Case 18-33836 Document 533 Filed in TXSB on 09/26/18 Page 1 of 11 IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION IN RE: Chapter 11 NEIGHBORS LEGACY HOLDINGS, INC. et al. 1, DEBTORS Case No. 18-33836 (MI) (Jointly Administered) GERALD H. PHIPPS, INC. S MOTION FOR RELIEF FROM THE AUTOMATIC STAY OR, IN THE ALTERNATIVE, CONFIRMATION THAT THE AUTOMATIC STAY IS NOT APPLICABLE THIS IS A MOTION FOR RELIEF FROM THE AUTOMATIC STAY. IF IT IS GRANTED, THE MOVANT MAY ACT OUTSIDE OF THE BANKRUPTCY PROCESS. IF YOU DO NOT WANT THE STAY LIFTED, IMMEDIATELY CONTACT THE MOVING PARTY TO SETTLE. IF YOU CANNOT SETTLE, YOU MUST FILE A RESPONSE AND SEND A COPY TO THE MOVING PARTY AT LEAST 7 DAYS BEFORE THE HEARING. IF YOU CANNOT SETTLE, YOU MUST ATTEND THE HEARING. EVIDENCE MAY BE OFFERED AT THE HEARING AND THE COURT MAY RULE. REPRESENTED PARTIES SHOULD ACT THROUGH THEIR ATTORNEY. THERE WILL BE A HEARING ON THIS MATTER ON OCTOBER 19, 2018, AT 9:00 A.M., IN COURTROOM 404, 515 RUSK AVENUE, 4 TH FLOOR, HOUSTON, TEXAS 77002. Gerald H. Phipps, Inc. ( Phipps, Movant, or the Mechanic Lien Claimant ), a creditor and party in interest in this Chapter 11 case, hereby moves for entry of the Order Terminating the Automatic Stay, or, in the alternative, an order confirming that the automatic stay is not applicable, and would respectfully show as follows: 1 Due to the large number of Debtors in these chapter 11 cases, a complete list of the Debtors and the last four digits of their tax identification numbers is not provided herein. A complete list of such information may be obtained on the website of the Debtors claims and noticing agent at www.kccllc.net/neighbors. The location of Debtors principal place of business and the Debtors service address is: 10800 Richmond Avenue. Houston, Texas 77042. 3256784.1 1
Case 18-33836 Document 533 Filed in TXSB on 09/26/18 Page 2 of 11 JURISDICTION 1. This Court has jurisdiction over this proceeding pursuant to 28 U.S.C. 157 and 1334. This matter is a core proceeding pursuant to 28 U.S.C. 157(b)(2). Venue of this proceeding is proper in this district pursuant to 28 U.S.C. 1408 and 1409. The relief requested may be granted pursuant to 11 U.S.C. 362(d). CONSTITUTIONAL AUTHORITY 2. This Court has constitutional authority to enter a final order regarding relief from the automatic stay. 11 U.S.C. 362 has no state law equivalent. Accordingly, the U.S. Supreme Court s opinion in Stern v. Marshall is inapplicable. See In re Carlew, 469 B.R. 666,672 (Bankr. S.D. Tex. 2012) (discussing See Stern v. Marshall, ---U.S.---, 131 S.Ct. 2594, 180 L.Ed. 2d 475 (2011)). In the alternative, matters related to the automatic stay imposed under 362 of the Bankruptcy Code are essential bankruptcy matters which trigger the public rights exception. See Id. The automatic stay is established by an express provision of the Bankruptcy Code and is central to the public bankruptcy scheme and involves adjudication of rights created by the Bankruptcy Code. Therefore, the relief requested falls within this Court s authority and this Court may enter a final order granting the relief requested. RELEVANT FACTUAL BACKGROUND a. Amarillo South Project. 3. On or about August 2, 2016, Phipps entered into a written construction contract with Neighbors Health LLC for the construction of a project known as the NEC Amarillo South Emergency Center LP ( Amarillo South ) tenant fit-out package at 4121 S. Georgia Street, Amarillo, Texas 79110 (the Amarillo South TI Project ). The contract sum was originally 3256784.1 2
Case 18-33836 Document 533 Filed in TXSB on 09/26/18 Page 3 of 11 $1,841.817.00, and was adjusted by change orders to result in a final contract sum of $1,796,971.41. 4. In addition to the Amarillo South TI Project, Phipps entered into a written construction contract with RKMS Amarillo South #2 LLC (the Amarillo South Landlord ) for the construction of the project known as the Neighbors Emergency Center- Building Shell and Site Package at 4121 S. Georgia Street, Amarillo, Texas 79110 (the Amarillo South Shell Package ). The Amarillo South TI Project and the Shell Project are collectively referred to as the Amarillo South Project. The real property and leasehold improvements located at 4121 S. Georgia Street, Amarillo, Texas 79110, are collectively referred to as the Amarillo South Property. 5. The terms of the written contracts for the Amarillo TI Package and Shell Package were essentially identical, except for the contract time, contract sum, scope of work builder s fee, and liquidated damages. Both contracts were put out to bid and awarded simultaneously using the same architect, and the timing of work under each contract was dependent on the other. 6. Phipps completed its scope of work and contractual obligations on the Amarillo South Project. After applying all credits and payments, there is still due $179,697.14 by Neighbors Health to Phipps on the Amarillo South TI Project. On October 16, 2017, representatives of Phipps filed an AFFIDAVIT FOR MECHANIC S AND MATERIALMEN S LIEN ( Amarillo South Lien Affidavit ) under Document No. 2017018478 in the county real property records of Randall County, Texas, claiming a lien for at least $179,697.14 against the Amarillo South Property and leasehold under the Amarillo South TI Package contract. A true and correct copy of the Amarillo South Lien Affidavit is attached hereto as Exhibit A. 3256784.1 3
Case 18-33836 Document 533 Filed in TXSB on 09/26/18 Page 4 of 11 7. On or about May 3, 2018, Phipps filed a Third Party Complaint against Neighbors Health, LLC and counter-claim against the Amarillo South Landlord, which is currently pending in the 47 th Judicial District Court, Randall County, Texas, Case No. 7351A (the Amarillo South Lawsuit ), whereby Phipps is seeking, among other things, foreclosure of its mechanic s lien on the Amarillo South Property. Phipps has filed an affirmative claim against the Amarillo South Landlord in the Amarillo South Lawsuit. b. Grand Prairie Project. 8. On or about November 28, 2016, Phipps entered into a written construction contract with Neighbors Health LLC for the construction of a project known as the NEC Grand Prairie Emergency Center LP ( Grand Prairie ) tenant fit-out package at 725 West Pioneer Way, Grand Prairie, TX 75051 (the Grand Prairie TI Project ). 9. In addition to the Grand Prairie TI Project, Phipps entered into a written construction contract with RKMS Grand Prairie LLC (the Grand Prairie Landlord ) for the construction of the project known as the Neighbors Emergency Center- Building Shell and Site Package at 725 West Pioneer Way, Grand Prairie, TX 75051 (the Grand Prairie Shell Package ). The Grand Prairie TI Project and the Shell Project are collectively referred to as the Grand Prairie Project. The real property and leasehold improvements located at 725 West Pioneer Way, Grand Prairie, Texas 75051, are collectively referred to as the Grand Prairie Property. 10. RKMS Grand Prairie LLC is/was the purported owner of the Grand Prairie Property and NEC Grand Prairie Emergency Center LP is/was the purported tenant of the Grand Prairie Property. 11. Pursuant to the Grand Prairie TI Project and Grand Prairie Shell Package contracts, Phipps furnished labor and materials for construction of the Grand Prairie Project. Phipps provided 3256784.1 4
Case 18-33836 Document 533 Filed in TXSB on 09/26/18 Page 5 of 11 general contracting and project supervision services, and coordinated the work of subcontractors and delivery of equipment and supplies. 12. After allowing for all payments, appropriate credits and offsets, Phipps is owed at least $936.979.36 for work that it has performed under the Grand Prairie TI Project contract, of which $191,320.33 constitutes contractual retainage. 13. On October 17, 2017, representatives of GH Phipps filed an AFFIDAVIT FOR MECHANIC S AND MATERIALMEN S LIEN ( Grand Prairie Lien Affidavit ) in the county real property records of Dallas County, Texas, claiming a lien for $936,979.36 against the Grand Prairie Property and the leasehold under the Grand Prairie TI Project contract. A true and correct copy of the Grand Prairie Lien Affidavit is attached hereto as Exhibit B. 14. On or about February 23, 2018, Phipps filed a Third Party Complaint against Neighbors Healthcare LLC, and cross-claim against RKMS Grand Prairie LLC, which is pending in the 68 th Judicial District Court, Dallas County, Texas, Cause No. DC 18-00876 (the Grand Prairie Lawsuit ), whereby Phipps is seeking, among other things, foreclosure of its mechanic lien on the Grand Prairie Property. c. Neighbors Bankruptcy Filing 15. On July 12, 2018, Neighbors Legacy Holdings, Inc. and its affiliated debtors and debtors in possession (collectively, the Debtors ) filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code (the Petition Date ) before the United States Bankruptcy Court for the Southern District of Texas, Houston Division, which are jointly administered as Case No. 18-33836 (the Bankruptcy Cases ). NEC Emergency Center Amarillo South, LP, is a Debtor in the Bankruptcy Cases. However, NEC Emergency Center Grand Prairie, LP, is not a debtor in the Bankruptcy Cases. 3256784.1 5
Case 18-33836 Document 533 Filed in TXSB on 09/26/18 Page 6 of 11 16. Phipps filed a Notice of Perfection of Mechanic Lien Claim [D.I. 145] on the Grand Prairie Property in the amount of $937,979.36, arising under statutory and common law of the State of Texas by virtue of the provision of materials, goods, services and equipment at the request of and pursuant to a contract with Debtor Neighbors Health, LLC, for the benefit of NEC Grand Prairie Emergency Center, LP. 17. Phipps filed a Notice of Perfection of Mechanic Lien Claim [D.I. 146] on the Amarillo South Property in the amount of $179,697.14, arising under statutory and common law of the State of Texas by virtue of the provision of materials, goods, services and equipment at the request of and pursuant to a contract with Debtor Neighbors Health, LLC, for the benefit of NEC Amarillo South Emergency Center, LP. 18. Debtor NEC Amarillo South Emergency Center, LP, as tenant, was party to a lease agreement with RKMS Amarillo #2 LLC (the Amarillo Landlord ), as landlord, for the real property and improvements located at the Amarillo South Property (the Amarillo South Lease ). 19. Non-debtor NEC Grand Prairie Emergency Center, LP 2, as tenant, was party to a lease agreement with RKMS Grand Prairie LLC (the Grand Prairie Landlord ), as landlord, for the real property and improvements located at the Grand Prairie Property (the Grand Prairie Lease ). 20. Pursuant to the Order Granting Debtors First Omnibus Motion to Authorize and Approve the Rejection of Certain Unexpired Leases and Executor Contracts Nunc Pro Tunc to the Petition Date ( First Rejection Order ) [D.I. 201], the Debtors rejected the Amarillo South Lease. 21. On September 12, 2018, the Court entered an Order approving auction and bid procedures related to the certain property owned by the Debtors [D.I. 482] (the Sale Order ). 2 For avoidance of doubt, NEC Grand Prairie Emergency Center, LP, is not a debtor in the Bankruptcy Cases. 3256784.1 6
Case 18-33836 Document 533 Filed in TXSB on 09/26/18 Page 7 of 11 22. Neither the Amarillo South Property nor the Grand Prairie Property were included within the assets sold pursuant the Sale Order. 23. Neighbors Health LLC, as sworn to under oath on its bankruptcy schedules, asserts no ownership interest in the Removables located at the Amarillo South Location [D.I. 454]. 24. The Debtors have no further legal or equitable interests in the Amarillo South Property. 25. Because the lessee of the Grand Prairie Project, namely NEC Grand Prairie Emergency Center LP, is not a debtor in these Bankruptcy Cases, Movant asserts that the automatic stay does not apply to the Grande Prairie Property. Further, the Debtors represented under oath in the section 341 meeting of creditors that if an entity has/had no assets, it was not included in the group of entities that filed for Chapter 11 bankruptcy. Finally, Neighbors Health LLC, as sworn to under oath in its bankruptcy schedules, has no ownership interest in the Removables located at the Grand Prairie location [D.I. 454]. 26. Phipps and the Amarillo South Landlord and the Grand Prairie Landlord have reached a settlement resolving the claims against one another in the Amarillo South Lawsuit and the Grand Prairie Lawsuit. Material terms of the settlement are that Phipps may enter into the Amarillo South location and the Grand Prairie location and remove certain removables that are encumbered by Phipps mechanic s liens, namely the Cummins emergency generator system and associated controls and the medical gas and vacuum system located in each property (the Removables ). Removal of the emergency generator system and the medical gas and vacuum system (which is surface mounted) will not materially injure the land or the buildings and they are not an integral part of the basic structures of each of the buildings. Furthermore, the owner of the 3256784.1 7
Case 18-33836 Document 533 Filed in TXSB on 09/26/18 Page 8 of 11 respective properties consents to removal of the emergency generator system with control panel and the medical gas and vacuum system. 27. Phipps has not subordinated its statutory or constitutional lien rights to the Debtors alleged lender, Key Bank on either project. Further, [a] mechanic s lien is superior to that of a prior recorded deed of trust lien when the improvements provided by the lienholder can be removed without material injury to: (1) the land, (2) any pre-existing improvements on the land, and (3) the improvements being removed. See First National Bank v. Whirlpool Corp., 517 S.W.2d 262 (Tex. 1974). There is no requirement in the Tex. Prop. Code which requires that notice of a specific removables claim be provided to any party involved in the project. Id. 28. Under Texas law, there are two types of mechanic s and materialmen s liens: (1) statutory liens; and (2) constitutional liens. Mechanic s and materialman s lien statutes are liberally construed to protect laborers and materialmen. See Page v. Structural Wood Components, Inc., 102 S.W.3d 720, 723 (Tex.2003); First Nat l Bank in Dall. v. Whirlpool Corp., 517 S.W.2d 262, 269 (Tex.1974). 29. Even if a statutory lien cannot be proven, there is an alternative avenue. A constitutional lien is self-executing and arises independently and apart from any legislative act. Ralph M. Parsons Co. v. S. Coast Supply Co. (In re A & M Operating Co.), 182 B.R. 997, 1000 (E.D.Tex.1995), aff d, 84 F.3d 433 (5th Cir.1996). [A] constitutional lien can exist even if the lien-holder fails to comply with the legislative requirements for statutory liens. Apex Fin. Corp. v. Brown, 7 S.W.3d 820, 830 (Tex.App.-Texarkana 1999, no pet.) (citing Hayek v. W. Steel Co., 478 S.W.2d 786, 790 (Tex.1972)). Unlike statutory liens, which must be recorded, constitutional liens arise automatically and the lien holder is not required to give notice or record the lien. 3256784.1 8
Case 18-33836 Document 533 Filed in TXSB on 09/26/18 Page 9 of 11 see also CVN Grp., Inc. v. Delgado, 95 S.W.3d 234, 240 (Tex.2002) ( [F]or constitutional liens that are self-executing, there are no technical requirements... ). 30. A party is entitled to a constitutional lien if it: (1) qualifies as a mechanic, an artisan, or a materialman; and (2) makes or repairs an article or building. Tex. Const. art. XVI, 37; In re Hydro Action, Inc., 2004 WL 3104500, 2004 Bankr.LEXIS 262, at *13 14 (Bankr.E.D.Tex. Jan. 22, 2004). Article XVI, section 37 of the Texas Constitution provides: Mechanics, artisans and material men, of every class, shall have a lien upon the buildings and articles made or repaired by them for the value of their labor done thereon, or material furnished therefore; and the Legislature shall provide by law *375 for the speedy and efficient enforcement of said liens. Tex. Const. art. XVI, 37 (emphasis added). 31. In this case, Phipps has taken all steps necessary to perfect and create mechanic s liens against both the Grand Prairie Project and the Amarillo South Project. REQUESTED RELIEF 32. This motion requests an order from the Bankruptcy Court modifying and terminating the automatic stay to permit the Movant to remove the Removables from both the Amarillo South Property and the Grand Prairie Property and exercise all of its rights and remedies under applicable law with respect to the Removables, or, in the alternative for an order confirming that the automatic stay is not applicable. as follows: 33. Relief from stay is governed by 11 U.S.C. 362(d) which reads, in pertinent part, On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay (1) for cause, including lack of adequate protection of an interest in property of such party in interest; (2) with respect to a stay of an act against property under subsection (a) of this 3256784.1 9
Case 18-33836 Document 533 Filed in TXSB on 09/26/18 Page 10 of 11 section, if- (A) the debtor does not have any equity in such property; and (B) such property is not necessary to effective reorganization; 34. Cause as used in 362(d) has no clear definition and is determined on a case-bycase basis. In re Fernstrom Storage & Van Co., 938 F.2d 731, 735 (7 th Cir. Ill. 1991). 35. In this case, cause exists because (i) by rejecting the Amarillo South Lease, Neighbors Health, LLC has surrendered the Amarillo South Property to the landlord and Phipps interests of Phipps are not adequately protected; (ii) the Debtors rejection of the Amarillo South Lease evidences that the Debtors have no equity in the Removables located at the Amarillo South location; (iii) the property located at the Grand Prairie location is not property of the estate; and (iv) (as testified to by the Debtors), the Grand Prairie location has no assets and cannot reorganize. Finally, the Debtors are submitting a plan of liquidation and there will be no reorganization. Accordingly, the automatic stay should be modified and terminated to allow Phipps to remove the Removables from the Amarillo South Property and the Grand Prairie Property. CERTIFICATE OF CONFERENCE Prior to filing this motion, the undersigned conferred with counsel for the Debtors regarding the relief requested. The Debtors represented that they are opposed to the relief requested. CONCLUSION Wherefore, Gerald H. Phipps, Inc. respectfully requests that the Court enter the Order Modifying the Automatic Stay: (i) allowing Gerald H. Phipps, Inc., its agents or assigs, to remove the Removables from the Amarillo South Property and the Grand Prairie Property, as the case may be, pursuant to the terms of any settlement agreement between Phipps and the respective landlord; (ii) Gerald H. Phipps, Inc., is authorized, but not directed to, non-suit its claims against any of the 3256784.1 10
Case 18-33836 Document 533 Filed in TXSB on 09/26/18 Page 11 of 11 Debtors in the Amarillo South Lawsuit or Grand Prairie Lawsuit; or (iii) in the alternative, entry of an order confirming that the automatic stay is not applicable. Dated: September 26, 2018 ANDREWS MYERS P.C. /s/ T. Josh Judd T. Josh Judd SBN: 24036866 1885 Saint James Place, 15 th Floor Houston, TX 77056 Tel: 713-850-4200 Fax: 713-850-4211 jjudd@andrewsmyers.com CERTIFICATE OF SERVICE I hereby certify that on September 26, 2018, a true and correct copy of the foregoing Motion for Relief from the Automatic Stay was served on the Debtors via US First Class Mail and on the Debtors counsel, parties requesting notice, any party asserting an interest in the premises, counsel for The Official Committee of Unsecured Creditors, and the Office of the United States Trustee via the Court s ECF notification system. By: /s/ T. Josh Judd T. Josh Judd 3256784.1 11
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Case 18-33836 Document 533-3 Filed in TXSB on 09/26/18 Page 1 of 2 IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION IN RE: Chapter 11 NEIGHBORS LEGACY HOLDINGS, INC. et al., DEBTORS Case No. 18-33836 (MI) (Jointly Administered) ORDER GRANTING GERALD H. PHIPPS, INC. S MOTION FOR RELIEF FROM THE AUTOMATIC STAY [Related to Doc. ] THIS MATTER came before the Court on October 19, 2018, upon the Motion by Gerald H. Phipps, Inc. ( Movant ) for Relief from the Stay pursuant to 11 U.S.C. 362(d) (the Motion ). 1 The Court has jurisdiction to consider the Motion and the relief requested therein pursuant to 28 U.S.C. 157 and 1334; and the Court having considered the Motion, the evidence offered in support of the Motion; and after due and proper notice having been granted to all parties entitled to such notice of the Motion, the Court is of the opinion that the Motion should be GRANTED to the extent set forth in this Order. IT IS THEREFORE ORDERED, ADJUDGED AND DECREED THAT: The automatic stay be and is hereby modified and terminated to permit Movant, its agents or assigns, to enter the Amarillo South Location and the Grand Prairie Location, as the case may be, and take possession of the Removables pursuant to its rights and remedies under applicable law and/or pursuant to any agreement with the respective owner of the Amarillo South Property and the Grand Prairie Property. It is further 1 Capitalized terms used but not otherwise defined herein have the meaning ascribed to them in the Motion.
Case 18-33836 Document 533-3 Filed in TXSB on 09/26/18 Page 2 of 2 ORDERED that the automatic stay is modified to permit the Movant to non-suit without prejudice its claims against Neighbors Health, LLC, in the Amarillo South Lawsuit and the Grand Prairie Lawsuit. Signed this day of October, 2018 Marvin Isgur U.S. Bankruptcy Judge 4818-6106-1487, v. 1