Decatur Contracting v. Belin, Belin & Naddeo
| Decision Date | 17 January 1990 |
| Docket Number | Nos. 89-3566,s. 89-3566 |
| Citation | 898 F.2d 339 |
| Parties | 22 Collier Bankr.Cas.2d 908, Bankr. L. Rep. P 73,316 DECATUR CONTRACTING d/b/a Hoffman Construction Company, Inc. v. BELIN, BELIN & NADDEO, a partnership, Glen Irvan Corp. M.A.W.G., Inc., t/a C.A.M., Co., Erie Bearings Company, Place Electric Supply, Inc., Brumbaugh Insurance Group, United States of America (Internal Revenue Service), Commonwealth of Pennsylvania (Department of Labor & Industry) and Commonwealth of Pennsylvania (Department of Revenue), Central Bank. Appeal of CENTRAL BANK. DECATUR CONTRACTING d/b/a Hoffman Construction Company, Inc. v. BELIN, BELIN & NADDEO, a partnership, Glen Irvan Corp. M.A.W.F., Inc., t/a C.A.M., Co., Erie Bearings Company, Place Electric Supply, Inc., Brumbaugh Insurance Group, United States of America (Internal Revenue Service), Commonwealth of Pennsylvania (Department of Labor & Industry) and Commonwealth of Pennsylvania (Department of Revenue) James R. Huff, II, Trustee, Appellant. to 89-3568, 89-3590. . Submitted Under Third Circuit Rule 12(6) |
| Court | U.S. Court of Appeals — Third Circuit |
James R. Walsh, Spence, Custer, Saylor, Wolfe & Rose, Johnstown, Pa. and Gary W. Short, Pittsburgh, Pa., for appellants.
Laverne M. Kovacs, Levine, Reese & Serbin, Altoona, Pa., Eugene J. Brew, Jr., McClure & Miller, Erie, Pa., Thomas M. Kalinyak, Johnstown, Pa., and Deborah C. Phillips, Com. of Pa. Dept. of Labor and Industry, Pittsburgh, Pa., for appellees.
Before BECKER, GREENBERG and NYGAARD, Circuit Judges.
In this bankruptcy matter, James R. Huff, II, (Trustee) and Central Bank, a judgment creditor of Decatur Contracting d/b/a Hoffman Construction Company, Inc. (Decatur), appealed to the district court from an order of the bankruptcy court which (a) permitted the Trustee to avoid Central Bank's judicial lien on a money judgment obtained by Decatur before bankruptcy; and, (b) refused the Trustee's request to avoid several partial transfers of the same judgment to appellees M.A.W.G., Inc., t/a C.A.M. Co. (C.A.M. Co.), Erie Bearings Company, Place Electric Supply, Inc., and Brumbaugh Insurance Group. The district court affirmed the bankruptcy court and both the Trustee and Central Bank appeal. We will reverse.
On March 4, 1985, Decatur confessed judgment against Glen Irvan Corporation (Irvan) in the amount of $168,560.36 plus interest. Irvan filed a petition to open or strike the judgment which was denied by the Common Pleas Court of Clearfield County on October 2, 1985. On October 16, 1985, Decatur served a writ of execution and interrogatories on Summit Bank, which held Irvan's funds. On October 21, 1985, Irvan filed a notice of appeal with the Superior Court of Pennsylvania. On November 27, 1985, the common pleas court directed Irvan to post a supersedeas bond in the amount of $215,941.12. On December 9, 1985, Irvan obtained a Certificate of Deposit (CD), payable to the Commonwealth of Pennsylvania, from Summit Bank, which delivered the CD to the Prothonotary of Clearfield County, Pennsylvania. This security operated as a supersedeas of Decatur's writ of execution. Pa.R.App.P. 1735.
On March 10, 1986, the first CD matured and Summit Bank issued an identical one in its place and delivered it to the Prothonotary.
On April 4, 1986, Decatur made two partial assignments of its judgment against Irvan without obtaining Irvan's consent. It assigned $71,806.04 to C.A.M. Co. and $49,736.54 to Erie Bearings Company. Both assignments were docketed by the Prothonotary on April 11, 1986.
On May 2, 1986, the Superior Court of Pennsylvania dismissed Irvan's appeal. On May 23, 1986, it denied Irvan's petition to reopen the appeal.
On June 2, 1986, Decatur assigned $27,042.82 of its judgment against Irvan to Place Electric Supply, Inc., again without Irvan's consent.
On June 9, 1986, the second CD matured and Summit Bank issued an identical one in its place and delivered it to the Prothonotary.
On June 10, 1986, the common pleas court dissolved the supersedeas. The order, which indicates that Irvan consented, directs the Prothonotary "to transmit to Carl A. Belin, Jr., as attorney for the judgment creditor [Decatur] and assignee of judgments, the sum of $190,144.52." App. at 24. This money was not transmitted.
On June 11, 1986, Decatur assigned $30,000 of its judgment against Irvan to Brumbaugh Insurance Group, again without Irvan's consent.
On June 12, Central Bank obtained a $236,104.52 judgment by confession against Decatur in the common pleas court.
On June 13, 1986, Irvan filed a Petition for Allowance of Appeal with the Pennsylvania Supreme Court.
On June 17, 1986, the Prothonotary docketed the partial assignments of Place Electric Supply, Inc. and Brumbaugh Insurance Company.
On June 18, 1986, Central Bank caused a writ of execution and interrogatories to be served upon Carl Belin, as garnishee, because he was authorized to receive the $190,144.52 from the Prothonotary in satisfaction of Decatur's judgment against Irvan.
On September 8, 1986, the third CD matured and Summit Bank issued an identical one in its place. This CD was not delivered to the Prothonotary as the previous CD's had been; rather, Summit Bank retained it.
On September 16, 1986, Central Bank caused a writ of execution and interrogatories to be served on Summit Bank as garnishee.
On September 24, 1986, Summit Bank mailed the September 8th CD to Belin. Belin had the Prothonotary endorse the CD on September 26, 1986 and returned it to Summit Bank the same day. On September 30, 1986, Summit Bank wired $196,130.34 to Belin to be held in escrow pending the outcome of Irvan's appeal to the Pennsylvania Supreme Court.
On November 21, 1986, the Pennsylvania Supreme Court denied Irvan's appeal.
On December 24, 1986, Decatur filed a voluntary petition for bankruptcy under Chapter 11 of the Bankruptcy Code, 11 U.S.C. Secs. 1101-1146. The Chapter 11 proceeding was later converted to a Chapter 7 proceeding and James R. Huff, II, was appointed Trustee.
On May 27, 1987, the Trustee filed a complaint in the bankruptcy court seeking to avoid the assignments and Central Bank's garnishment. As to the partial assignments, the Trustee claimed that they were void because Irvan did not consent to the assignments, and that they were avoidable preferences. The Trustee further claimed that any lien acquired by Central Bank's garnishment was also an avoidable preference.
The facts underlying this appeal are not in dispute. The parties raise only questions of law, thus this court's scope of review is plenary. Matter of Jersey City Medical Center, 817 F.2d 1055, 1059 (3d Cir.1987); Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98, 101-102 (3d Cir.1981). Although the Trustee's ability to avoid the parties' liens is controlled by the federal bankruptcy law, the court must look to Pennsylvania law to determine what, if any, property interest the parties hold in the debtor's estate. Cf. Matter of Bollinger Corp., 614 F.2d 924, 925 n. 1 (3d Cir.1980).
The bankruptcy court decided that Central Bank's garnishment lien became perfected on the date on which the 90 day preference period began, and hence, was avoidable because the funds were in custodia legis until at least September 26, 1986, within the 90 day preference period, and the lien could not be perfected until the funds were out of the custodia legis. The district court affirmed. We believe both misapplied state law and will reverse.
The Trustee relies upon 11 U.S.C. Sec. 547(b)(4)(A) to avoid Central Bank's lien. Section 547(b)(4)(A) provides, "Except as provided in subsection (c) of this section, the trustee may avoid any transfer of property of the debtor ... (4) made--(A) on or within 90 days before the date of the filing of the petition." The question then is whether Central Bank's lien is a transfer of Decatur's property made within 90 days of December 24, 1986 (or on or after September 26, 1986).
11 U.S.C. Sec. 547(e)(2) defines when a transfer is made:
For the purposes of this section, except as provided in paragraph (3) of this subsection, a transfer is made--
(A) at the time such transfer takes effect between the transferor and the transferee, if such transfer is perfected at, or within 10 days after, such time;
(B) at the time such transfer is perfected, if such transfer is perfected after such 10 days.... (emphasis added)
A transfer is not made, however, until the debtor has acquired rights in the property transferred. 11 U.S.C. Sec. 547(e)(3). 11 U.S.C. Sec. 547(e)(1)(B) defines when a transfer is perfected:
For purposes of this section--
. . . . .
(B) a transfer of a fixture or property other than real property is perfected when a creditor on a simple contract cannot acquire a judicial lien that is superior to the interest of the transferee.
The first question, then, is when Decatur acquired property rights by its judgment against Irvan.
Under Pennsylvania law, the lien of a judgment creditor attaches to a judgment debtor's personal property in the possession of a third party when a writ of execution is served upon that third party, (known as a garnishee). Pa.R.Civ.P. 3111(b); Helms v. Chandler, 423 Pa. 77, 223 A.2d 30 (1966); Dietrich Industries, Inc. v. Abrams, 309 Pa.Super. 202, 455 A.2d 119 (1982). A garnishee can be any person in possession of the judgment debtor's property. Pa.R.Civ.P. 3101(b). Here, Decatur held a judgment against Irvan, and, on October 16, 1985, Decatur served a writ of execution on Summit Bank, which possessed funds of Irvan. Under Pennsylvania law, Decatur's judgment lien attached to those funds at that time. That Irvan filed a motion to strike or open the judgment does not affect the status of the lien. Pa.R.Civ.P. 2959(f); Macioce v. Glinatsis, 361 Pa.Super. 222, 522 A.2d...
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