Hennessey Capital SE, LLC v. David (In Re Miller Engineering, Inc.)
398 B.R. 473, 2008 Bankr. LEXIS 3135, 21 Fla. L. Weekly Fed. B 551 (2008)
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Rule of Law:
A landlord's statutory lien on a tenant's property is extinguished when the original lease is terminated by an eviction judgment. If a new lease is subsequently executed containing an unambiguous waiver of the landlord's lien in favor of third-party creditors, that waiver is enforceable and subordinates the landlord's new lien to security interests perfected after the new lease begins.
Facts:
- On April 29, 1998, Bennett L. David III (Bennett) and Miller Engineering, Inc. (Miller) entered into a commercial lease, where they manually crossed out a clause granting Bennett a contractual lien on Miller's property.
- On October 10, 2000, Maruka USA, Inc. perfected a security interest in a specific piece of Miller's equipment (the Lathe), and Bennett executed a specific waiver subordinating his landlord's lien to Maruka's interest in that Lathe. This interest was later assigned to Orix Financial Services, Inc. (Orix).
- After the initial lease term expired in May 2001, Miller continued its tenancy under an oral extension and then on a month-to-month basis.
- In 2004, Miller defaulted on its rent payments, and on April 13, 2004, Bennett obtained a default judgment for eviction against Miller.
- On March 8, 2005, Bennett and Miller entered into a new written 'resumption of lease' agreement which stated Miller would be 'free and clear of operational control ... with no Landlord Liens that may have previously been filed' and that it 'specifically releases for any third party's investment' Miller's assets.
- On May 23, 2005, Miller executed a security agreement with Hennessey Capital SE, LLC (Hennessey), granting Hennessey a blanket security interest in most of Miller's equipment and personal property, which Hennessey perfected on May 25, 2005.
- On October 10, 2005, Orix's original perfected security interest in the Lathe lapsed. Orix re-perfected its interest by filing a new financing statement on August 2, 2006.
Procedural Posture:
- Miller Engineering, Inc. filed a voluntary petition for Chapter 11 bankruptcy in the U.S. Bankruptcy Court.
- Hennessey Capital SE, LLC, a creditor, commenced an adversary proceeding within the bankruptcy case to determine the validity and priority of various liens on the debtor's personal property.
- Hennessey, Orix Financial Services, Inc., and Bennett L. David III each filed cross-motions for summary judgment, asking the bankruptcy court to establish the priority of their respective liens as a matter of law.
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Issue:
Does a landlord's express written waiver of lien rights in a new lease agreement, executed after the termination of a prior lease, subordinate the landlord's statutory lien to a third-party creditor's security interest that is perfected after the new lease is signed?
Opinions:
Majority - Olson, J.
Yes, an express waiver in a new lease subordinates the landlord's statutory lien to a subsequently perfected security interest. The court reasoned that Bennett's actions in obtaining a judgment for eviction in April 2004 effectively terminated the original 1998 lease agreement. This termination extinguished the landlord's lien that had attached in 1998. Consequently, the March 2005 'resumption of lease' was a new lease, not a continuation, which created a new landlord's lien as of March 8, 2005. The language in this new lease, which released Miller's assets from landlord's liens for the purpose of third-party investment, constituted a clear and unambiguous waiver of Bennett's lien rights with respect to subsequent creditors. Because Hennessey perfected its security interest in May 2005, after the waiver was executed, Hennessey's lien has priority over Bennett's landlord's lien. The court rejected Bennett's argument that the new lease was void because Miller failed to provide proof of insurance, holding this was merely a breach, not a condition that nullified the entire agreement and its waiver clause.
Analysis:
This decision provides critical clarity on the priority and durability of a landlord's statutory lien under Florida law. It establishes that a landlord's lien does not automatically carry over through subsequent lease agreements, especially when there has been a legal termination, such as an eviction judgment. The ruling emphasizes that courts will strictly enforce unambiguous lien waiver provisions in a lease, treating them as reliable instruments for third-party lenders. This precedent strengthens the position of secured creditors who rely on such waivers when extending credit, as it prevents landlords from later using parol evidence to claim they never intended to waive their rights.
