Bolf v. Berklich
| Decision Date | 25 July 1975 |
| Docket Number | No. 5-73 Civ. 24.,5-73 Civ. 24. |
| Citation | 401 F. Supp. 74 |
| Parties | Peter BOLF, Sr., d/b/a Bolf Electric and George A. Snyder, Plaintiffs, v. Helen BERKLICH, formerly known as Helen Drazenovich, et al., Defendants. |
| Court | U.S. District Court — District of Minnesota |
Neal A. Lano, Murphy, Lano, Kalar & Murphy, Grand Rapids, Minn., for plaintiffs.
Robert G. Renner, U. S. Atty., and Stephen G. Palmer, Asst. U. S. Atty., Minneapolis, Minn., for the United States.
M. B. Rustan, Nashwauk, Minn., for Mid Range Builders Supply Co., Northland Cleaning Co. and C. E. Minske.
Stephen C. Boulduan, Abate, Wivoda & Ketola, Hibbing, Minn., for Perrellas' Inc.
HEANEY, District Judge (Sitting by Designation).
This matter arises out of a mechanics lien foreclosure action first brought in state court and subsequently removed by the United States under 28 U.S.C. § 1444 to the United States District Court. The critical issue is whether the mechanics lien asserted by the plaintiffs has priority over a mortgage interest held by the United States through its agency, the Small Business Administration (SBA). The United States has moved for summary judgment under Rule 56 and the case is before the Court on a set of stipulated facts.
At the request of Helen Berklich, the plaintiffs and defendants (Mid Range Builders Supply Company, Northland Cleaning Company, C. E. Minske and Perrellas' Inc.) furnished labor and/or materials for the improvement of property owned by Berklich.1 The dates the first items were furnished and the dates the last items were furnished by the lien holders and the date the mechanics liens were filed are as follows:
Date first items Date last items Date Lien
furnished furnished filed
Bolf & Snyder Apr. 10, 1972 Aug. 6, 1972 Sept. 26, 1972
Minske Apr. 18, 1972 Oct. 10, 1972 Nov. 29, 1972
Mid Range Apr. 19, 1972 July 25, 1972 Sept. 19, 1972
Northland May 17, 1972 Sept. 18, 1972 Nov. 27, 1972
Perrellas June 17, 1972 Nov. 9, 1972 Jan. 18, 1973
The United States concedes that all of the mechanic lien statements were filed within the ninety-day statutory time limit from the date of last contribution.
On April 27, 1972, Helen Berklich executed a mortgage on the same property in the amount of $25,000 with the American National Bank of Nashwauk, Minnesota which was named as the mortgagee. The mortgage was filed for record on April 28, 1972. While the bank was named as mortgagee in the mortgage, there was an immediate 75 percent participation in the loan by the SBA. The mortgage was assigned to the SBA by the bank on January 17, 1973, and the assignment was filed for record that same day.
Plaintiffs and other defendant materialmen contend that their mechanic lien claims are superior to the mortgage interest of the United States. They argue that under Minnesota law, M.S.A. § 514.05,2 at least insofar as the materialmen who furnished labor and materials prior to the recording of the mortgage by a bank are concerned, that materialmen prevail. They urge the Court to apply Minnesota law outright or, at the very least, if federal law is to be applied, to adopt the local law as federal law.
The government contends that the question of priority is governed by federal rather than state law. It insists that "federal common law" governs and the general equitable principle of "first in time, first in right" applies. The government contends that it is entitled to the benefit of the mortgage filing date of the bank, April 28, 1972, which was at least five months earlier than the filing date of any of the materialmen. As the loan was made jointly by the bank and the SBA, and the SBA had beneficiary ownership of three-fourths of the debt, it is immaterial that the formal assignment took place in January. Hence, it argues the United States is "first in time" and, under the federal rule, "first in right."
It also insists that its mortgage interest is superior since the liens of the materialmen were inchoate on the date of the assignment and recording, January 17, 1973, and that under "federal common law", a lien competing with a federal lien must be choate (specific and perfected) at the time the federal lien is recorded.
The materialmen argue that the case law relied upon by the government involved either the insolvency3 or tax lien4 statutes. They contend that the priority rule grew up in the shadow of these statutes and that when Congress abandoned the priority rule for federal taxes and applied local law, it was a clear signal for the courts to likewise abandon the rule as to other liens.
It is further argued that the priority rule was initiated to protect the public treasury. However, where, as here, the government could protect itself by the exercise of due diligence in holding back sufficient funds to pay a lien if...
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