217 B.R. 427 (Bkrtcy.W.D.N.Y. 1998), 97-11868, In re Phipps

Docket Nº:Bankruptcy No. 97-11868 K.
Citation:217 B.R. 427
Party Name:In re Benjamin C. PHIPPS, Molly L. Phipps, Debtors. IRR SUPPLY CENTERS, INC., Individually and on behalf of all the Lienors, Claimants or Creditors for wages or materials in connection with improvement of certain land and premises herein described, Plaintiff, v. Benjamin C. PHIPPS, Defendant.
Case Date:February 17, 1998
Court:United States Bankruptcy Courts, Second Circuit
 
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Page 427

217 B.R. 427 (Bkrtcy.W.D.N.Y. 1998)

In re Benjamin C. PHIPPS, Molly L. Phipps, Debtors.

IRR SUPPLY CENTERS, INC., Individually and on behalf of all the Lienors, Claimants or Creditors for wages or materials in connection with improvement of certain land and premises herein described, Plaintiff,

v.

Benjamin C. PHIPPS, Defendant.

Bankruptcy No. 97-11868 K.

Adversary No. 97-1105 K.

United States Bankruptcy Court, W.D. New York.

February 17, 1998

Page 428

Melissa A. Tocha, Aaron, Dautch, Sternberg & Lawson, L.L.P., Buffalo, NY, for Plaintiff.

Mark E. Lewis, Williamsville, NY, for Debtors.

DECISION AND ORDER GRANTING SUMMARY JUDGMENT TO THE PLAINTIFF

MICHAEL J. KAPLAN, Bankruptcy Judge.

There is a vast amount of scholarship to the effect that a bankruptcy judge is not bound in Case B by a decision of just one district judge in Case A, if the district has

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more than one district judge. 1 Today, this Court finds that the rule is to the contrary in the Second Circuit, if the decision in Case A was submitted by the district judge for publication.

BACKGROUND

Plaintiff, Irr Supply Centers, Inc. ("Irr"), filed this adversary proceeding in order to have Benjamin Phipps' ("Debtor") debt to them declared nondischargeable pursuant to 11 U.S.C. § 523(a)(4). 2 Irr asserts that the Debtor's obligation to them resulted from "fraud or defalcation while acting in a fiduciary capacity." The Debtor argues that he owed no fiduciary responsibilities to Irr. This matter has been submitted for decision on cross-motions for summary judgment, and the underlying issue of law is whether, for purposes of § 523(a)(4), a fiduciary relationship is created under the trust fund laws of Article 3A of New York Lien Law.

The facts are as follows: The Debtor was an officer and the owner of a construction company, PSD Mechanical Inc. ("PSD"). Irr supplied PSD with plumbing supplies to be used on several of PSD's construction projects, and the Debtor, individually, guaranteed payment to Irr on its subcontracts for those plumbing supplies. Irr alleges that PSD received payment on its construction contracts, but the Debtor caused those funds to be used for business purposes other than to repay suppliers and materialmen, including Irr. 3

Irr argues that under Article 3A of the New York Lien Law and the decision of the District Court in Besroi Construction Corp. v. Kawczynski, 442 F.Supp. 413 (W.D.N.Y.1977), the funds that PSD received on its construction contracts (except to the extent that they were profit for PSD) were held in trust for suppliers, materialmen, etc, and that a fiduciary relationship was created. The Debtor does not dispute the fact that funds received on the construction contracts were used for other business purposes, but disputes Irr's assertion that he owed Irr a fiduciary duty for § 523(a)(4) purposes, or that his actions were the result of fraud or defalcation. According to the Debtor, the inability to pay suppliers and his subsequent bankruptcy filing resulted from the "gross miscalculation of a job in Albany in the summer of 1996." Debtor's Response to Summary Judgment Motion at 4 (December 24, 1997).

THE BINDING EFFECTS OF KAWCZYNSKI

In Kawczynski, the District Court of this District, Hon. John T. Curtin, J., under similar facts, found that "once [an] owner makes payment [to the contractor], the contractor takes on new fiduciary obligations in addition to and independent of his contractual duties: he must segregate and keep records of trust funds, and pay them out according to a statutory priority scheme." Kawczynski, 442 F.Supp. at 417. The Court

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further found that "[a]lthough the funds were used for legitimate business purposes such as paying various overhead expenses, these payments nevertheless amounted to a diversion of trust funds under [New York law]." Any funds, therefore, which were received by the contractor, but were not used first to pay subcontractors, were found to be nondischargeable debts owed to the subcontractor.

This writer has a deep respect for the scholarship contributed by others to the effect that: (1) bankruptcy judges exercise the jurisdiction of the district court in bankruptcy matters; and (2) the bankruptcy courts, consequently, are not inferior courts for purposes of stare decisis analysis; and therefore (3) a bankruptcy judge is as free to differ with an earlier decision of a district court judge as would be a different district judge of that district. 4 Even if I were not required to differ with that scholarship, as discussed later, I would differ for reasons that are no less doctrinaire than the underpinnings of that view. My own view (a dogmatic view, perhaps) is that any court whose decisions (even if unanimous) are subject to reversal by a single judge of another court is "inferior" to the reversing court for stare decisis purposes. Furthermore, whatever else the 1984 jurisdictional amendments did or did not do, they did not make this writer a judge of the district court, for...

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