In re Regan
| Decision Date | 27 February 2007 |
| Docket Number | No. 05-1307.,05-1307. |
| Citation | 477 F.3d 1209 |
| Parties | In re Jeffrey Shawn REGAN and Kerrie Marie Regan, Debtors, Fowler & Peth, Inc., a Wyoming corporation, Plaintiff-Appellant, v. Jeffrey Shawn Regan and Kerrie Marie Regan, Defendants-Appellees, Crescent Electric Supply Company; Hercules Industries, Inc.; K & W Metal Fabricators, Inc., d/b/a Weather Guard Building Products, Inc.; Shelter Products, Inc.; White Cap Construction Supply, Inc.; American Subcontractors Association, Inc.; and American Subcontractors Association Of Colorado, Amici Curiae. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Submitted on the briefs:* Harvey L. Kramer and Brian J. Berardini, Brown, Berardini & Dunning, P.C., Denver, CO, for Appellant.
Stephen E. Berken and Jennifer O. Pielsticker, Law Offices of Stephen Berken, Denver, CO, for Appellee.
Robert H. ("Rick") Miller, David B. Law, W. Andrew Figel, Lichtenfels, Pansing & Miller, P.C., Denver, CO, and Gilbert R. Egle, Preeo, Silverman, Green & Egle, P.C., Denver, CO, filed a brief on behalf of amici.
Before BRISCOE, ANDERSON, and EBEL, Circuit Judges.**
This case is before us following our certification of a dispositive issue of state law to the Colorado Supreme Court. Plaintiff and appellant Fowler & Peth, Inc. appeals a decision of the United States District Court for the District of Colorado reversing the Bankruptcy Court's determination that a debt owed to Fowler & Peth by debtors Jeffrey Shawn Regan and Kerrie Marie Regan was nondischargeable under 11 U.S.C. § 523(a)(4). The question of whether the debt was dischargeable or not depended, in turn, on the proper construction of a Colorado statute known as the Colorado Mechanic's Lien Trust Fund Statute. The Colorado Supreme Court has furnished us with the proper construction of that statute, as a result of which we reverse the decision of the district court and remand this case to that court for further proceedings.
The basic facts relevant to this matter are undisputed. The Regans are, or were at all relevant times, the sole shareholders, officers and directors of Eagle Roofing, Inc., a Colorado corporation specializing in the installation and repair of roofs. As the sole owners and operators of Eagle Roofing, the Regans made all financial decisions relating to the company and controlled its cash flow.
During the course of its business, Eagle Roofing opened a credit account with Fowler & Peth, a Wyoming corporation which supplied roofing materials and supplies. In 2000, Eagle Roofing encountered financial difficulties. To improve its cash flow, the Regans made payments to Eagle Roofing's suppliers, including Fowler & Peth, based on the dates of the invoices, regardless of the project for which monies were allocated. Additionally, the Regans used some of the funds allocated to projects to pay the Regans' personal living expenses and other general business expenses incurred by Eagle Roofing. As a result, Fowler & Peth was not fully paid for materials and supplies delivered to Eagle Roofing, even though Eagle Roofing was fully compensated for its work on the properties into which Fowler & Peth's materials were incorporated. Fowler & Peth did not file liens against any of the properties into which its supplies were incorporated.
On April 14, 2003, the Regans filed for Chapter 7 relief under the Bankruptcy Code. As of that date, Eagle Roofing owed Fowler & Peth $48,185.03. Fowler & Peth commenced an adversary proceeding, in which it asserted that the Regans should be held personally liable for the debt, and that the debt was nondischargeable under 11 U.S.C. § 523(a)(4).1
The Colorado Mechanic's Lien Trust Fund Statute, Colo.Rev.Stat. § 38-22-127, provides in relevant part as follows:
38-22-127. Moneys for lien claims made trust funds—disbursements—penalty.
(1) All funds disbursed to any contractor or subcontractor under any building, construction, or remodeling contract or on any construction project shall be held in trust for the payment of the subcontractors, laborer or material suppliers, or laborers who have furnished laborers, materials, services, or labor, who have a lien, or may have a lien, against the property, or who claim, or who may claim, against a principal and surety under the provisions of this article and for which such disbursement was made.
The Regans argued that because Fowler & Peth failed to exercise its mechanic's lien rights when it was not paid, it could not "have a lien" under the Trust Fund Statute.
The Bankruptcy Court rejected the Regans' argument, holding that "the language of the [Trust Fund Statute] appears to provide wronged laborers and materialmen with a second source of protection and relief, separate and apart from the traditional mechanic's lien practice." Fowler & Peth, Inc. v. Regan (In re Regan), 311 B.R. 271, 276 (Bankr.Colo.2004). It explained its reasoning by stating that the "statutory interpretation urged by the Regans, namely, that Fowler must have perfected its interest by filing a mechanic's lien to fall within the [Trust Fund Statute], vitiates the `may have a lien' portion of the statute . . . . as if it did not exist." Id. The court therefore held that "if Fowler can establish it had the `potential' for a lien, this portion of the [Trust Fund Statute] is satisfied." Id.
The Regans appealed the Bankruptcy Court's decision to the United States District Court for the District of Colorado, which reversed the Bankruptcy Court's decision and remanded the case with directions to order that the $48,185.03 debt owed to Fowler & Peth was dischargeable. The district court agreed with the Regans' argument that Fowler & Peth cannot invoke the Trust Fund Statute because it failed to demonstrate that it has actual perfected or potential perfectible liens against properties...
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