GSL of ILL, LLC
Filing
12
MEMORANDUM AND ORDER. AFFIRMS Judge Bohms June 9, 2010 Memorandum and Opinion and Judgment in Bankruptcy Case No. 09-35759-H4-11, ROA #4-37, 4-38 (Signed by Judge Melinda Harmon) Parties notified.(arrivera, )
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
IN RE:
Demay International LLC,
Debtor
GSL of Ill, LLC,
Appellant,
V.
McCAFFETY ELECTRIC COMPANY,
Appellee,
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Bankruptcy Case 09-35759-H4-11
Civil Action H-10-2128
OPINION AND ORDER
The above referenced action is an appeal of a bankruptcy
judge’s June 9, 2010 order1 overruling an Objection to Proof of
Claim
67
of
McCaffety
Electric
Co.,
Inc.
(“McCaffety”)
and
directing that McCaffety be paid $337,279 from the escrow proceeds
from a sale of assets of the Debtor Demay International, LLC’s
estate.
The Bankruptcy Court observed at the opening of his Memorandum
Opinion that he was addressing “thorny issues related to trade
fixtures, removables, mechanic’s liens, and leases” in this battle
between GLS of Ill, LLC (“GSL”), the Debtor’s largest secured
1
The Order is #399, supported by a Memorandum Opinion, #398,
in Bankruptcy Case No., 09-35759-H4-11; Record on Appeal (“ROA) #437, 4-38. It is also published: In re Demay International, LLC,
431 B.R. 164 (Bkrtcy. S.D. Tex. 2010).
-1-
creditor,
and
McCaffety,
holding
a
mechanic’s
lien
on
the
electrical equipment McCaffety installed on the Debtor’s leased
premises.
#4-37 at p. 1.
After reviewing the record and the applicable law, the Court
finds no error in the Bankruptcy Court’s rulings and accordingly
affirms the Memorandum Opinion and Order.
Relevant Facts
Around November 22, 2006 Demay International, LLC (“Demay” or
“the Debtor”), as lessee, entered into a commercial real property
lease agreement (“Lease Agreement”) ROA #4-18) with Dumay Real
Estate, LLC (“Landlord”), an entity unrelated to the Debtor.
Section E(1) on p. 5 of the Lease Agreement (the “Alterations
Provision”) stated,
1. Alterations. Any physical additions or improvements
to the Premises made by Tenant will become property of
Landlord. Landlord may require that Tenant, at the end
of the Term and at Tenant’s expense, remove any physical
addition and improvements, repair any alterations, and
restore the Premises to the condition existing at the
Commencement Date, normal wear excepted.
They also agreed, in a “Tenant Improvement Rider to the Lease,”
that the cost of the improvements to the leased premise would be
borne mainly by the Landlord (#4-18 at p. 13):
B. Performance of Work. Tenant will be responsible for
retaining Contractor to perform the Work, subject to
approval of Landlord.
Contractor will obtain all
required permits for the Work. After approval of the
Plans, Contractor will be instructed to perform the Work
in accordance with the approved Plans and all applicable
laws. The cost of performance of the Work will be borne
as follows: Landlord will provide costs up to $3,750,000
-2-
on a first dollars in basis. All costs over and above
the $3,750,000 shall be borne by Tenant and advanced by
tenant in equal funding draws with Landlord once the cost
of the work exceeds a $3,000,000 floor.
After execution of the lease on the property, which was
permitted for manufacturing and general industrial use, Demay
contracted with McCaffety to install conduit copper wire, light
fixtures,
panels,
breakers
and
connections
to
(1)
equipment
(machines and air conditioning), (2) offices, (3) plugs, and (4)
switches, in addition to incoming primary service and outgoing
secondary service to feed low voltage and high voltage panels, and
electrical controlling mechanisms (the “Electrical Equipment”2).
Tr. 5/27/10 at p. 28, l.22-p. 29, l. 22.
The Electrical Equipment
was installed by McCaffety between August 2008-January 2009.
The
termination date of the lease was May 31, 2022.
On August 4, 2009 Demay filed a voluntary petition for relief
under Chapter 11 of title 11 of the United States Code in the
United States Bankruptcy Court for the Southern District of Texas,
Case No. 09-35759-H4-11, In re: Demay International, LLC, Debtor.3
By that time, Demay had paid more than $1,536,592 to McCaffety for
the electrical work, but still owed McCaffety $337,279 under the
contract. That amount is undisputed. McCaffety claimed a mechanic
2
Defined in Bankruptcy Court’s Finding of Fact no. 3, ROA #437, 4-38.
3
In bankruptcy the Debtor continued to operate as Debtor-inPossession and no Trustee was appointed.
-3-
and materialman’s lien4 against Demay and the Landlord that would
attach to the leasehold, including the removables.
On September 10, 2009, the Debtor filed its schedules, and in
Schedule
B--Personal
Property,
the
Debtor
listed
“Tenant
Improvements” under the “Type of Property” category (“[o]ther
personal property of any kind not already listed”), with the
current value of the Debtor’s interest as “unknown.”
Thus the
Debtor represented that the improvements were part of the estate.
On November 20, 2009, creditor McCaffety filed a Proof of
Claim (No. 67) in the amount of $337,279 in Demay’s bankruptcy case
and alleged a security interest pursuant to the mechanic and
materialman’s
lien
and
the
electrical
system
that
McCaffety
installed at the premises, under Texas Property Code Ann. § 53.001
(Vernon).5
ROA #4-15, Ex. A; Memorandum Op. at ¶ 3.
44, 4-45, 4-46, 4-47.
ROA #4-43, 4-
Attached to McCaffety’s proof of claim was
an affidavit from Robert McCaffety, the general manager and partowner of McCaffety, attesting, “Said material and labor were
4
The Bankruptcy Court found, and no party has disputed, that
McCaffety properly perfected its statutory lien under the Texas
Property Code § 53.002. Memorandum Opinion at 14-15.
5
Under Texas Property Code § 53.021(a)(2), a person has a
mechanic’s lien if he “labors, specially fabricates the material,
or furnishes the labor or materials by virtue of a contract with
the owner or the owner’s agent, trustee, receiver, contractor, or
subcontractor.”
-4-
furnished
to
Dumay
Real
Estate
improvement of real property.”
LLC
by
Claimant
.
.
.
for
ROA #4-15, Ex. B.6
Also on November 20, 2009 creditor GSL filed a secured proof
of claim in Demay’s bankruptcy case7 for $14,505,220.46 and claimed
that it held a security interest in essentially all of Demay’s
assets under Texas Business and Commerce Code Ann. § 9.102.
ROA
#4-37 (Memorandum Op. at ¶ 2).
Title 11 U.S.C. § 365(d)(4)(emphasis added by the Court)
enacted as part of the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005 (“BAPCPA”),
(A) Subject to subparagraph B, an unexpired lease of
nonresidential real property under which the debtor is
lessee shall be deemed rejected, and the trustee shall
immediately surrender that real property to the lessor,
if the trustee does not assume or reject the unexpired
lease by the earlier of-(i) the date that is 120 days8 after the date
of the order for relief; or
6
The Bankruptcy Court found Robert McCaffety “to be very
credible on all issues about which he testified.” ROA #4-37 at p.
10.
7
A “security interest” is “an interest in personal property
. . . which secures payment or performance of an obligation.” Tex.
Bus. & Com. Code Ann. § 1.201(35).
8
Pre-BAPCPA, under the Reform Act of 1994, the number of days
to assume or reject was only 60, but the courts follow the case
law for both versions as they relate to the bankruptcy judge’s
approval of extensions of time. In re Treasure Isles HC, Inc., 462
B.R. 645, 649-50 (6th Cir. BAP 2011). This Court through this
opinion has replaced 60 or 120 days with “initial period” so as not
to distract from the substantive issue.
-5-
(ii) the date of entry of an order confirming
a plan.
(B)(i) The court may extend the period determined under
subparagraph (A) prior to the expiration of the 120-day
period for 90 days on the motion of the trustee or lessor
for cause.
(ii) If the court grants an extension under clause (i),
the court may grant a subsequent extension only upon
prior written consent of the lessor in each instance.
Under § 365(d)(4), the deadline for Demay to assume or reject
executory contracts and unexpired leases, in other words the Lease
Agreement at issue here, was December 2, 2010.
Bankr. Docket #1.
On December 16, 2009 the Bankruptcy Court granted Demay’s motion to
extend time to accept or reject executory contracts-real estate
lease until March 2, 2010.
ROA #4-8.
No party-in-interest
objected to the extension order even though it was outside of the
120-day period in the statute.
On December 22, 2009 the Debtor, in its Motion for Order
Approving Bidding Procedures for the Sale of Substantially All of
Debtor’s Assets Pursuant to 11 U.S.C. § 363 Free and Clear of
Liens, moved for authority to sell all of its assets pursuant to 11
U.S.C. § 363 through auction.
On January 11, 2010 McCaffety filed
an objection to the proposed sale, stating that the proceeds from
the proposed sale would not fully satisfy the outstanding debt owed
to McCaffety by the Debtor and demanding that the motion be denied
or that McCaffety’s mechanic and materialman’s lien be recognized
in the proceeds of any sale.
ROA #4-11.
-6-
McCafferty claimed that
under the Texas Property Code Ann. § 53, its valid mechanic and
materialman’s lien against leasehold improvements in the amount of
$447,279 had priority status over GSL’s secured claims.
On
January
McCaffety’s
13,
claim
on
2010,
the
the
Debtor
grounds
filed
that
the
an
objection
claim
should
to
be
disallowed as a secured claim (thus becoming an unsecured claim 11
U.S.C. § 506(a)9) because the property was leased and thus not the
property of the Debtor, which was only a tenant, and therefore the
claim was not secured by property of the estate as required by 11
U.S.C. § 506(a).
ROA #4-16, 4-17, 4-18.
Also on January 13, 2010,
McCaffety filed a Motion for Relief From Stay, in the face of an
impending sale of the assets, so that McCaffety could “go after the
removables because of concerns that we were going to lose our
position with the leasehold being sold.”
#4-58 at p. 11, ll.20-23
(Transcript of hearing on May 27, 2010).
9
Section 506(a)(1) provides,
An allowed claim of a creditor secured by a lien on
property in which the estate has an interest, or that is
subject to setoff under section 553 of this title, is a
secured claim to the extent of the value of such
creditor’s interest in the estate’s interest in such
property, or to the extent of the amount subject to
setoff, as the case may be, and is an unsecured claim as
to the extent that the value of such creditor’s interest
or the amount so subject to setoff is less than the
amount of such allowed claim.
Such value shall be
determined in light of the purpose of the valuation and
of the proposed disposition or use of such property, and
in conjunction with any hearing on such disposition or
use or on a plan affecting such creditor’s interest.
-7-
On January 21, 2010 McCaffety and the Debtor entered into a
compromise agreement (“first compromise” or “first stipulation”) of
the
objection
to
McCaffety’s
proof
of
claim,
signed
by
the
Bankruptcy Judge, that would allow the sale to take place, with the
determination of McCaffety’s claim allowance to be made at a later
date.
In
accord
with
the
language
of
that
compromise,
the
Bankruptcy Court entered an order that the particular assets being
transferred under the terms of Schedule A attached to the “Stalking
Horse” bid10 under the terms of First Sale Motion “do not include
items upon which McCaffety has a lien”; it further provided that if
the successful purchaser assumed the Debtor’s Lease with Dumay, it
would be subject to McCaffety’s lien rights, if valid.
ROA #4-19,
4-20.11
10
In an effort to maximize recovery of value from an asset
sale in bankruptcy, before the court-supervised auction the debtor
chooses a buyer, the “stalking horse,” from a pool of bidders to
make a first bid that establishes a framework for competitive
bidding, a floor, so that other bidders cannot low-ball the
purchase price.
See, e.g., Official Committee of Unsecured
Creditors v. Interforum Holding, LLC, No. 11-CV-219, 2011 WL
2671254, *1 n.1 (E.D. Wis. July 7, 2011).
11
Specifically, the Bankruptcy Judge’s
McCaffety’s proposed compromise language:
order
restated
“Nothing in this Order or in any asset purchase agreement
is intended to affect any existing lien right(s), if any,
that McCaffety . . . has as of the date of this Order.
The parties agree that the specific assets being
transferred under the terms of Schedule A attached to the
‘Stalking Horse’ bid do not include items upon which
McCaffety has a lien. With respect to the assumption of
executory contracts and leases contemplated thereunder,
if the successful buyer assumes the lease with Dumay Real
-8-
On February 4, 2010 the Bankruptcy Court approved the Debtor’s
authority to enter into an APA with the auction’s successful
bidder, the Stalking Horse Bid, and the bidding procedures for the
sale of substantially all of Debtor’s assets “free and clear of
liens, claims, interests and other encumbrances,” pursuant to 11
U.S.C. § 363, and other relief (ROA #4-20). Included in this order
is an Addendum to Asset Purchase Agreement, the second compromise,12
which added terms to the APA:
It provided,
With respect to the dispute related to the extent,
priority and validity of the lien and claim of
[McCaffety], and as outlined in that certain Order dated
January 21, 2010 signed by Judge Bohm related to this
issue, the Seller shall escrow the sum of $350,000 from
the proceeds of the Purchase Price as a source of payment
for McCaffety. These funds shall remain in escrow until
the nature, extent and secured status of McCaffety’s
claims have been finally adjudicated and the court has
entered an order for distribution of proceeds. In that
regard, some of the Acquired Assets being sold hereunder
may include assets upon which McCaffety asserts a lien,
such as removables, and such assets are being sold free
Estate, the lease is subject to all of McCaffety’s lien
rights against the leasehold, removables and/or real
property to the extent that there are any. In the event
that the buyer does not assume the lease with Dumay Real
Estate and/or the lease with Dumay Real Estate is
rejected, the rejection does not terminate any lien
rights McCaffety has against the removables and/or real
property, if any. The parties agree that the issue of
the nature, extent, priority and value of any secured
claim of McCaffety may be heard together with the
objection to proof of claim pending before the court at
a later date.”
12
Order Approving Stalking Horse Bid and Bidding Procedures
for the Sale of Substantially all of Debtor’s Assets Pursuant to 11
U.S.C. § 363 Free and Clear of Liens, Claims and Encumbrances. ROA
#4-20.
-9-
and clear of any such lien, with McCaffety’s lien being
transferred to the escrowed funds if it is finally
determined that McCaffety holds any such valid lien.
McCaffety may not remove any asset from the property or
seek to exercise a lien on any of the Acquired Assets.
#4-34, Exs. 5 and 6.
In other words, unlike the first compromise,
the second indicated that the Purchaser, Drilling Controls, Inc.,
could buy assets on which McCaffety claimed to have a lien.
The
APA’s definition of “Acquired Assets” included “all Inventory and
Equipment . . . and other assets, including but not limited to
those listed on Schedule A hereto,” but expressly not including the
“Excluded Assets”; the Electrical Equipment was not listed in the
“Excluded
Assets.”
including fixtures.
Moreover
ROA #4-20.
the
APA
defined
“Equipment”
as
Schedule A at page 2 attached to
the APA, titled “Inventory, Equipment and Intellectual Property,
Permits, Records and Warranties,” lists “Fixtures to the extent
owned by” the Debtor.
The Bankruptcy Court approved the proposed
form of the APA in its Order for Approval and Authority to Enter
Into An Asset Purchase Agreement with the Successful Bidder at
Auction and for Authority to Sell Assets Free and Clear of Liens,
Claims, Interests and Other Encumbrances Pursuant to § 363 of the
Bankruptcy Code, and to Grant Other Relief.
order”).
ROA #4-20 (“Sale
The Sale Order, id. at ¶ 8, expressly stated,
Pursuant to the terms of the APA, the Debtor has agreed
to sell to Purchaser, and Purchaser will purchase from
Debtor all of the Acquired Assets owned, leased or
otherwise utilized by Debtor, including, without
limitation, the Acquired Assets and rights identified in
the APA (hereinafter, the assets sold pursuant to the APA
-10-
are collectively referred to as the “Acquired Assets” or
the “Assets”) for a cash purchase price of $14,600,000.
On February 17, 2010 the sale, which included Electrical
Equipment, took place, and the proceeds were distributed, with
$350,000 being placed in escrow, pending the resolution of the
objection to the secured claim filed by McCaffety, and McCaffety’s
lien was transferred “to the escrowed funds if it is finally
determined that McCaffety holds any such valid lien”.13
ROA
Memorandum Opinion Regarding Objection to Proof of Claim 767 of
McCaffety, #4-37 at ¶ 15; Order Overruling Objection, # 4-38.
On February 19, 2010 the Debtor gave notice that it rejected
the Lease Agreement by filing its Motion to Approve Debtor’s
Acceptance of One Certain Toyota Lease Agreement and to Reject All
Other Executory Contracts. ROA #4-24. It subsequently amended its
motion and rejected all executory contracts. ROA #4-28. The Court
approved the amended motion on March 23, 2010 and construed it as
a Notice of Rejection of Executory Contracts, which would include
the Lease, inter alia.
ROA #4-28.
13
This Court notes that the bankruptcy court has the power to
authorize the sale of bankruptcy estate assets “free and clear” of
interests or liens under 11 U.S.C. § 363(f) if any of five express
conditions is met, as is the case here. Among those conditions is
if the “interest is in bona fide dispute,” as is the case with
McCaffety’s lien. Under the statute, if the sale is ordered, a
claimant’s interest in the property is then separated from the
asset to be sold and may then be reattached to cash proceeds of the
sale, as is the case with the escrowed funds here.
-11-
On March 11, 2010 GSL filed a motion to intervene in Debtor’s
objection to the claim of McCaffety.
ROA #4-27.
On March 30, 2010
GSL filed a motion seeking a summary judgment disallowing the
secured claim #67 filed by McCaffety on the grounds that it was not
supported by property of the estate,14 and McCaffety responded on
April
16,
2010.
ROA
#4-29,
4-30,
4-31,
4-32,
4-33,
4-34.
McCaffety in response argued that once the Court had approved the
sale
of
the
Debtor’s
assets,
McCaffety’s
lien
rights
were
transferred from the Electrical Equipment and attached to the
escrowed funds from the sale.
Asset Purchase Agreement.15
#4-34, Ex. 5 at p.7, Addendum to
Alternatively McCaffety asserted that
14
In its motion for summary judgment, which the Bankruptcy
Court denied, pointing to the Tenant Improvement Rider and the
Alterations Provision in the Lease Agreement, GSL argued that the
Electrical Equipment installed by McCaffety was a tenant
“improvement” and therefore the property of the Landlord, and thus
McCaffety’s lien never attached to property of the Estate and was
not secured.
The Bankruptcy Court rejected that interpretation and opined
that under Texas contract law, an interpretation of words “physical
additions or improvements” in the Alterations Provision of the
Lease must focus on the objective intent of the parties, as
revealed in the language of the Lease Agreement, and whether the
alteration by the lessee was an “improvement,” a “fixture,” or
a“trade fixture.”
C.W. 100 Louis Henna, Ltd. v. El Chico
Restaurants of Texas, L.P., 295 S.W. 3d 748, 753-54 (Tex. App.-Austin 1992, no pet.); Alexander v. Cooper, 843 S.W. 2d 644, 646
(Tex. App.--Corpus Christi 1992, no writ). The Bankruptcy Judge
found it was a trade fixture.
15
McCaffety relies on paragraph 2 to the Addendum, dated
February 4, 2010, which expanded the scope of the original
stipulation of January 21, 2010 (Ex. 4 to #4-32) and stated,
With respect to the dispute related to the extent,
priority and validity of the lien and claim of McCaffety
-12-
the Debtor had admitted in its schedules that the Electrical
Equipment was property of the estate. The Bankruptcy Court granted
GSL’s motion to intervene on April 20, 2010.
ROA 4-35.
On May 27,
2010 the Bankruptcy Court held a hearing on the objection to
McCaffety’s
judgment.
claim
and
orally
denied
the
motion
for
summary
ROA #4-37; Transcript, ROA #4-56.
On June 9, 2010 the Court filed its Memorandum Opinion and
Order overruling the objection to McCaffety’s secured claim and
ordering that $337,279 be distributed from the escrowed funds to
McCaffety in full satisfaction of its claim.
ROA 4-38.
GSL filed
this timely appeal on June 15, 2010.
STANDARD OF REVIEW
Electric Co. (“McCaffety”), and as outlined in that
certain Order dated January 21, 2010, signed by Judge
Bohm, related to this issue, the Seller shall escrow the
sum of $350,000 from the proceeds of the Purchase Price
as a source of Payment for McCaffety. These funds shall
remain in escrow until the nature, extent and secured
status of McCaffety’s claims have finally been
adjudicated and the court has entered an order for
distribution of proceeds. In that regard, some of the
Acquired Assets being sold hereunder may include assets
upon which McCaffety asserts a lien, such as removables,
and such assets are being sold free and clear of any such
lien, with McCaffety’s lien being transferred to the
escrowed funds if it is finally determined that McCaffety
holds such valid lien.
McCaffety may not remove any
asset from the property or seek to exercise a lien on any
of the Acquired Assets.
The Bankruptcy Court approved the sale with the same language on
February 12, 2010. #4-32, Ex. 6.
-13-
In reviewing a decision of the bankruptcy court, the district
court should review de novo both conclusions of law and decisions
on mixed questions of law and fact, while findings of fact should
not be set aside unless clearly erroneous and due regard is given
to the Bankruptcy Court’s opportunity to judge the credibility of
the witnesses.
In re Sandburg Financial Corp., 446 B.R. 793 (S.D.
Tex. 2011), aff’d, 448 Fed. Appx. 415 (5th Cir. 2011); Fed. R.
Bankr. P. 8013. A finding is “clearly erroneous” when, even in the
presence of supporting evidence, the reviewing court is left with
the definite and firm conviction that a mistake has been committed.
Carol v. Quinlivan, 434 F.3d 314, 318 (5th Cir. 2005).
The
appellant bears the burden of demonstrating that a finding of fact
by the bankruptcy court is clearly in error.
F.3d
303,
309
permissible
factfinder’s
(5th
views
Cir.
of
choice
2003).
the
between
“As
evidence,
Perry v. Dearing, 345
long
we
competing
as
will
views
there
to
be
two
find
not
are
the
clearly
erroneous.” In re Acosta, 406 F.3d 367, 373 (5th Cir. 2005), citing
Anderson v. Bessemer City, 470 U.S. 564, 574 (1985).
“If the
bankruptcy court’s account of the evidence is plausible in light of
the record viewed as a whole, we will not reverse it.”
Id.
When
reviewing mixed questions of law and fact, although the reviewing
district court must accept the Bankruptcy Court’s factual findings
unless
they
are
clearly
erroneous,
the
district
court
“must
independently determine the ultimate legal conclusion adopted by
-14-
the bankruptcy judge on the basis of the facts found.”
Multi-Mart
Branch Office, First State Bank v. Appliance Buyers Credit
Corp.
(In re Bufkin Bros., Inc.), 757 F.2d 1573, 1577-78 (5th Cir. 1985);
In re Gervin, 300 Fed. Appx. 293, 298 (5th Cir. Nov. 21, 2008).
Issues on Appeal
Appellant GSL of Ill, LC (“GSL”) raises six issues on appeal:
(1) Whether the Bankruptcy Court erred in ruling that electrical
equipment installed on the real property leased by the Debtor was
property of the Debtor’s bankruptcy estate, supporting the secured
claim of Appellee McCaffety; (2) whether the Bankruptcy Court erred
in ruling that the fixtures on the leasehold were sold by the
Debtor in its sale of assets; (3) whether the Bankruptcy Court
erred in ruling that the interest of the mechanic and materialman’s
lien on fixtures under the lease was not terminated as to the
Debtor when the lease was terminated; (4) whether the Bankruptcy
Court erred in ruling that McCaffety’s mechanic’s lien has a
priority interest over GSL’s lien; (5) whether the Bankruptcy Court
erred in construing the lease agreement provisions that the Debtor
owned property claimed by Appellee as security for its claim; and
(6)
whether
the
Bankruptcy
Court
erred
in
construing
the
reservation of rights and establishment of escrow under the Asset
Purchase Agreement (“APA”)16 and Sale?
Appellant GSL’s Brief (#5)
16
ROA #4-20 at p. 17.
-15-
Noting that “[i]t is basic bankruptcy law that claims in
bankruptcy are bifurcated and a claim can only be secured to the
extent that the estate owns collateral subject to a valid security
interest asserted by a creditor,” 15 U.S.C. § 506(a), GSL contends
that the Bankruptcy Court erred in allowing McCaffety a secured
claim
for
at
least
two
reasons.
First
the
Lease
Agreement
expressly provides that (1) the Landlord, not the Debtor, owned the
purported collateral, (2) the addendum reflects that the Lessor
paid for the improvements, and (3) the affidavit testimony of
Robert McCaffety demonstrates that the material and labor were
provided to the Landlord.
Because McCaffety does not claim a lien
on the property of the estate, its claim should be paid, if at all,
only as an unsecured claim.
Second, argues GSL, the lease was rejected as a matter of law
on December 2, 2009, and the subsequent alienation of the leasehold
by the Landlord constituted termination of the Lease. Any mechanic
and
materialman’s
lien
rights
were
extinguished
against
the
leasehold and survived only against the real estate, which the
Debtor never owned.17
Moreover because the Debtor never owned the
17
When a lessee contracts for construction, a mechanic’s lien
arising from the construction attaches only to the leasehold
interest, so when the lease terminates, the tenant has no estate in
land remaining upon which the lien may attach.
Diversified
Mortgage v. Blaylock, 576 S.W. 2d 794, 805 (Tex. 1978)(“Our courts
have long held that a mechanic’s and materialman’s lien attaches to
the interest of the person contracting for construction. Thus, if
a lessee contracts for construction, the mechanic’s lien attaches
only to the leasehold interest, not to the fee interest of the
-16-
alleged collateral, it was not part of the sale approved by the
Bankruptcy Court.
GSL contends that the construction of the Lease
is a mixed question of fact an law, subject to de novo review by
this Court.
Cir. 1992).18
Westex Foods, Inc. v. FDIC, 950 F.2d 1187, 1190 (5th
Section E. of the Lease expressly states that
lessor.”); Gen. Elec. Capital Corp. v. BCI Mechanical, Inc., No.
05-98-01832-CV, 2002 WL 59342 (Tex. App.--Dallas 2002, pet. denied,
rev. denied).
18
The Court observes that Westex does not make such a
statement. Courts apply the general rules of construction when
they construe a lease. Weingarten Realty Investors v. Albertson’s,
Inc., 665 F. Supp. 2d 825, 838 (S.D. Tex. 1999)(citing Hasty, Inc.
v. Inwood Buckhorn Joint Venture, 908 S.W. 2d 494, 499 (Tex. App.-Dallas 1995, writ denied)), aff’d, 234 F.3d 28 (5th Cir.
2000)(Table). Under Texas law, the court’s main concern is to give
effect to the written expression of the parties’ intent. Id. at
838.
The proper standard is that of “objective intent” as
evidenced by the language used, not the subjective intent of the
parties.
Id. at 840.
That intention is construed from the
instrument as a whole under the “four corners” rule. Id. at 838.
The court is to consider the entire writing in an effort to
harmonize and give effect to every provision so that none is
rendered meaningless. Id. Whenever feasible, an agreement should
be interpreted to render performance possible rather than
impossible. Id. at 839. Contract terms are given their plain,
ordinary, and generally accepted meanings unless the contract
indicates they are to be used in a technical or different sense.”
C.W. 100 Louis Henna, Ltd. v. El Chico Restaurants of Texas, LP,
295 S.W. 3d 748, 754 (Tex. App.--Austin 2009).
Whether a contract is ambiguous is a question of law. Id.,
citing Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940
S.W. 2d 587, 589 (Tex. 1996).
An unambiguous contract must be
interpreted by the court as a matter of law. Weingarten Realty,
665 F. Supp. 2d at 839. A contract is ambiguous if, after the
court applies the established rules of contract interpretation, the
writing “remains reasonably susceptible to more than one meaning.”
Id. An ambiguity does not arise simply because the parties differ
in their interpretations of the contract. Id. For an ambiguity to
exist, both interpretations must be reasonable. Id. If the court
finds that the contract is ambiguous, it may then consider
extrinsic evidence to ascertain the parties’ intent. Id. at 839-17-
physical additions or improvements to the premises made by the
debtor would become property of the Landlord, not the Debtor, as
noted earlier, while the Tenant Improvements Rider to the Lease and
the
accompanying
affidavit
from
Robert
McCaffety
reflect
the
parties’ intent that the Landlord was to be the recipient of the
material and labor.
Intent is the main factor in determining
whether property has become a fixture,19 and the Lease is the only
evidence in the record of the Debtor’s intent.
Furthermore, as a matter of law, the Debtor is required to
obtain entry of a court order indicating whether he was or was not
assuming the Lease by December 2, 2009 (120 days after filing of
the petition on August 4, 2009).
11 U.S.C. § 365(d)(4); In re
40. On the other hand, if the court can give a contract’s wording
a definite legal meaning or interpretation, it is not ambiguous and
the court will not examine extrinsic evidence. Id. at 840.
19
Alexander v. Cooper, 843 S.W. 2d 644, 646 (Tex. App.--Corpus
Christi 1992)(“A written lease agreement governs the intention of
the landlord and tenant with respect to their property rights in
fixtures. The general rule that a tenant may remove and take away
trade fixtures at the end of the lease is subject to contracts to
the contrary.”), citing Fenlon v. Jaffee, 553 S.W. 2d 422, 429
(Tex. Civ. App.--Tyler 1977, writ ref’d n.r.e.).
See also
Ashford.Com, Inc. v. Crescent Real Estate Funding III, LP, No. 1404-00605-CV, 2005 WL 2787014, *9 (Tex. App.--Houston [14th Dist.]
2005)(“A trade fixture is an article attached to a leasehold by a
tenant which enables him to carry on the trade, profession, or
business which is contemplated by the lease. The article must be
removable without permanent or material injury to the premises.
Generally once a lease is terminated, trade fixtures are presumed
to be the tenant’s property and are removable at his discretion.
However, this discretion is subject to any contractual provisions
to the contrary. Therefore, if it specifically addresses fixtures,
the parties’ lease agreement governs the property rights in
fixtures. [citations omitted]”).
-18-
Imperial Beverage Group, LLC, 457 B.R. 490, 497 (Bkrtcy. N.D. Tex.
2011)(“When a debtor files for bankruptcy, its obligations under an
unexpired lease do not automatically become obligations of the
bankruptcy estate.
Instead, the debtor has a period of time after
the petition date to decide whether to assume or reject the lease.
For commercial real property leases in which the debtor is the
lessee, it gets at least 120 days to make that decision (unless a
plan of reorganization is confirmed prior to that time).
During
that time the automatic stay stops the landlord from terminating
the lease.”).
GSL insists that the Debtor may not obtain an
extension to assume a lease if the extension is not granted within
the first 120 days of the case.
In re Tubular Technologies, LLC,
348 B.R. 699, 708-09 (Bkrtcy. D.S.C. 2006)(“The plain language of
the
statute
and
the
legislative
history
each
unambiguously
indicate that Debtor may not obtain an extension to assume a lease
if the extension is not granted within the first 120 days of this
case.”), citing In re Maxway Corp., 23 F.3d 980, 982 (4th Cir.
1994)(“sole function of the court is to enforce a statute according
to its terms).
Here the Debtor failed to timely obtain entry of an
order extending the period until after the expiration of the
statutory limit on December 2, 2009; by the time it was entered on
December 15. 2009, the Lease had already been rejected as a matter
of law, together with the rights of the Debtor’s estate to any of
the attributes of such Lease.
Without an interest in the Lease,
-19-
the Debtor’s estate had no property for the McCaffety lien to
attach to, as required by 11 U.S.C. § 506(a). McCaffety still held
rights
under
its
mechanic’s
and
materialman’s
Lien
Affidavit
against the owner of the property subject to the Lease.
Here, argues GSL, the parties agreed to postpone the claim
objection determination, but not to acknowledge that the property
being sold was subject to the secured claim disputed by the Debtor.
The
Debtor
disputed
McCaffety’s
secured
claim
and
McCaffety
objected to the sale of the property of the Debtor, i.e., a bona
fide dispute.
Under 11 U.S.C. § 363(f),
The trustee may sell property under subsection (b) or (c)
of this section free and clear of any interest in such
property of an entity other than the estate, only if-–
(1) applicable nonbankruptcy law permits sale of such
property free and clear of such interest;
(2) such entity consents;
(3) such interest is a lien and the price at which such
property is to be sold is greater than the aggregate
value of all liens on such property;
(4) such interest is in bona fide dispute; or
(5) such entity could be compelled, in a legal or
equitable proceeding, to accept a money satisfaction of
such interest.
The order entered by the Bankruptcy Court on January 21, 2010
indicates that the assets being sold did not include items on which
McCaffety asserts its lien and that “[t]he parties agree that the
issue of the nature, extent, priority and value of any secured
claim of McCaffety may be heard together with the objection to the
-20-
proof of claim pending before the court at a later date.”
19.
ROA #4-
Because the lien did not include the items sold at the sale,
there is no way it could attach to the proceeds from the sale.
also Addendum to
the “APA,”, ROA #4-34, Ex. 5 at p.7.
See
GLS asserts
that the Bankruptcy Court’s analysis of fixtures is flawed because
it assumes the “removable fixtures” belonged to the Debtor when the
right to claim them belonged instated to the Landlord; because the
Debtor did not own the fixtures, they do not support McCaffety’s
secured claim.
Alternatively, GSL maintains, if the Court concludes that the
collateral was the property of the estate, the Bankruptcy Court
ruled that GSL held a prime security interest in virtually all of
the Demay assets, so GSL is entitled to the proceeds of the sale.
GSL contends that its lien against all the Debtor’s assets is
superior to McCaffety’s.
Any removable trade fixtures have never
been the property of the estate that would support McCaffety’s
alleged secured claim, but belong either to the Landlord or
McCaffety.
The escrow fund in this case is less than the balance
owed to GSL on its priority secured
claim, so there is no residual
for payment of McCaffety’s alleged secured claim.
In sum, GSL asks the Court to conclude that no property of the
estate is available to secure a claim in favor of McCaffety and
that the escrowed proceeds of the Debtor’s sale should be applied
to GSL’s outstanding secured claim.
-21-
Appellee McCaffety’s Brief (#6)
McCaffety
notes
that
under
Texas
Property
Code
§53.022
mechanic and materialman’s liens attach to leaseholds, removables
and leasehold improvements.
Improvements include light fixtures,
gears, electrical panels, lamps, wire, and electrical wire, all of
which are viewed as “removables” under Texas case law.20
First
Nat’l Bank in Dallas v. Whirlpool Corp., 517 S.W. 2d 262, 269 (Tex.
1974)(disposals and dishwashers)(recognizing long-standing rule
that
a
mechanic’s
and
materialman’s
statutory
lien
upon
improvements made is superior to a prior recorded deed of trust
lien where the improvements made can be removed without material
injury to the land and pre-existing improvements, or to the
improvements removed); In re Orah Wall Financial Corp., 84 B.R. 442
(Bkrtcy. W.D. Tex. 1986).
20
“[T]he question of removability is a question of both fact
and law. In order to determine removability, it is necessary to
determine whether the improvements to be removed will be injured;
whether the freehold (land) will be injured; and, whether preexisting improvements will be injured.
Injury alone is not
sufficient, however, since the test is a legal one of “material”
injury. In re Orah Wall Financial Corp., 84 B.R. 442, 445 (Bkrtcy.
W.D. Tex. 1986), citing Whirlpool Corp., 517 S.W. 2d at 269;
Cornerstone Bank, N.A, v, J.N. Kent Const. Co., No. 05-91-00499cv, 1992 WL 86591 (finding that removables included, air
conditioning compressors, ceiling tiles and acoustic tiles and
their supporting grid, air handling units, distribution air grills,
doors, elevator equipment and cab, electric circuit breaker panels,
electric light fixtures, copper and aluminum wiring, electric
controlling mechanisms, aluminum building numerals, landscape
irrigation system and planting materials, headache bar and dumpster
fence, but not exterior glass and gasket material, and aluminum
framing (Tex. App.--Dallas Apr. 17, 1992).
-22-
McCaffety highlights the fact that GSL does not challenge any
of
the
Bankruptcy
Court’s
Findings
of
Fact
supporting
its
determination that the Electrical Equipment was the property of the
estate.
ROA #4-37, Memorandum Op., § II, pp. 1-3, ¶¶ 1, 3, and 7.
GSL also fails to acknowledge that under Texas law, mechanic and
materialman’s liens extend to removables and that the Bankruptcy
Court thus correctly determined that McCaffety’s lien extended to
the Electrical Equipment in dispute.
III, pp. 12-14.
ROA #4-37, Memorandum Op., §
The Bankruptcy Court correctly applied Texas
contract law, focusing on the objective intent of the parties and
whether the alteration by the lessee was an improvement, fixture or
trade fixture.
It found that the objective intent of the parties
was expressed in the Lease Agreement, that the Electrical Equipment
is a trade fixture that the Debtor installed to carry on its trade
at the leased property, that the tenant was entitled to take it
away from the property at the termination of the lease unless there
was an express contract provision to the contrary, and that it was
removable without material or permanent injury to the premises and
therefore was the property of the estate upon installation and as
of the date of the Sale order. Thus the Bankruptcy Court expressly
rejected GSL’s claims that the lease dictates that the landlord
owned the Electrical Equipment.
Moreover GSL failed to challenge
any of the Bankruptcy Court’s findings of fact supporting its
determination that McCaffety’s lien attached to the Electrical
-23-
Equipment.
ROA #4-37, Memorandum Op., § II, p. 2.
Moreover the
Bankruptcy Court expressly stated why McCaffety’s mechanic and
materialman’s lien was valid:
it was properly perfected under the
Texas Property Code requirements and it attached not only to the
leasehold estate, but to the Electrical Equipment removables.
Furthermore
the
Bankruptcy
Judge
correctly
McCaffety had a lien on the escrowed funds.
determined
that
ROA #4-37, Memorandum
Op., § II, Pp. 6-8, ¶¶ 16-20, 24.
GSL’s Reply Brief (#7)
Reiterating that under 11 U.S.C. § 506(a), a claim can only be
secured to the extent that the estate owns collateral subject to a
valid security interest asserted by a creditor, GSL asserts, “In an
attempt to reconcile the lien provided by the Texas Mechanic’s and
Materialman’s lien statute against real estate, the Bankruptcy
Court allowed McCaffety to leak into a claim secured by the estate,
notwithstanding the fact that the estate did not own the real
property on which the work was performed.
To accomplish the leap
to a secured status against the estate, the Court allowed McCaffety
to establish its lien on personalty (removables) that are still in
possession of the Landlord under the Lease and have never belonged
to the Debtor. . . . ‘[R]emovables’ are not recited in the
Statutory Lien Statute.”
#7 at p.3.21
21
GSL points out that the Bankruptcy Court repeated
McCaffety’s misstatement of the law in purportedly quoting Texas
Property Code § 53.002 as, “A mechanic’s and materialmen’s lien
-24-
Texas Property Code Ann. § 53.022(a)(“Property to Which Lien
Extends”) states “(a) The lien extends to the house, building,
fixtures or improvements, the land reclaimed from overflow, or the
railroad and all of its properties, and to each lot of land
necessarily connected or reclaimed.”
GSL insists that McCaffety’s
sole lien is against the leasehold interest, which expired when the
buyer under the APA elected not to assume the lease on the real
property,22 and that McCaffety has no “property of the estate” to
support a secured claim under § 506(a).
There is a procedure for
perfecting liens on personal property, chattel, under Chapter 9 of
the Texas Business and Commerce Code,23 Whirlpool, 517 S.W. 2d at
attaches to leaseholds, removables and leasehold improvements.”
The statute does not contain the word “removables” and does not
apply to removables, according to GSL.
It argues that the
Electrical Equipment is no different in character from the
refrigerators and ranges that the were found not to be incorporated
in the construction of an apartment building and not subject to
materialman’s liens in Whirlpool, 517 S.W. 2d 262.
22
GSL cites as the only opinion on the issue an unpublished
case, General Elec. Capital Corp. v. BCI Mechanical, Inc., 2002 WL
59342 (Tex. App.--Dallas 2002, rev. denied)(“When a lessee
contracts for construction, a mechanic’s lien arising from the
construction attaches only to the leasehold interest” and when that
lease is terminated, that leasehold interest is gone). GSL insists
that the lease agreement here terminated automatically under the
statute on December 2, 2009, so the mechanic’s lien expired then,
too.
23
Article 9 of the Uniform Commercial Code provides a security
interest rather than a mechanic’s lien when a contractor or
supplier has installed (incorporated into a building, but removable
(Tex. Bus. & Comm. Code Ann. § 9.336(a)) an article that might not
be covered by the mechanic’s lien statute. In relevant part, it
creates a valid security interest when three requirements are met:
“(1) value has been given; (2) the debtor has rights in the
-25-
2667, but McCaffety did not follow it and does not have such a
security interest in the Electrical Equipment.
Since
the
Debtor
does
not
own
the
real
property,
the
Electrical Equipment, if it belonged to the Debtor, can only be the
personal property of the Debtor, and GSL’s first lien right
requires that GSL prevail against the remaining proceeds of the
sale.
If the Electrical Equipment is an “improvement” to the
leased
property,
because
the
Lease
Agreement
states
that
improvements to the premises become property of the Landlord, the
Electrical Equipment belongs to the Landlord and cannot support a
secured claim against the estate.
The
first
compromise
agreement
between
the
Debtor
and
McCaffety was merely to postpone the determination of McCaffety’s
claim, not to create a secured claim where none exits.
Their
agreement did not mean that the property being sold was subject to
a secured claim disputed by the Debtor.
The first compromise
stated, “The parties agree that the issue of the nature, extent,
priority and value of any secured claim of McCaffety may be heard
together with the objection to the proof of claim pending before
collateral or the power to transfer such rights to a secured party;
and (3) one of the following conditions is met: (A) the debtor has
authenticated a security agreement that provides a description of
the collateral . . . “ Tex. Bus. & Com. Code Ann. § 9.203(b). It
gives the creditor preferred status.
See generally, Joe F.
Canterbury, Jr. and Robert J. Shapiro, Tex. Construction Law Manual
§ 3:27 (3d ed. database updated Nov. 2011). There is no dispute
that McCaffety did not perfect such a security interest on the
Electrical Equipment.
-26-
the court at a later date.”
The subsequent Addendum was included
by the Debtor in the APA, to which neither GSL nor McCaffety was a
party, and it referenced the first compromise.
To the extent that
the property was not estate property under 11 U.S.C. § 541, the
Debtor did not have the authority to convey, nor did it convey,
that property.
The APA approved by the Court stated that the sale
of fixtures was limited to “fixtures owned by the Seller.”
GSL
maintains that the Bankruptcy Court’s analysis of fixtures is
incorrect because it assumes that the “removable fixtures” belong
to the Debtor, when the right to claim such fixtures belongs to the
Landlord.
GSL contends that the Sales Order clearly stated that “sale
may include” assets on which McCaffety claims a lien, but it does
not transfer any non-existent secured claim.
It maintains that
McCaffety has failed to show that it holds a security interest in
the personal property of the Debtor.
Meanwhile the Bankruptcy
Court determined that GSL holds a prime security interest in nearly
all of Demay’s assets.
Since the escrow fund held here is less than the balance owed
to GSL on its priority secured claim, there is no residual to pay
for McCaffety’s alleged but unproven secured claim, Appellant
insists.
Court’s Decision
-27-
Some of the points of appeal overlap, so the Court’s rulings
do also.
(1) Whether the Bankruptcy Court erred in ruling that electrical
equipment installed on the real property leased by the Debtor was
property of the Debtor’s bankruptcy estate, supporting the secured
claim of Appellee McCaffety
Ownership of Electrical Equipment contracted for by, and
attached to a building leased by, the Debtor under the Lease
Agreement depends on (1) how the property is categorized under the
law and (2) the intent of the parties to the Lease.
The term “improvement” includes all additions and betterments
to a freehold other than trade fixtures.
Big West Oil Co. v.
Willborn Bros. Co., 836 S.W. 2d 800, 802 (Tex. Civ. App.--Amarillo
1992)(case
law
defines
“improvement”
as
having
broader
signification than “fixture”) citing Nine Hundred Main, Inc. v.
City of Houston, 150 S.W. 2d 468 (Tex. Civ. App.--Galveston 1991,
dism’d judgmt. cor.); Cantrell v. Broadnax, 306 S.W. 2d 429, 432
(Tex. Civ. App.--Dallas 1957, no writ); Dubin v. Carrier Corp., 731
S.W. 2d 651, 653 (Tex. App.--Houston [1st Dist.] 1987, no writ.);
and Dedmon v. Stewart-Warner Corp., 950 F.2d 244, 246-47 (5th Cir.
1993)(An improvement can be anything that “permanently enhances the
value of the premises” and may be removable as long as it is
attached
and
intended
to
remain
permanently
as
part
of
the
building, such as a garage door opener or a wall heating unit).
-28-
In
C.W.
100
Louis
Henna,
Ltd.,
295
S.W.
3d
at
754-55
[citations omitted](holding that air conditioning units that were
purchased and installed by the tenant for the purpose of running a
restaurant within the leased premises were trade fixtures, not
improvements, and the tenant would continue to own them afer the
lease
ended),
the
Austin
Court
of
Appeals,
distinguished
“improvements,” “fixtures,” and “trade fixtures”24:
[T]he term “trade fixture” has been defined many times by
the courts. . . . “It is now well accepted that, as
between a landlord and his tenant, the term ‘trade
fixtures’ refers to and means such articles as may be
annexed to the realty by the tenant to enable him
properly or efficiently to carry on the trade,
profession, or enterprise contemplated by the tenancy
contract or in which he is engaged while occupying the
premises, and which can be removed without material or
permanent injury to the freehold. . . . It is also well
established that trade fixtures are distinguished from
“improvements” and other types of fixtures (i.e.,
personal property affixed to realty). “An improvement
24
The Bankruptcy Court in In re San Angelo Pro Hockey Club,
Inc., 292 B.R. 118, 130 (Bkrtcy N.D. Tex. 2003), opined,
While a trade fixture is similar to a fixture, in the
sense that a trade fixture is an item of personalty that
has been annexed, a trade fixture is “to be distinguished
from other fixtures attached to the property.”
Jim
Walter Window Components v. Turnpike Distribution Ctr.,
642 S.W. 2d 3, 5 (Tex. App.-–Dallas 1982, writ ref’d
n.r.e.).
Texas case law treats trade fixtures as a
subset, or a special type of fixtures--in order for an
article of personalty to be a trade fixture, it must
first be a fixture generally.
See id.
See also
Moskowitz v. Calloway, 178 S.W. 2d 878, 880 (Tex. Civ.
App.–Texarkana 1944, writ ref’d n.r.e.)(discussing how
trade fixture is a type of fixture, and if personalty
claimed to be a trade fixture is not removable without
material alteration or permanent injury, such personalty
is a general fixture) . . .
-29-
includes all additions to the freehold except for trade
fixtures which can be removed without injury to the
property.” . . . “The class of improvements is considered
to be broader than that of fixtures, which are items of
personalty that have become permanent parts of the realty
to which they are affixed.
Therefore, although all
improvements are not necessarily fixtures, any fixture,
unless it is a trade fixture, is considered an
improvement. A trade fixture is an item, which can be
removed without material or permanent injury to the
freehold, that a tenant annexes to realty to enable the
tenant to carry on its business.” . . . The rationale for
these distinctions is that “[i]mprovements made by a
vendor, mortgagor or ancestor are made to enhance the
value of the estate and to be permanent, while those made
by the tenant are temporary and made for purposes of his
trade.”
Id., citing Boyett v. Boegner, 746 S.W. 2d 25, 27 (Tex. App.-Houston [1st Dist. 1988, no writ)(“It is now well settled that, as
between a landlord and his tenant, the term ‘trade fixtures’ refers
to and means such articles as may be annexed to the realty by the
tenant to enable him properly or efficiently to carry on the trade,
profession, or enterprise contemplated by the tenancy contract or
in which he is engaged while occupying the premises, and which can
be removed without material or permanent injury to the freehold.”),
quoting Granberry v. Texas Pub. Serv. Co., 171 S.W. 2d 184, 186
(Tex. Civ. App.--Amarillo 1943, no writ); Sonnier v. Chisholm-Ryder
Co., 909 S.W. 2d 475, 479 (Tex. 1995); Reames v. Hawthorne-Seving,
Inc., 949 S.W. 2d 758, 761 (Tex. App.--Dallas 1997, pet. denied);
and Jim Walter Window Components, 642 S.W. 2d 3, 5 (Tex. App.–Dallas 1982, writ ref’d n.r.e. ), quoting Menger v. Ward, 28 S.W.
-30-
821, 823 (Tex. Civ. App.--San Antonio 1984),
rev’d on other
grounds, 87 Tex. 622 (1895).
Generally, mechanic’s liens whose inception25 is subsequent to
the date of a deed-of-trust lien will be subordinate to the deadof-trust lien,” except in a narrow exception set out in Texas
Property Code § 53.123, styled “Priority of Mechanic’s Lien over
other Liens”:
(a) Except as provided by this section, a mechanic’s lien
attaches to the house, building, improvements, or
railroad property in preference to any prior lien,
encumbrance, or mortgage on the land on which it is
located, and the person enforcing the lien may have the
house, building, improvements, or any piece of the
railroad property sold separately,
(b) The mechanic’s lien does not affect any lien,
encumbrance, or mortgage on the land or improvement at
the time of the inception of the mechanic’s lien, and the
holder of the lien, encumbrance, or mortgage need not be
made a party to a suit to foreclose the mechanic’s lien.
GCI GP, LLC v. Stewart Title Guaranty Co., 290 S.W. 3d 287, 295
(Tex. App.--Houston [1st Dist. 2009), citing Diversified Mortgage
v. Lloyd D. Blaylock General Contractor, Inc., 576 S.W. 2d 794, 806
(Tex. 1978).
The Texas Supreme Court construes the seemingly
25
“The time of inception of a perfected materialman’s lien is
the earlier of either (1) the commencement of a lienholder’s
construction of improvements on the property or (2) the
lienholder’s delivery of material to the land on which the
improvements are to be located and on which the materials are to be
used.” Texan Drywall, Inc. v. Le, 2011 WL 2089668, *3 (Tex. App.Houston [1st Dist.] May 19, 2011), citing Tex. Prop. Code Ann. §
53.124(a).
Robert McCaffety’s affidavit supporting the lien
states, “The materials and labor for which payment is requested,
were furnished during the month(s) of: August, September, October,
November and December 2008 and January 2009.” ROA #4-17.
-31-
contradictory statute as “granting a priority to a mechanic’s lien
on improvements over a prior lien, encumbrance, or mortgage on the
land when the improvements could be removed without material injury
to the land and pre-existing improvements or to the improvements
themselves.”
Id., citing Whirlpool Corp., 517 S.W. 2d at 269
(dealing with predecessor statute).
A mechanic’s lien may only
attach to land and items that have become annexed to land, such as
improvements, which include fixtures but not chattel.
id. at
266, and Tex. Prop. Code. Ann. § 53.022.
Id., citing
Chattel that have
been incorporated into realty become “fixtures” that are subject to
a statutory mechanic’s lien, and such a lien will be superior to a
prior deed-of-trust lien when the fixtures can be removed without
material injury to the land and to pre-existing improvements or to
the fixtures themselves.
Id., citing Whirlpool, 517 S.W. 2d at
266-67, 269.
Also relevant to determining ownership is the objective intent
of the parties, as expressed in the Lease Agreement.
In Logan v. Mullis, 686 S.W. 2d 605, 607 (Tex. 1985), the
Texas Supreme Court set out three factors relevant to determining
if personalty has become a fixture, i.e., a permanent part of the
realty to which it is affixed:
the mode and sufficiency of
annexation, the adaptation of the article to the use or purpose of
the realty, and the intention of the party who annexed the personal
property.
Of the three, intent is the most significant.
-32-
Id.
The
lessee’s discretion to remove trade fixtures is subject to any
contractual provisions to the contrary and the lease agreement, if
it specifically addresses fixtures, governs the parties’ property
rights in fixtures.
Ashford.Com, Inc. v. Crescent Real Estate
Funding, III, L.P.. 2005 WL 27870`4, *9 (Tex. App.--Houston, Oct.
27, 2005), citing Boyett v. Boegner, 746 S.W. 2d 25, 27-28 (Tex.
App.-Houston [1st Dist. 1988, no writ), and Felon v. Jaffee, 553
S.W. 2d 422, 429 (Tex. Civ. App.--Tyler 1977, writ ref’d n.r.e.).
The status of a fixture and the intent of the parties are questions
of fact.
Alexander v. Cooper, 843 S.W. 2d 644, 646 (Tex. App.--
Corpus Christi 1992, no writ), citing Felon v. Jaffee, 553 S.W. 2d
at 429, and Goodyear Service Stores v. Clegg, 361 S.W. 2d 445, 446
(Tex. Civ. App.--San Antonio 1962, no writ).
In C.W. 100 Louis Henna, the court ruled that the fact that
the lease did not define “trade or business fixtures” reflected the
parties’ intent to employ the well established definitions and
concepts set out in the case law, while the lease’s provision that
the tenant could remove all or part of its equipment, removable
fixtures, signs, and other personal property from the premises, but
that it must repair all damage to the improvement caused by that
removal, was consistent with the common meaning of trade fixtures
in Texas law.
295 S.W. 3d at 755.
As noted, the “Alterations Provision” in the Lease Agreement
between the Debtor and Demay stated,
-33-
1. Alterations. Any physical additions or improvements
to the Premises made by Tenant will become property of
Landlord. Landlord may require that Tenant, at the end
of the Term and at Tenant’s expense, remove any physical
addition and improvements, repair any alterations, and
restore the Premises to the condition existing at the
Commencement Date, normal wear excepted.
The Bankruptcy Court found that the Electrical Equipment in dispute
is a trade fixture because (1) the Debtor installed it to carry on
its business on the lease premise and (2) “uncontroverted and
credible
testimony
indicated
that
removal
of
the
Electrical
Equipment would occur with no damage to the property.”
Memorandum
Opinion at 12-13, citing Jim Walter, 642 S.W. 2d at 5 (concluding
that components of an electrical system are trade fixtures”);
Granberry v. Tex. Pub. Serv. Co., 171 S.W. 2d 184, 186 (Tex. Civ.
App.--Amarillo 1943, no writ)(finding that electric light fixtures
were trade fixtures installed to meet the need to provide light for
tenant’s offices and a salesroom and were easily removed without
damage
to
the
building
by
untwisting
the
wires).
Case
law
demonstrates that trade fixtures are not included in the standard
definition of additions and improvements.
See, e.g., Sonnier, 909
S.W. 2d at 479 (“An improvement includes all additions to the
freehold except for trade fixtures, which can be removed without
injury to the property.”).
See also Gorman v. Ngo H. Meng, 335
S.W. 3d 797, 804 (Tex. App.--Dallas 2011)(“An improvement includes
all additions to the land other than trade fixtures that can be
removed without injury to the property.”).
-34-
The Bankruptcy Court
found that the Electrical Equipment is a trade fixture not only
because of precedential case law,26 but because it fits the standard
legal definition.
“First, the Debtor installed it to carry on its
trade at the leased property.
[Finding of Fact no. 3].
Second,
uncontroverted and credible testimony indicated that removal of the
Electrical Equipment would occur with no damage to the property.
[Finding of Fact No. 3].”
Memorandum Opinion, ROA #4-37 at p. 13.
The Bankruptcy Judge pointed out that evidence during a hearing on
May 27, 2010 indicated the Electrical Equipment is replaceable and
is replaced in the ordinary course of business.
Robert McCaffety,
whose testimony the Bankruptcy Judge found very credible, testified
that his company frequently removed and resold electrical equipment
that it had installed previously. #4-58, 4-59. Trade fixtures are
excluded
from
the
definition
of
physical
additions
and
improvements. Sonnier, 909 S.W. 2d at 479. Because the Electrical
Equipment
is
a
trade
fixture,
26
it
does
not
fall
under
the
One court found that electrical components such as wall
switches, plugs, electrical cover plates and electrical control
panels to be “removables” because they are “neither incorporated
nor does the removal cause injury” and because they “are frequently
replaced, removed, and so forth in ordinary maintenance.” In re
Orah Wall Financial Corp., 84 B.R. 442, 447 (Bkrptcy. W.D. Tex.
1986). See also Cornerstone Bank, N.A. v. J.N. Kent Const. Co.,
No. 05-91-00499-CV, 1992 WL 86591, *4-5 (Tex. App.--Dallas Apr. 17,
1992)(finding to be removable elevator equipment and cab, electric
circuit breaker panels, electric light fixtures, copper and
aluminum wiring, and electrical controlling mechanisms); Richard H.
Sikes, Inc. v. L&N Consultants, Inc., 586 S.W. 2d 950, 954 (Tex.
Civ. App.--Waco 1979)(improvements installed by contractor subject
to mechanic’s lien include components of air conditioning and
heating equipment, burglar alarms, light fixtures).
-35-
Alterations Clause (“physical additions or improvements to the
Premises made by Tenant will become the property of Landlord”) and
is properly the property of the Debtor/Tenant and the estate when
it is installed,27 which was prior to the assets sale.
Memorandum
at 12-14.
This Court finds that the Bankruptcy Court’s reasoning and
findings are not clearly erroneous and affirms its decision on this
point.
(2) Whether the Bankruptcy Court erred in ruling that the fixtures
on the leasehold were sold by the Debtor in its sale of assets
GSL claims that there was no valid materialman’s lien on the
fixtures because such a lien can only attach to the leasehold, not
to personalty under Texas Property Code Ann. § 53.002, and that the
Bankruptcy
Court
incorrectly
inserted
“removables”
into
the
statute.
A mechanic’s lien extends to fixtures as well as to the land
to which they are necessarily connected. Texas Jur. Mechanics § 24
(“The mechanic’s lien statutes are intended to encompass realty and
such personal property has been incorporated in or consumed in the
construction or repair thereof or delivered for such purposes. The
lien extends to . . . fixtures.”), citing Whirlpool, 517 S.W. 2d
27
Generally a tenant may take away trade fixtures from the
property at the termination of the lease unless there is an express
contract provision to the contrary. Alexander, 843 S.W. 2d at 646.
There is no such provision in the Lease Agreement.
-36-
262.28 The Bankruptcy Court’s finding that the Electrical Equipment
had been incorporated into the building leased by Demay for its
business was not clearly erroneous. Nor was his determination that
the equipment was removable without damage to the building.
The
Electrical Equipment installed in the leased premises here was not
merely plugged in, as were the refrigerators and ranges excluded
from such liens in Whirlpool, but installed and incorporated into
the building.
Co.,
171
Id. at § 28.
S.W.
1943)(finding
2d
184,
electric
See Granberry v. Texas Public Service
186-87
lighting
(Tex.
fixtures
Civ.
App.--Amarillo
installed
in
office
building were trade fixtures that may be removed by the tenant at
the end of the term of the lease); Moskowitz v. Calloway, 178 S.W.
2d 878, 880 (Tex. Civ. App.-–Texarkana 1944, writ ref’d n.r.e.)(air
cooling system installed to carry on tenant’s business is a trade
fixture); White v. Cadwallader & Co., 299 S.W. 2d 189, 191 (Tex.
Civ. App--San Antonio 1957, writ ref’d n.r.e.)(finding standard
assembly-line heating and air conditioning unit a trade fixture);
28
“A statutory mechanic’s lien may only attach to land and
items that have become annexed to land, such as improvements
(including fixtures), not to chattel.”
GCI GP, LLC v. Stewart
Title Guar. Co., 290 S.W. 3d 287, 295 (Tex. App.--Houston [1st
Dist.] 2009), citing Tex. Prop. Code Ann. § 53.022 (Vernon 2007),
and First National Bank in Dallas v. Whirlpool Corp., 517 S.W. 2d
262, 269 (Tex. 1975)(holding that a statutory mechanic’s lien was
meant to encompass ”realty and such personal property as has been
incorporated or consumed in the construction or repair thereof or
delivered for such purposes”).
Chattels that have been
incorporated into realty become fixtures are subject to a statutory
mechanic’s lien. Id.
-37-
Jim Walter Window Components v. Turnpike Distrib. Ctr., 642 S.W. 3d
3, 5 (Tex. App.-–Dallas, writ ref’d n.r.e. 1982)(electrical system
including installation of switch boxes, breaker boxes, junction
boxes, electrical conduit and a transformer, attached to power
supply of building but not integrated into the building structure
was a trade fixture and parties intended to allow tenant to remove
them if he wanted after term of lease).
The Bankruptcy Court’s
finding that the Electric Equipment in this action was a trade
fixture was not clearly erroneous.
Furthermore, the comparison of the first compromise and the
second indicates that pursuant to the second, the fixtures subject
to the mechanic’s and materialman’s lien could be sold in the sale
of the Debtor’s assets.
GSL and McCaffety agreed to the sale as
long as the proceeds protected the creditors’ interests because, as
discussed above, the Electrical Equipment was the property of the
Debtor.
The
Bankruptcy Court found that the true intent of the
parties regarding the lien and the assets to which it was attached
was expressed in definitions in the APA and the Sale Order of the
Bankruptcy Court. The definition of “Acquired Assets” included all
Inventory and Equipment . . . and other assets, including but not
limited to those listed on Schedule A hereto,” but expressly not
including the “Excluded Assets”; the Electrical Equipment was not
listed
in
the
“Excluded
Assets.”
-38-
Moreover
the
APA
defined
“Equipment” as including fixtures.
2
attached
to
the
APA,
titled
ROA #4-20.
Schedule A at page
“Inventory,
Equipment
and
Intellectual Property, Permits, Records and Warranties,” lists
“Fixtures to the extent owned by” the Debtor.
The Sale Order
further stated, “Pursuant to the terms of the APA, the Debtor has
agreed to sell to the Purchaser, and Purchaser will purchase from
Debtor all of the Acquired Assets owned, leased, or otherwise
utilized by Debtor, including, without limitation, the Acquired
Assets and rights defined by the APA (hereinafter, the assets to be
sold pursuant to the APA are collectively referred to as the
‘Acquired Assets’ or the ‘Assets’) for a cash purchase price of
$14,600,000.”
ROA #4-20 at p. 3.
The Court finds that the Bankruptcy Judge did not err in
ruling that the trade fixtures could be sold as the Debtor’s
property at the asset sale.
That sale preceded termination of the
lease, as will be discussed below, and therefore the lien did not
perish before the sale.
(3) whether the Bankruptcy Court erred in ruling that the interest
of the mechanic and materialman’s lien on fixtures under the lease
was not terminated as to the Debtor when the lease was terminated
Strictly construing 11 U.S.C. § (d)(4), GSL has argued that
the lease was terminated on December 2, 2009 because the Bankruptcy
Court failed to extend the statutory period for the debtor to
assume or reject an unexpired lease of nonresidential real property
-39-
before that period expired.
GSL relies on Debartolo Properties
Management, Inc, v. Devan, 194 B.R. 46, 52 (D. Md. 1996)(holding
that the bankruptcy court acted outside its statutory authority
when it entered an order to extend the time to assume or reject
lease after the permissible period).
In accord, In re Taynton
Freight System, Inc., 55 B.R. 668, 671 (Bkrtcy. Pa. 1985);
Matter
of Coastal Industries, Inc., 58 B.R. 48 (Bkrtcy. D.N.J. 1986).
Nevertheless, there is a division among the courts as to
whether the order granting an extension must be entered within the
initial (60 or 120-day) period.29
Some courts have allowed the
bankruptcy court to hold a hearing and order an extension after the
initial period as long as the request for an extension was timely
filed within the original 120-day period.
These include two lower
courts in the Fifth Circuit, one expressly affirmed on the issue by
the Fifth Circuit, allowing the bankruptcy court to hold a hearing
and grant an extension of time to assume or reject an unexpired
lease outside of the initial period as long as the motion was filed
during the initial period.
See, e.g., Chapman Inv. Associates v.
American Healthcare Management, Inc., 94 B.R. 420, 422 (N.D. Tex.
1989)(because the words of § 365(d)(4) are not “entirely clear,” “a
more
liberal
interpretation
of
the
statute
is
necessary
to
effectuate the intent of Congress” and “allow the Bankruptcy Court
to continue to grant extensions to a debtor if the first extension
29
See footnote 8.
-40-
was requested within the [initial period] and all subsequent
extensions
are
sought
prior
to
the
expiration
of
a
current
extension and if cause exists for each extension”), aff’d, Matter
of American Healthcare Management, Inc., 900 F.2d 827, 829-30 (5th
Cir. 1990); In re Ham Consulting Co./William Lagnion/JV, 143 B.R.
71, 75 (Bkrtcy. W.D. La. 1992); see also In re Southwest Aircraft
Servs., 831 F.2d 848, 853 (9th Cir. 1987)(court may rule on motion
to assume lease brought within [initial period] afer period has
expired), cert. denied, 487 U.S. 1206 (1988); In re Treasure Isles
HC, Inc., 462 B.R. 645, 649-51 (6th Cir. BAP 2011)(Debtor satisfied
statutory deadline for assuming lease by filing its motion to
assume before deadline’s expiration).
In the Bankruptcy Court, Demay filed a motion to extend time
to accept or reject Executory Contracts on November 23, 1009 (#111
on that docket sheet), but the Bankruptcy Judge only granted it on
December 15, 2009, thirteen days after the initial period expired.
Under Chapman, this Court finds that the extension
of the period
to assume or reject the lease was valid.
Regardless, the Court concludes that it does not matter
because the ruling outside of the initial period did not terminate
the lease and because a rejection does not effect termination of an
unexpired
commercial
lease.
“Rejection,”
i.e.,
the
Debtor’s
decision not to assume a lease or executory contract, does not
equate
to
“termination,”
whether
-41-
the
rejection
occurred
automatically pursuant to 11 U.S.C. § 365(d)(4) on December 2,
2009, the statutory deadline for rejecting executory contracts
(because the Bankruptcy Judge did not extend the period until after
that date), or later,30 for third-party creditors.
Instead,
the
Fifth Circuit has held that as a matter of law “rejection is
treated as a breach [of the executory contract] “to preserve the
rights of the party whose lease with the debtor has been rejected
by providing a pre-petition claim.”
Matter of Austin Development
Co., 19 F.3d 1077, 1082 (5th Cir. 1994)(citing In re Continental
Airlines, 981 F.2d 1450, 1459 (5th Cir. 1993)(“to assert that a
contract effectively does not exist as of the date of rejection is
inconsistent with deeming the same contract breached”; consistent
with interpreting rejection as a breach, § 502(g) “permits the
creditor on a rejected lease or executory contract to assert a
claim for damages as of the date of bankruptcy”)), cert. denied,
513 U.S. 874 (1994); In re Modern Textile, Inc., 900 F.2d 1184,
1191
(8th
Cir.
1990)(holding
that
Trustee’s
rejection
of
an
unexpired lease did not terminate Debtor’s obligations under the
lease, but the lessor has a claim for breach of the lease that
arises as a result of the rejection under 11 U.S.C. § 365); and
Leasing Service Corp. v. First Tennessee Bank, Nat’l Ass’n, 826
30
Other possible rejection dates include February 19, 2010
when the Debtor moved for approval of its acceptance of one certain
Toyota Lease Agreement (ROA #4-24) or on March 23, 2010 (ROA #428), when the Court approved the Debtor’s amended proposal to
reject all executory contractors.
-42-
F.2d 434, 436-37 (6th Cir. 1987)(“[R]ejection or assumption of an
executory contract determines only the status of the creditor’s
claim, i.e., whether it is merely a pre-petition obligation of the
debtor or is entitled to priority as an expense of administration
of the estate.”).
See also In re H.B. Leasing Co., 188 B.R. 810,
815 (Bkrptcy. E.D. Tex. 1995)(Rejection does not terminate the
unexpired lease nor the Debtor’s security interest in it).
The Lease at issue here, ROA #4-18 at p.7, also supports such
an interpretation, and the lease was not “terminated” before
McCaffety’s mechanic’s lien was transferred to the sale’s escrow
fund and nor before the sale under the terms of the agreement:
10. Default by Tenant/Events. Defaults by Tenant are
(a) failing to pay timely Rent, (b) abandoning or
vacating a substantial portion of the Premises, and (c)
failing to comply within ten days after written notice
with any provision of this lease other than the defaults
set forth in (a) and (b) above.
11. Default by Tenant/Landlord’s Remedies. Landlord’s
remedies for Tenant’s default are to (a) enter and take
possession of the Premises, after which Landlord may
relet the Premises on behalf of Tenant and receive the
Rent directly by reason of the reletting, and Tenant
agrees to reimburse Landlord for any expenditures made in
order to relet; (b) enter the Premises and perform
Tenant’s obligations; and (c) terminate this lease by
written notice and sue for damages. Landlord may enter
and take possession of the Premises by self-help, by
picking or changing locks if necessary, and may lock
Tenant or any other person whom may be occupying the
Premises, until the default is cured, without being
liable for damages.
As for the “termination” of the lease, the uncontroverted
testimony of John Gross at the hearing on May 27, 2010 was that the
-43-
Debtor’s rent on the lease was paid through February 18, 2010. ROA
#4-59, Transcript of Hearing on May 27, 2010, testimony of John E.
Gross, President of Dumay, whom the Bankruptcy Judge found “very
credible on all issues about which he testified” (ROA #4-37 at p.
10), at p. 65. ll, 16-p. 66, l.1; #4-59 at p. 75.
Thus the lease
was not terminated before that date.31 Because the Bankruptcy Court
approved the second stipulation in the Addendum, whose broad
language included at least some of the assets to which McCaffty’s
lien attached, in the Addendum on February 5, 2010, approved the
sale
setting
McCaffety’s
aside
lien
to
an
escrow
those
of
proceeds
$350,000
for
and
payment
transferring
if
it
was
subsequently determined to be valid, and held the sale before
February 18, 2010, the lease was not “terminated” before the lien
attached to the escrow proceeds. Therefore the lien did not expire
with the lease, but was assigned and transferred earlier, before
termination of the lease, to the escrowed funds on February 12,
2010.32
The Court concludes that the Bankruptcy Judge did not err in
determining that the materialman’s lien did not expire before the
31
One of the bidders, Drilling Controls, entered into a new
lease with Dumay for the property. At that point, which was after
the mechanic’s lien had been transferred to the escrowed sale
proceeds, the lease clearly was terminated.
32
Mr. Gross further testified that the Debtor did not
surrender the property but that, as permitted by the Lease, Dumay
leased it to a new tenant, Drilling Controls, Inc., one of the
bidders for the assets. ROA #4-59 at p. 66, ll. 2-18.
-44-
sale or before the lien was transferred and attached to the
escrowed proceeds from that sale.
(4) Whether the Bankruptcy Court erred in ruling that McCaffety’s
mechanic’s lien has a priority interest over GSL’s lien
Because at the time of the sale the resale value of the
Electrical Equipment was between $374,348.63 and $561,522.94, it
was valued at more than McCaffety’s claim, which was thus secured.
The Bankruptcy Court correctly applied established law that a
materialman’s lien has priority over the lien of a deed of trust
under the narrow exception set out in Texas Property Code § 53.123.
Whirlpool Corp., 517 S.W. 2d at 269 (”the rule of long standing
that
a
mechanic’s
and
materialman’s
statutory
lien
upon
improvements made is superior to a prior recorded deed of trust
lien where the improvements made can be removed without material
injury to land and preexisting improvements, or to the improvements
removed”)(and cases cited therein); Exchange Savings & Loan Assoc.
v. Moncrete Pty. Ltd., 629 S.W. 2d 34, 36 (Tex. 1982)(under the
statute, “a perfected materialsman’s lien upon improvements is
superior to a prior recorded deed of trust lien if the materials
furnished can be removed without material injury to (1) the land,
(2)
the
pre-existing
improvements,
or
(3)
the
materials
themselves.”); Diversified Mortgage v. Lloyd D. Blaylock General
Contractor, Inc., 576 S.W. 2d 794, 806 (Tex. 1978); In re Bigler,
-45-
LP, 458 B.R. 345, 378-79 (Bkrtcy. S.D. Tex. 2011); GCI GP, LLC v.
Stewart Title Guar. Co., 290 S.W. 3d at 295.
(5) Whether the Bankruptcy Court erred in construing the lease
agreement provisions that the Debtor owned the property claimed by
Appellee as security for its claim
The Court has indicated above why it finds that the Bankruptcy
Court did not err in finding that the Debtor owned the trade
fixtures McCaffety installed on the leased property and that the
Bankruptcy’s finding is not clearly erroneous.
(6)
Whether
the
Bankruptcy
Court
erred
in
construing
the
reservation of rights and establishment of escrow under the APA and
Sale?
Despite GSL’s ongoing argument that the Electrical Equipment
belongs to the Landlord, this Court has explained why McCaffety has
a valid lien for the services and Electrical Equipment it provided
to lessee Demay, why that equipment is a trade fixture that Demay
had the right to take after the lease was terminated, and how the
February 2, 2010 Bid Procedures Order of the Bankruptcy Court,
which included the second compromise, and provided for sale of the
property to which the valid lien attached inter alia and for
transfer of the lien to $350,000 of escrowed sale proceeds to
satisfy McCaffety’s objection to a sale because its lien was not
being protected (ROA #4-11, 4-15).
The Sale Order issued and the
sale was held on February 17, 2010, before the Debtor gave notice
-46-
of its rejection of the lease on February 19, 2010 (only approved
by the Court on March 23, 2010) or before termination of the lease
occurred.
The Court concludes that the Bankruptcy Court did not
err in determining that McCaffety has s superior right to recover
$337,279 against the escrowed funds.
Accordingly, the Court
AFFIRMS Judge Bohm’s June 9, 2010 Memorandum and Opinion and
Judgment in Bankruptcy Case No. 09-35759-H4-11, ROA
SIGNED at Houston, Texas, this
30th
day of
#4-37, 4-38.
March , 2012.
___________________________
MELINDA HARMON
UNITED STATES DISTRICT JUDGE
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