United Parcel Service, Inc. v. Weben Industries, Inc., 85-1123

CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)
Citation794 F.2d 1005
Docket NumberNo. 85-1123,85-1123
Parties1 UCC Rep.Serv.2d 1302 UNITED PARCEL SERVICE, INC., etc., et al., Plaintiffs, v. WEBEN INDUSTRIES, INC., et al., Defendants, and CONVEYOR, MACHINERY & STEEL ERECTORS, INC., Defendant-Appellant, v. MERCANTILE NATIONAL BANK AT DALLAS, Defendant-Appellee.
Decision Date18 July 1986

F. Dean Armstrong, Dallas, Tex., for defendant-appellant.

Allan Brent Diamond, Dallas, Tex., for defendant-appellee.

Appeals from the United States District Court for the Northern District of Texas

Before THORNBERRY, POLITZ and RANDALL, Circuit Judges.

RANDALL, Circuit Judge:

This case involves a dispute between two claimants to a fund interpleaded by United Parcel Service, Inc. (UPS). UPS hired Weben Industries, Inc. (Weben), a general contractor, to do construction work at its facilities in several states. Weben in turn hired Conveyor, Machinery & Steel Erectors, Inc. (CoMaster), a subcontractor, to do work at the UPS facility in Atlanta, Georgia. Weben declared bankruptcy under Chapter 11 of the Bankruptcy Code. At the time of Weben's bankruptcy, UPS still owed money under the various construction contracts, so UPS filed an interpleader action and placed the money it owed into the registry of the court. This case involves a dispute between two parties claiming entitlement to the interpleaded fund. The district court granted judgment in favor of one of Weben's creditors, Mercantile National Bank at Dallas, holding that the Bank's perfected security interest in Weben's accounts receivable took priority over CoMaster's entitlement to the fund, 610 F.Supp. 13. We reverse and remand.

I.

UPS hired Weben, a general contractor, to construct and install a conveyor system at UPS's facility in Atlanta, Georgia. This agreement was executed on April 26, 1982. On May 10, 1982, Weben hired CoMaster, the subcontractor, to assemble and install the system in Atlanta for UPS.

Mercantile National Bank at Dallas and Mercantile Dallas Corp. (collectively "the Bank") had made a number of loans to Weben between 1977 and 1982, and had granted to Weben a line of credit. As consideration, Weben executed interest-bearing promissory notes in favor of the Bank. In addition, the Bank received a security interest, which has been duly perfected, in Weben's accounts receivable existing on or arising after August 22, 1975.

On September 10, 1982, before CoMaster had completed the work on the UPS Atlanta facility, Weben filed a voluntary petition in bankruptcy under Chapter 11 of the Bankruptcy Code. CoMaster had previously submitted two invoices to Weben, but CoMaster had not been paid. Consequently, on September 17, 1982, CoMaster filed a materialman's lien against the UPS facility in Atlanta. Faced with the existence of several liens against its properties, 1 as well as demands from the Bank that it was entitled to the money UPS owed to Weben, UPS sought to interplead the money which it owed under the various construction contracts.

The Bankruptcy Court for the Northern District of Texas, the court where Weben had filed its Chapter 11 petition, signed an order on September 21, 1982, authorizing UPS to obtain performance from CoMaster for completion of the Atlanta facility. 2 In addition, the order provided:

that in the event any such contract shall be completed prior to further order of this Court, the amounts due under such contract, less the costs incurred by United Parcel Service, Inc. upon completion of such contract shall be paid by United Parcel Service, Inc. into the Registry of the Court, such proceeds to be first distributed in satisfaction of valid liens existing by reason of state laws against properties of United Parcel Service, Inc. or its subsidiaries or affiliates and attributable to such contracts to protect artisans, mechanics and materialmen, and the balance in satisfaction of such other liens and claims as may exist....

This order was entered on October 5, 1982. On November 15, 1982, the bankruptcy court signed another order, entered on November 24, 1982, which authorized UPS to file an interpleader action in the United States District Court for the Northern District of Texas "for the purpose of adjudicating any claims or potential claims against funds held by United Parcel Service, Inc. as to various contracts with [Weben] for the installation of conveyor systems and car washes in various locations." UPS subsequently filed the interpleader action and indicated that $358,449.33 was due on the Atlanta facility. CoMaster claims that it is entitled to $131,886.15, plus interest, of that amount.

II.

Both the Bank and CoMaster claim entitlement to the interpleaded fund. The Bank argues that the interpleaded fund is an "account receivable" of Weben, in which the Bank has a perfected security interest which is prior to CoMaster's materialman's lien (if such a lien exists at all). 3 CoMaster argues that the interpleaded fund is not an account receivable of Weben but is instead a construction trust fund which must be used to pay the various subcontractors to which UPS is, in effect, indebted.

The district court granted the Bank's motion for summary judgment, holding that the "support for a construction trust fund doctrine in the Georgia law ... finds expression only in older cases decided before enactment of the Georgia Uniform Commercial Code." United Parcel Service, Inc. v. Weben Industries, 610 F.Supp. 13, 15 (N.D.Tex.1985). The court concluded "that a Georgia court would decline, absent express statutory authority, to impose a construction trust on the contract fund involved here." Id. at 16. The district court then assumed that CoMaster's materialman's lien on the UPS facility was valid, but the court held that, under Georgia law, the Bank's perfected security interest in Weben's accounts receivable took priority over CoMaster's lien. Accordingly, the district court awarded the interpleaded fund to the Bank.

The district court suggested, and the Bank urges on appeal, that the cases expressing support for the construction trust fund theory under Georgia law are no longer persuasive authority since they were, by and large, decided before the enactment of the Georgia UCC. On the contrary, CoMaster argues that expressions favoring the construction trust fund doctrine have continued even since the passage of the UCC. We conclude that CoMaster is correct, and that under the terms of the contract between UPS and Weben, as well as under the trust fund doctrine, CoMaster is entitled to compensation for the work it performed on the UPS facility in Atlanta even prior to Weben's bankruptcy.

III.

Shortly after Weben filed its bankruptcy petition, the Bank demanded that UPS pay to it the money due Weben as of the date of the bankruptcy filing, "including the amounts due to Weben under their agreement for construction of the Georgia facility." Bank's brief at 5-6. However, it is axiomatic that the Bank, as an assignee of Weben's accounts receivable (assuming, arguendo, that Weben's "right to payment" from UPS is an account receivable of Weben), stands in no better position vis-a-vis UPS than does Weben itself. See generally Clark, The Law of Secured Transactions Under the Uniform Commercial Code, paragraphs 11.4, 11.5 (1980); Ga.Code Ann. Sec. 11-9-318. Consequently, in order to evaluate the Bank's entitlement to the interpleaded fund, we must examine the construction contract between Weben and UPS. Article 5 of the agreement, entitled "Waiver of Liens," provides as follows:

CONTRACTOR for itself and its subcontractors, material suppliers and employees, hereby expressly waives the right to file any lien or claim against the premises; and further, that if in violation thereof, there shall be any lien, or other claim for monies due or to become due for which if established, UPS might be liable, and which would be chargeable to the CONTRACTOR, CONTRACTOR shall immediately satisfy or bond the same, or UPS shall have the right to bond said lien or claim or otherwise discharge the same and to retain out of any payment then due or thereafter to become due, an amount sufficient to completely indemnify it against such lien or other claim with interest together with the expense incident to discharging such lien or claim or defending suit to enforce such lien or other claim, including any premiums charged for a bond and any attorney's fees and disbursements all of which the CONTRACTOR agrees to pay....

(emphasis added). Under this agreement, once CoMaster filed a lien against the UPS property and thereby asserted a claim for monies due for which UPS might be liable, then, irrespective of the lien's validity (see supra note 3), UPS was authorized to discharge CoMaster's claim out of the retainage. Accordingly, under the UPS-Weben contract, Weben had no right to payment from UPS of the amount required to discharge CoMaster's claim. This contractual authority to withhold payment from Weben and to pay CoMaster, moreover, is buttressed by the construction trust fund doctrine.

The Georgia Supreme Court has not discussed the effect of the Georgia UCC on the viability of the construction trust fund theory under Georgia law. Nor have we located any reported opinion of a lower Georgia court discussing this issue. Our Erie-role is to apply existing Georgia law, not to adopt innovative theories for the state. Jackson v. Johns-Manville Sales Corp., 781 F.2d 394, 396-98 (5th Cir.1986) (en banc). When making an Erie-guess in the absence of explicit guidance from the state courts, we must attempt to predict state law, not to create or modify it. Id.

In some states, the construction trust fund doctrine has been codified expressly by state law. See, e.g., Selby v. Ford Motor Co., 590 F.2d 642 (6th Cir.1979) (interpreting Michigan law); Carrier Corp. v. J.E. Schecter Corp., 347 F.2d 153 (2d Cir.), cert. denied, 382 U.S. 904, 86 S.Ct. 239, 15 L.Ed.2d 157 (1965) (int...

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