Court Opinion

ID: 2963436
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:09:42.224879+00
Date Added: 2024-06-11T15:02:01.994285
License: Public Domain

USCA1 Opinion

	

                            UNITED STATES COURT OF APPEALS
                            UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT
                                FOR THE FIRST CIRCUIT

                                 ____________________

        No. 95-1036

                            ADMIRAL DRYWALL, INC., ET AL.,

                               Plaintiffs, Appellants,

                                          v.

                                   JOHN F. CULLEN,
                          TRUSTEE OF VAPPI & COMPANY, INC.,

                                 Defendant, Appellee.

                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF MASSACHUSETTS

                     [Hon. William G. Young, U.S. District Judge]
                                             ___________________

                                 ____________________

                                        Before

                                Boudin, Circuit Judge,
                                        _____________

                      Aldrich and Bownes, Senior Circuit Judges.
                                          _____________________

                                 ____________________

            Peter  J.  Gagne  with whom  Corwin  &  Corwin was  on  brief  for
            ________________             _________________
        appellants.
            Robert Owen Resnick with whom Posternak,  Blankstein & Lund was on
            ___________________           _____________________________
        brief for appellee.

                                 ____________________

                                     June 8, 1995
                                 ____________________

                      ALDRICH, Senior Circuit  Judge.  Defendant John  F.
                               _____________________

            Cullen is the trustee in  bankruptcy of Vappi & Co.,  Inc., a

            general   contractor   who   defaulted  after   substantially

            completing its  contract  to  build  a  condominium  complex.

            Plaintiffs,   Admiral   Drywall   and   others,   are  unpaid

            subcontractors who furnished labor and materials, and seek to

            impose an equitable lien  on undisbursed contract funds ahead

            of the trustee and  all other creditors.   They did not  file

            statutory liens, nor  was there  a surety bond  or any  other

            contract for  their protection.  The  district court affirmed

            the  bankruptcy  court's summary  judgment  in  favor of  the

            trustee.  We affirm.

                      We look  to Massachusetts law for  determination of

            interests  in assets  of the  bankruptcy estate.   Butner  v.
                                                               ______

            United States, 440 U.S. 48, 54 (1979).  In Ehrlich v. Johnson
            _____________                              _______    _______

            Service  Co., 272 Mass. 385,  172 N.E. 508  (1930), a general
            ____________

            contractor, within four months of bankruptcy paid some of its

            subcontractors,   and  its  trustee  in  bankruptcy  sued  to

            recover.  Defendants claimed  they had equitable liens.   The

            court held that, in the absence of any special contract, they

            had  none,  and hence  the  payments  to them  were  voidable

            preferences.    Plaintiffs   here,  who   likewise  have   no

            protection of  a surety,  and no special  contract otherwise,

            can  escape  foreclosure of  their  equitable  claim only  by

            persuading us that Ehrlich is no longer law.
                               _______

                                         -2-

                      Plaintiffs would reach that result  by pointing out

            that in Canter  v. Schlager,  358 Mass. 789,  267 N.E.2d  492
                    ______     ________

            (1971), the  court recognized  subrogation rights.   There it

            held  that   a  surety  on  a  performance   bond  that  paid

            subcontractors has a priority  "right of subrogation over the

            rights of a construction contractor's trustee in bankruptcy."

            358  Mass. at 792,  267 N.E.2d at  494.  Strictly  this meant

            priority for  the  surety who  was "subrogated  . . . to  the

            rights  of  the subcontractors  it paid."    Id. at  791, 267
                                                         ___

            N.E.2d   at  494.      This  differed   from  Ehrlich   where
                                                          _______

            subcontractors were  held to  have no special  rights because

            here there  was a  contract.   The subcontractors  had rights

            because  "they  are  entitled  to  rely  on  a  payment  bond

            providing  expressly that they may sue thereon."  Id. at 795,
                                                              ___

            267  N.E.2d at 496.   The court noted,  further, that, unlike

            Ehrlich, the surety was  not claiming, timewise, in violation
            _______

            of the Bankruptcy Act.   "[T]he surety's right dates  back to

            the date  of the bond."   Id. at  795-96, 267 N.E.2d  at 496.
                                      ___

            For present plaintiffs, who lack a bond, and such timeliness,

            these are fatal distinctions.

                      Since we  are concerned  with state law  choices in

            the  treatment of  creditors,  and  not  federal law,  it  is

            pointless for plaintiffs to argue that Canter's reasoning and
                                                   ________

            its treatment of subcontractors' rights as depending upon the

            presence of a  surety bond was inconsistent with Ehrlich, and
                                                             _______

                                         -3-

            therefore must be taken as overruling  Ehrlich -- although it
                                                   _______

            said it distinguished it.  Our sole duty is to take state law

            as we find it, not build on  it.  Nor would we be tempted  to

            build.    There  is  sound  public  policy  in  recognizing a

            difference   when  there   is  a   surety  in   the  picture.

            "Traditionally  sureties compelled  to  pay  debts for  their

            principal have  been deemed entitled to  reimbursement."  See
                                                                      ___

            Pearlman v. Reliance Insurance Co., 371 U.S. 132, 136 (1962).
            ________    ______________________

            If  they were not, there  would be few  sureties.  Individual

            subcontractors can seek  mechanics liens.   Mass. Gen. L.  c.

            254.

                      Affirmed.
                      ________

                                         -4-