In re Crescent Associates, LLC

• Court: District Court, C.D. California
• Decided: September 7, 2021
• Docket: 2:20-cv-07298
• Status: Unknown

Opinion

1 cc: USBK 2 3 JS-6 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE CENTRAL DISTRICT OF CALIFORNIA 10 11 IN RE CRESCENT ASSOCIATES, Case No. 2:20-cv-07298-JWH LLC, 12 Debtor, 13 EPCO CONSULTANTS, INC., MEMORANDUM OPINION RE 14 APPEAL FROM ORDER OF THE Appellant, BANKRUPTCY COURT 15 GRANTING SUMMARY v. JUDGMENT 16 CRESCENT ASSOCIATES, LLC, 17 Appellee. 18 19 20 21 22 23 24 25 26 27 1 I. INTRODUCTION 2 Appellant EPCO Consultants, Inc., appeals the order of the bankruptcy 3 court granting the motion of Debtor-Appellee Crescent Associates, LLC, for 4 summary judgment.1 For the reasons set forth below, this Court AFFIRMS. 5 II. BACKGROUND 6 This bankruptcy appeal concerns the validity of two mechanics’ liens filed 7 by EPCO for services that it performed in relation to the construction of two 8 single-family homes commonly known as 3548 and 3548 1/2 Multiview Drive, 9 Los Angeles, CA, 90068 (the “Properties”).2 On June 15, 2016, EPCO 10 recorded the following two mechanics liens: 11 1. against the real property located at 3548 1/2 Multiview Drive Los 12 Angeles, CA, 90068 (the “3548 1/2 Property”) in the total amount of 13 $139,813.45, claimed for “labor, services, equipment or materials, consulting, 14 engineering, land-use planning, and project management”;3 and 15 2. against the real property located at 3548 Multiview Drive Los 16 Angeles, CA, 90068 (the “3548 Property”) in the total amount of $140,292.35, 17 claimed for “labor, services, equipment or materials, consulting, engineering, 18 land-use planning, and project management.”4 19 20

21 1 See Notice of Appeal and Statement of Election (the “Notice”) [ECF No. 1]; Appellant’s Opening Br. (the “Appellant’s Brief”) [ECF No. 17]. 22 References to documents filed in Crescent’s bankruptcy case, In re Crescent Associates, LLC, No. 2:18-bk-20654-WB, are cited herein as “BK ECF No.” 23 followed by the document number on the bankruptcy court’s docket. References to documents filed in the underlying bankruptcy adversary 24 proceeding, Crescent Associates LLC v. EPCO Consultants Inc., No. 2:19-ap-01199-WB, are cited herein as “ADV ECF No.” followed by the 25 document number on the adversary proceeding docket. 2 See Appellee’s Reply Br. (the “Appellee’s Brief”) [ECF No. 24] at 4. 26 3 See Claim of Mechanics Lien (3548 1/2 Property) [ADV ECF No. 27-1 at 27 ECF pp. 64–67]. 4 See Claim of Mechanics Lien (3548 Property) [ADV ECF No. 27-2 at 1 In May of 2018, Crescent purchased the Properties at a foreclosure sale 2 held after the former owners, MJK 18, LLC and ADY Properties, LLC, 3 defaulted on loans that they received to finance their development of the 4 Properties.5 5 On September 12, 2018, Crescent filed a petition under Chapter 11 of the 6 Bankruptcy Code in the U.S. Bankruptcy Court for the Central District of 7 California,6 thereby commencing bankruptcy case No. 2:18-bk-20654-WB.7 On 8 July 2, 2019, Crescent filed a Complaint8 against EPCO, thereby commencing 9 adversary proceeding No. 2:19-ap-01199-WB (the “Adversary Proceeding”). 10 Through its Complaint, Crescent sought a judicial determination of the validity, 11 priority, or extent of the liens claimed by EPCO against the Properties pursuant 12 to Rule 7001(2) of the Federal Rules of Bankruptcy Procedure.9 13 Crescent moved for summary judgment in the Adversary Proceeding on 14 April 7, 2020.10 In its Motion, Crescent identified seven potential bases for 15 summary judgment.11 EPCO timely opposed,12 and Crescent timely replied.13 16 The bankruptcy court conducted a hearing on June 23, 2020,14 and granted the 17 Motion, holding that (1) EPCO did not satisfy the criteria for filing a mechanics 18

19 5 Id.; see also Trustee’s Deed Upon Sale [ADV ECF No. 27-6 at ECF p. 74]. 6 Unless otherwise indicated, all chapter and section citations refer to the 20 Bankruptcy Code, 11 U.S.C. §§ 101–1532. 21 7 See Chapter 11 Voluntary Pet. [BK ECF No. 1]. 8 See Compl. (the “Complaint”) [ADV ECF No. 1]. 22 9 See id. ¶¶ 7 & 8; see also Appellee’s Brief at 4. 23 10 See Pl.’s Mot. for Summ. J. (the “Motion”) [ADV ECF No. 21]. 24 11 See generally id. 12 See Def.’s Opp’n to the Motion (the “Opposition”) [ADV ECF No. 30]. 25 13 See Pl.’s Reply in Supp. of the Motion [ADV ECF No. 34]. 26 14 See Tr. of Proceedings Jun. 23, 2020 (the “Transcript”) [ADV ECF No. 38]. The Court notes that counsel for EPCO did not appear at the hearing 27 until after the bankruptcy court made its oral ruling on the Motion, and, thus, the bankruptcy court declined to hear further oral argument from EPCO’s 1 lien under California law;15 and (2) EPCO was judicially estopped from claiming 2 that a debt was owed to EPCO.16 On August 6, 2020, the bankruptcy court 3 entered a written order granting the Motion17 and concurrently entered 4 judgment in favor of Crescent.18 5 EPCO timely appealed the bankruptcy court’s order.19 The appeal is fully 6 briefed, and the Court finds this matter appropriate for resolution without a 7 hearing. See Fed. R. Bankr. P. 8019(b)(3); L.R. 7-15. 8 III. JURISDICTION 9 The bankruptcy court had jurisdiction over Crescent’s bankruptcy case 10 and the related Adversary Proceeding, including the motion that is the subject of 11 this appeal, pursuant to 28 U.S.C. §§ 1334 & 157(b)(2)(K). This Court has 12 jurisdiction over this appeal under 28 U.S.C. § 158(a). 13 IV. ISSUES 14 The issues on appeal, as presented by the parties, are as follows:20 15 1. whether the bankruptcy court erred in finding that EPCO failed to 16 satisfy the criteria for a mechanics lien; 17 2. whether the bankruptcy court erred in finding that there was no 18 debt owing to EPCO by Crescent; 19 3. whether the bankruptcy court erred in its application of the judicial 20 estoppel doctrine; and 21 4. whether the bankruptcy court’s errors constitute clear error 22 mandating reversal of judgment. 23

24 15 See id. at 4:21–24 & 8:4–12:4. 16 See id. at 4:24–5:7 & 12:5–17:2. 25 17 See Order Granting Motion [ADV ECF No. 45]. 26 18 See Judgment [ADV ECF No. 46]. 27 19 See generally Notice. 20 See Appellant’s Brief at 2; Appellee’s Brief at 2 (agreeing with EPCO’s 1 V. STANDARD OF REVIEW 2 This Court reviews a bankruptcy court’s grant of summary judgment de 3 novo. See In re Bullion Reserve of N. Am., 922 F.2d 544, 546 (9th Cir. 1991) 4 (citation omitted). Under that standard, the Court “must determine, viewing 5 the evidence in the light most favorable to the nonmoving party, whether there 6 are any genuine issues of material fact and whether the [trial] court correctly 7 applied the relevant substantive law.” Id. (citations omitted). In other words, 8 the Court considers “only whether summary judgment was proper, and not the 9 precise reasoning of the trial court.” In re Gertsch, 237 B.R. 160, 166 (B.A.P. 9th 10 Cir. 1999). “On a motion for summary judgment, all reasonable inferences are 11 drawn in favor of the non-moving party.” In re Slatkin, 525 F.3d 805, 810 (9th 12 Cir. 2008) (citation omitted). The Court “may affirm the grant of summary 13 judgment on any basis supported by the record.” Id. (citation omitted). 14 VI. DISCUSSION 15 A. Mechanics-Lien-Criteria Issue 16 The bankruptcy court determined that Crescent was entitled to summary 17 judgment because EPCO did not satisfy the criteria to be eligible for a mechanics 18 lien under California law.21 EPCO contends that the bankruptcy court’s finding 19 was erroneous.22 20 California law provides, in pertinent part, the following: 21 A person that provides work authorized for a work of improvement, 22 including, but not limited to, the following persons, has a lien right 23 under this chapter: 24 (a) Direct contractor. 25 (b) Subcontractor. 26 27 21 See Transcript 4:21–24 & 8:4–12:4. 1 (c) Material supplier. 2 (d) Equipment lessor. 3 (e) Laborer. 4 (f) Design professional. 5 Cal. Civ. Code § 8400.23 California law defines the term “work” in this context 6 to mean “labor, service, equipment, or material provided to a work of 7 improvement.” Id. § 8048. “‘Labor, service, equipment, or material’ includes, 8 but is not limited to, labor, skills, services, material, supplies, equipment, 9 appliances, power, and surveying, provided for a work of improvement.” Id. 10 § 8022. “Work of improvement” means, in relevant part, “[c]onstruction, 11 alteration, repair, demolition, or removal, in whole or in part, of, or addition to, a 12 building . . . .” Id. § 8050(a)(1). Put succinctly, “[a] ‘mechanic’ in this context 13 is one who has supplied materials or labor for the improvement of real property 14 . . . .” Howard S. Wright Construction Co. v. BBIC Investors, LLC, 136 15 Cal. App. 4th 228, 237 (2006). The burden is on the lien claimant to establish 16 the validity of its lien. See id. at 237–38; see also Sukut Constr., Inc. v. Rimrock CA 17 LLC, 199 Cal. App. 4th 817, 834 (2011), superseded by statute on other grounds 18 Cal. Civ. Code § 3060, amended by 2012 Cal. Stat. ch. 263, § 2. 19 In its Opposition filed in the bankruptcy court, EPCO argued that the 20 services that it performed in relation to the construction of the Properties satisfy 21 the criteria for a mechanics lien.24 In support of that argument, EPCO 22 submitted a declaration by Ben B. Safyari, the owner of EPCO, with 23 documentary exhibits. For the reasons explained below, this Court concludes 24 that EPCO’s evidence was not sufficient to show that it was entitled to a 25 mechanics lien. 26

27 23 The terms set forth in Subsections (a)-(f) of Cal. Civ. Code § 8400 are defined in Cal. Civ. Code §§ 8014–8046. 1 Safyari testified, in pertinent part, that: 2 EPCO is a consulting, expediting and project management firm, that 3 has employed and contracted with licensed civil engineer, Shahriar 4 Yadegari, who is an officer of EPCO , to perform the civil engineering 5 services incidental to its services. EPCO is not an engineering or 6 architectural firm.25 7 This Court concludes, as the bankruptcy court did below, that Safyari’s 8 testimony is “conclusory” in that it fails to explain “what it was that Safyari did 9 and [EPCO] did with respect to the project.”26 Nor is there any apparent 10 connection between Yadegari and the construction of the Properties. Safyari 11 merely states that EPCO employed Yadegari to perform services incidental to 12 EPCO’s services, but Safyari does not explain what Yadegari’s services were nor 13 how Yadegari performed those services in relation to the construction project. 14 Nor is the Court persuaded by EPCO’s argument—that Safyari’s 15 testimony that EPCO incurred out-of-pocket expenses and subconsultants fees 16 in connection with EPCO “consulting, engineering, land-use planning and 17 project management services for the Multiview Project”27—supports a finding 18 that EPCO qualified for a mechanics lien. The fact that EPCO incurred fees and 19 expenses in connection with its services does not, by itself, mean that EPCO 20 qualifies for a mechanic’s lien. See Primo Team, Inc. v. Blake Construction Co., 3 21 Cal. App. 4th 801, 810 (1992) (rejecting lien claimant’s argument that it was 22 entitled to reimbursement of funds advanced in connection with a work of 23 improvement). Thus, in the absence of additional evidence establishing that the 24 25

26 25 Decl. of Ben B. Safyari in Supp. of the Opposition (the “Safyari Decl.”) [ADV ECF No. 32] ¶ 2. 27 26 Transcript 11:16–18. 1 nature of EPCO’s services qualifies it for a mechanic’s lien, the evidence 2 showing that EPCO incurred out-of-pocket expenses is not enough. 3 In this regard, the documentary evidence that EPCO submitted generally 4 shows that EPCO’s “consulting” and “project management” services were 5 administrative. For example, the majority of EPCO’s invoices state something 6 to the effect of: “Organized/Prepared Plans, and documents for meeting with 7 City Department of Building & Safety Officials and prepared modified 8 Documents to obtain the building permits for the proposed Single Family 9 Dwelling.”28 But those administrative services do not qualify as “work” 10 performed for “a work of improvement” under the mechanic’s lien statute. See 11 Contractors Lab. Pool, Inc. v. Westway Contractors, Inc., 53 Cal. App. 4th 152, 158– 12 160 (1997); Primo Team, 3 Cal. App. 4th at 807–811. Indeed, even if the services 13 that EPCO performed were generally beneficial to the project, there is no 14 evidence showing that the services provided were “bestowed on the work of 15 improvement within the contemplated purpose of the mechanic’s lien law.” 16 Primo Team, 3 Cal. App. 4th at 810–811 (emphasis in original). 17 In sum, EPCO failed to satisfy its burden to show that the services that it 18 provided qualified as “work” (i.e., “[l]abor, service, equipment, or material,” 19 Cal. Civ. Code § 8022) performed “for” the construction of the Properties. See 20 Cal. Civ. Code § 8400; Primo Team, 3 Cal. App. 4th at 810–811. Accordingly, 21 this Court AFFIRMS the bankruptcy court’s grant of summary judgment in 22 favor of Crescent and against EPCO. 23 B. Other Issues 24 In view of the foregoing, the Court need not consider the remaining 25 questions raised in this appeal. See In re Slatkin, 525 F.3d at 810 (the court 26

27 28 See Def.’s Req. for Judicial Notice in Supp. of the Opposition (the “Opposition Evidence”) [ADV ECF No. 33] at ECF p.5; see generally id. at ECF 1|| “may affirm the grant of summary judgment on any basis supported by the 2|| record”). 3 Vil. DISPOSITION 4 For the foregoing reasons, this Court AFFIRMS the order of the 5|| bankruptcy court granting summary judgment in favor of Crescent and against || EPCO. 7 IT IS SO ORDERED. : YO Dated: September 7, 2021 °

10 GNITED STATES DISTRICT JUDGE 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28