St. Regis Paper Co./Southern Culvert Operations v. Quality Pipeline, Inc.

• Decision Date: 24 April 1985
• Docket Number: No. 83-2113,83-2113
• Citation: 469 So.2d 820,10 Fla. L. Weekly 1073
• Parties: 10 Fla. L. Weekly 1073 ST. REGIS PAPER COMPANY/SOUTHERN CULVERT OPERATIONS, Appellant, v. QUALITY PIPELINE, INC., and KTI Corporation, Appellees.
• Court: Florida District Court of Appeals

Page 820

469 So.2d 820

10 Fla. L. Weekly 1073

ST. REGIS PAPER COMPANY/SOUTHERN CULVERT OPERATIONS, Appellant, v. QUALITY PIPELINE, INC., and KTI Corporation, Appellees.

No. 83-2113.

District Court of Appeal of Florida Second District.

April 24, 1985.

Rehearings Denied May 30, 1985.

Joseph D. McFarland of Devito, Colen & Forlizzo, St. Petersburg, for appellant.

Chad P. Pugatch of Cooper, Shahady, Frazier, Pugatch & Meyer, Fort Lauderdale for appellee Quality Pipeline, Inc.

Anthony H. Pelle of Katz, Squitero, Linden & Faust, Miami, for appellee KTI Corp.

DANAHY, Judge.

The question we must answer is whether a plan of reorganization, accepted by the creditors and approved by a bankruptcy court, extinguishes the right of one creditor to proceed in state court to enforce a state judgment against another creditor. The trial court, agreeing with the appellees, answered yes. We disagree.

Appellee Quality Pipeline, Inc. (Quality), a subcontractor, entered into a contract and provided substantial work in the nature of excavation, land development and related services to the owner, Sunshine Meadows, Inc. (Sunshine). Appellant St. Regis Paper Company/Southern Culvert Operations (St. Regis), pursuant to its contract with Quality, supplied corrugated metal pipe and other materials to Quality on the project. Appellee KTI was a mortgage lender on the project and later succeeded to Sunshine's interest.

Quality and St. Regis separately filed their claims of lien pursuant to chapter 713, Florida Statutes (1981), against Sunshine's real property. The amount of Quality's lien included the total amount owed by Sunshine while St. Regis' lien was only in the amount of its claim against Quality under their agreement.

Shortly after the liens were filed, Sunshine filed a voluntary petition for reorganization under chapter XI of the United States Bankruptcy Code. During the pendency of the bankruptcy proceedings, St. Regis sued Quality in circuit court for breach of contract and obtained a final judgment in the amount due from Quality. ¹

Meanwhile, the bankruptcy court confirmed a plan of reorganization (Plan) between Sunshine and its creditors. ² Under the Plan KTI became a successor in interest to Sunshine. The Plan further offered all mechanic's lien creditors the following two options:

Alternative I: One hundred (100%) percent of their claim as proven and allowed. Five (5%) percent to be paid upon confirmation of Modified Plan of Reorganization and five (5%) percent each and every four (4) months thereafter until paid in full without interest.

Alternative II: A cash sum equivalent to forty-two (42%) percent of their claim as proven and allowed as a full and final settlement upon confirmation of the Modified Plan of Reorganization.

Through ballots filed with the bankruptcy court, both Quality and St. Regis voluntarily accepted the Plan. Quality elected Alternative I and is receiving its 100% payout in installments. St. Regis elected Alternative II and received the 42% cash payout. St. Regis then executed a release of lien in favor of KTI, releasing the Sunshine property from its claim of lien.

Subsequently, St. Regis proceeded in the circuit court to obtain execution on its unsatisfied judgment against Quality by garnishing the installment payments due from KTI to Quality under the Plan. The court issued the writ of garnishment and directed KTI to answer. When KTI defaulted by failing to answer, St. Regis obtained a final default judgment against KTI for the 58% balance Quality still owed. On the same day the final judgment was rendered, Quality, later joined by KTI, sought to dissolve the garnishment and to adjudicate the rights of St. Regis to the remaining 58%. Quality and KTI argued that St. Regis' final judgment against Quality had been satisfied in full by its acceptance of the money under the Plan. Additionally, KTI filed a motion to vacate the default judgment rendered against it as garnishee on grounds that the judgment was void for lack of jurisdiction due to improper service of process. The court granted KTI's motion to vacate the default judgment and ordered KTI to answer the writ of garnishment.

After an evidentiary hearing, the court found that the provisions of the Plan created an accord and satisfaction of Quality's indebtedness. The court therefore ordered that the garnishment be dissolved and authorized KTI to release to Quality all funds which had been held subject to the writ.

At this point we are confronted with the question posed at the outset of this opinion. In answering this question we find it is necessary to review pertinent sections of our mechanic's lien law before turning to the effect of the bankruptcy proceedings. We initially note that chapter 713.30, Florida Statutes (1983), reads:

Other actions not barred.--This [Mechanic's Lien] shall be cumulative to other existing remedies and nothing contained in part I of this chapter shall be construed to prevent any lienor or assignee under any contract from maintaining an action thereon at law in like manner as if he had no lien for the security of his debt, and the bringing of such action shall not prejudice his rights under part I of this chapter, except as herein otherwise expressly provided.

While this section affords a direct right of action against the owner of the improved property, it does not ignore or supersede any other remedies available to the party seeking payment. See Logan Construction v. Warren Brothers Construction Co., 268 So.2d 369 (Fla.1972) (a materialman may recover a personal judgment against the contractor with whom he is in privity while maintaining a mechanic's lien action against the property owner); Crane Co. v. Fine, 221 So.2d 145 (Fla.1969) (one who has performed services or furnished materials in the improvement of real property is not limited to proceeding under the mechanic's lien law); General Electric Co. v. Atlantic Shores, Inc., 436 So.2d 974 (Fla. 5th DCA 1983) (a materialman does not have to make an election of remedies); Halifax Construction Co. v. Chastain Groves, Inc., 192 SO.2d 15 (Fla. 1st DCA 1966) (mechanic's lien law does not bar a lienor from maintaining an action at law on the contract); Remington Construction Co. v. Hamilton Electric, Inc., 181 So.2d 183 (Fla. 3d DCA 1965) (remedies by way of an action on note from a contractor for materials supplied and action to foreclose mechanic's lien are merely cumulative; until such time as judgment on note is satisfied, holder may bring mechanic's lien claim against the property owner).

A reading of these cases and the statute makes it evident that St. Regis need not make an election of remedies; that is, whether to pursue its rights under the contract or under the lien. St. Regis' rights under the contract and its subsequent judgment against Quality constitute an alternative remedy and an independent cause of action. Enforcement of the mechanic's lien by St. Regis against Sunshine is a cumulative remedy provided by the statute and incidental to its contract with Quality. Until its claim is satisfied, St. Regis could proceed to enforce its lien and could also bring an action to recover its monies under the contract. Therefore, were it not for the bankruptcy proceedings, our disposition of this case would be rather clear since the rights and liabilities of the materialman, the subcontractor, and the owner are clearly defined by statute and case law.

We turn, then, to an examination of what, if any, effect the bankruptcy proceedings had on St. Regis' claim against Quality. Quality argues that upon confirmation of a chapter XI plan by the bankruptcy court the rights and interests of all creditors terminate except as provided under the plan. See Friedman v. Schneider, 238 Mo.App. 778, 186 S.W. 204 (1945); Ely v. Donoho, 45 F.Supp. 27 (S.D.N.Y.1942). We are not persuaded by this argument. It ignores generally recognized principles of bankruptcy law. First, the jurisdiction of the bankruptcy court is limited and is framed by federal statute according to the particular proceeding and type of relief sought. 11 U.S.C. § 301 (1982). See In re Trigg, 630 F.2d 1370 (10th Cir.1980). Under chapter XI the bankruptcy court has jurisdiction if only the debtor and its property; it has no jurisdiction to decide collateral disputes between third parties which do not involve the debtor and its property unless settlement of those disputes is a necessary step in the debtor's reorganization. In re Grand Spaulding Dodge, Inc., 5 B.R. 481 (Dist.Ct.Ill.1980); Riffe Petroleum Co. v. Cibro Sales Corp., 601 F.2d 1385 (10th Cir.1979); In re Harwald Co., 497 F.2d 443 (7th Cir.1974); In re Texas Consumer Finance Corp., 480 F.2d 1261 (5th Cir.1973); Baker & Taylor Drilling Co. v. Stafford, 369 F.2d 551 (9th Cir.1966); Rosehedge Corp. v. Sterett, 274 F.2d 786 (9th Cir.1960). Thus, in terms of jurisdiction, the bankruptcy court affects only the relationships between the debtor and its creditors. See In re Kornbluth, 65 F.2d 400 (2d Cir.1933); R.I.D.C. Industrial Development Fund v. Snyder, 539 F.2d 487 (5th Cir.1976), cert. denied, 429 U.S. 1095, 97 S.Ct. 1112, 51 L.Ed.2d 542 (1977); First National Bank v. Millender, 149 Ga.App. 65, 253 S.E.2d 417 (1979); see generally 9 Am.Jur.2d Bankruptcy § 1 (1980). Moreover, 11 U.S.C. § 524(e) (1982) of the Bankruptcy Code specifically provides:

Except as provided in subsection (a)(3) of this section, discharge of a debt of the debtor does not affect the liability of any other entity on, or the property of any other entity for, such debt.

This section applies in a case filed under chapter XI. 11 U.S.C. § 103 (1982).

Second, bankruptcy imposes certain relationships on the various creditors where, prior to bankruptcy, they shared no particular common interest other than the financial health of the debtor. Bankruptcy "pits one creditor against another, each seeking to enforce his rights against the debtor's limited and insufficient...