court was required to accept these factual allegations as true
and construe them in the light most favorable to Philmont as the nonmoving party,
Skilstaf, Inc. v. CVS Caremark Corp., 669 F.3d 1005, 1014 (9th Cir. 2012), and to
draw all reasonable inferences in favor of Philmont, Usher v. City of Los Angeles, 828
F.2d 556, 561 (9th Cir. 1987). We hold that, when viewed under these standards,
Philmont’s complaint pleaded a plausible equitable estoppel theory that excused it
from timely re-recording its mechanic’s lien within 90 days of the completion of the
work. See Holdgrafer v. Unocal Corp., 160 Cal. App. 4th 907, 925-27 (2008); Lantzy
v. Centex Homes, 73 P.3d 517, 532-34 (Cal. 2003).
2. The second basis for the bankruptcy court’s dismissal order was that, even
if Philmont could allege sufficient facts to support a reasonable inference of equitable
-4- estoppel, Philmont’s failure to allege that it timely recorded a notice of perfection
under § 546(b) of the Bankruptcy Code required dismissal. According to the
bankruptcy court, “[e]ven if the Court were to overlook the untimeliness of the
December 19, 2019 lien, dismissal would still be required because Philmont has not
alleged—and cannot allege—that it timely provided the notice necessary to maintain
the perfection of its lien as required by § 546(b).”
But Philmont was not required to give notice under 11 U.S.C. § 546(b)(2), so
the bankruptcy court erred in holding that Philmont’s mechanic’s lien was
unenforceable and dismissing its adversary complaint with prejudice. Section
546(b)(2) of the Bankruptcy Code provides, in pertinent part, that when a law
described in § 546(b)(1) requires commencement of an action to accomplish
perfection or maintenance or continuation of perfection of an interest in property and
that action has not been commenced prior to the bankruptcy petition, the interest in
property shall be perfected, or the perfection of the interest shall be maintained or
continued, by giving notice within the time fixed by law for such commencement.
Section 8460(a) of the California Civil Code provides that “[t]he claimant shall
commence an action to enforce a lien within 90 days after recordation of the claim of
lien. If the claimant does not commence an action to enforce the lien within that time,
the claim of lien expires and is unenforceable.” The bankruptcy court held that, in
-5- combination, § 8460(a) of the California Civil Code and § 546(b)(2) of the
Bankruptcy Code required that Philmont give notice within 90 days of December 19,
2019—that is, by March 18, 2020. And because Philmont did not give notice until
April 29, 2020, its December 19, 2019 mechanic’s lien expired and is unenforceable
under § 8460(a).
But the foreclosure action that § 8460(a) of the California Civil Code requires
is one of lien enforcement, not of perfection or maintenance or continuation of
perfection; therefore, the notice provision of § 546(b)(2) does not apply. See Miner
Corp. v. Hunters Run Ltd. P’Ship (In re Hunters Run Ltd. P’ship), 875 F.2d 1425,
1428 (9th Cir. 1989); Pioneer Constr., Inc. v. Glob. Inv. Corp., 202 Cal. App. 4th 161,
167-68 (2011).3 Instead, if the holder of a mechanic’s lien is required under § 8460(a)
to commence an action to enforce the lien and the automatic stay is in effect, § 108(c)
of the Bankruptcy Code operates to toll the 90-day deadline to commence the action.
See In re Hunters Run Ltd. P’ship, 875 F.2d at 1428; Pioneer Constr., Inc., 202 Cal.
App. 4th at 167-68 (2011). Accordingly, we vacate the BAP’s judgment and remand
with instructions to the BAP to remand this adversary proceeding to the bankruptcy
3 While Debtor cites to In re Baldwin Builders, 232 B.R. 406 (B.A.P. 9th Cir. 1999), we conclude that this case is controlled by In re Hunters Run. -6- court for further proceedings consistent with this disposition.
VACATED and REMANDED.
-7-