In re Peters
| Decision Date | 06 April 1988 |
| Docket Number | Bankruptcy No. 87-00048,Adv. No. 87-0062. |
| Citation | 90 BR 588 |
| Parties | In re Margaret C. PETERS d/b/a M.C. Peters Construction Company, Debtor. S.J. GROVES & SONS COMPANY, Individually and on behalf of all other similarly situated, Plaintiff, v. Margaret C. PETERS, Individually and d/b/a M.C. Peters Construction Company, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of New York |
COPYRIGHT MATERIAL OMITTED
Bryant, O'Dell & Basso, Syracuse, N.Y., for plaintiff; Linda E. Alario, of counsel.
Melvin and Melvin, Frank Vavonese, Syracuse, N.Y., for defendant; Louis Levine, of counsel.
MEMORANDUM-DECISION, FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER
On October 27, 1987, the Court heard oral argument of three motions brought on by S.J. Groves & Sons Company ("Groves") and Margaret C. Peters, d/b/a M.C. Peters Construction Company ("Debtor") within the adversary proceeding initiated by Groves on behalf of itself and those similarly situated against the Debtor and three banks in the Debtor's bankruptcy case.1 Pursuant to Article 3-A of the New York Lien Law (McKinney 1966 & Supp. 1988) ("Article 3-A" or "Lien Law") and Section 523(a)(4) of the Bankruptcy Code, 11 U.S.C.A. §§ 101-1330 (West 1979 & Supp.1987) ("Code"), Groves commenced said adversary proceeding to recover as nondischargeable debts allegedly diverted trust fund monies arising out of two subcontracts with the Debtor in connection with two public improvement construction contracts it had executed with the New York State Department of Transportation ("DOT").
Groves seeks to conditionally maintain its adversary proceeding as a class action pending an accounting by the Debtor of the alleged trusts to substantiate the class action numerosity requirement. By way of her first motion for summary judgment, the Debtor requests the dismissal of all claims under Article 3-A and Code § 523 brought by Groves in an individual and representative capacity, the dismissal of the claims against the defendant banks and the reduction of Groves' claim from $107,890.00 to $9,097.24. The Debtor's second motion seeks leave to file an amended answer and counterclaim which, inter alia, brings in claims for work under a similar third subcontract, seeks to dismiss Groves' complaint, demands indemnity, contribution and judgment of almost $223,000.00 (an increase of $150,000.00 from her original answer) from Groves, Lien Law relief for herself and Groves' co-plaintiff class and the disallowance of Groves' claim in her bankruptcy case.
The Debtor operates a sole proprietorship, a landscaping business, in Canastota, New York. She entered into three subcontracts with Groves in May and June of 1983 to perform certain labor and furnish material for the construction and completion of public highways in Onondaga County, New York. Each of these subcontracts were part of three separate contracts Groves, as the general contractor, had executed with DOT: D250416, D250417 and D250094.2
Due to disputes over payment and work quantities, the Debtor stopped working on D250416 and D250417 sometime in October 1985. In June 1986, Groves informed the Debtor that it was attempting to expedite completion and final payment of D250416 and D250417. Groves received the final payment check from DOT for D250094 on August 25, 1986.
On January 14, 1987, the Debtor filed a voluntary petition under Chapter 11 of the Code and on February 27, 1987 filed the required Schedules and Statements. Debtor's schedules recited some $350,437.00 (sic) in debt and $249,276.00 in property. The Debtor listed six creditors having priority with a total of almost $120,000.00 in claims: four creditors were union or pension-related entities and the remaining two were the federal and state tax authorities in connection with withholding and unemployment tax. She listed three secured creditors holding four claims in the aggregate of approximately $124,284.00. The balance of some $116,394.00 was owed to unsecured creditors holding eighteen claims of which two, totaling $25,000.00 (to Hogeboom & Campfield, Inc. and Menter, Rudin & Trivelpiece, P.C.), were described as contingent, unliquidated or disputed.
The Debtor also included in her Schedule B-3 — "Property Not Otherwise Scheduled" — two pending lawsuits with Triple Cities Construction Company, Inc. and Groves, valued at $30,000.00 and $75,000.00, respectively. After Groves denied being a party to any pre-petition lawsuit, the Debtor admitted the "mistaken scheduling of her claim against S.J. Groves as `lawsuits pending' instead of `claims outstanding.'" Reply Memorandum of Defendant Margaret C. Peters, at para. f (Oct. 26, 1987).
The meeting of creditors and equity security holders pursuant to Code § 341 was held on March 24, 1987. The Court, on March 3, 1987, fixed June 22, 1987 as the last day to file proofs of claim, Federal Rule of Bankruptcy Procedure ("Fed.R. Bankr.P.") 3003(c)(3), and May 23, 1987 became the last day to file a dischargeability complaint under Code § 523(c). Fed.R. Bankr.P. 4007(c).
Between March 2 and December 17, 1987, eight proofs of claim were filed in the Debtor's case: 1) Menter, Rudin & Trivelpiece, P.C., filed March 2, 1987, $5,079.85 for legal services in Triple Cities Construction Co., Inc. litigation, 2) Onondaga County Laborer's Health and Welfare, Pension and Annuity Funds Local 333, filed March 20, 1987, $8,464.53 based on collective bargaining agreement, 3) Parlor City Contracting Company, filed March 26, 1987, $1,235.37 for labor, materials and equipment on an open account which became due on May 30, 1985, 4) Marine Midland Bank, N.A., filed March 31, 1987, $54,184.69 for monies loaned debtor based on six promissory notes, 5) Louis J. Bruno, filed May 22, 1987, $2,566.39 for office space, 6) Groves, filed May 19, 1987, "$136,000.00 approx." for breach of contracts, 7) New York State Department of Tax, filed June 8, 1987, $5,049.16 for unemployment insurance contributions plus interest from January 1, 1985 through December 31, 1986 and 8) Engineers Joint Benefit Funds, filed December 17, 1987, $432.00 based on collective bargaining agreement.
On May 14, 1987, the Court entered an Order extending the time Groves could file a Code 523(c) complaint to thirty days after the date of the Debtor's examination pursuant to Fed.R.Bankr.P. 2004. On May 26, 1987, the Debtor turned over to Groves its books and records regarding funds received and disbursed under D250416, D250417 and D250094 and was examined at the offices of Groves' counsel in Syracuse, New York on June 26 and July 2, 1987.
On July 7, 1987, Groves commenced the underlying adversary proceeding as a class action under Federal Rule of Civil Procedure ("Fed.R.Civ.P.") 23(a), (b)(1)(B) and (b)(3) and Fed.R.Bankr.P. 7023 for the plaintiff class of trust beneficiaries for which the debtor was the Article 3-A trustee under D250416 and D250417. Groves alleges that all the prerequisites for a class action are present, as mandated by § 77(1) of Article 3-A and Fed.R.Civ.P. 23(a), but admits not knowing the exact number of class members. It estimates the class size as not less than thirty-five, meeting the impracticably numerous requirement of Fed.R.Civ.P. 23(a). Groves asks the Court to make a determination of whether the action could be maintained as a class action.
As against the Debtor, Groves requests the following relief: an accounting of the total monies received in D250416 and D250417, that those monies constitute trust funds for which Debtor was the trustee and the beneficiaries were those entities who rendered services and material thereunder, for the determination and allocation of the rights and interests of such creditors and claimants under such trust funds, and the determination of the amounts diverted from the Debtor's unauthorized payment or transfer of assets and of their nondischargeability under Code § 523(a)(4).
In her answer filed August 20, 1987, the Debtor denied the existence of any of the procedural requirements of Fed.R.Civ.P. 23 and admitted that Article 3-A requires trust actions to be brought as class actions. The Debtor affirmatively defended Groves' complaint by claiming the Court lacked subject matter jurisdiction, that Groves' action was untimely filed and did not state a claim upon which relief should be granted, that Groves lacked standing to bring the present suit because it was neither a beneficiary nor a subrogee of the Article 3-A trusts, that the dischargeability action could not proceed as a class action and that Groves was not a proper party to prosecute a class action under New York Lien Law or the Code. The Debtor also claimed that no judgment should issue for any part of Groves' requested relief until the merits of her counterclaims were determined since any failure on her part to pay trust claims was due to Groves' breach of contract and/or trust fund diversion or defalcation. Absent the dismissal of Groves' complaint, she requested Article 3-A relief for herself and the co-plaintiff class and, individually, contribution, indemnity and damages of $150,000.00.
Groves denied all the Debtor's counterclaims in its Reply, filed September 4, 1987, admitting only that the monies it received under D250416 and D250417 constituted trust funds under Article 3-A. In six affirmative defenses, Groves charged that 1) the Debtor's pleading did not state a claim upon which relief could be granted, 2) it had paid the Debtor all the sums the latter was entitled to under D250416 and D250417, 3) the Court lacked subject matter jurisdiction over the counterclaims, 4) the written subcontracts provided for any breaches to be resolved through arbitration, 5) the Debtor's counterclaims arose from her dispute with DOT over payment quantities and that each subcontract agreement provided for Groves' representation to DOT of said dispute; that Groves had advised the Debtor of these procedures who, in failing to provide...
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