In re APC Const., Inc., Bankruptcy No. 89-61

• Decision Date: 10 September 1991
• Docket Number: No. 90-271.,Bankruptcy No. 89-61,90-271.
• Citation: 132 BR 690
• Parties: In re APC CONSTRUCTION, INC., Debtor. Gleb GLINKA, Trustee, Appellant, v. HINESBURG SAND AND GRAVEL, INC., Appellee.
• Court: U.S. District Court — District of Vermont

132 B.R. 690 (1991)

In re APC CONSTRUCTION, INC., Debtor Gleb GLINKA, Trustee, Appellant, v. HINESBURG SAND AND GRAVEL, INC., Appellee.

Bankruptcy No. 89-61, No. 90-271.

United States District Court, D. Vermont.

September 10, 1991.

Gleb Glinka, Glinka & Palmer, Cabot, Vt., for trustee/appellant.

Robert F. O'Neill, Gravel and Shea, Burlington, Vt., for appellee.

OPINION AND ORDER

PARKER, District Judge.

BACKGROUND

This is an appeal of the Bankruptcy Court decision in In re: APC Construction, Inc., (Town of Colchester v. Hinesburg Sand and Gravel, Inc.), 112 B.R. 89 (Bankr.D.Vt.1990) in which the Bankruptcy Court denied the trustee's and Town of Colchester's joint motion seeking avoidance of Hinesburg Sand and Gravel's mechanics liens and writs of attachment. The Bankruptcy Court's decision represents a final judgment in a core proceeding under 28 U.S.C. § 157(b)(2); this court has jurisdiction pursuant to 28 U.S.C. § 158(a). The Bankruptcy Court's findings of fact will not be set aside, unless clearly erroneous— with respect to legal issues, however, this court makes its own determination. Bankr. Rule 8013; Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2d Cir.1987). Since both parties agree that the issues presented are wholly questions of law, they are reviewed anew without constraint by the Bankruptcy Court's interpretation of the law.

FACTS

The undisputed material facts are as follows. On October 27, 1988, APC Construction, Inc. (hereinafter "APC", or "debtor") contracted with the Town of Colchester to perform work on the Town's Airport Park Project. During November and December, Hinesburg Sand and Gravel, Inc., a subcontractor, (hereinafter "Hinesburg") sold silt in the amount of $4,495.54 to debtor that was used on the project. Debtor failed to pay for the silt. On January 24, 1989, Hinesburg recorded a notice of lien for Materials and Labor Furnished under 9 V.S.A. §§ 1921, 1923 on the Town of Colchester's property that was improved by the silt. On February 1, 1989, Hinesburg commenced a lawsuit in Vermont Superior Court against APC and the Town of Colchester for the amount due, and filed motions for a writ of attachment and trustee process. On March 10, 1989, APC filed a petition for bankruptcy under Chapter 7. On March 28, 1989, the Vermont Superior Court held a hearing on Hinesburg's pre-judgment motions for writ of attachment and trustee process. Since an automatic stay pursuant to 11 U.S.C. § 362(a) had been issued in connection with the APC bankruptcy petition, the Vermont Superior Court stayed the proceedings on the motions against APC. However, the court issued a pre-judgment writ of attachment against the Town's "real and personal property" and trustee process against funds in the Town's bank account.

When debtor failed to complete the project, the Town and the trustee stipulated that $15,191.92, not including a $3,914 contract retainage, was the amount due and owing debtor for work completed. The trustee (appellant) contends that the money owed from the Town is property of the bankrupt's estate and that Hinesburg should be treated as an unsecured general creditor. In opposition, Hinesburg (appellee) argues that its mechanics lien attached prior to APC filing bankruptcy, and therefore it should be treated as a secured creditor.

On July 6, 1989, the trustee and the Town filed a joint motion in Bankruptcy Court seeking to avoid Hinesburg's mechanics liens and writ of attachment. (This motion was properly transformed into an adversary proceeding by the bankruptcy court.) The trustee and the Town claimed that the money due from the Town to APC was property of the estate and asserted that the liens were voidable for two reasons. First, they claimed that the pre-petition, prejudgment contractor's lien was "inchoate" and therefore voidable by the trustee under his strong-arm powers of 11 U.S.C. § 544(a). Second, they argued that the lien was a judicial lien within the meaning of 11 U.S.C. § 101(32) (1986)¹ that was voidable as a preference under 11 U.S.C. § 547(b). The Bankruptcy Court held that Vermont contractors' liens were statutory liens within the Bankruptcy Code's definitions. 11 U.S.C. § 101(47). Timely perfection of Hinesburg's contractors' lien related back to the notice of lien recorded prior to the date of the debtor's bankruptcy petition. Hence, Hinesburg's contractors' lien was not subject to the trustee's strong arm powers, rather the lien was excepted from the trustee's avoidance powers under 11 U.S.C. § 546(b). Hinesburg's contractors' lien was also excepted from the trustee's preference powers. 11 U.S.C. § 547(c)(6). Thus, the Bankruptcy Court denied the trustee's and Town's motion to avoid Hinesburg's contractor's lien. Lastly, the Bankruptcy Court found that the state court trustee process against the Town of Colchester (non-debtor owner) was not exempt from the Code's automatic stay because it is a judicial lien against proceeds due to the estate of the debtor. Hence, the Bankruptcy Court granted the trustee's motion to avoid Hinesburg's trustee process. The trustee now appeals the Bankruptcy Court's refusal to avoid Hinesburg's contractor's lien (writ of attachment).

The two issues on appeal are as follows:

1) Is a lien asserted by a contractor who has recorded pre-petition a notice of lien under 9 V.S.A. § 1923 and obtained post-petition an attachment of real estate voidable by the trustee through his strong-arm powers under 11 U.S.C. § 544(a)?

2) Is a lien asserted by a contractor who has recorded pre-petition notice of lien under 9 V.S.A. § 1923 and obtained post-petition an attachment of real estate voidable by the trustee as a preference under 11 U.S.C. § 547(b)?

I affirm the Bankruptcy Court's decision on both issues and hold that Hinesburg's contractor's lien is a statutory lien as defined by the Bankruptcy Code. Hinesburg's timely state court post-petition, pre-judgment writ of attachment perfected his lien. This perfection relates back to a pre-petition date, and therefore the trustee may not avoid this statutory lien under either his strong-arm powers or preference provisions.

DISCUSSION

I. Vermont Contractor's Lien is A Statutory Lien

The Bankruptcy Code defines a "lien" as a "charge against or interest in property to secure payment of a debt or performance of an obligation." 11 U.S.C. § 101(33) (1986). The Bankruptcy Code defines a "statutory lien" as a

lien arising solely by force of a statute on specified circumstances or conditions, . . . but does not include security interest or judicial lien, whether or not such interest or lien is provided by or is dependent on a statute and whether or not such interest or lien is made fully effective by statute.

11 U.S.C. § 101(47) (1986). A "judicial lien" means a "lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding." 11 U.S.C. § 101(32) (1986). See also 2 Collier on Bankruptcy ¶ 101.49 (15th ed. 1991) ("a judicial lien arises by virtue of judicial proceedings in the absence of which there would not be such a lien; yet the statutory lien by definition may arise without any judicial proceeding." (emphasis added)). In addition, the House and Senate Reports (Bankruptcy Reform Act of 1978) state that "mechanics', materialmen's and warehousemen's liens are examples" of statutory liens.² H.R.Rep. No. 595, 95th Cong., 1st Sess. 314; S.Rep. No. 989, 95th Cong., 2d Sess. 27, reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 5813, 6271.

Whether or not the lien in the instant case is statutory is purely a matter of state law. While appellant acquiesces that state law controls whether a contractor's lien is a statutory lien or a judicial lien, appellant's only cite is to a bankruptcy court decision in support of its position that such a lien is a judicial lien. Appellant's Brief at 8 (citing In re Bernstein, 62 B.R. 545, 550 (Bankr.D.Vt.1986)). To the extent that the trustee relies on dicta in Bernstein that a contractor's lien perfected under 9 V.S.A. § 1923 is a judicial lien, this court disagrees; the nature of the lien under 9 V.S.A. §§ 1921-1928 was not at issue in Bernstein because the record below and the representation of counsel was that the lien was judicial.

Vermont statutory and decisional law make it clear that a contractor's lien under 9 V.S.A. §§ 1921-1928 is a statutory lien as defined by the Bankruptcy Code. According to Vermont statutes and case law, when a contract is made for improving real property or for furnishing labor or material for improvements, the contractor shall have a lien on the improvements and the land to secure the payment for the improvements or materials. 9 V.S.A. § 1921(a). The lien extends to the portion of the contract price remaining unpaid at the time the property owner receives notice. 9 V.S.A. § 1921(b).³ The property is charged with a contractor's lien when the claimant files notice of lien by written memorandum with the town clerk. 9 V.S.A. §§ 1921(c), 1923.⁴ The contractor lienor must obtain a writ of attachment within three months of filing the written memorandum to perfect his lien. 9 V.S.A. § 1924.

Vermont decisional law interpreting sections 1921-1928 of Title 9 of Vermont statutes has held that "the right to acquire and enforce mechanic's liens is a creature of and dependent on statute." Goodro v. Tarkey, 112 Vt. 212, 214, 22 A.2d 509, 510 (1941) (citing Baldwin v. Spear Bros., 79 Vt. 43, 50, 64 A. 235 (1905)). Once the contractor lienor has recorded its notice in the town clerk's office, he has a remedy available similar to a mortgage:

The evident purpose and intent of the law was to give to the party who had filed a proper memorandum in the proper office all and the same rights as a mortgage would give him, executed at the time of filing the memorandum. The remedy provided is as of a mortgage.

Hinckley & Egery Iron Co. v. James, 51 Vt. 240, 244 (1878).

I agree with the Bankruptcy...