## United States Bankrup tcy Appellate P anel

FOR THE EI GHT H CIRCUI T

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No. 1 2- 60 08

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In re: *

*
Tril og y Deve lo pm en t Co m

pa ny, L LC, *

*
Deb to r. *

*

*
Tril og y Deve lo pm en t Co m

pa ny, L LC, *

* App eal fro m

th e Uni te d S ta te s Deb to r - App el la nt

, * Ban kr up tc y Co ur t fo r th e

* W es te rn Dis tri ct of M is so ur i

v. *

*

J.E. Dun n C on st ru ct io n C om pa ny; *

Mar k On e Ele ct ric Co m

pa ny; *

W al to n C on st ru ct io n C o., LLC, *

* Object or s - Ap pe ll ees

. *

*

__ __ __

Su bm it te d: Marc h 2 9, 2 01 2
Fi le d: Apri l 5 , 20 12

__ __ __

Befo re KRESSEL, Ch ie f Ju dg e, SALADINO, and NAIL, Bank ru pt cy Ju dg es

.

__ __ __
SALADINO, Bank ru pt cy Ju dg e.Thi s is an ap pe al by Tril og y Dev el op m en t Co m pa ny, LLC (“ Tril og y ”) fro m an

or de r o f t h e b a nk ru pt cy co ur t da te d Ja nu ary 12

, 20 12

, ho ld in g th at cert ai n fu nd s 1 2

he ld by Tri lo gy co ns ti tu te sa le pr oc eed s whi ch are su bje c t t o th e li en s of App el le e,

J.E. Dun n Co ns tru ct io n Co m pa n y ( “J

. E. Dun n” ), an d ot he r li en ho ld ers

. Fo r th e 3

reas on s s ta te d b el ow, we af fir m

.

BACKGROUND

Tril og y fil ed a v o l u n ta ry pe ti ti on un de r Ch ap te r 11 of th e Uni te d St at es

B a n k r u p t cy Co de on May 15

, 20 09

. Its bu si ne ss co ns is te d of th e own ers hi p an d

op erat io n of a real es ta te de ve lo pm en t pro ject lo cat ed in th e “ Pl aza” area of Kan sa s

C i t y, Mi ss ou ri, kn own as th e W es t Edg e Pro ject. Co ns tru ct io n of th e pr ojec t

co m m en ced in Ja nu ary 20 06 an d co nt in ue d un ti l sh or tl y be fo re t h e b an kr up tc y

pe ti ti on was f

i l ed

. By th e da te of th e ba nk ru pt cy fil in g, nu m ero us co nt ract or s,

su pp li ers , a nd ve nd or s as se rte d m ech an ic li en cl ai m s ag ai ns t th e pr ojec t fo r un pa id

ba la nc es du e.

The li en s ag ai ns t th e pr ojec t far ex ceed ed it s va lu e an d on J an ua ry 24 , 2 01 0,

Tril og y co m

m en ced an ad ve rs ary pr oc eed in g se ek ing a de cl arat or y jud gm en t as to th e

va li di ty an d pr io rit y o f a l l l i e n s ag ai ns t th e pr ojec t. On Ja nu ary 20

, 20 12

, th e
ba nk ru pt cy c o ur t en te red it s Ord er of Fi na l Ju dg m en t in th e ad ve rs ary pr oc eed in g
whi ch de te rm in ed th e am ou nt

, va li di ty, an d pr io rit y of va rio us co ns en su al li en s an d

Ch ie f Ju dg e Den ni s R. Dow, Uni te d St at es Ban kr up tc y Co ur t fo r th e W es te rn 1
Dis tri ct of M is so ur i

.

The ba nk ru pt cy co ur t an no un ced it s de ci si on or al ly on th e reco rd on Ja nu ary 2
11 , 20 12 , fol lo wed by a writt en ord er d at ed Jan ua ry 12 , 20 12

.

Jo in in g J.E. Dun n as App el le es are Mar k One Elec tri c Co m pa ny an d W al to n 3
Co ns tru ct io n C o., L L C.

2th e m ech an ic li en cl ai m s. The m ech a n i c l ie n cl ai m s al on e to ta le d m or e th an

$1 7,0 00 ,00 0.0 0. 4

On J u l y 8, 20 10

, Tril og y fil ed a m ot io n un de r §§ 10 5( a) an d 36 3 of th e

Ban kr up tc y Co de to

, in te r al ia

, co nd uc t an au ct io n sa le of th e pr ojec t free and cl ear

of li en s. The m ot io n was gr an te d an d an au ct io n was co nd uc t e d

. O n Aug us t 31

, 20 10

, th e ba nk ru pt cy co ur t en te red it s sa le or de r au th or iz in g Tril og y to cl os e on th e

sa le of th e pr ojec t free an d cl ear of li en s to W ERC, LLC ( “ W ERC”) fo r th e su m of

$1 0,0 00 ,00 0.0 0 as th e pr ev ai li ng bi d at th e au ct io n. The sa le or de r al so ap pr ov ed th e
ba ck up bi d of VA W es t Pro pe rti es , LLC (“ VA W es t” ) fo r $9 ,50 0,0 00 .00 an d

au th or iz ed Tril og y to co nc lu de a sa le to VA W es t in th e ev en t th e sa le to W ERC was

no t co ns um m at ed

. Fi na ll y , th e sa le o r d e r p r o vi de d: “ All li en cl ai m s an d in te res ts

sh al l at ta ch to th e sa le pr oc eed s to th e ex te nt of th ei r va li di ty, pe rfec ti on , an d pr io rit y

ag ai ns t t he Pro

ject.”

Pu rs ua nt to th e sa le or de r, W ERC en te red in to a pu rch as e ag r e e ment un de r
whi ch it po st ed an earn es t m on ey de po si t in th e am ou nt of $1 ,00 0,0 00 .00 an d ag reed

to cl os e by Sep te m

be r 30

, 20 10

. W ERC fai le d to cl os e, th e pu rch as e ag reem en t was

te rm in at ed

, an d th e de p o s i t w a s ret ai ne d by Tril og y as li qu id at ed da m ag es

. Su bs eq ue nt ly, Tril og y cl os ed on th e sa le of th e p ro ject to VA W es t as the ap pr ov ed

ba ck up bi dd er un de r th e sa le or de r. Tril og y cu rren tl y ret ai ns po ss es si on of bo th th e

ne t p ro ceed s fr om

th e sa le to VA W es t an d t he de po si t. 5

The fin al ord er i n t he ad ve rs ary pr oc eed in g is on ap pe al to th e Uni te d Stat es 4
Dis tri ct Co ur t fo r th e Weste rn Dis tri ct of M is so ur i.

Fo ll owi ng a he ari ng on Octo be r 2 2

, 20 10

, th e ba nk ru pt cy co ur t en te red an 5

or de r ap pr ov in g th e ex pe nd it ur e of $1 00 ,00 0.0 0 of th e de po si t fu nd s to m ai nt ai n th e
pr ojec t pe nd in g th e cl os in g wit h VA W es t. Thu s, th e rem ai ni ng de po si t fu nd s at is su e are i n t he am ou nt of $ 90 0,0 00 .00

.

3On Decem be r 5, 20 11

, Tril og y fil ed it s m ot io n fo r de t e r mina ti on of se cu red

s t a tu s un de r 11 U.S.C. § 50 6. Und er th e te rm s of th e m ot io n, Tril og y so ug ht a
de te rm in at io n th at th e m ech an ic li en cl ai m s di d no t at ta ch to th e de po si t an d th at th e
de po si t was an un en cu m

be red as se t of Tril og y ’s Ch ap te r 11 ba nk ru pt cy es ta te

. Afte r

a he ari ng on Ja nu ary 11

, 20 12

, th e ba nk ru pt cy co ur t a n n o un ced it s ru li ng th at th e
de po si t is par t of the sa le pr oc eed s of th e pr ojec t an d, pu rs ua nt to th e sa le or de r, th e
de po si t i s s ub

ject t o t he m ech an ic li en cla im s. Th is ap pe al fol lo wed

.

STANDARD OF REVIEW

The ba nk ru pt cy co ur t’s Ja nu ary 11

, 20 12

, or de r in te rp ret s th e sc op e of th e ph ras e “ sa le pr oc eed s” as us ed in th e sa le or de r. A ba nk ru pt cy co ur t’s in te rp ret at io n

of it s own or de r is rev ie wed un de r an ab us e of di sc ret io n st an da rd

. Boy he r v. Rad lo ff
(In re Boy he r)

, 20 12 W L 75 23 36 (B.A.P. 8t h Cir. Mar. 9, 20 12 ) (ci ta ti on s om it te d)

. An ab us e of di sc ret io n wil l be fo un d o n l y i f t he co ur t’s jud gm en t was ba se d on
cl earl y erro ne ou s fact ua l fin di ng s o r o n erro ne ou s le ga l co nc lu si on s. Se e In re

Bow man , 25 3 B.R. 23 3, 23 7 (B.A.P. 8t h Ci r. 20 00 ). “ A fin di ng is ‘clear ly erro ne ou s’

whe n a l t h o u g h t h ere is ev id en ce to su pp or t it

, th e rev ie win g co ur t, on th e en ti re

ev id en ce is le ft wit h t he de fin it e an d fir m co nv ic ti on th at a m is ta ke ha s be en

co m m it te d.” And er

so n v. Ci ty of Bess emer Ci ty

, N.C.

, 47 0 U.S. 56 4, 57 3, 10 5 S. Ct

. 15 04

, 15 11

, 84 L. Ed. 2d 51 8 (1 98 5) (q uo ti ng Uni te d St at es v. Uni te d St at es Gyp su m

Co

. , 33 3 U.S. 3 64 , 39 5, 6 8 S . Ct. 5 25 , 92 L. Ed. 74 6 (1 94 8) ).

DISCUSS ION

In it s br ie f, Tril og y rai se s se ve ral is su es to be co ns id ered on a pp eal

, wit h it s
le ad arg um en t be in g th at Mi ss ou ri m ech an ic lie n law pr ov id es no ba si s fo r at ta ch m en t

of m ech an ic li en s to th e de po si t. Tril og y as se rts th at si nc e Mi ss ou ri st at ut or y la w is

th e so ur ce of la w fo r crea ti on of an y li en in fav or of th e m ech an ic li en cred it or s, th e

4cred it or s m

us t ne ces sa ril y de m on st rat e th at th e M i s s ou ri m ech an ic li en st at ut es

es ta bl is h a li en ag ai ns t t he de po si t.

Th a t a r gu m en t is in ap po si te to th is ap pe al

. Mi ss ou ri’s m ech an ic li en la w i s
rel ev an t on ly to t h e is su e of th e ex te nt an d pr io rit y of th e va rio us li en s ag ai ns t th e

pr oje c t

– w h i ch was de ci de d in th e ad ve rs ary pr oc eed in g th at is th e su bjec t of a

se pa rat e ap pe al pe nd in g in th e Uni te d St at es Dis tri ct Co ur t. It al so fai ls to reco gn iz e

th at th e m ech an ic li en cl ai m s at ta ch ed to th e sa le pr oc eed s by vi rtu e of th e sa le or de r

– no t by op erat io n of Mi ss ou ri la w. The sa le or de r, w h i c h w as pr ep ared an d

su bm it te d t o th e ba nk ru pt cy co ur t by Tri lo gy, au th or iz ed th e pr ojec t to be so ld free

an d cl ear of li en s an d ex pr es sl y pr ov id ed fo r li en s to at ta ch to th e “ sa le pr oc eed s” to

th e ex te nt of th ei r va li di ty, pe rfec ti on , an d pr io rit y ag ai ns t th e pr ojec t. The sa le or de r

was no t ap pe al ed an d be cam e fin al

. Thu s, th e on ly is su e to be co ns id ered is whe th er

th e ba nk ru pt cy co ur t ab us ed it s di sc ret io n in de ci di ng th at th e de po si t was pa rt of th e

sa le pro ceed s o f th e p ro

ject. 6

As in di cat ed

, th e sa le or de r au th or iz ed th e sa le of th e pr ojec t free an d cl ear of

li en s an d sp eci fic al ly pr ov id ed th at “ [a]ll li en cl ai m s an d in te res ts sh al l at ta ch to th e

sa le pr oc eed s to th e ex te nt of th ei r va li di ty, pe rfec ti on , an d pr io rit y a g ai ns t th e

Pro ject.” The sa le or de r do es no t de fin e “ sa le pr oc eed s,” no r is th ere an y req ui rem en t

th at th e li en cl ai m an ts ha v e so m e so rt of st at ut or y or le ga l cl ai m to th e de po si t in

or de r fo r it to co ns ti tu te sa le pr oc eed s. The sa le or de r si m pl y su bs ti tu te d th e “ sa l e

pr oc eed s” in pl ace o f th e p ro ject.

Tril og y ’s ot he r as si gn m en ts of erro r si m il arl y m is s th e mar k by fai li ng to 6

reco gn iz e th at at ta ch m en t of the m ech an ic li en cl ai m s to th e sa le pr oc eed s has be en de ci de d by a fin al or de r of th e b an kr up tc y co ur t. Thu s, th e arg um en ts rai se d un de r § 55 2( a) an d § 50 6( d) are irr el ev an t to th e in te rp ret at io n of th e s c o p e of th e wor ds

“ sa le pr oc eed s.” Fu rth er, th e fact th at th e pu rch as e ag reem en t cal le d fo r th e de po si t

to be pa id to th e se ll er if th e bu y er fai le d to cl os e do es no t de te rm in e whe th er th e de po si t s ho ul d b e co ns id ered “ sa le pro ceed s” un de r th e te rm s o f th e sa le ord er.

5At it s co re, th e m ot io n to de te rm in e se cu red st at us fil ed by Tril og y was a

mo t i o n as ki ng th e ba nk ru pt cy co ur t to in te rp ret it s own pr io r or de r. As no te d

pr ev io us ly, a ba nk ru pt cy co ur t’s in te rp ret at io n of it s own or de r wil l be ov ert ur ne d by

an ap pe ll at e co ur t on ly if an ab us e of d is cret io n is fo un d. Boy he r v. Rad lo ff (In re Boy he r)

, 20 12 W L 75 23 36 (B.A.P. 8t h Ci r. Mar

. 9, 20 12 ) (ci ta ti on s om it te d)

. Afte r

al l, th e jud ge who en te red th e or de r is cl earl y in th e be st po si ti on to in te rp ret it s

m ean in g. 7

In hi s or al ru li ng , th e ba nk ru pt cy jud ge th or ou gh ly ex pl ai ne d hi s an al y si s. He

ex pl ai ne d th at W ERC pa id th e de po si t as pa rt of a co nt ract gi vi ng it th e rig ht to bu y
th e p ro ject. He al so reco gn iz ed th at th e de po si t wou ld no t ex is t b ut for th e p ro ject,

an d if th e sa le to W ERC ha d cl os ed

, t h e d e p os it “ wou ld ha ve be en pr oc eed s an d

th ere’s no reas on to tre at it di ffer en tl y b e c a u s e it di dn ’t cl os e.” The ba nk ru pt cy

co ur t’s de ci si on was no t ba se d on cl earl y erro ne ou s f act ua l fin di ng s or erro ne ou s
le ga l co nc lu si on s an d, t he refo re, s ho ul d b e aff irmed.

DECISION

Acco rd in gl y , we affi rm

th e d eci si on of t he ba nk ru pt cy co ur t.

__ __ __ __ __ __ __ __ __ __ __ __ __ __ __

In de ed

, th at in te rp ret iv e pr in ci pl e ev en ap pli es to fic ti on al ch arac te rs : “ ‘W he n 7

I us e a wor d, ’ H u m

pt y Dum pt y sa id in rat he r a sc or nf ul to ne , ‘it m ean s jus t wha t I
ch oo se it to m ean –n ei th er m or e no r le ss .’ ” Lewis Carr ol l, Thro ug h th e Loo ki ng Glas s & What Ali ce Fo un d Th ere ( Mac m il la n P ub li sh in g) (18 71 ).

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