In re Garland Corp.

• Decision Date: 29 August 1980
• Docket Number: Adv. No. 80-312.,Bankruptcy No. 80-645-HL
• Citation: 6 BR 452
• Parties: In re GARLAND CORPORATION, Debtor. LUI-M CORPORATION, Plaintiff, v. GARLAND CORPORATION, Sydney Parlow, Trustee of Garland Corporation, New England Merchants National Bank, Prudential Insurance Company of America, Defendants.
• Court: U.S. Bankruptcy Court — District of Massachusetts

6 B.R. 452 (1980)

In re GARLAND CORPORATION, Debtor LUI-M CORPORATION, Plaintiff, v. GARLAND CORPORATION, Sydney Parlow, Trustee of Garland Corporation, New England Merchants National Bank, Prudential Insurance Company of America, Defendants.

Bankruptcy No. 80-645-HL, Adv. No. 80-312.

United States Bankruptcy Court, D. Massachusetts.

August 29, 1980.

Frank H. Shapiro, Henry J. Boroff, Friedman & Atherton, Boston, Mass., for plaintiff.

Stuart M. Cable, Goodwin, Procter & Hoar, Boston, Mass., for defendants Prudential Ins. & N.E. Merchants.

Sydney Parlow, Boston, Mass., trustee.

Robert Robinson, Guy B. Moss, Widett, Slater & Goldman, Boston, Mass., for trustee.

Charles Normandin, Ropes & Gray, Boston, Mass., for debtor.

MEMORANDUM AND RULING ON MOTION TO DISMISS

HAROLD LAVIEN, Bankruptcy Judge.

Lui-M, a Florida corporation that subcontracts the manufacture of clothing out of yarn furnished by the Chapter 11 debtor, brought a complaint to establish a lien covering $354,682.91 due it. The Chapter 11 debtor (hereafter called Garland) conceded the lien in the amount of $160,312.42 covering work performed on the goods in the possession of Lui-M on April 29, 1980, the date of the filing of the Chapter 11. In accordance with a stipulation the goods were released on payment of $160,312.42. Garland created an escrow fund to cover the balance of the claim and agreed that Lui-M would lose no rights as a result of its release of the goods then in its possession but denied the existence of any further lien and has filed a Motion to Dismiss the Complaint. The parties have submitted briefs, reply briefs and argument.

A motion to dismiss for failure to state a claim under Fed.R.Civ.P. 12(b)(6) requires that all of the facts well pleaded in Lui-M's complaint be taken as admitted. Robinson v. Stanley Home Products Co., 272 F.2d 601 (1st Cir. 1959); 2a Moore's Federal Practice 12.08 (1975).

The facts as alleged and accepted as true for the purposes of this motion divide the amount due. First, $81,932 due for work performed on Garland's goods and shipped back to Garland voluntarily on credit pre filing and, second, $112,437.82 for work, also pre filing, but which Lui-M refused to release without payment and on which Lui-M had admittedly a valid lien at least as long as it retained possession under Section 713.58 of the Florida Code but was induced to surrender possession by a fraudulent promise of payment and the use on April 18, 1980 of a check when Garland knew it had no funds and was about to file a Chapter 11.

Lui-M claims both a statutory lien under Section 713.58 in Count 1 for both amounts and in Counts 2, 3 and 4 an equitable lien based on the debtor's fraud.

Lui-M seeks first to suggest that Mass.G.L. ch. 255 §§ 31A and 31B dealing with spinners' liens has some bearing on this problem. Clearly, if Lui-M has a statutory lien it must be based on Florida law.

The pertinent Florida statutes are Section 713.58 entitled Liens for Labor or Services on Personal Property as most recently amended in 1970 by sec. 1, ch. 70-340.

(1) In favor of persons performing labor or services for any other person, upon the personal property of the latter upon which the labor or services is performed, or which is used in the business, occupation, or employment in which the labor or services is performed. (emphasis added)

(2) It is unlawful for any person, knowingly, willfully, and with intent to defraud, to remove any property upon which a lien has accrued under this section without first making full payment to the person performing labor or services of all sums due and payable for such labor or services or without first having the written consent of such person so performing the labor or services so to remove such property.

(3) In that the possessory right and lien of the person performing labor or services under this section is released, relinquished, and lost by the removal of such property upon which a lien has accrued, it shall be deemed prima facie evidence of intent to defraud if, upon the removal of such property, the person removing such property utters, delivers, or gives any check, draft, or written order for the payment of money in payment of the indebtedness secured by the lien and then stops payment on such check, draft, or written order.

(4) Any person violating the provisions of this section shall be deemed guilty of a misdemeanor and upon conviction shall be punished by fine of not more than $500 or imprisonment in the county jail for not more than 3 months.

and by Section 713.74 as most recently amended in 1969 by sec. 4, ch. 69-97.

Acquisition of liens by persons in privity with the owner. As against the owner of personal property upon which a lien is claimed under this part II, the lien shall be acquired by any person in privity with the owner by the performance of the labor or the furnishing of the materials. There shall be no lien upon personal property as against purchasers and creditors without notice unless the person claiming the lien is in possession of the property upon which the lien is claimed. The lien shall continue as long as the possession continues, not to exceed 3 months after performance of the labor or furnishing the material.

Statutory liens have had a checkered career under the Bankruptcy Act. See Bankruptcy Act §§ 67(b) and 67(c) and now 11 U.S.C. 545 and the history and comments thereunder as Congress zealously tries to limit any use of statutory liens to encroach on the priorities of bankruptcy. Even Florida state courts recognize the need for strict construction and compliance. Southern Paint Mfg. Co. v. Crump, 132 Fla. 799, 182 So. 291 (1938); Buker v. Webster, 140 Fla. 471, 191 So. 835 (1939).

Possession is the sine qua non of this lien. The lien is intended to be limited and is expressly made limited to work or labor performed on the property being held. Lui-M tries to make much of the clause in § 713.58(1) "or which is used in the business, occupation or employment in which the labor or services is performed" but this phrase is intended to cover employees or others who cannot identify the specific goods on which they worked and in any event is not applicable to "purchasers and creditors without notice" as is made clear, as even counsel for Lui-M concedes in his brief, by § 713.74 (pp. 8 & 9). Lui-M's counsel cites several cases all prior to the 1969 and 1970 amendments which added emphasis to the possession requirement.

It may be as counsel for Lui-M argues, that as between the parties possession may not be essential but it is essential for a statutory lien dealing with "creditors without notice" or a ...