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Subcontractor Not Estopped from Enforcing Lien Not Listed In Bankruptcy Petition

In Stock Building Supply, Inc. v. Platte River Insurance Co.,[1] the Court of Appeals dealt with issues of judicial estoppel, bankruptcy, retroactive application of statutory lien amendments, and the full payment defense.

The owner, Madison Retail-Suwanee, LLC (“Madison”) hired Cannon/Estapa General Contractors, Inc. (“Cannon”) to be the general contractor for the construction of a shopping center (“the Project”).  Cannon subcontracted with Stock Building Supply (“Stock”) to supply labor, materials, and services for the Project.  Cannon failed to complete the project and Madison had yet to pay Cannon the full contract price.  In 2007, Stock timely filed a lien on the Project and obtained a judgment against Cannon for the amount due under the subcontract.  Platte River Insurance Company (“Platte”), the surety, issued a bond to discharge Stock’s lien.  Consequently, Stock pursued an action against Platte to collect the judgment in the amount of $93,865.27.

In its answer, Platte argued that Stock was estopped from enforcing the lien and that Platte was not liable to Stock under the full payment defense.  The trial court denied Platte’s summary judgment motion, citing genuine issues of material fact regarding the full payment defense and the lien amount.  Stock argued in its appeal that Platte failed to establish its full payment defense and that Stock was entitled to recover not only the costs under the lien, but its overhead, profit, and insurance costs as well.  In its cross-appeal, Platte argued that Stock was judicially estopped from enforcing its lien because Stock did not include the lien as an asset in its bankruptcy proceeding.

First, the Court sought to determine whether a debtor was estopped from asserting a legal claim not listed as an asset in its prepackaged Chapter 11 bankruptcy petition.  Georgia courts have generally applied the doctrine of judicial estoppel to a debtor’s legal claims not included as an asset in bankruptcy petitions because the failure to include such assets acts as a denial that the assets exist and deprives not only the court of information for adjudication but also deprives creditors of information needed to satisfy unpaid obligations.

The Court rejected Platte’s claim that Stock was judicially estopped from pursuing its lien action.  The Supreme Court of Georgia previously held that judicial estoppel is not warranted when the debtor is not required to provide a schedule of assets as part of the bankruptcy proceeding and has no duty to amend the schedule of assets.[2]  In this case, Stock’s prepackaged Chapter 11 bankruptcy petition did not require a schedule of assets, nor was Stock statutorily obligated to amend its schedule of assets.

Additionally, the Court stated that Stock did not take any position that was inconsistent with its position taken in the bankruptcy proceeding.  Stock informed the Bankruptcy Court that there would be funds available to creditors.  Plus, Stock’s bankruptcy petition included a provision allowing it to preserve any cause of action and the Bankruptcy Court’s order confirmed the same.  Therefore, according to the Court, judicial estoppel did not preclude Stock from enforcing its lien.

As for the claims regarding Stock’s recovery of damages related to the lien and Platte’s full payment defense, the Court agreed with the trial court.  Stock argued that the trial court’s reliance on 182 Tenth, LLC v. Manhattan Constr. Co.[3] was misplaced, and that it was entitled to collect profit and overhead costs under its lien pursuant to O.C.G.A. § 44-14-361 because the statute’s intent was to allow the recovery of the full contract price.  Moreover, Stock argued that the statute does not differentiate between lienable and non-lienable items.

At the time Stock filed its lien, O.C.G.A. § 44-14-361(a)(2) allowed for materialmen to recover only costs for the materials and work that went into the structure.  Stock argued that the statutory amendment after 182 Tenth, which allows materialmen to recover the full contract price, applied retroactively.  The Court rejected Stock’s retroactive application of O.C.G.A. § 44-14-364 because the amendments to the statute were substantive in nature and failed to contain any language intending it to apply retroactively.  The Court also agreed with the trial court that issues of material fact existed as to whether Stock could show that the amount claimed covered only lienable items.

Lastly, the Court held that genuine issues of material fact remained regarding Platte’s full payment defense.  Platter presented some evidence that the amounts it paid to Cannon and the amounts paid to complete the project exceeded the contract price.  Platte failed, however, to show that its payments to Cannon were properly appropriated to Stock.

[1] 336 Ga. App. 113 (2016).

[2] Period Homes v. Wallick, 275 Ga. 486, 487-488 (2002).

[3] 316 Ga. App. 776 (2012).