SR Constr. Inc. v. RE Palm Springs II, L.L.C. (In re RE Palm Springs II, L.L.C.)

106 F.4th 406

In the MATTER OF RE PALM SPRINGS II, L.L.C., Debtor,

SR Construction Incorporated, Appellant, v. RE Palm Springs II, L.L.C.; Hall Palm Springs, L.L.C., Appellees.

No. 23-10603

United States Court of Appeals, Fifth Circuit

FILED July 2, 2024

Appeal from the United States District Court for the Northern District of Texas, USDC No. 3:21-CV-2734, David C. Godbey, U.S. District Judge

Ismail Amin (argued), TALG, Limited, Dallas, TX, Richard Barrett Phillips, Jr., Holland & Knight, L.L.P., Dallas, TX, Bruce J. Zabarauskas, Holland & Knight, L.L.P., Newport Beach, CA, for Appellant.

Emily Scott Wall, Charles Brackett Hendricks, Esq., Cavazos Hendricks Poirot, P.C., Dallas, TX, for Appellee RE Palm Springs II, L.L.C.

Frank Jennings Wright, Attorney (argued), Jeffery Michael Veteto, Dallas, TX, for Appellee Hall Palm Springs, L.L.C.

Before Barksdale, Southwick, and Graves, Circuit Judges.

James E. Graves, Jr., Circuit Judge:

The appellant in this case, SR Construction ("SRC"), is a construction company that was hired to build a hotel in the California desert. But SRC was terminated before the hotel was finished, leaving it with a demand for $14 million in unpaid work. First, SRC tried to stop the sale of the hotel from a new owner to a bankruptcy creditor. That failed. Then it held onto doors, stairs, HVAC equipment, and other personal property left over from the hotel project. The bankruptcy court ordered SRC to turn over the personal property. SRC appealed.

SRC challenges the bankruptcy court's power to order the turnover, as well as the validity of the most recent hotel owner's claim to the personal property. We conclude that the bankruptcy court's order is part and parcel of its undisputed power to order the sale of a bankruptcy debtor's assets. We also reject SRC's arguments about ownership of the assets in this case. Accordingly, we AFFIRM.

I. BACKGROUND

Palm Springs, L.L.C. ("Palm Springs") hired SRC to build a hotel in California. When construction was just over halfway complete, Palm Springs terminated SRC. Nine days later, Palm Springs defaulted on its loan from the hotel's financier, Hall Palm Springs, L.L.C. ("Hall").

To avoid foreclosure, Palm Springs conveyed the hotel property to an entity called RE Palm Springs II, L.L.C. ("RPS"), which was formed by Hall for the purpose of taking title to the hotel.¹ In exchange, Hall released Palm Springs from its loan obligations. The bill of sale for the hotel explained that RPS acquired all "furniture, furnishings, equipment, machinery, goods" and "all other personal property of any kind or character."

RPS also took title subject to SRC's mechanic's lien. By SRC's calculation, Palm Springs still owed it and its subcontractors over $14 million. SRC sought to foreclose on its lien in California state court.

RPS planned to complete the hotel until COVID-19 derailed its plans. Instead, it filed for bankruptcy. The bankruptcy court authorized RPS to borrow funds from Hall and approved RPS and Hall's plan to auction the hotel property. When it failed to sell at auction, the bankruptcy court approved the outright sale of RPS's assets to Hall ("Sale Order").

The court-approved Purchase Agreement provided for the sale of substantially all of RPS's assets to Hall, including the partially completed hotel and all its personal property. The bankruptcy court "retain[ed] jurisdiction to enforce and implement the terms and provisions of [the] Order and the Purchase Agreement," including, if needed, to "compel delivery of the Purchased Assets to [Hall]."

SRC appealed the Sale Order. The appeal went first to the district court, which exercised appellate jurisdiction under 28 U.S.C. § 158(a) but subsequently dismissed the appeal as moot under 11 U.S.C. § 363(m). SR Constr., Inc. v. RE Palm Springs II, L.L.C. (In re RE Palm Springs II, L.L.C.), No. CV 20-3486, 2021 WL 5331001 (N.D. Tex. Nov. 15, 2021). This court affirmed the dismissal and the Supreme Court denied certiorari. SR Constr., Inc. v. Hall Palm Springs, L.L.C. (Matter of RE Palm Springs II, L.L.C.), 65 F.4th 752, 757-58 (5th Cir. 2023), cert. denied sub nom. SR Constr., Inc. v. RE Palm Springs II, L.L.C., — U.S. —, 144 S. Ct. 327, 217 L.Ed.2d 171 (2023).

Meanwhile, SRC claimed ownership of various items of hotel-related personal property from the project such as doors, stairs, and HVAC equipment ("Personal Property"). Before the sale closed, Hall and RPS had jointly moved the bankruptcy court to order SRC to turn over certain personal property; after it closed, they expanded their motion to encompass additional items. The bankruptcy court granted the motion ("Turnover Order").

SRC appealed, challenging the bankruptcy court's jurisdiction to order the turnover and raising whether RPS, and then Hall, ever obtained title to the Personal Property in the first place. The district court affirmed. It concluded that the bankruptcy court had jurisdiction to interpret and enforce the Sale Order. In more detailed findings, it also affirmed the bankruptcy court's conclusion that Hall had obtained title to the Personal Property and had not waived its right to the Personal Property by taking it "as is."

This appeal followed.

II. STANDARD OF REVIEW

In appeals from the district court's review of bankruptcy court matters, we focus on the bankruptcy court's determinations. Off. Comm. of Unsecured Creditors v. Moeller (In re Age Ref., Inc.), 801 F.3d 530, 538 (5th Cir. 2015). We apply the same standard of review that applied in the district court. VSP Labs, Inc. v. Hillair Cap. Invs., L.P. (Matter of PFO Glob., Inc.), 26 F.4th 245, 252 (5th Cir. 2022). Because the district court here determined that the Turnover Order was a "core" bankruptcy matter, it reviewed the bankruptcy court's conclusions of law de novo and its factfinding for clear error. See Bass v. Denney (In re Bass), 171 F.3d 1016, 1021 (5th Cir. 1999). For "non-core" matters, the standard is de novo for both legal and factual conclusions. 28 U.S.C. § 157(c)(1).

III. DISCUSSION

SRC advances the same arguments here as it advanced below. We address each in turn, as well as Hall's argument that the appeal is moot under the Bankruptcy Code.

a. Subject matter jurisdiction

We always start with subject matter jurisdiction. Arbaugh v. Y&H Corp., 546 U.S. 500, 514, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006). SRC raises several arguments in support of its assertion that the bankruptcy court lacked subject matter jurisdiction to enter the Turnover Order. First, it argues that federal bankruptcy jurisdiction did not exist because the turnover would not affect the bankruptcy estate.² It also argues that Hall lacked standing to move the bankruptcy court for turnover and that the Sale Order rendered moot RPS's ability to seek any relief relating to the Personal Property.

Federal courts have jurisdiction over matters that (1) arise under the provisions of the Bankruptcy Code; (2) arise in bankruptcy litigation; or (3) relate to the resolution of a bankruptcy proceeding. 28 U.S.C. § 1334(b). Bankruptcy cases are generally assigned to the bankruptcy court, see 28 U.S.C. § 157(a), which is a "unit of the district court," 28 U.S.C. § 151.

The bankruptcy court's powers are further delineated by 28 U.S.C. § 157. Under § 157, the bankruptcy court may hear and render judgment in matters arising under the provisions of the Bankruptcy Code and matters that arise in those cases (that is, matters (1) and (2) above). See Stern v. Marshall, 564 U.S. 462, 474, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). Such matters are called "core" matters. Id. The third type of matter—those only "related to" a bankruptcy proceeding—are "non-core." Id. at 475, 477, 131 S.Ct. 2594. In non-core matters, the bankruptcy court cannot render judgment; instead, it must submit its proposed findings to the district court. Id. at 475, 131 S.Ct. 2594. Non-core/"related-to" matters represent the bankruptcy court's power at its lowest ebb. See Wood v. Wood (Matter of Wood), 825 F.2d 90, 93 (5th Cir. 1987).

Hall argues that because the bankruptcy court had jurisdiction to enter the Sale Order, it also had jurisdiction to interpret and enforce the Sale Order through the Turnover Order. SRC counters, in part, that in entering the Turnover Order, the bankruptcy court did not interpret and enforce the Sale Order but made a legal determination about ownership of the Personal Property that went beyond the Sale Order's terms.

First, it is undisputed that the bankruptcy court had jurisdiction to enter the Sale Order. That power is conveyed to the bankruptcy court directly by statute. 11 U.S.C. § 363(b)(1); see also 28 U.S.C. § 157(b)(2)(N).

The scope of the Sale Order is, of course, set by its terms. It stated that the sale included the hotel as well as "all related assets to be purchased . . . by Hall . . . pursuant to the terms of the [Purchase Agreement]." The Purchase Agreement included "[a]ll now existing or hereafter acquired furniture, furnishings, equipment, machinery, appliances, and other tangible personal property of Seller."

The Sale Order also contained provisions requiring that Hall actually receive the Personal Property. It provided for delivery of the purchased assets. It authorized Hall to "take all other action necessary to effectuate the relief granted" in the Sale Order and to "undertake such other actions as may be reasonably necessary or appropriate to complete the Sale." And, finally, the bankruptcy court "retain[ed] jurisdiction to (a) compel delivery of the Purchased Assets to the Buyer; and (b) resolve any disputes arising under or related to the Purchase Agreement."

The Turnover Order was within the scope of those terms. In determining whether the Personal Property was within the scope of the Sale Order, the bankruptcy court made only the findings necessary to enforce the terms of the Sale Order and the attached Purchase Agreement. It then ordered the delivery of the Personal Property, as the Sale Order clearly...