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In re Capriati Construction Corp. Inc.

United States District Court, D. Nevada

March 31, 2017




         Sequoia Electric Underground, LLC appeals from the bankruptcy court's order granting a stipulation entered into among debtor Capriati Construction Corp, Inc.; the Nevada Department of Taxation (NVTax); and the Nevada Department of Transportation (NDOT). ECF No. 1. That stipulation resolved (1) proofs of claim NVTax and NDOT filed against Capriati's estate and (2) the distribution of funds NDOT owed to Capriati under a construction contract. In a nutshell, Sequoia contends the stipulation improperly distributes funds that do not belong to Capriati's estate because Capriati breached the underlying contract and thus no longer was entitled to the funds in NDOT's possession.

         Capriati responds that Sequoia did not object to the stipulation before the bankruptcy court and thus Sequoia cannot raise this issue for the first time on appeal. Capriati also contends the bankruptcy court's order was not final and appealable. Finally, Capriati, NVTax, and NDOT respond that under Nevada law Capriati had an interest in the funds; thus, the funds properly were treated as property of the estate that must be returned to Capriati.

         Sequoia did not raise any of its arguments before the bankruptcy court. A party cannot raise issues for the first time on appeal absent various exceptions. None of those exceptions applies in this case. I therefore dismiss this appeal, without prejudice to Sequoia attempting to obtain relief before the bankruptcy court.

         I. BACKGROUND

         Capriati was a general contractor on the U.S. 95 highway project under contract 3409 with NDOT (Project 3409). ECF No. 16 at 8-9. Sequoia was a subcontractor to Capriati on Project 3409. ECF No. 9 at 40-61. Capriati obtained performance and payment bonds for the project from Fidelity and Deposit Company of Maryland. Id. at 11-18; ECF No. 16 at 10-17; see also Nev. Rev. Stat. § 408.357 (requiring bidders on highway projects to furnish performance and payment bonds).[1]

         On March 12, 2014, NDOT advised Capriati that NDOT had inspected Capriati's work on Project 3409 and “all items have been found to be satisfactorily completed in accordance with the Construction Plans, Specifications and Special Provisions.” ECF No. 14 at 4. NDOT further stated that the “contract was completed December 1, 2012, and is hereby accepted by the Nevada Department of Transportation, as of March 7, 2014.” Id. As required by Nevada law, NDOT published a notice to creditors in the newspaper “[p]ursuant to NRS 408.387” advising them that the project was completed and any claims on the contract must be submitted to NDOT within 30 days. ECF No. 16 at 32-33; see also Nev. Rev. Stat. § 408.363(1) (requiring persons furnishing materials or labor to the general contractor to make a claim on the contractor's bond within 30 days from the date NDOT finally accepts the contract); id. § 408.387 (requiring NDOT to publish a notice of the date of final acceptance).

         Capriati did not pay Sequoia amounts due for Sequoia's work on Project 3409, so Sequoia sued in Nevada state court. ECF No. 9 at 62; see also Nev. Rev. Stat. § 408.363(2) (providing that persons furnishing materials or labor to contractor may file suit against the surety six months after they file a claim with NDOT). That litigation resulted in two partial summary judgments holding that Capriati breached the subcontract and owed Sequoia $349, 125.08 and $253, 655.29, respectively. ECF No. 9 at 62-81. Sequoia contends it is still due funds, including attorney's fees and amounts due under Change Order 15, which involved the resetting of high mast poles. ECF No. 16 at 22-30.

         Capriati filed for chapter 11 bankruptcy protection but did not identify Sequoia or the state court litigation in its schedules. ECF Nos. 6 at 46-54; 7 at 4-80, 85-86. Fidelity filed a proof of a secured claim based on payments it made on the payment bond, including the second Sequoia partial summary judgment award. ECF No. 9 at 4-18, 27 (identifying $972, 411.88 in losses related to “US 95”), and 31 (identifying $270, 804.51 for Sequoia and $7, 946.07 in related interest). Sequoia filed a proof of claim in the amount of $392, 575.98. Id. at 34-39.

         NVTax filed proof of claim 19 in the amount of $47, 854.85. ECF Nos. 8 at 31; 16 at 34-35. NDOT filed several separate proofs of claim. NDOT filed claim 44 for $5, 500 for taxes or penalties owed based on a final decision by the Nevada State Labor Commissioner. ECF No. 16 at 36-52. NDOT indicated this claim was subject to a right of setoff based on “[r]etainage under NDOT Contract No. 3409.” Id. at 37. NDOT also filed claims 73 through 78 for back wages and related penalties. Id. at 54-130. Like claim 44, each of these claims stated that they may be subject to setoff by “retainage” under the Project 3409 contract. Id. at 55, 66, 77, 94, 111, 122.

         The “retainage” arises from Nevada law, which requires NDOT to make progress payments for no more than ninety-five percent of the entire contract price. Nev. Rev. Stat. § 408.383(1). “The remaining 5 percent, but not more than $50, 000, must be retained until the entire contract is completed satisfactorily and accepted by the Director.” Id.

         On June 10, 2016, Capriati entered into a stipulation with NDOT and NVTax to accept unpaid funds NDOT owed to Capriati on Project 3409, including the $50, 000 retainage, and apply them to claims 19, 44, and 73 through 78. ECF Nos. 6 at 25; 8 at 92-95. That stipulation states that “NDOT currently holds a retention under Contract No. 3409 in the sum of $50, 000.00 and the sum of $182, 746.30 for quantities not yet paid to date under Contract No. 3409 for a total amount retained of $232, 746.30.” ECF No. 8 at 92. The stipulation provides that the funds will be applied as follows: (1) $15, 777.46 of the retention fund to be held in trust by NDOT pending a final decision by the Labor Commissioner; (2) $36, 014.18 of the retention fund to be held by NDOT to be paid to NVTax on its priority claim upon plan confirmation, with NVTax's unsecured claim to be treated under the plan; (3) $5, 500 of the retention fund to be paid to NDOT upon plan confirmation; and (4) all remaining amounts remitted to Capriati upon confirmation. Id. at 94-95. The bankruptcy court approved the stipulation four days later. ECF Nos. 6 at 25-26; 8 at 97-98.

         Sequoia did not object to the stipulation, but now appeals the bankruptcy court's approval of it. Sequoia argues that the amounts in the retention fund and the remaining $182, 746.30 were not property of the estate, and thus the parties could not stipulate to the distribution of those funds through Capriati's bankruptcy proceeding. Sequoia contends Capriati had no interest in those funds because it had breached the general contract by not paying its subcontractors. Sequoia thus reasons that NDOT had no obligation to pay Capriati those funds, so the funds never became estate property. Rather, Sequoia argues, because Fidelity paid out on its payment bond, Fidelity was entitled to the funds remaining on the Project 3409 contract. Alternatively, Sequoia argues that because the remaining unpaid funds represent Sequoia's work on Change Order 15, the funds belong to Sequoia. Sequoia also objects to the balance of any remaining funds being distributed to Capriati without any protection of the surety, Fidelity.

         Capriati responds that Sequoia's appeal is barred because it failed to object to the stipulation. Capriati also contends that the bankruptcy court's order granting the stipulation is an interlocutory order for which Sequoia did not obtain leave to appeal. On the merits, Capriati argues that NDOT has never found Capriati in breach of the contract and Sequoia has no standing to assert a breach of a contract to which it is not a party. Capriati also argues that under Nevada law, a subcontractor on a highway project does not have an equitable lien on monies held by NDOT. Rather, Capriati contends, the subcontractor's only remedy is to make a ...

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