Court Opinion

ID: 2747790
Source: CourtListenerOpinion
Date Created: 2014-11-04 06:01:04.000279+00
Date Added: 2024-06-11T10:15:37.688981
License: Public Domain

Case: 13-41153          Document: 00512823180         Page: 1   Date Filed: 11/03/2014

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT

                                            No. 13-41153
                                                                           United States Court of Appeals
                                                                                    Fifth Circuit

                                                                                  FILED
In the Matter of: T.S.C. SEIBER SERVICES, L.C.,                            November 3, 2014
                                                                             Lyle W. Cayce
                                                        Debtor                    Clerk

-----------------------------------------------------

HOLT TEXAS, LIMITED, doing business as Holt Cat; TRANSAMERICAN
UNDERGROUND, LIMITED,

                                                        Appellants
v.

STEPHEN J. ZAYLER,

                                                        Appellee

                      Appeal from the United States District Court
                           for the Eastern District of Texas

Before JOLLY, SOUTHWICK, and HAYNES, Circuit Judges.
E. GRADY JOLLY, Circuit Judge:
        Holt Texas, Ltd. (“Holt”) and Transamerica Underground Limited
(“TAUG”), subcontractors of the bankrupt T.S.C. Seiber (“Seiber”), appeal the
September 24, 2013, district court judgment affirming a prior bankruptcy court
order. The district court held that funds of an interpleader action, filed by
EnCana Oil & Gas (USA) Inc. (“EnCana”), were property not of EnCana, but
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property of the bankruptcy estate of Seiber because the interpleader action
extinguished the earlier construction liens of Holt and TAUG. Thus, on appeal
they challenge the district and bankruptcy courts’ reasoning and conclusions
that: (1) the Texas Construction Trust Funds Act did not apply, because
EnCana’s deposit of the funds was not a qualifying payment triggering creation
of a trust fund; and (2) Appellants did not have valid, perfected mineral liens
under chapter 56 of the Texas Property Code.          We consider Appellants’
contentions de novo and, for the reasons that follow, we VACATE the district
court’s judgment and REMAND for further proceedings not inconsistent with
this opinion.
                                       I.
      The facts are undisputed. In 2008, EnCana engaged Seiber to build a
natural gas pipeline in Robertson County, Texas, known as the Camp Creek
12-inch Pipeline Project (“the project”).   Holt and TAUG were among the
subcontractors of Seiber, the primary contractor.         Holt provided heavy
machinery, parts, and services; TAUG installed over two thousand linear feet
of pipe.   The agreement between EnCana and Seiber provided that if a
subcontractor notified EnCana that it had not been paid by Seiber, EnCana
would withhold all sums remaining and make no further payments to Seiber.
      In due course, EnCana made two payments to Seiber for exactly half of
the total contract price. Following those payments, however, in August 2009,
TAUG notified EnCana that it was not being paid and, under Texas law, would
look to EnCana for payment of the $96,300 that TAUG claimed it was owed.
Accordingly, EnCana withheld the remaining half of the contract payments. It
later received reports that Seiber failed to pay other subcontractors as well.
      In September 2009, EnCana filed an interpleader, naming Seiber and
the project’s subcontractors, including Holt and TAUG, as defendants, in the
Northern District of Texas. EnCana sought protection of its property and a
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declaration shielding it from further liability for the unpaid amounts owed by
Seiber to its subcontractors and deposited just more than $345,000 into the
district court registry, disclaiming any interest in the interpleader funds.
      In October 2009, Seiber filed a voluntary petition for bankruptcy relief
under Chapter 11 of the Bankruptcy Code in the Eastern District of Texas.
The petition was quickly converted to a Chapter 7 petition, and Appellee
Stephen Zayler was appointed trustee of the bankruptcy estate.           Shortly
thereafter, Holt, like TAUG earlier, formally notified EnCana that it had not
been paid for work done on the project and would look to EnCana for payment
of the $207,480.80 it was owed. It is undisputed that EnCana was already
aware Holt had performed work and not been paid because EnCana included
Holt as a defendant in the earlier-filed interpleader action.
      In November 2009, TAUG filed its Affidavit Claiming Mineral Lien,
against property of EnCana, in the public records of Robertson County, Texas.
Holt filed its Affidavit Claiming Mineral Lien in March 2010.
      Later that year, the interpleader action was transferred to the Eastern
District, and the case was referred to the bankruptcy court of that district.
After dismissal of certain defendants, the court determined that EnCana had
tendered all required funds into the registry and fulfilled all other statutory
duties. In April 2012, EnCana was discharged from the action. No party
appealed that discharge order.
      The remaining parties filed competing motions for summary judgment,
agreeing that no genuine issues of material fact existed and requesting
resolution of their rights to the interpleader funds as a matter of law. Holt and
TAUG argued that two Texas statutory schemes protecting subcontractors
required that the interpleader funds be awarded to them: Chapter 56 of the
Texas Property Code and the Construction Trust Funds Act (“CTFA”). The
bankruptcy court held that, based on the plain language of the statutes,
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neither applied, and the interpleader funds were therefore part of the
bankruptcy estate.    Holt and TAUG appealed to the district court, which
affirmed the judgment of the bankruptcy court and adopted its reasoning. Holt
and TAUG now appeal the judgment of the district court.
                                        II.
      The overarching question in this appeal is whether the district court
erred in holding that the disputed funds were property of the bankruptcy
estate. The subcontractors and Zayler in essence argue which as between the
two has “superior rights” to the disputed funds. Under section 541 of the
Bankruptcy Code, at the time of filing the bankruptcy petition, the bankruptcy
estate is created and includes “all legal or equitable interests of the debtor in
property as of the commencement of the case.” 11 U.S.C. § 541(a)(1). If
Appellant subcontractors can demonstrate that, as of the time of the
bankruptcy filing, either Seiber, the prime contractor, had no legal or equitable
interest in the disputed funds or Appellants held a superior interest to Seiber,
Zayler, the trustee, must yield. As noted earlier, the interpleader action was
filed about a month before the petition for bankruptcy was filed.
      When reviewing “a decision of a district court, sitting as an appellate
court, [the court of appeals] applies the same standards of review to the
bankruptcy court’s findings of fact and conclusions of law as applied by the
district court.” In re ProEducation Int’l, Inc., 587 F.3d 296, 299 (5th Cir. 2009).
A bankruptcy court’s conclusions of law are reviewed de novo. In re ASARCO,
L.L.C., 650 F.3d 593, 601 (5th Cir. 2011).
      The bankruptcy court decided this case on summary judgment. Under
the Bankruptcy Code, the standard for granting summary judgment is the
same as Federal Rule of Civil Procedure 56. See Fed. R. Bankr. P. 7056.
Accordingly, “[s]ummary judgment is proper when there is no genuine issue as
to any material fact and the movant is entitled to judgment as a matter of law.”
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In re SeaQuest Diving, LP, 579 F.3d 411, 417 (5th Cir. 2009). As noted, the
facts of this case are undisputed by the parties. The only dispute is whether
either of the Texas statutory schemes—chapter 56 or the CTFA—apply to
provide Holt and TAUG with a superior right to the funds, as judged in the
background of the interpleader action and the petition for bankruptcy.
                                       III.
                                        A.
      Generally, the determination of the nature of a debtor’s interest in
property is a matter of state law. See Butner v. United States, 440 U.S. 48, 54–
55 (1979) (“Congress has generally left the determination of property rights in
the assets of a bankrupt’s estate to state law. . . . Unless some federal interest
requires a different result, there is no reason why such interests should be
analyzed differently simply because an interested party is involved in a
bankruptcy proceeding.”).
      So, under Texas law, the question is who had legal possession of the
funds after the funds were deposited in the registry of the court, but before
there was any action of the district court with respect to the interpleader funds.
We first turn to Texas law that provides special protection to unpaid
subcontractors through a variety of statutory schemes. Those schemes include
two at issue in this action. First, chapter 56 of the Texas Property Code
provides mineral subcontractors with a statutory lien “to secure payment for
labor or services related to the mineral activities.” Tex. Prop. Code § 56.002.
Further, Texas “lien statutes . . . [should] be liberally construed for the purpose
of protecting laborers and materialmen.” Hayek v. Western Steel Co., 478
S.W.2d 786, 795 (Tex. 1972) (stating “the primary object of [the lien statute] . .
. is to afford security and protection to laborers and materialmen”).
      Second, chapter 162 of the Texas Property Code, the CTFA, states:
“Construction payments are trust funds under this chapter if the payments are
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made to a contractor or subcontractor . . . under a construction contract for the
improvement of specific real property in this state.”            Tex. Prop. Code
§ 162.001(a).   The CTFA was enacted to “supplement[] the remedies . . .
available to laborers and materialmen.” In re HLW Enters. of Tex., Inc., 157
B.R. 592, 597 (Bankr. W.D. Tex. 1993) (citing Texas cases in support). “Prior
to the enactment of this statute, the statutory remedies . . . were limited to the
right to sue on a contractor’s performance and payment bond . . . and the right
to file a lien against the real property.” Id. (internal citations omitted). Section
162.001, however, protects subcontractors without requiring notice or other
action, such as filing of an affidavit, as a prerequisite. Id. Similar to Texas’s
remedial lien statutes, the CTFA “was enacted for the protection of
[subcontractors], and is a remedial statute that should be given a broad
construction.” Dealers Elec. Supply Co. v. Scroggins Const. Co., 292 S.W.3d
650, 658 (Tex. 2009).
      Holt and TAUG, in urging the reversal of the district court judgment,
contend that the interpleader funds are not part of Seiber’s bankruptcy estate
for two reasons. First, Appellants assert the district and bankruptcy courts
erred in finding that, following EnCana’s filing of this interpleader action and
depositing funds into the district court registry, Holt and TAUG could not
assert or perfect mineral liens against EnCana’s property.           Instead, they
contend they complied with chapter 56’s procedural requirements for notice of
non-payment and filing of an affidavit claiming a lien against that property.
See Tex. Prop. Code § 56.021 (securing lien). Holt and TAUG further argue
that these valid liens on EnCana’s property extended to the interpleader funds.
      Zayler counters that the lower courts properly applied chapter 56’s safe
harbor provisions, which limit an owner’s (i.e., EnCana’s) liability to “the
amount agreed to be paid in the contract” and no “more than the amount that
owner owes the original contractor when the notice is received.” Tex. Prop.
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Code §§ 56.006 & 56.043. Thus, Zayler argues, EnCana’s deposit into the
district court registry automatically extinguished its liability to Seiber, which
meant that the funds then belonged to Seiber, and no longer to EnCana;
consequently, Zayler contends that, after the funds were deposited with the
court, the statutory liens of Holt and TAUG were extinguished and could not
attach to the funds or any of EnCana’s property. Furthermore, Zayler asserts
that mineral liens are limited to the statutorily defined property and may not
be asserted directly against the interpleader monetary fund.
      Second, Holt and TAUG contend that the district and bankruptcy courts
erred in finding the CTFA inapplicable; the district court did so on the grounds
that EnCana’s interpleader deposit was not a payment “made to a contractor
or subcontractor, or to an officer, director or agent of a contractor or
subcontractor.” Tex. Prop. Code § 162.001(a). They assert that the two initial
payments by EnCana to Seiber, for half of the contract price, established the
trust fund from which laborers and materialmen were to be paid, and the trust
extended to the remaining, then-unpaid, funds from which Holt and TAUG
were entitled to be paid. Alternatively, they contend the district court, or the
clerk of the court, should be considered an agent or officer of EnCana or the
parties generally. Zayler stands by the district court ruling. We turn now to
address these arguments of the parties.
                                       B.
                                       1.
      Chapter 56 provides: “A mineral contractor or subcontractor has a lien
to secure payment for labor or services related to mineral activities.” Tex.
Prop. Code § 56.002. The district and bankruptcy courts were correct that the
liability of a mineral property owner, as defined in chapter 56 and including
EnCana, is limited to the total “amount agreed to be paid in the contract” and
“the amount that the owner owes the original contractor when the notice [of
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nonpayment to subcontractors] is received.” Id. §§ 56.006 & 56.043. As to
TAUG, which provided notice of nonpayment on August 25, 2009, or one month
prior to EnCana’s filing of this interpleader action, these provisions provide no
support for Zayler’s claim. The statutory safe harbors refer to the amount owed
at the time of notice, not to the amount owed at the time the affidavit is filed.
TAUG then filed timely its affidavit within “six months after the day the
indebtedness accrue[d].”    Tex. Prop. Code § 56.021.       We note that post-
bankruptcy-petition perfection of liens is expressly allowed by the Bankruptcy
Code. See 11 U.S.C. § 362(b)(3) (exception to automatic stay). Thus, even
under the bankruptcy court’s reasoning, TAUG held a valid mineral lien
against EnCana’s property at the time EnCana was discharged from further
liability to Seiber; and we accordingly uphold the validity of TAUG’s chapter
56 lien.
                                        2.
      As to Holt, which provided notice to EnCana in October, but not until
shortly after EnCana’s funds had been paid into the district court registry, the
question is whether the district court erred in holding EnCana’s interpleader
and its deposited funds automatically satisfied its liability to Seiber, thus
transferring legal possession of the funds to Seiber and the bankruptcy estate.
We hold that it did not. The bankruptcy court cited only one opinion, which
involved an owner that had paid the contractor in full prior to notice of the
subcontractor’s claim. Energy-Agri Prods., Inc. v. Eisenman Chem. Co., 717
S.W.2d 651, 653 (Tex. App. 1986). As the bankruptcy court pointed out in its
CTFA analysis, discussed below, that is not the case here.
      The district and bankruptcy courts erred in failing to draw the
distinction between the act of depositing funds into the district court registry
and the judicial act of discharging the depositor of any further liability. Simply
depositing interpleader funds does not automatically mean that the funds have
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been legally accepted, ownership thereof transferred, and the interpleader
relieved of further duty to the court or further obligation to the parties of the
dispute. If this were so, the interpleader would be the final judge of its own
legal obligations relative to the dispute, by depositing a sum solely determined
by it, washing its hands of any relationship to the dispute and walking away
whistling Yankee Doodle. Indeed, in this case there is an explicit finding by
the bankruptcy court that EnCana had met its statutory obligations, an order
requiring it to withdraw its proof of claim against Seiber, and discharging it
from the action almost two and a half years after the original filing and deposit.
A party filing an interpleader is at least required to obtain court approval
before it can disclaim interest in the deposited sum as satisfaction for any
liability it may have had in the dispute.           28 U.S.C. § 2361 (process and
procedure).
      Appellee attempts to rebut this conclusion by citing Adobe Oilfield
Servs., Ltd. v. Trilogy Operating, Inc., 305 S.W.3d 402 (Tex. App. 2010). In
Adobe, as in this case, an owner withheld payment to a contractor, whose
subcontractors demanded payment directly from the owner. Id. at 406. The
subcontractors threatened to file mineral liens against property of the owner
to ensure payment. Id. In response, the owner deposited funds covering the
entire amount due to the contractor into the court registry and sought a
temporary restraining order (“TRO”) enjoining the subcontractors from filing
such liens. Id. The Texas appellate court affirmed the trial court’s issuance of
the TRO based on the owner showing a likelihood of success in seeking
discharge, and irreparable harm to itself if the liens were filed. 1 Id. But
contrary to Zayler’s argument, Adobe does not stand for the proposition that

      1The owner had a contractual duty to prevent liens from being filed on the property
and would have been in breach of that duty if the liens were filed. Id. at 406.
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merely depositing the funds in the court registry prevents the attachment of
liens or extinguishes liens already attached against the owner’s property.
Instead the owner in Adobe deposited the funds, and then judicially established
its entitlement to a TRO by demonstrating that it was likely to be discharged
from further liability in the dispute, and second, that the filing of the liens
would result in irreparable harm to its interests. Thus, Zayler cannot rely on
Adobe to support his argument that the bare deposit of funds into the district
court registry extinguished the liens held by Holt and TAUG on EnCana’s
property.
                                              3.
       Appellee also contends that Holt and TAUG’s mineral liens extend only
to the statutorily defined property, which does not include monetary funds.
See Tex. Prop. Code § 56.003 (naming property including material, machinery,
supplies, oil and gas well interests, and land interests). Although it seems a
mineral lien that is specifically meant “to secure payment” should extend to
funds owed to the prime contractor and specifically deposited to satisfy liens
or claims made by subcontractors, we need not address whether chapter 56
allows the liens to extend to the funds because the bankruptcy court entered
an order, separate from this appeal, ruling on the interpleader and discharging
EnCana.       As part of this Discharge Order, the bankruptcy court held “[t]hat
any properly perfected mineral liens . . . held by [Holt and TAUG] . . . are hereby
TRANSFERRED to the proceeds constituting the Interpleader Fund held in
the registry of this Court to the same priority and extent they currently exist
against the Robertson County property.” (emphasis added). 2                       This order

       2 In the bankruptcy court order that is the subject of this appeal, the bankruptcy court,
in contrast to this earlier final and unappealed order, subsequently held that Holt and TAUG
did not have properly perfected mineral liens at the time of discharge. Accordingly, the court
held that no lien was transferred to the funds.
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became final and was not appealed. In this connection, the only issue then is
whether the liens were properly perfected, and in this opinion we have held
that Holt and TAUG held valid, properly perfected liens, as per chapter 56,
against EnCana’s property, up until the time of EnCana’s discharge from the
interpleader. And per the bankruptcy court’s unappealed Discharge Order,
then, Holt and TAUG’s mineral liens attached to the interpleader funds.
                                            4.
      Furthermore, we need not determine whether these funds should be paid
directly from the registry to Appellants or whether they should be paid to
Zayler for the “sole permissible administrative act . . . [of] pay[ing] over or
endors[ing] the sums due to the beneficial owners of the [funds].” Georgia
Pacific Corp. v. Sigma Serv. Corp., 712 F.2d 962, 968 (5th Cir. 1983). In some
cases, funds trapped by properly filed Texas statutory liens are excluded from
the bankruptcy estate. Green v. H.E. Butt Foundation, 217 F.2d 553, 554–55
(5th Cir. 1954). It is clear that, at minimum, lien-holding subcontractors have
preference over other estate creditors. See Tex. Prop. Code § 53.121 (granting
preference for mechanic’s lien); Tex. Prop. Code § 56.041 (authorizing
enforcement in the same manner as chapter 53); see also Perry v. Wood, 63 F.2d
257, 257 (5th Cir. 1933) (affirming preference to lien-holding subcontractors
“over other creditors of the contractor”). We leave the determination of the
proper procedural mechanism to the district court on remand. 3
                                           IV.
      For these reasons, the judgment of the district court is VACATED and
the action is REMANDED for further proceedings consistent with this opinion.
                                                        VACATED and REMANDED.

      3  Because we hold that Holt and TAUG had a superior right to the funds in accordance
with chapter 56, we need not reach their alternative argument that the CTFA created a trust
in the funds for their benefit.
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