Rok Builders, LLC v. 2010-1 SFG Venture LLC (In Re Moultonborough Hotel Group, LLC)

United States Court of Appeals
For the First Circuit

No. 12-2182

IN RE MOULTONBOROUGH HOTEL GROUP, LLC,

Debtor.
__________

ROK BUILDERS, LLC,

Appellant,

v.

2010-1 SFG VENTURE LLC,

Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
[Hon. Paul J. Barbadoro, U.S. District Judge]

Before

Torruella, Thompson and Kayatta,
Circuit Judges.

William S. Gannon for appellant.
Gary D. Ticoll, with whom Paul T. Martin, Greenberg Traurig,
LLP, Edmond J. Ford, and Ford & Associates, P.A., were on brief for
appellee.

July 18, 2013
 KAYATTA, Circuit Judge. This appeal presents two

competing claims to the assets of the bankrupt Moultonborough Hotel

Group, LLC. Appellant ROK Builders, LLC constructed a hotel for

Moultonborough and has a mechanic's lien on the property. Appellee

2010–1 SFG Venture, LLC, is the assignee of the construction lender

and has a mortgage on the hotel. When Moultonborough filed for

bankruptcy, SFG sought a declaration that its mortgage was senior

to ROK's lien to the extent the construction lender had disbursed

loan funds to ROK. ROK responded by seeking a declaration that its

lien was senior to SFG's mortgage and by advancing various

additional counterclaims. The New Hampshire bankruptcy court and

district court ruled for SFG. We now affirm.

I. Background

This dispute has its origins in a project that began in

2006 to build a Hampton Inn & Suites in Tilton, New Hampshire. On

December 1, 2006, ROK signed a contract with Moultonborough to

construct the hotel. ROK began work, but the project stalled when

Moultonborough proved unable to pay its bills. In April 2007, ROK

terminated the contract due to nonpayment of roughly $1.6 million.

ROK signaled its willingness to resume work if Moultonborough

secured adequate financing and paid the balance due, with interest.

On June 26, 2007, Moultonborough signed an agreement

letter with Specialty Finance Group in which Specialty committed to

extending up to $8.7 million in new funding to restart the project.

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ROK claims to have then immediately taken steps to resume

construction. On September 21, ROK signed a new construction

agreement with Moultonborough. Less than a month later, on October

10, Specialty signed a formal construction financing agreement with

Moultonborough, as anticipated by the commitment letter. As

security, Moultonborough executed a mortgage on the property, which

Specialty recorded the next day. In conjunction with the financing

agreement, Specialty paid ROK more than $1.8 million to settle the

amount due, with interest, to ROK under its original 2006

construction agreement with Moultonborough.

ROK then set about finishing the hotel. For its work, it

received loan disbursements from Specialty, in conjunction with at

least two of which it executed lien waivers. In its final waiver,

executed for the period ending May 31, 2008, ROK acknowledged past

payments from Specialty of $5,751,419.39 for work done under its

2007 agreement with Moultonborough, and listed a balance due of

$954,571.03. The waiver provided,

In consideration of the payment of the above
stated sums currently due and amounts
previously paid, the receipt of which is
hereby acknowledged, [ROK]1 hereby waives,
relinquishes, and releases any and all liens,
rights, claims and interests (including,

1
The waiver primarily refers to ROK as the "Contractor," but
in one instance refers to the company as the "Subcontractor." On
appeal, neither party argues that this apparent drafting error
changes the waiver's legal effect, and for the sake of clarity we
have replaced references to either the "Contractor" or
"Subcontractor" with "ROK."

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 without limitation, all rights to mechanic's
and materialmen's liens) owned, to be owned,
claimed or held by [ROK] in and to the
[Hampton Inn & Suites in Tilton] . . . by
reason of the labor performed and/or materials
furnished by [ROK] . . . prior to and
including the Payment Date . . . .

At the time it submitted the waiver, ROK was unaware that

Specialty had decided to stop payments due to Moultonborough's

failure to secure additional financing, as its loan agreement with

Specialty required. Indeed, Specialty did not inform ROK of this

decision even when it received the waiver, and ROK performed

further work in June, still unaware that it would not be paid.

ROK's briefs do not dispute that it received an additional

$682,655.01 from Specialty, presumably after the May waiver,

yielding a total payout of $6,434,074.40 for work performed under

the 2007 construction contract. However, ROK maintains that it is

still owed $2,487,411.94 for work under that contract, secured by

a mechanic's lien.2

Despite the unresolved payment issue, the hotel opened

successfully in June of 2008. Moultonborough and Specialty,

2
The record is somewhat unclear regarding the details of
Specialty's additional $682,655.01 payment. It may represent at
least partial satisfaction of the $954,571.03 balance due as of May
31, 2008. Yet ROK's mechanic's lien of $2,487,411.94 is the sum
of: (i) the May balance, (ii) an additional $1,083,313.22 for work
ROK apparently performed in June, and (iii) $449,527.69 of
retainage. Because we resolve this appeal fully in SFG's favor and
hold that SFG's right to reimbursement of $6,434,074.40 for
mortgage funds disbursed to ROK is senior to ROK's lien, we need
not address whether that lien should be reduced in light of
Specialty's $682,655.01 payment.

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however, soon found themselves in financial trouble. In May of

2009, Specialty's parent company, Silverton Bank, N.A., failed, and

Specialty assigned the construction mortgage on the hotel to the

Federal Deposit Insurance Corporation, the receiver for Silverton.

Soon after, the FDIC assigned the mortgage to SFG. Later in 2009,

Moultonborough filed a petition in New Hampshire bankruptcy court

for reorganization under chapter 11 of the bankruptcy code.

On March 15, 2011, SFG initiated an adversary proceeding

against ROK in bankruptcy court, seeking a declaration that

$6,434,074.40 of the construction mortgage -- the amount Specialty

had disbursed to ROK for work performed under the 2007 construction

contract -- was senior to ROK's mechanic's lien. In response, ROK

filed a dozen counterclaims: two seeking a determination that its

lien was senior to SFG's mortgage, and an additional ten advancing

causes of action sounding in tort, contract, and equity. SFG filed

a motion to dismiss, which the bankruptcy court granted as to the

ten secondary counterclaims. SFG then filed a motion for summary

judgment on the competing seniority claims, which the bankruptcy

court granted. ROK timely appealed to the district court, see 28

U.S.C. § 158(a)(1), which affirmed following de novo review. ROK

Builders, LLC v. 2010-1 SFG Venture, LLC, No. 12-cv-57-PB, 2012 WL

3779669 (D.N.H. Aug. 30, 2012). On September 28, 2012, ROK filed

a timely notice of appeal to this court.

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 II. Analysis

On appeal, ROK challenges the grant of summary judgment

on the competing seniority claims and the dismissal of three of its

secondary counterclaims -- specifically, those for breach of an

implied contract, promissory estoppel, and unjust enrichment.

Although we constitute the second tier of appellate review in this

case arising out of a decision by the bankruptcy court in an

adversary proceeding, "we cede no special deference to the

determinations made by the . . . district court" and instead

"assess the bankruptcy court's decision directly." City

Sanitation, LLC v. Allied Waste Servs. of Mass., LLC (In re Am.

Cartage, Inc.), 656 F.3d 82, 87 (1st Cir. 2011). In doing so, we

"scrutinize that court's findings of fact for clear error, and

afford de novo review to its conclusions of law." Brandt v. Repco

Printers & Lithographics, Inc. (In re Healthco Int'l, Inc.), 132

F.3d 104, 107 (1st Cir. 1997).

The legal standards traditionally applicable to motions

for summary judgment and motions to dismiss apply without change in

bankruptcy proceedings. See Soto-Rios v. Banco Popular de P.R.,

662 F.3d 112, 115 (1st Cir. 2011); Banco Santander de P.R. v.

López-Stubbe (In re Colonial Mortg. Bankers Corp.), 324 F.3d 12, 15

(1st Cir. 2003). Accordingly, in reviewing the bankruptcy court's

summary judgment ruling, our inquiry is whether any "genuine issue

of material fact exists" and whether "the moving party is entitled

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to judgment as a matter of law." Soto-Rios, 662 F.3d at 115; see

also Fed. R. Bankr. P. 7056; Fed. R. Civ. P. 56. As for the

court's ruling on the motion to dismiss, "we assume the truth of

all well-pleaded facts and indulge all reasonable inferences that

fit the plaintiff's stated theory of liability," and we affirm "if

the plaintiff's factual averments hold out no hope of recovery" on

that theory. Banco Santander de P.R., 324 F.3d at 15; see also

Fed. R. Bankr. P. 7012(b); Fed. R. Civ. P. 12(b)(6). As our

analysis below makes plain, the bankruptcy court had ample bases

for ruling as it did.

A. The Competing Seniority Claims.

We turn first to the competing seniority claims. As

assignee of the mortgage, SFG advances the unremarkable position

that, to the extent Specialty paid ROK for its work, and to that

extent only, the mortgage is senior to any remaining mechanic's

lien that ROK has. ROK counters that its lien for later work on

the project for which it was not paid takes precedence over the

mortgage. In support of this position, ROK asserts that because it

began work on the project before the mortgage was recorded, any

lien arising out of work on the project performed at any time,

whether prior to or after recording of the mortgage, remains senior

to the mortgage, even to the extent the mortgagee paid for work.

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For the following reasons, we find that New Hampshire law plainly

rejects ROK's position.3

First, the New Hampshire statutory scheme that recognizes

mechanics' liens, provides the procedure for their perfection, and

specifies their relative priority over other encumbrances, runs

directly against ROK's position. The New Hampshire recording

statute, N.H. Rev. Stat. Ann. § 477:3-a, acknowledges by negative

implication the rule that the first party to record without notice

of a prior party's claim has priority. It provides that any

"instrument which affects title to any interest in real estate"

must be recorded and "shall not be effective as against bona fide

purchasers for value until so recorded." Id. In Amoskeag Bank v.

Chagnon, 572 A.2d 1153, 1155 (N.H. 1990), the New Hampshire Supreme

Court quoted section 477:3-a, as well as N.H. Rev. Stat. Ann.

§ 477:7, which provides that conveyances of real estate are not

valid against anyone but the grantor and his heirs unless recorded,

and then explained:

New Hampshire is a "race-notice" jurisdiction.
That is, a purchaser or creditor has the
senior claim if he or she records without

3
In this dispute between the builder of a hotel in New
Hampshire and the holder of a mortgage on that hotel, the
bankruptcy and district courts both understandably assumed that New
Hampshire law supplied the substantive rules of decision, with no
objection by any party. No party argues on appeal that a different
choice of law should be made, or that such a choice would make a
difference. Therefore, we, too, rely on New Hampshire's
substantive law. See Jasty v. Med. Tech., Inc., 528 F.3d 28, 34
n.5 (1st Cir. 2008).

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 notice of a prior unrecorded interest. The
purpose then of the recording statutes recited
above is to provide notice to the public of a
conveyance of or encumbrance on real estate.
The statutes serve to protect both those who
already have interests in land and those who
would like to acquire such interests.

In a subsequent decision, the Supreme Court also linked the

race-notice rule to section 477:3-a. See Mansur v. Muskopf, 977

A.2d 1041, 1046 (N.H. 2009). Specifically, the Court cited

Amoskeag Bank for the proposition that the state is a race-notice

jurisdiction. Id. It then explained that "[t]herefore, a

purchaser with a senior claim in real estate must record such

interest in order to prevail over a bona fide purchaser for value,"

and cited "[i]n particular" section 477:3-a. Id.

Here, the race-notice rules favor SFG, because the

mortgage was recorded well before the work for which a lien is

claimed was performed. This fact alone does not defeat ROK's

claim, however, because the statutory scheme in New Hampshire

creates an exception to the race-notice rule for mechanics' liens.

Specifically, a mechanic's lien "shall have precedence and priority

over any construction mortgage." N.H. Rev. Stat. Ann. § 447:12-a;

see also Lewis v. Shawmut Bank, 650 A.2d 744, 745 (N.H. 1994)

(describing section 447:12-a as "[a]n exception to the general

rule" of race-notice). This exception is, however, itself subject

to an important qualification: a mechanic's lien "shall not be

entitled to precedence as provided in this section to the extent

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that the mortgagee shows that the proceeds of the mortgage loan

were disbursed . . . toward payment of invoices from or claims due

subcontractors and suppliers of materials or labor for the work on

the mortgaged premises." § 447:12-a. As the bankruptcy court

concluded, this qualification takes the § 447:12-a exception out of

play in this case. Because ROK does not contest the fact that

Specialty, the original mortgagee, made $6,434,074.40 in such

payments to ROK, the plain text of § 447:12-a demonstrates that the

exception for which the statute provides has no application to the

facts before us.

In response to this conclusion, ROK contends that the

scheme envisioned by § 447:12-a is nonexclusive, and that an

alternative source of priority for mechanics' liens can be found in

older New Hampshire case law. But in support of that proposition,

ROK points only to two nineteenth-century cases, neither of which

establishes any principle at variance with the present statutory

scheme. See Cheshire Provident Inst. v. Stone, 52 N.H. 365 (1872);

Graton & Knight Mfg. Co. v. Woodworth-Mason Co., 38 A. 790 (N.H.

1897). In neither case did the mortgagee pay the mechanic for any

work. Rather, the mortgagee, presumably for some consideration

extended to the owner, acquired a mortgage after work on the

property subject to the mortgage had already commenced. Graton &

Knight Mfg. Co., 38 A. at 790; Cheshire Provident Inst., 52 N.H. at

365. The mortgage thus remained junior to the mechanic's lien for

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whatever unpaid work arose out of the ongoing project. In the

language of the statute, the lien in full "continue[d]." N.H. Rev.

Stat. Ann. § 447:9.

In this case, by contrast, payment was in fact

"previously made" to ROK by Specialty. Therefore, the lien for

that paid work expired, leaving ROK with only a lien for later

work. See N.H. Rev. Stat. Ann. §§ 447:2, 447:9. And Specialty,

unlike the mortgagees in Graton & Knight and Cheshire Provident,

even obtained a written lien waiver, to boot. See Graton & Knight

Mfg. Co., 38 A. at 790; Cheshire Provident Inst., 52 N.H. at 365.

Accordingly, we conclude that the bankruptcy court did

not err in concluding that section 447:12-a establishes the

seniority of SFG's mortgage over ROK's mechanic's lien to the

extent of the $6,434,074.40 that Specialty disbursed to ROK.

B. ROK's Counterclaims.

We turn now to ROK's counterclaims for breach of an

implied contract, promissory estoppel, and unjust enrichment. All

three claims rest on Specialty's course of dealings with ROK as the

hotel neared completion, roughly two years before SFG appeared on

the scene. In essence, ROK maintains that Specialty, eager to have

the value of a finished rather than unfinished hotel as collateral

for its loan, misled ROK into believing that it would be paid for

completing construction. ROK now demands that SFG, as the assignee

of Specialty's mortgage, make good on that alleged commitment.

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 1. Assumption of liability for implied contract and
promissory estoppel.

Taking the first two counterclaims together, ROK asserts

that although the doctrines of implied contract and promissory

estoppel are distinct, the same conduct by Specialty entitles it to

recover under either theory. An implied contract is an enforceable

agreement that arises from "the conduct of the parties, apart from

oral and written words." Durgin v. Pillsbury Lake Water Dist., 903

A.2d 1003, 1006 (N.H. 2006). Promissory estoppel, in contrast,

provides a basis for recovery when no contract exists; if a

promisor should reasonably expect a promisee to rely on a promise,

and the promisee in fact does so, courts may enforce the promise to

avoid injustice. See Great Lakes Aircraft Co. v. City of

Claremont, 608 A.2d 840, 853 (N.H. 1992); Panto v. Moore Bus.

Forms, Inc., 547 A.2d 260, 266 (N.H. 1988); see also Restatement

(Second) of Contracts § 90 (1981).

As the bankruptcy court recognized, however, even

assuming that Specialty's actions created an implied contract

between Specialty and ROK or entitled ROK to recover from Specialty

under a theory of promissory estoppel, there is no basis for

holding SFG liable for the actions of Specialty. No language in

the assignments purports to transfer such liabilities to SFG. ROK

is therefore left to contend that SFG "implicitly assumed"

Specialty's liability to ROK when SFG accepted assignment of the

mortgage and loan agreement between Specialty and Moultonborough

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without expressly rejecting any assumption of Specialty's

liabilities. In support of this contention, ROK relies on

section 328 of the Restatement (Second) of Contracts (1981).

With certain exceptions, section 328 treats a general

assignment of all rights under a contract as a delegation of

unperformed duties under the same contract, enforceable against the

assignee by the obligor of the assigned rights. Without commenting

on whether and to what extent section 328 might in some cases apply

to assignments of mortgages and defaulted notes, we can easily

reject any assertion that section 328 helps ROK in this case. The

contract assigned to SFG was an agreement or agreements between

Moultonborough as borrower/mortgagor and Specialty as

lender/mortgagee. If SFG assumed any obligations as a result of

that assignment, they would have been the obligations of the

lender/mortgagee under those agreements. The alleged liability

that ROK seeks to impose on SFG, however, arises from an alleged

implied contract (or promise) between Specialty and ROK. SFG

received no assignment of any rights under any contract such as

that. In short, even if we were to assume that obligations under

a contract follow rights upon assignment absent indication

otherwise, nothing in section 328 would suggest that obligations

under one contract follow rights under another. For this simple

reason, ROK's argument does not get to first base.

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 2. Unjust enrichment.

ROK's claim of unjust enrichment fails, too, although for

a reason other than that relied on by the bankruptcy court.

"Unjust enrichment is an equitable remedy" that entitles a party to

restitution from one who has "receive[d] 'a benefit which would be

unconscionable for him to retain.'" Clapp v. Goffstown Sch. Dist.,

977 A.2d 1021, 1024-25 (N.H. 2009) (quoting Kowalski v. Cedars of

Portsmouth Condo. Assoc., 769 A.2d 344, 347 (N.H. 2001)). The

bankruptcy court dismissed ROK's claim for unjust enrichment on the

basis that SFG could not be liable for the conduct of Specialty --

the same basis on which it dismissed ROK's implied contract and

promissory estoppel claims. New Hampshire law is clear, however,

that restitution may be required even if the party receiving the

benefit has not itself engaged in wrongful acts. Gen. Insulation

Co. v. Eckman Constr., 992 A.2d 613, 621 (N.H. 2010). Passive

acceptance of a benefit can be enough, as long as it would be

unconscionable for the recipient to retain the benefit. See id.

Having convinced us that SFG's lack of involvement in the

alleged wrongdoing by Specialty is not itself grounds to dismiss

ROK's claim for unjust enrichment against SFG, ROK nevertheless

fails to point to any allegation that would support a finding that

SFG received a benefit, the retention of which would be

unconscionable. ROK relies on the case of Nute v. Blaisdell, 374

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A.2d 923 (N.H. 1977). That case, however, serves simply to show by

contrast what was lacking in ROK's allegations in this case.

In Nute, George Blaisdell acted as a fiduciary for June

McKeage. 374 A.2d at 924. Blaisdell caused McKeage to borrow

funds, which Blaisdell then used to buy a house, which he placed in

his mother's name. Id. There was no evidence that the mother, who

knew McKeage, paid anything for the home. Id. at 924-25. The New

Hampshire Supreme Court held that those facts could support a

finding that the mother had been unjustly enriched. Id. at 925.

After all, she got a house for nothing when it was clear that the

person whose money and credit paid for the house intended no gift.

Here, SFG simply bought a mortgage on a completed hotel, from a

failed bank through the FDIC. ROK alleges no facts plausibly

demonstrating that the purchase transaction was not negotiated at

arm's length. Nor does ROK allege any fact suggesting that SFG

would have paid the same amount for a mortgage on an uncompleted

hotel. Therefore, even assuming that Specialty received a benefit

from the unpaid work, it is certainly not unconscionable for SFG to

retain that which it bought. See Axenics, Inc. v. Turner Const.

Co., 62 A.2d 754, 766-67 (N.H. 2013).

Accordingly, although our analysis differs from that of

the bankruptcy court, the court did not err in dismissing ROK's

unjust enrichment claim.

Affirmed.

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