In re APC Const., Inc.

• Decision Date: 13 March 1990
• Docket Number: Bankruptcy No. 89-00061,Adv. No. 89-49A.
• Citation: 112 BR 89
• Court: U.S. Bankruptcy Court — District of Vermont
• Parties: In re APC CONSTRUCTION, INC., Debtor. TOWN OF COLCHESTER and Gleb Glinka, Trustee, Plaintiffs, v. HINESBURG SAND AND GRAVEL, INC., and Commercial Industrial Electric, Inc., Defendants.

112 B.R. 89 (1990)

In re APC CONSTRUCTION, INC., Debtor.

TOWN OF COLCHESTER and Gleb Glinka, Trustee, Plaintiffs, v. HINESBURG SAND AND GRAVEL, INC., and Commercial Industrial Electric, Inc., Defendants.

Bankruptcy No. 89-00061, Adv. No. 89-49A.

United States Bankruptcy Court, D. Vermont.

March 13, 1990.

J. Anderson, and D. Hyman, Goldstein, Manello, Burlington, Vt., for amicus curiae Gerrity Lumber Co. (Gerrity).

G. Glinka, Bertolini, Benning & Glinka, Cabot, Vt., for Trustee, pro se (Trustee).

S. Marshall, Marshall & Marshall, Swanton, Vt., for amicus curiae A.G. Anderson.

M. Meekins, Roesler & Whittlesey, Burlington, Vt., for Town of Colchester, Vt. (Town).

E. Mench, Gravel & Shea, Burlington, Vt., for Hinesburg Sand and Gravel, Inc. (Hinesburg).

MEMORANDUM OF DECISION

FRANCIS G. CONRAD, Bankruptcy Judge.

This adversary proceeding¹ raises an issue of first impression in our jurisdiction; that is, to what extent may Vermont's contractors ignore the Bankruptcy Code's automatic stay provision and proceed to obtain post-petition writs of attachment in State Court to perfect their pre-petition non-judicial notices of contractors' liens?

We hold the timely perfection of Vermont's contractors' liens meet the Code's statutory lien exception under 11 U.S.C. §§ 101(47), 362(b)(3) and 546. By the same token, failure of the contractor lienor to file the notice of the contractors' lien will not be excused by the fact a debtor has filed bankruptcy. On the other hand, enforcement of the perfected contractors' lien is subject to the Code's automatic stay provision. Moreover, perfection may relate back to a date prior to the date of a debtor's bankruptcy petition. The perfected contractors' lien is excepted from the trustee's preference power under 11 U.S.C. § 547(c)(6).

We also hold that we have core jurisdiction over any action by a sub-contractor lienor who attempts to obtain enforcement of its perfected lien against a non-debtor owner for materials or labor rendered on behalf of a debtor general contractor.

Finally, we hold that State Court trustee process against the debtor contractor and the non-debtor owner is not excepted from the Code's automatic stay because it is a judicial lien. Payments made under trustee process are subject to preference avoidance if the elements of 11 U.S.C. § 547(b) are satisfied.

The material facts are not in dispute. APC Construction Inc. (Debtor) and the Town had an agreement, dated October 27, 1988, for Debtor to perform work on the Town's Airport Park Project (project). The Town owned the land.

During November and December of 1988, Hinesburg sold $4,495.54 of silt to Debtor that was used on the project. Debtor failed to pay for the silt. On January 24, 1989, Hinesburg timely recorded a notice of lien under Vermont's "Contractors' Liens for Labor or Material," 9 Vt. Stat.Ann. §§ 1921, et seq., in the Town Clerk's land records for the unpaid materials and labor furnished on the project.

On February 1, 1989, Hinesburg filed a State Court action against the Town and Debtor. The State Court Clerk set a hearing for March 28, 1989 on Hinesburg's prejudgment motions for writ of attachment, 12 Vt.Stat.Ann. §§ 3291, et seq., V.R.Civ.P. Rule 4.1, and trustee process, 12 Vt.Stat. Ann. §§ 3011, et seq., V.R.Civ.P. Rule 4.2.

At the March 28, 1989 hearing, the Town advised Hinesburg and the State Court that Debtor had filed, on March 10, 1989, a petition in bankruptcy under 11 U.S.C. §§ 101, et seq. Although served with notice, Debtor did not attend the State Court pre-judgment writ of attachment hearing. The State Court stayed the proceedings against Debtor, but ordered a pre-judgment writ of attachment against the "real and personal property" of the Town in the amount of $4,495.54. The State Court also issued a trustee process for a like amount against funds in the Town's bank account.

On January 9, 1989, Commercial Industrial Electric, Inc., (Commercial) filed a "Mechanics' Lien,"² with the Town Clerk's land records. Commercial's contractors' lien asserted that it had furnished material and/or labor to Debtor for electrical work performed on the Town's project for an unpaid amount due of $2,760.00. Commercial has not appeared or defended this proceeding. There is no other information concerning the status of Commercial's contractors' lien, i.e., we are not informed whether a State Court writ of attachment was timely obtained by Commercial after the recording of its "Mechanics' Lien." There is no evidence that Commercial has perfected its contractors' lien either pre- or post-petition. As discussed infra, the act of perfecting, as opposed to enforcement of, a contractors' lien is not subject to the automatic stay. Bankruptcy does not toll or excuse the contractor from obtaining such perfection. Absent evidence of pre- or post-petition perfection, Commercial's unperfected recorded notice of contractors' lien is avoidable by the Trustee.

Following Debtor's failure to complete the project, the Town solicited proposals from qualified subcontractors to complete the project at a cost of $29,265.50. The Town and the Trustee stipulated the amount due and owing Debtor for work completed to be $15,191.92, not including contract retainage of $3,914.28. Hinesburg was not a party to this stipulation.

On July 6, 1989, the Trustee and the Town joined in a "Motion for Order Discharging Mechanics' liens and/or Writs of Attachments" (joint motion). On July 26, 1989, we issued an "Order/Notice" and required service on all parties in interest of the joint motion. Written objection's to the joint motion were to be filed with the Court and served on the movants on or before August 21, 1989.

On September 6, 1989, Hinesburg filed³ its "Opposition to Joint Motion of Trustee and Town for Order Discharging Mechanics' Liens and/or Writs of Attachments."

On October 11, 1989, we heard arguments on the joint motion and Hinesburg's objections, transformed the matter into an adversary proceeding,⁴ set a briefing schedule, and, took the matter under advisement.

Before we reach the arguments of the parties and our discussion, we pause to note that two other parties appeared at the October 11, 1989 hearing, Gerrity and A.G. Anderson. Gerrity has filed memorandums with this Court.

Gerrity filed a "Memorandum in Opposition for Order Discharging Mechanics' Lien and/or Writs of Attachment" on the same date as the October 11, 1989 hearing. Gerrity admitted it "has no specific interest in the property affected by Hinesburg's attachment or Commercial's mechanics' lien" which is the subject matter of this dispute. Gerrity claims, however, it has standing in this proceeding because it is in a similar position to Hinesburg with respect to its contractors' lien status on other property.

Factually, Gerrity claims a contractors' lien against certain property of the Town of Northfield, Vermont by virtue of a recorded notice of lien on February 27, 1989 in Northfield's land records. Gerrity claims it "timely perfected that lien when it obtained a writ of attachment on May 12, 1989, within Vermont's three month perfection period." We were not informed against whom the writ was sought or against who and what the writ was ultimately obtained.

We think we may have mistakenly granted Gerrity standing during the hearing in this proceeding. We hold neither Gerrity nor A.G. Anderson have a personal stake in either the funds that were ultimately turned over to the Trustee by the Town with liens to attach, or the writ of attachment against the project such as would otherwise justify granting them standing⁵ as a real party in interest in this proceeding. Rules of Practice and Procedure in Bankruptcy Rule 7017.⁶ There is no doubt they have standing as a "party in interest" in the case. The way the matter was brought on by motion may have caused them to believe they had standing. The resolution of this adversary proceeding, however, will dictate the pre-petition status a contractor lienor must attain before proceeding to post-petition perfection. Given the importance of this issue, we treat Gerrity and A.G. Anderson as Amicus curiae.

Hinesburg claims the Trustee fails to meet the Code's statutory lien avoidance requirements under 11 U.S.C. § 545,⁷ because its statutory lien arose pre-petition. Hinesburg argues its post-petition writ of attachment and trustee process actions were against the Town's real property and bank account respectively over whom the bankruptcy stay did not apply. Additionally, Hinesburg claims it conducted a search of the land records on the day of the State Court pre-judgment writ of attachment hearing and "at that time there was no evidence before the State Court to establish the existence of an interest by the debtor or the estate in the money in question. Consequently, the State Court was completely within its authority to issue the writ and trustee process."

The Trustee says the money due from the Town to Debtor is property of the estate. The Trustee cites Bernstein v. Held (In re Bernstein), 62 B.R. 545, 549 (Bkrtcy.D.Vt.1986)⁸ to support his position that the contractors' lien is "inchoate," being both contingent and unliquidated, and is voidable under the "strong arm" powers of 11 U.S.C. § 544(a).⁹ The Trustee also claims the contractor's lien is a judicial lien within the meaning of 11 U.S.C. § 101(32),¹⁰ and is a preference under 11 U.S.C. § 547(b).¹¹ The Trustee adds that as a judicial lien, the contractors' lien is not excepted from a preference under 11 U.S.C. § 547(c)(6).¹²

Gerrity cites 11 U.S.C. § 362(b)(3)¹³ and § 546(b)¹⁴ as supporting a contractor lienor's right to pursue a post-petition perfection of its pre-petition lien by obtaining a timely writ of attachment from the State Court.

Gerrity claims a contractors' lien is a "statutory lien" under 11 U.S.C. § 101(47)¹⁵ and meets the statutory lien exception of § 547(c)(6). Gerrity directs our attention to § 101(47)'s legislative...