Court Opinion

ID: 62380
Source: CourtListenerOpinion
Date Created: 2010-04-26 04:43:38+00
Date Added: 2024-06-11T17:20:04.740450
License: Public Domain

REVISED JUNE 3, 2008

          IN THE UNITED STATES COURT OF APPEALS
                   FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                                                           Fifth Circuit

                                                                                         FILED
                                                                                        May 23, 2008
                                             No. 07-20483
                                                                                    Charles R. Fulbruge III
                                                                                            Clerk
In The Matter Of: CONTRACTOR TECHNOLOGY, LTD

                                                          Debtor
---------------------------------------------------------------------------------

ST. PAUL TRAVELERS INSURANCE COMPANY

                                                          Appellee
v.

CENTURY ASPHALT MATERIALS, LLC

                                                          Appellant

                      Appeal from the United States District Court
                           for the Southern District of Texas

Before HIGGINBOTHAM, BENAVIDES, and DENNIS, Circuit Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge:
        Century Asphalt Materials, LLC, sold construction materials to Contractor
Technology, Ltd., a general contractor for the State of Texas.                             Contractor
Technology paid Century but before the checks cleared, the contractor filed for
bankruptcy. The bankruptcy court held that Contractor Technology’s payments
to Century were unauthorized post-petition transfers and ordered that Century
                                  No. 07-20483

return the payments to the Trustee. On summary judgment, the court, after
“returning” the parties to the positions they were in when the checks were
delivered, held that Century had with this reset of time perfected its bond claims
for the materials. Century had sent the claims to St. Paul Travelers Insurance
Company, Contractor Technology’s surety, after it had returned the payments
to the Trustee. St. Paul appealed to the district court, which reversed. Century
appealed.
                                        I
      In March 2005, Century delivered materials to Contractor Technology, a
contractor involved in various public works improvement projects for the State
of Texas. Contractor Technology had retained St. Paul as a surety to provide
payment bonds for its suppliers. As payment for the materials, Contractor
Technology issued its first check for $33,454.75 to Century on April 30, 2005,
and its second check for $84,104.64 on May 10, 2005. These checks cleared on
May 16 and 19, 2005, but not before Contractor Technology filed for bankruptcy
on May 13, 2005. Contractor Technology’s Chapter 7 Trustee filed an adversary
proceeding against Century on November 8, 2005, urging that the checks were
unauthorized post-petition transfers.1 Realizing that under the bankruptcy
proceeding it might have to relinquish the payments that it had received from
Contractor Technologies, on December 8, 2005, Century filed a third-party
complaint against St. Paul in bankruptcy court.         On July 17, 2006, the
bankruptcy court avoided and rescinded Contractor Technology’s transfers to
Century, as Century had feared it would do. The Trustee and Century disputed
the actual amount due and settled at $115,000. On August 15, 2006, the
bankruptcy court issued an Order Approving Compromise and Settlement

      1
          See 11 U.S.C. § 549.

                                        2
                                      No. 07-20483

requiring Century to pay $84,104.64 and $30,895.36 to the Trustee within ten
days of the order. The order stated,
       On the date that the First Settlement Payment is delivered to the
       Trustee (the “First Repayment Date”), the parties are returned to
       their respective positions as they existed on May 10, 2005 with
       respect to the obligations owed by the Debtor to Century Asphalt
       that were originally satisfied. . . . Any and all applicable deadlines
       existing on May 10, 2005 with respect to the claim satisfied by the
       delivery of . . . [the first check] shall continue to run from the First
       Repayment Date.

       The order contained identical language for the second check, replacing
“First Repayment Date” with “Second Repayment Date” and “May 10, 2005” with
April 30, 2005.” Having returned the payments it originally received, Century
then attempted to obtain payment for the materials by making a bond claim. On
August 28, 2006, Century sent notice and a sworn statement of account to St.
Paul pursuant to the procedures required for bond claims under Texas
Government Code Chapter 2253, also known as the McGregor Act.2
       St. Paul filed a motion for summary judgment with the bankruptcy court,
arguing, inter alia, that Century had failed to meet the Act’s notice requirements
with respect to timing. Section 2253.041 of the Act, “Notice Required for Claim
for Payment for Labor or Material,” provides in relevant part,
       (a) To recover in a suit under Section 2253.073 on a payment bond
       for a claim for payment for public work labor performed or public
       work material delivered, a payment bond beneficiary must mail to
       the prime contractor and the surety written notice of the claim.

       (b) The notice must be mailed on or before the 15th day of the third
       month after each month in which any of the claimed labor was
       performed or any of the claimed material was delivered.

       2
        See, e.g., Suretec Ins. Co. v. Myrex Indus., 232 S.W.3d 811, 813 (Tex. App.–Beaumont
2007, pet. filed) (describing Chapter 2253 of the Texas Government Code as “the McGregor
Act”).

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                                         No. 07-20483

       (c) The notice must be accompanied by a sworn statement of account
       that states in substance:

       (1) the amount claimed is just and correct; and

       (2) all just and lawful offsets, payments, and credits known to the
       affiant have been allowed.3

St. Paul maintained that because Century delivered the materials in March
2005, under the Act it was required to provide notice of a bond claim on or before
June 15, 2005, the fifteenth day of the third month after the materials were
delivered, and that it failed to meet this deadline. St. Paul further argued that
Century had failed to meet several of the Act’s substantive notice requirements,4
and that Century could not claim the broad protections contained within the Act
for material suppliers to state contractors, as it was requesting funds that had
been transferred in bankruptcy, not reimbursement for defaulted materials
payments. Finally, it asserted that the bond claim failed because “Century
Asphalt has already been paid and therefore, it cannot satisfy the Texas
Government Code for recovery on a bond claim.” In other words, it urged that
bond claims under the McGregor Act are for defaulted payments, not payments
made and later rescinded in bankruptcy.
       Century filed a cross motion for summary judgment, asserting that it had
met all of the Act’s substantive requirements. Its central argument was that the
bankruptcy court’s avoidance of the payments brought the parties back to their
original positions, making Century an unpaid supplier subject to the Act’s broad
protections. Century maintained that its bond notice of August 28, 2006, was

       3
           Tex. Gov’t Code § 2253.041.
       4
         It urged that “Century Asphalt failed to provide notice, a sworn statement of account
and failed to satisfy all of the requirements to properly perfect its bond claim in anyway [sic]
under the Texas Government Code. It also failed to identify the specific payment bond and
project for which it is seeking recovery.”

                                               4
                                  No. 07-20483

timely because the bankruptcy court’s order provided that applicable deadlines
for claims originally satisfied by delivery of the checks would run from the dates
on which Century had to return the money to the Trustee – the repayment dates.
In other words, pursuant to the court’s order the repayment dates became the
dates when Contractor Technology “defaulted” on its payments to Century.
Because Century “furnished the bond notice within three days of the repayment
date,” Century argued, it furnished bond notice well within Chapter 2253’s
three-month window. Century also argued that Texas courts have held that
Chapter 2253 should be liberally construed, that the Act only requires
“substantial compliance,” and that the Texas legislature intended for the Act to
protect material suppliers like Century. In a footnote, Century urged the court
to apply equitable tolling because “Chapter 2253’s limitations would effectively
bar Century Asphalt, through no fault of its own, from seeking to recover on the
payment bonds . . . .”
      The bankruptcy court denied St. Paul’s motion for summary judgment and
granted Century’s cross motion. Its holding rested on two central points of
reasoning. First, the court held that “in determining a bond beneficiary’s
compliance with the notice requirements of Chapter 2253, ‘substantial
compliance’ is considered all that is necessary to properly perfect a claim.” The
court determined that because it avoided now-bankrupt Contractor Technology’s
payments to Century for materials, Contractor Technology’s payments were
payments that “never occurred.” Therefore, the “repayment dates” – the dates
on which the court ordered Century to return the payments to the trustee –
became the dates on which Contractor Technology failed to pay Century for its
materials. Under the bankruptcy court’s reasoning, Century need only have
provided notice of a bond claim to St. Paul on the fifteenth day of the third
month after Century returned the funds to the Trustee. The bankruptcy court
concluded that it would “consider Century as never having been paid for its

                                        5
                                     No. 07-20483

public work material provided” and that, as a result, “Century falls within the
bounds of requesting payment from the surety as provided” by Chapter 2253.
      The bankruptcy court’s second line of reasoning rested on equitable tolling.
It observed that
      the present case may . . . be differentiated [from traditional
      equitable tolling] in that equitable tolling . . . deals with the tolling
      of statutes of limitation. The notice requirement under the
      McGregor Act is not a statute of limitation. It is a statutorily
      defined condition precedent to filing a bond claim.

The bankruptcy court held that although Chapter 2253’s notice requirement is
not a statute of limitation, it could apply equitable tolling to further the
McGregor Act’s purpose of protecting entities that provide materials and labor
to Texas public works projects. It also concluded that equitable tolling was
applicable because “[t]he present case certainly falls within the category of
‘extraordinary circumstances’ making it impossible for plaintiff to timely assert
his claim.”
      St. Paul appealed, and the district court reversed, remanding to the
bankruptcy court for entry of summary judgment in St. Paul’s favor.5 The
district court held that
      [e]ven if the effect of Century Asphalt’s settlement with the Trustee
      was to return Century Asphalt to the position it would have held in
      May 2005 if the Debtor (Contractor Technology) had not paid for the
      material Century Asphalt provided, Century Asphalt would still be
      required under § 2253.041 to provide written notice “on or before the
      15th day of the third month after . . . any of the claimed material
      was delivered.” The parties have not cited and this Court has not
      located any legal authority that enables an avoidance under the

      5
        Because the court reversed and remanded with a specific order to enter summary
judgment in favor of St. Paul – a ministerial task – we have jurisdiction. See In re Caddo
Parish-Villas S., Ltd., 174 F.3d 624, 628 (5th Cir. 1999).

                                            6
                                    No. 07-20483

      Bankruptcy Code of a transfer to excuse compliance with state
      statutory prerequisites such as the § 2253.041 notice requirement.6

      The district court also held that equitable tolling did not permit the
bankruptcy court to extend the notice deadline for the bond claim, as the notice
requirement is not a statute of limitations, and equitable tolling applies only “‘to
the affirmative defense of limitations.’”7 Furthermore, the court held, even if it
could apply the doctrine, it could not apply it to the extent that it overruled
legislative choices, and Century Asphalt failed to act diligently in providing
notice. Century knew no later than November 2005, when it received notice of
the adversary bankruptcy proceeding, that the payments were likely to be
avoided.
      Century appeals from the district court’s order, urging that because
Chapter 2253 is remedial and aims to protect material suppliers like Century,
the district court should have liberally construed the statute. The avoided
transfer brought the parties back to their position prior to receiving the
payments, it urges, and because Century provided notice of its bond claim three
days after the due date for repayments ordered by the court, it essentially
provided notice on May 13, 2005 – three days after the first materials were
delivered and “well before the June 15, 2005 notice date.” Furthermore, Century
argues, the district court’s strict construction of the statute results in “absolute
protection for the surety,” contrary to the statute’s purpose of protecting
suppliers of material and labor, and leads to absurd results. “Under the district
court’s holding,” it maintains, “the only way a supplier could protect its statutory
rights under Chapter 2253 would be to furnish bond notices on every single

      6
        In re St. Paul Fire and Marine Ins. Co. v. Century Asphalt Materials, LLC, No.
05-3808, 2007 WL 1468549 at *2 (S.D. Tex. May 18, 2007) (internal citation omitted).
      7
        Id. at *3 (quoting Heart Hosp. IV, L.P. v. King, 116 S.W.3d 831, 836 (Tex. App.–
Austin 2003, rhr’g overruled, rev. denied)).

                                           7
                                         No. 07-20483

project, every single time it furnished material, regardless of whether it had
already been paid for the material . . . .” Finally, Century urges that the district
court erred in holding that the doctrine of equitable tolling does not apply and
improperly construed Chapter 2253’s notice requirement as a jurisdictional
prerequisite.
       St. Paul disagrees, arguing that construing Chapter 2253 to permit late
notice would write an exemption into the statute and that equitable tolling
applies only to statutes of limitations. Its central argument lies in the timing.
It maintains,
       It is undisputed that the materials for which Century Asphalt seeks
       recovery were delivered in March 2005. Given this undisputed fact,
       notice under Chapter 2253 of the Texas Government Code for such
       labor or materials was due by June 15, 2005. It is also undisputed
       that Century Asphalt did not provide notice of any payment bond
       claim by the date. . . . Therefore, Century Asphalt did not perfect a
       payment bond claim under the provisions of the Texas Government
       Code.

We first address the timing arguments and then equitable tolling.
                                               II
       We review the district court’s reversal of the bankruptcy court’s grant of
summary judgment de novo.8 We are persuaded that no matter how liberally we
construe Chapter 2253,9 it does not contain a notice exemption for bond claims

       8
           See In re Robertson, 203 F.3d 855, 858 (5th Cir. 2000).
       9
         See, e.g., Redland Ins. Co. v. Sw. Stainless, L.P., 181 S.W.3d 509, 512 (Tex. App. –
Fort Worth 2005, no pet.) (quoting Featherlite Bldg. Prods. Corp. v. Constructors Unlimited,
Inc., 714 S.W.2d 68, 69 (Tex. App.–Houston 1986, writ ref’d n.r.e.)) (“Because the McGregor
Act is remedial in nature, ‘it is to be given the most comprehensive and liberal construction
possible.’”); S.A. Maxwell Co. v. R.C. Small & Assoc., Inc., 873 S.W.2d 447, 454 (Tex. App.–
Dallas 1994, writ denied) (holding that “[t]he notice requirements of the McGregor Act are to
be liberally construed”); City of LaPorte v. Taylor, 836 S.W.2d 829, 832 (Tex. App. – Houston
1992, no writ) (holding that Chapter 2253’s predecessor, Article 5160, is “highly remedial in
nature and courts should construe it liberally to accomplish its purposes”); Baxter Constr. Co.
v. Hou-Tex Prods., Inc., 718 S.W.2d 355, 358 (Tex. App.–Houston 1986, writ ref’d n.r.e.)

                                                8
                                         No. 07-20483

on payments that were avoided in bankruptcy. Even if the bankruptcy court’s
order had the effect of reverting the parties to their original positions, as if
Contractor Technologies had never paid Century, Chapter 2253’s notice
provisions are grounded in the date of delivery, not in the date of payment or
failure to pay. Chapter 2253 requires that the notice “be mailed on or before the
15th day of the third month after each month in which any of the claimed labor
was performed or any of the claimed material was delivered.”10 The Texas Court
of Appeals has observed,
       In 1959, the McGregor Act was rewritten to provide that the notice
       limitations period begins in ‘each month in which the labor was
       done or performed, in whole or in part, or material was delivered, in
       whole or in part.’ Although the statute was again amended in 1989,
       this language defining when the notice limitations period begins
       remained unchanged. Beginning the notice limitations period in
       each month in which even a partial delivery occurs shows a
       legislative intent to continue the case law interpretation that the
       actual physical delivery is controlling in determining the notice
       limitations period.11

       Century does not argue that the bankruptcy court’s avoidance of the
transfer reverted the parties to a position wherein the materials were somehow
“undelivered.” Century delivered the materials in March 2005, and it did not
provide notice on the bond claim by June 15, 2005, as required by the terms of
the statute. The bankruptcy court’s avoidance of the payments does not change
these facts.

(quoting United Benefit Fire Ins. Co. v. Metro. Plumbing Co., 363 S.W.2d 843, 847
(Tex.Civ.App.– El Paso 1963, no writ)) (holding that Article 5160 should be “‘accorded the most
comprehensive and liberal construction of which it is susceptible in order to accomplish the
legislative purpose’”); Gen. Elec. Supply Co. v. Epco Constructors, Inc., 332 F. Supp. 112, 114
(S.D. Tex. 1971) (holding that Article 5160’s “notice requirements . . . are to be liberally
construed”).
       10
            Tex. Gov’t Code § 2253.041(b) (emphasis added).
       11
            S.A. Maxwell Co., 873 S.W.2d at 453 (internal citations omitted).

                                                9
                                        No. 07-20483

      Nor are we convinced that the failure to read a notice exemption for
avoided transfers into the Act defeats its purpose or leads to “absurd” results.
The purpose of the Act and its provisions for notice of claims on payment bonds
is to “protect claimants who provide labor or materials in the construction of
public works,”12 and also “‘to provide a simple and direct method of giving notice
and perfecting’” payment bond claims.13 Reading the Act by its terms does not
by necessity frustrate these purposes or create an absurd construction.
      In Waggoner v. Gonzales, we recognized that “the common mandate of
statutory construction [is] to avoid absurd results.”14 To avoid absurd results in
that case, we interpreted the statute by looking to the language of the statute as
a whole as well as the “plain language of the statute. . . and [its] . . . other
analogous . . . exceptions.”15 We held, “Although we may well conclude a
different result is more appropriate, when a statute is clear on its face, we must
faithfully interpret it.”16 Reading Chapter 2253 by its unambiguous terms,
which require suppliers to provide notice of a bond claim by the fifteenth day of
the third month following delivery, does not lead to absurd results. The statute
says nothing of bankruptcy or of the protections afforded to material suppliers
when contractors who have purchased supplies file for bankruptcy. Reading an
exemption into the notice requirement for bankruptcy would create substantial
questions regarding the proper boundary of inquiry into third party liability for
the avoided payments.

      12
           Redland Ins. Co., 181 S.W.3d at 511.
      13
        Id. (quoting Capitol Indem. Corp. v. Kirby Rest. Equip. & Chem. Supply Co., 170
S.W.3d 144, 147 (Tex. App.–San Antonio 2005, pet. filed)).
      14
           488 F.3d 632, 638 (5th Cir. 2007).
      15
           Id.
      16
           Id. at 636.

                                                10
                                          No. 07-20483

       Finally, we are unconvinced that by sending a notice claim within three
days after the date of repayment established by the bankruptcy court,
approximately 17 months after its delivery of material, Century “substantially
complied” with Chapter 2253’s notice requirements. Parties have “substantially
complied” with the notice requirements of the Act and the former versions of the
Act where their notice used language that was not identical to that contained
within the Act but conveyed the message of that language,17 or where they sent
timely and adequate notice by “first-class regular mail instead of certified
mail.”18      But timing requirements are different.                As the court in Wesco
Distribution, Inc. v. Westport Group, Inc. held with respect to the materialmen’s
lien statute, which is also to be liberally construed to protect materialmen,
“Liberal construction cannot read the timing requirements out of the statute.”19
                                                III
       Century argues that the district court erred in holding that equitable
tolling does not apply to its bond claim. We review de novo the district court’s
interpretation of § 2253.041’s timing provision as a “jurisdictional statutory
prerequisite” rather than a statute of limitations.20
       As the district court observed, the Texas Court of Civil Appeals held in
Bunch Electric Co. v. Tex-Craft Builders, Inc. that a notice requirement for

       17
            See, e.g., Featherlite Bldg. Prods. Corp., 714 S.W.2d at 69.
       18
            See, e.g., Redland Ins. Co., 181 S.W.3d at 512.
       19
         150 S.W.3d 553, 557, 558 (Tex. App.–2004, no pet.); see also S.A. Maxwell Co., 873
S.W.2d at 453-56 (sustaining a point of error for untimely notice with respect to a claim under
Art. 5160, Chapter 2253’s predecessor, but overruling other points of error where the supplier
provided timely notice and substantially complied with other substantive requirements).
       20
         Id. (“De novo review applies where a district court ‘interprets a statute or regulation
to prohibit tolling.’”).

                                                11
                                        No. 07-20483

unpaid bills for materials and labor,21 the now-repealed predecessor to Chapter
2253,22 was “not a mere statute of limitation, but is a substantive condition
precedent to the existence of the cause of action.”23 In an unreported opinion, the
Texas Court of Appeals more recently affirmed that Chapter 2253’s notice
requirement “is not a mere statute of limitation, but is a substantive condition
precedent to the existence of a cause of action on the surety bond.”24 Equitable
tolling does not apply to a “jurisdictional statutory prerequisite,”25 and the court
did not err in so holding. Concededly, there are occasions where the bankruptcy
court can override state law which frustrates its statutory mission. Here,
however, the bonding company’s duty to pay rested in state law. And the power
of the bankruptcy court did not extend to creating liabilities existing neither in
federal or state law.

       21
          480 S.W.2d 42, 45 (Tex. Civ. App. – Tyler 1972, no pet.) (quoting Tex. Rev. Civ. Stat.
art. 5160). The requirement provided,
              Such claimant shall have given within ninety (90) days after the 10th
              day of the month next following each month in which the labor was done
              or performed, in whole or in part, or material was delivered, in whole or
              in part, for which such claim is made, written notices of the claim by
              certified or registered mail, addressed to the prime contractor at his last
              known business address, or at his residence, and to the surety or
              sureties.
       22
           See S.A. Maxwell Co., 873 S.W.2d at 449 n.1 (“The legislature repealed article 5160
effective September 1, 1993, and adopted titles 5, 6, and 10 of the Texas Government Code.
See Act of May 22, 1993, 73rd Leg., R.S., ch. 268, §§ 1, 46(1), 1993 Tex. Gen. Laws 986. The
statutory provisions governing public work performance and payment bonds are recodified in
title 10 of the Texas Government Code.” (citing Tex. Gov’t Code § 2253, et seq.))).
       23
            Bunch Elec. Co., 480 S.W.3d at 45.
       24
        Harvest Const. Team v. Hartford Fidelity & Bonding, No. 05-03-00006-CV, 2003 WL
23095668 at *2 n.1 (Tex. App.–Dallas Dec. 31, 2003, rev. denied, rhr’g of pet. denied) (citing
Bunch, 480 S.W.3d at 45).
       25
          See, e.g., Heart Hosp. IV, L.P. v. King, 116 S.W.3d 831, 836 (Tex. App.– Austin 2003,
rhr’g overruled; rev. denied) (holding that “ the case before us does not present a limitations
issue, but rather a jurisdictional statutory prerequisite” and that equitable tolling did not
apply).

                                                 12
                                   No. 07-20483

      The district court also held that even if equitable tolling somehow applied,
Century did not act diligently in providing notice to St. Paul once Century
learned that its payments would be avoided. We need not address this holding,
as we affirm the district court’s holding that Chapter 2253’s notice requirement
is not a statute of limitations.
      AFFIRMED.

                                       13