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In re Constr. Supervision Servs., Inc.

United States Court of Appeals, Fourth Circuit

May 22, 2014

In Re: CONSTRUCTION SUPERVISION SERVICES, INC., Debtor.
v.
CONSTRUCTION SUPERVISION SERVICES, INC., Debtor - Appellee, BRANCH BANKING & TRUST COMPANY, Creditor - Appellant, HANSON AGGREGATES SOUTHEAST, LLC; COUCH OIL COMPANY OF DURHAM, INC.; R.W. MOORE EQUIPMENT CO.; H.D. SUPPLY WATERWORKS, LTD; WATER WORKS SUPPLY, INC.; MSC WATERWORKS, INC.; GREGORY POOLE EQUIPMENT COMPANY; THOMAS CONCRETE OF CAROLINA, INC.; THE JOHN R. MCADAMS COMPANY, INCORPORATED, Creditors - Appellees

Argued January 28, 2014.

Page 125

Appeal from the United States District Court for the Eastern District of North Carolina, at Raleigh. (5:12-cv-00533-BO; 8:12-bk-00569-RDD). Terrence W. Boyle, District Judge.

ARGUED:

Nicholas C. Brown, HOWARD, STALLINGS, FROM & HUTSON, P.A., Raleigh, North Carolina, for Appellant.

William John Wolf, BUGG & WOLF, PA, Durham, North Carolina, for Appellees.

ON BRIEF:

Joseph H. Stallings, James B. Angell, Russell W. Johnson, HOWARD, STALLINGS, FROM & HUTSON, P.A., for Appellant.

Ethan J. Fleischer, BUGG & WOLF, PA, Durham, North Carolina, for Appellees Hanson Aggregates Southeast, LLC, Couch Oil Company of Durham, Inc., and R.W. Moore Equipment Co. Paul A. Sheridan, Nancy E. Hannah, HANNAH SHERIDAN LOUGHRIDGE & COCHRAN, LLP, Raleigh, North Carolina, for Appellees H.D. Supply Waterworks, LTD, Water Works Supply, Inc., Gregory Poole Equipment Company, Thomas Concrete of Carolina, Inc., and The John R. McAdams Company, Incorporated.

Before KING, SHEDD, and WYNN, Circuit Judges. Judge Wynn wrote the opinion, in which Judge King and Judge Shedd joined.

OPINION

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WYNN, Circuit Judge:

Generally, after a debtor files a bankruptcy petition, 11 U.S.C. § 362(a)(4) provides for an automatic stay of any attempts by creditors to collect on their claims against the debtor. But exceptions exist, including an exception under Section 362(b)(3) for " any act to perfect, or to maintain or continue the perfection of, an interest in property to the extent that the trustee's rights and powers are subject to such perfection under [11 U.S.C. § 546(b).]" 11 U.S.C. § 362(b)(3). In essence, Section 362(b)(3) provides an exception for those with an interest in property that predates the bankruptcy petition but is not yet perfected at the time the debtor files for bankruptcy if, in the absence of the bankruptcy filing, the perfected interest would be effective against a third party acquiring rights prior to that perfection.

At the heart of this appeal is whether construction subcontractors entitled to a lien on funds under North Carolina law had an interest in property when the debtor contractor filed for bankruptcy, by which time the subcontractors had not yet served notice of, and thereby perfected, their liens. A careful review leads us to conclude that the answer is yes. And because there is no dispute that the other criteria of the applicable bankruptcy stay exception have been met, we hold that the bankruptcy court and district court correctly allowed the subcontractors to serve notice of, and thereby perfect, their liens post-petition.

I.

Debtor Construction Supervision Services (" CSS" ), a full-service construction company, filed a Chapter 11 bankruptcy petition in January 2012. CSS, acting as general contractor or as a first tier subcontractor, placed orders with the Creditor Appellee Subcontractors (named in the case caption) (the " Subcontractors" ). These first tier and second tier suppliers in turn provided CSS with materials such as stone, concrete, and fuel to run equipment. The Subcontractors delivered the requested materials to CSS on an open account, later invoicing CSS for the amounts owed them.

After CSS's January 2012 bankruptcy filing, the Subcontractors sought to serve notice of, and thereby perfect, liens on funds others owed CSS. Specifically, they asked the bankruptcy court to clarify the extent of the stay to determine whether their post-petition notice and perfection would fall within the stay's ambit.

Branch Banking & Trust Company (" BB& T" ), which had lent CSS over one million dollars, secured by, among other things, CSS's accounts and real property, objected to the Subcontractors' post-petition notice and perfection. BB& T argued that the Subcontractors lacked an interest in property because they had not yet served notice of, and thereby perfected, their liens by the time CSS filed its bankruptcy petition. The Subcontractors maintained that the stay did not block them from noticing and perfecting post-petition because doing so fell under a stay exception for property interests that predate bankruptcy petitions, the post-petition perfection of which

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would be effective against third parties who acquired a pre-perfection interest.

The bankruptcy court acknowledged that there existed opinions from its own district (the Eastern District of North Carolina) in BB& T's favor. In re Constr. Supervision Servs., Inc., 12-00569-8-RDD, 2012 WL 892217, at *1 (Bankr. E.D.N.C. Mar. 14, 2012). But the bankruptcy court disagreed with those decisions and ruled against BB& T, holding that the Subcontractors had an interest in property upon delivery of the materials and equipment, i.e., before lien notice and perfection. [WL] at *2-4. And because all other requirements for the ...


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