Facts

This case involved two adversary actions consolidated for trial with complicated issues involving the intersection of state law mechanic's lien statutes, bankruptcy law, and a unique private-public partnership created by the California state legislature. Many of the issues raised in this case were matters of first impression, and should be of interest to participants in project financing transactions and construction lending.

South Bay Expressway (SBX), owner of the nine-mile toll road near San Diego, also indicated it could not propose a reorganization plan until the lawsuit had been decided.

Result

Prevailing party on issue of lien validity is Mechanic's Lien Claimant Otay River Constructors (ORC); prevailing parties on issue of priority are Developer SBX and Wells Fargo Bank (WFB) as agent for the Lenders. At SBX's request, Judge Adler bifurcated the issues in the trial so as to try SBX's affirmative defenses of estoppels, waiver, and release before plaintiff ORC would be allowed to present evidence in support of its affirmative claims. On Oct. 27, 2010, Judge Louise DeCarl Adler of the United States Bankruptcy Court, Southern District of California, announced her decision affirming the validity of ORC's mechanic's lien. She ruled that SBX is estopped from asserting completion of the project in November 2007 by virtue of Caltrans' acceptance of the Project, and ruled in favor of SBX and WFB that ORC's mechanic's lien was junior to consensual liens in favor of Lenders.

Other Information

FILING DATE: March 26, 2010.