Jackson v. Flohr

• Decision Date: 16 January 1956
• Docket Number: No. 14293.,14293.
• Citation: 227 F.2d 607
• Parties: A. J. JACKSON, as Trustee in Bankruptcy of Dale R. Peterson & Co., Inc., Appellant, v. E. Firmin FLOHR, Edward W. Flohr, and L. Carlos Flohr, doing business as Flohr & Co., Metal Fabricators, Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

227 F.2d 607 (1955)

A. J. JACKSON, as Trustee in Bankruptcy of Dale R. Peterson & Co., Inc., Appellant, v. E. Firmin FLOHR, Edward W. Flohr, and L. Carlos Flohr, doing business as Flohr & Co., Metal Fabricators, Appellees.

No. 14293.

United States Court of Appeals Ninth Circuit.

June 23, 1955.

Rehearing Denied September 26, 1955.

Writ of Certiorari Denied January 16, 1956.

Willard Hatch, Arthur S. Quigley, Croson, Johnson & Wheelon, Seattle, Wash., for appellant.

Holman, Mickelwait, Marion, Black & Perkins, Lucien F. Marion, William M. Holman, Seattle, Wash., for appellees.

Before BONE, FEE and CHAMBERS, Circuit Judges.

Writ of Certiorari Denied January 16, 1956. See 76 S.Ct. 322.

JAMES ALGER FEE, Circuit Judge.

Jackson, Trustee for Dale R. Peterson & Co., Inc., a bankrupt building contractor, sought in this cause in a United States District Court to recover under Washington statutes moneys previously received by the Flohrs, metal fabricators and subcontractors, who had furnished labor and materials on two jobs for which the Peterson company was the general contractor.

The Trustee chose to ground his attack upon the Flohrs under 11 U.S.C.A. § 110, sub. e(1), which gives a trustee the right to recover any money transferred under circumstance which rendered the transaction voidable by state law.¹ The Trustee, having a choice of forum, filed this action in federal rather than state court.

Specifically, the Trustee sought $2,424.50, received by the Flohrs on account of Peterson's "Williamson job," and $730.00, on account of the "Joe Favre job," before the adjudication of bankruptcy of Peterson company. The particular statute of the State of Washington relied upon is found in Sections 23.48.010(1) and (3) and 23.48.030 of Remington Code of Washington, which read as follows:

R.C.W. 23.48.010(1). "`Receiver\' means any receiver, trustee, common law assignee, or other liquidating officer of an insolvent corporation".

R.C.W. 23.48.010(3). "`Preference\' means a judgment procured or suffered against itself by an insolvent corporation or a transfer of any of the property of such corporation, the effect of the enforcement of which at the time it was procured, suffered, or made, would be to enable any one of the creditors of such corporation to obtain a greater percentage of his debt than any other creditor of the same class."

R.C.W. 23.48.030. "Any preference made or suffered within four months before the date of application for the appointment of a receiver may be avoided and the property or its value recovered by the receiver. No preferences made or suffered prior to such four months period may be recovered, and all provisions of law or of the trust fund doctrine permitting recovery of any preference made beyond the four months period are hereby specifically superseded."

On May 16, 1952, Peterson company suffered the appointment of a receiver in a Washington state court. (This fixes the critical date for preferences here as January 16, 1952.) Subsequently, on June 18, 1952, a petition in involuntary bankruptcy was filed against the company, and on July 24, 1952, adjudication of bankruptcy was made. Finally, Jackson was appointed Trustee on August 21, 1952.

A recital of facts apparently assumed by the trial court in entering summary judgment against the Trustee on each claim follows. Both payments to Flohrs occurred after January 16, 1952. The Favre payment of $730.00 was made by Peterson company itself direct to Flohrs. The Williamson payment was made by a check in the amount of $2,424.50, drawn by Williamson, the owner, which was payable to Peterson company and Flohrs jointly. After securing the endorsement of Peterson, Flohrs cashed the check. A critical fact as to both payments is that, under the Washington statutes, Flohrs, as subcontractors, had a material-men's lien against Williamson and Favre properties, respectively. The necessary five days' notice to charge each of these properties before commencement of work had been given. The 90 day period after completion for perfecting the lien had not expired in either instance. Peterson delivered the last materials to the Williamson property on December 26, 1951, and to the Favre property on November 12, 1951.

The trial court said these payments were not preferences. 119 F.Supp. 305. Whether or not this solution was correct must necessarily depend upon Washington law because that is the source of the right plaintiff asserts.² Both parties place reliance upon the case of Seattle Association of Credit Men v. Daniels, 15 Wash.2d 393, 130 P.2d 892. If that case were identical, our task would be easy, but, of course, if this case were the same, the parties would not be here.

A thorough examination of the Daniels case and all Washington authorities does not bring forth any case that is conclusive of our question. Naturally, any determination here made evaporates as soon as the Washington courts announce a decision of the precise point upon which we are called to rule. We are aided in our determination by the expressions of the Washington courts, so it cannot be said that we plow virgin soil and need pay no attention to what Washington has said. We must try to conclude what the Washington Supreme Court would do here in the light of its decisions.

Therefore, the discussion which follows is bottomed upon our reading of the Daniels case, as well as we can read it, and an examination of all Washington cases that seem apropos. Making due allowance for various changes in the Washington statutes, we have been strongly influenced by the underlying principles discussed in State v. Williams, 133 Wash. 121, 233 P. 285; Spokane Manufacturing & Lumber Co. v. McChesney, 1 Wash. 609, 21 P. 198; Simpson v. Sisters of Charity of House of Providence, 108 Wash. 82, 182 P. 937; Whiting v. Rubinstein, 7 Wash.2d 204, 109 P.2d 312; Terhune v. Weise, 132 Wash. 208, 231 P. 954, 38 A.L.R. 94; Seattle Association of Credit Men v. Luster, 37 Wash.2d 192, 222 P.2d 843, and Northwest Hardware Co. v. M. & S. Logging Co., 132 Wash. 413, 232 P. 274.

As to the Williamson payment, we uphold the determination of the trial court thereon.

The construction of the federal Bankruptcy Act is not involved except insofar as the statutes of the State of Washington are thereby adopted as the criteria of avoidable transfers. As this Court understand the facts, there was no transfer made and no lien in existence within the federal penumbra of bankruptcy. There was no allegation or attempt to prove that the Flohrs, at the time these payments were received by them, "had reasonable cause to believe the bankrupt insolvent." See 11 U.S.C.A. § 96. The sole question then was whether these two separate payments were denounced by the law of the state. There are three statutes of Washington which must be scrutinized: (1) the act as to avoidable preferences;³ (2) the lien laws;⁴ and (3) the enactments which constitute the contractor an agent for the owner.⁵ The burden was on the Trustee in each instance.

Under R.C.W. 23.48.010, a "transfer of any of the property of such corporation" is denounced. Here none of the property of Peterson company was transferred. The money belonged to Williamson, the owner. The lien was on the realty of Williamson. Irrespective of the validity of the lien, his intention to prevent a cloud on his title is clear. The money was his. Williamson had a right to direct the application thereof.⁶ If the money had been paid direct from Williamson to the Flohrs, the contractor would have had no claim against the owner for this sum.⁷ He could have used one of the officers of Peterson company as a messenger to carry the cold cash to the Flohrs.⁸ The mere endorsement of the check did not pass the fund in the estate of Peterson company.⁹ The making of the check to Peterson and the Flohrs jointly was simply to furnish evidence that the contractor knew of and acquiesced in the payment. The endorsement by Peterson company is evidence that the contractor also intended that Williamson's money should go to the Flohrs. The Trustee did not so prove that "any of the property of the corporation was transferred."

The lien statutes of Washington make it clear there was a valid encumbrance upon the property of Williamson at the time of the payment.¹⁰ Mechanics' liens are provided by statute in order to give the furnisher of labor and material, security against the realty so that it is unnecessary to rely upon the personal responsibility of the contractor. The Washington law contains an express declaration that the underlying policy shall be carried out by construction in the courts.¹¹ Also, it is specifically provided that the lien attaches upon the furnishing of the first labor or material.¹² True, the lien can be cut off by condition subsequent: (1) if there is a failure to give the five day notice to the owner,¹³ (2) if the lien notice is not filed within ninety days after completion of furnishing,¹⁴ and (3) if action is not commenced at the time specified.¹⁵ Neglect to take appropriate action within any one of these time periods avoids the lien. On the contrary, the lien is in full force and effect as soon as the material is furnished.¹⁶ It encumbers the property without doubt for five days and thereafter unless it is cut off by a failure to give the notice to the owner within the statutory time. And, if notice has been so given, the lien is perfect. It may be cut off by failure to file written notice according to law within ninety days after completion of the work. If this notice is then filed, the lien can still be outlawed if action is not commenced as provided.

Now the Washington "preference" statute provides "the effect of the enforcement" of the transfer "at the time it was" made would enable a creditor to obtain a greater percentage "than any other creditor of the same class." There are two noticeable prerequisites here which do not exist in the payment of the lien by Williamson, even if it were...