Gold v. T & B Elec. (In re Lansdowne Constr., LLC)

In re: LANSDOWNE CONSTRUCTION, LLC Debtor.

H. JASON GOLD, CHAPTER 7 TRUSTEE, Plaintiff, v. T & B ELECTRIC, L.L.C, Defendant.

Case No. 18-11754-BFK

Adversary Proceeding No. 19-01056-BFK

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF VIRGINIA Alexandria Division

February 21, 2020

Chapter 7

MEMORANDUM OPINION

This matter is before the Court on cross-motions for summary judgment. The Defendant, T&B Electric, LLC ("T&B") filed its Motion on November 25, 2019. Docket No. 11. The Plaintiff-Trustee filed his Motion on November 26, 2019. Docket No. 13. The Trustee filed an Opposition to T&B's Motion on December 27, 2019. Docket No. 24. T&B did not file a separate Opposition to the Trustee's Motion, but the Court considers the Memorandum in Support of T&B's Motion to be an Opposition to the Trustee's Motion. At the hearing on January 10, 2020, the Court authorized the Trustee to file a Supplemental Memorandum. The Trustee filed a Supplemental Memorandum on January 16, 2020. Docket No. 29. The matter is now ripe for a decision.¹

For the reasons discussed below, the Court will: (a) grant the Trustee's Motion; and (b) deny T&B's Motion.

Undisputed Facts

The Court finds that the following facts are not genuinely disputed.

A. The Lansdowne-3 Boys Prime Contract.

1. In June 2016, Lansdowne Construction, LLC ("Lansdowne," or "the Debtor") entered into a Standard Form of Agreement as general contractor with 3 Boys, LLC, for the construction of a project known as Rosner Stafford Toyota on Garrisonville Road, in Stafford, Virginia. Tr. Ex. C.²

2. The 3 Boys-Lansdowne Contract included the following provisions:

§ 9.3.1 At the time required by Article 5 of the Agreement, the Contractor shall submit to the Architect an itemized completed portions of the Work. Such application shall be notarized, if required, and supported by such data substantiating the Contractor's right to payment as the Owner, Owner's lender (if any) or Architect may require, including but not limited to copies of requisitions from Subcontractors and material suppliers and lien waivers from the Contractor and Subcontractors, and shall reflect retainage if provided for in the Contract Documents.

§ 9.3.3 The Contractor warrants that title to all Work covered by an Application for Payment will pass to the Owner no later than the time of payment. The Contractor further warrants that upon submittal of an Application for Payment all Work for which Certificates for Payment have been previously issued and payments received from the Owner shall, to the best of the Contractor's knowledge, information, and belief, be free and clear of liens, claims, security interests or encumbrances in favor of the Contractor, Subcontractors, material suppliers, or other persons or entities making a claim by reason of having provided labor, materials and equipment relating to the Work. Should any lien be filed against the Project or the Owner's property, the Contractor shall, within fifteen (15) days of such filing, discharge or bond off such lien at its sole expense, and indemnify the Owner from any loss, claim, expense or damage relating to or arising from such lien, provided the Owner has made payment to the Contractor with respect to the amount and Work to which the lien is related and excluding any Work for which the Owner has not made payment.

§ 9.5.1 The Architect may withhold a Certificate for Payment in whole or in part, to the extent reasonably necessary to protect the Owner, if in the Architect's opinion the representations to the Owner required by Section 9.4.2 cannot be made. If the Architect is unable to certify payment in the amount of the Application, the Architect will notify the Contractor and Owner as provided in Section 9.4.1. If the Contractor and Architect cannot agree on a revised amount, the Architect will promptly issue a Certificate for Payment for the amount for which the Architect is able to make such representations to the Owner. The Architect may also withhold a Certificate for Payment or, because of subsequently discovered evidence, may nullify the whole or a part of a Certificate for Payment previously issued, to such extent as may be necessary in the Architect's opinion to protect the Owner from loss for which the Contractor is responsible, including but not limited to loss resulting from acts and omissions described in Section 3.3.2, because of

1. defective Work not remedied;

2. third party claims filed or reasonable evidence indicating probable filing of such claims unless security acceptable to the Owner is provided by the Contractor;

3. failure of the Contractor to make payments properly to Subcontractors or for labor, materials or equipment;

4. reasonable evidence that the Work cannot be completed for the unpaid balance of the Contract Sum;

5. damage to the Owner or a separate contractor;

6. reasonable evidence that the Work will not be completed within the Contract Time, and that the unpaid balance would not be adequate to cover actual or liquidated damages for the anticipated delay; or

7. failure to carry out the Work in accordance with the Contract Documents.

§ 9.5.3 If the Architect withholds certification for payment under Section 9.5.1.3, the Owner may, at its sole option, issue joint checks to the Contractor and to any Subcontractor or material or equipment suppliers to whom the Contractor failed to make payment for Work properly performed or material or equipment suitably delivered. If the Owner makes payments by joint check, the Owner shall notify the Architect and the Architect will reflect such payment on the next Certificate for Payment.

3. In August 2016, Lansdowne entered into a Subcontract with T&B for electrical work on the project. Tr. Ex. D. 4. In October 2016, 3 Boys assigned the Contract to Sheehy Stafford Property, LLC ("Sheehy"), when Sheehy purchased the property. Tr. Ex. AA (Consent to Assignment and Release).

5. On or about November 16, 2017, T&B submitted an invoice to Lansdowne in the amount of $30,250.00, which Lansdowne submitted as part of its Application No. 10. Tr. Ex. E. The Application was in the amount of $27,225.00, the amount of the T&B Invoice, less 10% retainage. Id.

6. On or about December 19, 2017, T&B submitted an invoice to Lansdowne in the amount of $8,990.00, which Lansdowne submitted as part of its Application No. 11. Tr. Ex. F. The Application was in the amount of $8,091.00, the amount of the T&B Invoice, less 10% retainage. Id.

7. On the same day, December 19, 2017, T&B submitted its Final Application for Payment, in the amount of $42,582.30. Tr. Ex. G. This Final Application included a Final Waiver of Lien and Unconditional Release. Id., p. 6.

8. On or about March 27, 2018, Lansdowne submitted its Final Application for Payment, in the amount of $4,642.00. Tr. Ex. H; T&B Ex. G. This Application included a General Contractor Final Waiver of Lien and Conditional Release. Id., p. 9.

9. On April 19, 2018, T&B filed a Memorandum of Mechanic's Lien in the land records of Stafford County, claiming a mechanic's lien against Sheehy's property in the amount of $82,489.00. Tr. Ex. Q; T&B Ex. C.

10. On April 26, 2018, David Brooks of Lansdowne sent an e-mail to Brian Ganow of T&B notifying T&B that Sheehy was issuing joint checks to the subcontractors and that the joint checks were available for pickup from Sheehy's office. Tr. Ex. S. 11. Sheehy Auto Stores, Inc. ("Sheehy Auto Stores") issued a joint check payable to Lansdowne and T&B in the amount of $82,489.00. Tr. Ex. R. A representative of Lansdowne endorsed the check.³

12. Brian Ganow, the principal and owner of T&B stated in his Affidavit: "At no point did either myself or anyone representing T&B enter into any discussion with Lansdowne regarding a joint check agreement or execute such an agreement with Lansdowne." T&B Ex. E, Ganow Aff., ¶ 4.⁴

13. When T&B picked up the check, it executed and delivered a Certificate of Release of its Memorandum of Mechanic's Lien and a Final Lien Waiver. T&B Ex. D, pp. 2-3.

B. Lansdowne Files for Bankruptcy.

14. On May 15, 2018, Lansdowne filed a Voluntary Petition under Chapter 7 in this Court. In re Lansdowne Constr., LLC, No. 18-11754-BFK (Bankr. E.D. Va. filed May 15, 2018). Mr. Gold was appointed as the Trustee. Id., Docket No. 21.

15. On September 7, 2018, Sheehy filed a Consent Motion for Modification of the Automatic Stay. Id., Docket No. 150.

16. In its Consent Motion, Sheehy represented that it owed the Debtor $534,139.48, subject to certain offsets for costs to complete the project ($24,000.00), and amounts that it had paid to the subcontractors so that it could obtain the releases of mechanic's liens ($276,464.87). Id., Docket No. 150, ¶¶ 4-6. 17. Sheehy further alleged that an additional $334,347.30 was owed to subcontractors, and that therefore, there was no remaining balance due on its contract with Lansdowne. Id., Docket No. 150, ¶ 8.

18. On October 3, 2018, the Court entered a Consent Order Modifying the Automatic Stay so that Sheehy could accomplish its setoff and pay the remaining subcontractor claims. Id., Docket No. 171.

19. Sheehy filed a Proof of Claim in the amount of $634,812.17. Id., Proof of Claim No. 86-1. In its Proof of Claim, Sheehy claimed that it had a right of setoff in the contract proceeds of $534,139.48. Id., Proof of Claim No. 86-1, p. 5.

Conclusions of Law

This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and the Order of Reference entered by the U.S. District Court for this District on August 15, 1984. This is a core proceeding under 28 U.S.C. § 157(b)(2)(F) (proceedings to determine, avoid or recover preferences). The Defendant has consented to the entry of a final order resolving this adversary proceeding. Wellness Int'l Network, Ltd. v. Sharif, 575 U.S. 665 (2015); Docket No. 6, Pretrial Scheduling Order, ¶ 6 (requiring any objection to the entry of a final order by the Bankruptcy Court to be filed within 30 days of entry of the Scheduling Order and promptly set for...