YOUNGSTOWN S. & T. CO. v. Patterson-Emerson-Comstock of Ind.
| Decision Date | 27 November 1963 |
| Docket Number | Civ. No. 3159. |
| Citation | 227 F. Supp. 208 |
| Parties | The YOUNGSTOWN SHEET & TUBE COMPANY, an Ohio corporation v. PATTERSON-EMERSON-COMSTOCK OF INDIANA, an Indiana corporation, et al. |
| Court | U.S. District Court — Northern District of Indiana |
COPYRIGHT MATERIAL OMITTED
Lester F. Murphy, of Riley, Reed, Murphy & McAtee, East Chicago, Ind., for Youngstown Sheet & Tube Co., interpleading plaintiff.
Alfred W. Moellering, U. S. Atty., Joseph Eichorn, Asst. U. S. Atty., Hammond, Ind., Dennis Fox, Dept. of Internal Revenue Service, Indianapolis, Ind., for intervenor, United States.
Joseph Morrow, of Lawyer, Schroer & Eichorn, Hammond, Ind., for Northern Indiana Public Service Co.
Byron Bamber, Hammond, Ind., for DuBois Engineering Co.
Rubin & Rubin, Gary, Ind., for Milo Vale, trustee in bankruptcy for Patterson-Emerson-Comstock of Indiana, bankrupt.
John McDonagh, Hammond, Ind., for Eichleay Corp., Central Rent-A-Crane, Welders Supply Co. Joseph Costanza, Gary, Ind., for Hyland Electrical Supply Co., Brock Tool Co., Cities Service Oil Co. and G & W Electrical Specialty Co.
Jay Charon, Gary, Ind., for Boardman-Hamilton Co.
This is an interpleader action originally filed August 20, 1961, under the Federal Interpleader Act, 28 U.S.C. §§ 1335, 1397, 2361 and Rule 22 of the Federal Rules of Civil Procedure.
The action was commenced by Youngstown Sheet and Tube Company when Patterson-Emerson-Comstock of Indiana, hereinafter referred to as P-E-C, was found in default of performance on a contract to construct certain additions to Youngstown's facilities located in Lake County, Indiana. Various materialmen and suppliers had filed claims with or attempted to file claims against Youngstown for the unpaid obligations of P-E-C. The United States had also filed tax liens on any property of P-E-C which Youngstown had in its possession.
The subject of the interpleader action is a fund in the amount of $76,561.21, representing a portion of the contract price with P-E-C which Youngstown withheld under a retainage clause in the contract specifying:
"* * * 90% for work performed during month, 10% upon completion and acceptance by us." (See Exhibit "A", p. 4, attached to original complaint.)
All claimants, including the United States and the Trustee in Bankruptcy of P-E-C, seek to satisfy their claims out of the fund.
After hearings were held on various motions, Youngstown was granted a discharge as the interpleading plaintiff in the first stage of the proceedings from liability to all claimants, except Hyland Electrical Supply Co., who is presently under a temporary restraining order from enforcing a mechanic's lien against the property of Youngstown. In excepting Hyland Electrical Supply Company, the Court held that no authority existed for a federal court to transfer a state created lien to an interpleaded fund (said lien being a right to relief independent of any proceeding against the fund), thereby discharging the owner of the property from any further liability to the mechanic lien holder unless the lien holder were guaranteed payment.
Subsequently (May 28, 1963), a motion for summary judgment filed by Hyland Electrical Supply Co. against the United States was granted, declaring Hyland's right to participate in the interpleaded fund prior to the tax claims of the United States.
In its memorandum declaring Hyland prior to the United States, the Court found that the policy overriding Indiana lien law intends to protect those who have contributed labor or material to the construction, improvement or repair of a building or other structure against nonpayment by either the principal contractor or the property owner. Due to this prevailing policy, the property owner seeks to prevent double liability (i. e., payment to the defaulting principal contractor in addition to subsequent payment to the subcontractor to extinguish a lien on the improved property) by the use of a "retainage" provision in the construction contract with the principal contractor.
The Court then reasoned that the fund retained is withheld from the principal contractor until completion of the contract, and payment to all subcontractors is as much a part of the contract as performance, relieving the owner of any possible or potential double liability under Indiana lien law. Therefore, the principal contractor, in this instance, P-E-C, does not become entitled to the retained portion of the contract until his creditors with claims or potential claims against the property owner, Youngstown, are satisfied. Consequently, title to the retained fund remains in the property owner for the benefit of said potential or actual claimants with lien rights.
Since the United States stands in the position of P-E-C when attempting to levy upon any property owned by P-E-C, and would have no greater right to the fund than P-E-C, tax liens would not attach to that portion of the fund necessary to satisfy Hyland or any other claimant with actual or potential lien rights against the fund or property of Youngstown. See Aquilino v. United States, 363 U.S. 509, 80 S.Ct. 1277, 4 L. Ed.2d 1365 (1960); United States v. Durham Lumber Co., 363 U.S. 522, 80 S.Ct. 1282, 4 L.Ed.2d 1371 (1960); Randall v. Colby, 190 F.Supp. 319 (N.D.Ia. 1961).
Having granted Youngstown a conditional discharge and declaring Hyland prior to the United States, the Court now moves to a determination of priority between other claimants to the fund on deposit with the Clerk of the Court. A hearing was held on June 27, 1963, at which time all claims were presented. Parties previously joined in the action, but failing to appear or prove their claims after due notice by the Court, were defaulted.
An examination of the claims reveals, basically, seven categories of claimants.
The Court in its Order of May 28, 1963, concluded that Hyland Electrical Supply Co., with its Mechanic Lien security has a claim superior to the United States, and as further noted, prior to all unsecured claimants.
As for the other claimant who had filed a Notice of Intention to hold a Mechanic's Lien, DuBois Engineering and Manufacturing Company, unusual circumstances attend its position in this proceeding. A default judgment was entered against DuBois for failing to appear and answer the original interpleader complaint filed September 5, 1961. The default judgment, entered October 5, 1961, permanently restrained and enjoined DuBois from instituting foreclosure proceedings on the mechanic's lien against the property of Youngstown for which DuBois had rendered labor, services and materials. It was further ordered that Youngstown be discharged from any liability to DuBois.
However, on January 12, 1962, DuBois appeared and filed an answer to the Intervening Complaint of the United States, and also stated a claim against the fund deposited in the Clerk's registry. In the allegations of its claim, DuBois acknowledges that by reason of the default judgment rendered herein, it "has been precluded from enforcing its lien rights against the plaintiff Youngstown Sheet & Tube Company, * * * and by reason thereof (its) claim is against" the fund on deposit.
Undoubtedly, DuBois' default amounts to a waiver of its rights to proceed against the property of Youngstown on the Mechanic's Lien. But at the same time, such a waiver constitutes an election to proceed against the fund on deposit with the Court. The Court can not extinguish state created lien (though it may enjoin such action under 28 U.S.C. § 2361) since foreclosure of a lien is a remedy available to lien holders independent of an interpleader action. Consequently, DuBois' actions resulted in an acquiescence to a transfer of its lien rights and claim solely to the fund, and the Court finds that it still enjoys a secured status against the fund, sharing the same priority accorded Hyland Electrical Supply Company.
ALLEGED LIENHOLDERS UNDER BURNS IND.STAT.ANN. § 43-709
Since Youngstown holds the fund for the benefit of unpaid claimants, the remaining creditors must have lien rights to prevail over the Government and Trustee, who derive their title, if any, from P-E-C, and its right to the fund once the secured creditors have been paid in accordance with Indiana lien law.
With respect to the suppliers who claim to have given notice to Youngstown Sheet and Tube Co. pursuant to Burns' Ind.Stat.Ann. § 43-709, the Court must conclude after thorough examination of the affidavits and exhibits on file that the notices were not sufficient in form under the statute to create a personal liability upon Youngstown for the fund which it held. The statute requires:
"Any subcontractor * * * may give to the owner *...
To continue reading
Request your trial
-
Matter of Hull
...Bankruptcy Act Section 67(b);7 Collier on Bankruptcy ¶ 67.20 at 209-254 (14th ed. 1978); Youngstown S. & T. Co. v. Patterson-Emerson-Comstock of Ind., 227 F.Supp. 208 (N.D.Ind.1963); Ricotta v. Burns Coal & Bldg. Supply Co., 264 F.2d 749 (2d Cir. 1959); Mullins v. Noland Co., 406 F.Supp. 20......
-
In re Chicagoland Ideel Cleaners, Inc.
...300 F.2d 843 (1st Cir. 1962); United States v. Eiland, 223 F.2d 118 (4th Cir. 1955); see also Youngstown S. & T. Co. v. Patterson-E.-C. of Ind., 227 F.Supp. 208, 217 (N.D.Ind. 1963); Consumers Power Co. v. Rubiner, 225 F.Supp. 926, 929 (E.D.Mich. 1963); United States v. Manufacturers Nation......
-
Miller v. Fisco, Inc.
...aff'd, 408 F.2d 42 (3d Cir. 1969); Wickes v. Belgian American Educational Foundation, supra; Youngstown Sheet & Tube Co. v. Patterson-Emerson-Comstock of Indiana, 227 F.Supp. 208 (N.D.Ind.1963). Cases indicate various "extraordinary" circumstances justifying a receiver. A receiver may be ap......
-
Investors Capital Corp. v. Schmidt
...of New York v. Maclay, 288 U.S. 290, 294, 53 S.Ct. 323, 324, 77 L.Ed. 754.' In accord is Youngstown Sheet & Tube Co. v. Patterson-Emerson-Comstock of Indiana, 227 F.Supp. 208, 214 (N.D.Ind.1963). The court concludes that the Security Trust case, supra, is controlling as to this phase of the......