Mammoth Grading, Inc.

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Case 09-01286-8-SWH Doc 736 Filed 02/24/12 Entered 02/24/12 11:15:47 Page 1of6

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WESTERN DIVISION
NO. 5:10-CV-316-H

FERGUSON ENTERPRISES, INC. OF
VIRGINIA,

Appellant,

Vv. ORDER

MAMMOTH GRADING, INC.,

Appellee.

ON APPEAL FROM THE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
This matter is before the court on a motion to dismiss the
appeal of Ferguson Enterprises, Inc. of Virginia (“Ferguson”),
filed by Appellee, Mammoth Grading, Inc. (“Mammoth”). This

appeal arises out of the bankruptcy court’s orders in two

separate cases: In re Harrelson Utilities, Inc., No. 09-02815-

8-ATS (E.D.N.C. Bankr. July 30, 2009), and In re Mammoth

Grading, Inc., No. 09-01286-8-ATS (E.D.N.C. Bankr. Aug. 24,

2009). Harrelson Utilities, Inc. (“Harrelson” ) filed a
voluntary petition under Chapter 11 of the Bankruptcy Code in
April 2009; and Mammoth filed a voluntary petition under Chapter
7 in February 2009.

Ferguson is an unpaid subcontractor who provided labor and

materials for the improvement of a number of real estate

AUTHENTICATED
U.S. GOVERNMENT
INFORMATION
GPO

Case 09-01286-8-SWH Doc 736 Filed 02/24/12 Entered 02/24/12 11:15:47 Page 2 of 6

projects undertaken by Harrelson and Mammoth, severally.’ After
Harrelson filed its bankruptcy petition, Ferguson filed notices
of claims of liens on funds due Harrelson and, by subrogation to
Harrelson’s lien rights, claims of liens on the real property.
Likewise, Ferguson filed post-petition notices of claims of
liens on funds due Mammoth and, by way of subrogation to
Mammoth’s rights, claims of liens on the real property.

In each case, the bankruptcy court held that the post-
petition filing and service of claims of liens and notices of
claims of liens filed by Ferguson and other subcontractors
violated the automatic stay imposed by 11 U.S.C. § 362. See In

re Harrelson Utilities, Inec., No. 09-02815-8-ATS (E.D.N.C.

Bankr. July 30, 2009); In re Mammoth Grading, Inc., No. 09-

01286-8-ATS (E.D.N.C. Bankr. Aug. 24, 2009). Ferguson appealed
the bankruptcy court’s orders in both cases to this court. Four
other subcontractors affected by the bankruptcy court’s order in

In re Mammoth Grading, Inc. also appealed. On August 26, 2010,

this court consolidated the Harrelson and Mammoth appeals. With
the exception of Ferguson’s claim in Mammoth, all claims by the
subcontractors have since been settled and the appeals

dismissed.

*Ferguson was a first-tier subcontractor on some projects
and a second-tier subcontractor on others.

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On July 29, 2011, Mammoth filed with the bankruptcy court a
motion to abandon to Ferguson the bankruptcy estate’s claim to
funds on deposit with the Clerk of Superior Court of Wake
County, North Carolina. On September 12, 2011, this court
Stayed Ferguson’s appeal pending the bankruptcy court’s decision
on Mammoth’s abandonment motion. The bankruptcy court has since
allowed Mammoth’s motion, ordering that the funds held by the
Wake County Clerk be abandoned to Ferguson and that the amount
abandoned be credited against Ferguson’s claim in the bankruptcy
estate. Mammoth now moves to dismiss Ferguson's appeal, arguing
that the abandonment of these funds, which represent the total
amount in controversy on appeal, renders Ferguson's appeal moot.

COURT’S DISCUSSION

North Carolina subcontractors supplying labor or materials
for construction projects have long operated upon the assumption
that Chapter 44A of the North Carolina General Statutes provides
them with inchoate lien rights that arise upon the furnishing of

work or materials. Cf. Equitable Life Assurance Soc’y of U.S.

v. Basnight, 234 N.C. 347, 352 (1951) (“A contractor’s lien on

real property is inchoate until perfected by compliance with
legal requirements, and is lost if the steps required for its
perfection are not taken in the manner and within the time

prescribed by law.”).

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The bankruptcy court below held that a subcontractor’s lien
rights do not constitute “an interest in property” within the
meaning of Bankruptcy Code Section 362(b) (3)’s exception to the
automatic stay, see 11 U.S.C. § 362(b) (3) (excepting from the
automatic stay imposed by § 362(a)(4) acts to perfect a pre-
existing “interest in property”), and that post-petition claims
of liens and notices of claims of liens are invalid and
unenforceable. In so ruling, the bankruptcy court has turned
the construction industry’s standard operating procedure on its
head.

This court questions whether the bankruptcy court’s rulings
below are in accord with North Carolina statutory law and the
constitutional protections afforded laborers and materialmen by
Article xX Section 3 of the North Carolina Constitution.
Specifically, the court is concerned that the bankruptcy court
may have erred in determining that a lien under Chapter 44A,
Article 2, Part 2, of the North Carolina General Statutes does
not arise until the filing of a notice of claim of lien by the
subcontractor. Nevertheless, the court is constrained to
dismiss Ferguson’s appeal, as the bankruptcy trustee’s surrender
of the funds comprising Ferguson’s claim against the estate

renders this appeal moot. See Church of Scientology of Cal. v.

United States, 506 U.S. 9, 12 (1992) (“[I]£ an event occurs

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while a case is pending on appeal that makes it impossible for
the court to grant ‘any effectual relief whatever’ to a
prevailing party, the appeal must be dismissed.”).

When a civil action becomes moot pending appeal, the
established practice is to vacate the judgment below “to ensure
that ‘those who have been prevented from obtaining the review to
which they are entitled [are] not .. . treated as if there had

been a review.’” Camreta v. Greene, 131 S. Ct. 2020, 2025

(2011) (quoting United States v. Munsingwear, Inc., 340 U.S. 36,

39 (1950)) (alteration in original). The court finds vacatur
especially appropriate where, as in this case, the appeal is
rendered moot not by mere happenstance, but by the bankruptcy
trustee’s unilateral surrender of estate property. U.S. Bancorp

Mortgage Co. v. Bonner Mall Partnership, 513 U.S. 18, 25 (1994)

(‘A party who seeks review of the merits of an adverse ruling
but is frustrated by the vagaries of circumstance, ought not in
fairness be forced to acquiesce in the judgement. The same is
true when mootness results from unilateral action of the party
who prevailed below.” (citation omitted) ).

CONCLUSION

For the foregoing reasons, the bankruptcy court’s decision

below in In re Mammoth Grading, Inc., No. 09-01286-8-ATS

(E.D.N.C. Bankr. filed Aug. 24, 2009), is hereby vacated and

Case 09-01286-8-SWH Doc 736 Filed 02/24/12 Entered 02/24/12 11:15:47 Page 6 of6

this matter is remanded to the United States Bankruptcy Court.

The clerk is directed to close this case.

f2D
This 23 day of February 2012.

Life Mernrg

MALCOLM J. ASWARD
Senior United States WA trict Judge

At Greenville, NC
#31