U.S. v. Midpac Lumber Co., Ltd., CV. No. 96-00674-DAE.

• Decision Date: 29 August 1997
• Docket Number: CV. No. 96-00674-DAE.
• Citation: 976 F.Supp. 1310
• Parties: UNITED STATES of America, Plaintiff, v. MIDPAC LUMBER CO., LTD., Defendant.
• Court: Hawaii Supreme Court

976 F.Supp. 1310

UNITED STATES of America, Plaintiff, v. MIDPAC LUMBER CO., LTD., Defendant.

CV. No. 96-00674-DAE.

United States District Court, D. Hawai`i.

August 29, 1997.

Michael Chun, U.S. Atty.'s Office, Honolulu, HI, Thomas J. Sawyer, U.S. Dept. of Justice, Trial Atty., Tax Division, Washington, DC, Bernard J. Knight, Jr., U.S. Dept. of Justice, Washington, DC, for Plaintiff.

Kurt K. Kawafuchi, Goodsill, Anderson, Quinn & Stifel, Honolulu, HI, Wayne W.S. Wong, Lee, Kim, Wong, Yee & Lau, Honolulu, HI, for Defendant.

ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT; DENYING DEFENDANT'S COUNTERMOTION FOR SUMMARY JUDGMENT

DAVID ALAN EZRA, District Judge.

The court heard Plaintiff's Motion for Summary Judgment and Defendant's Countermotion for Summary Judgment on August 29, 1997. Bernard J. Knight, Esq., appeared at the hearing on behalf of Plaintiff; Wayson W.S. Wong, Esq., appeared at the hearing on behalf of Defendant. After reviewing the motion and the supporting and opposing memoranda, the court GRANTS IN PART and DENIES IN PART Plaintiff's Motion for Summary Judgment and DENIES Defendant's Motion for Summary Judgment.

BACKGROUND

MidPac Lumber Company, Ltd. ("Defendant") sells construction materials and supplies for residential and commercial construction projects. As part of its business, Defendant also provides performance bonds and/or payment bonds to contractors on specific construction projects, where the financing institution for the project requires such bonds. In a performance bond, Defendant guarantees to the owner and lender that the project will be completed according to contract specifications. In a payment bond, Defendant guarantees to the owner and lender that all subcontractors and suppliers for the construction project will be paid.

Defendant does not charge its customers for the performance or payment bonds, but instead offers the bonds as an accommodation to a contractor to encourage the contractor to purchase his materials and supplies from Defendant. Before deciding to issue a bond on a particular project, Defendant reviews the plans and budget for the project to determine whether the project is likely to generate a profit.

Land Data & Research Corporation ("Land Data") was a general contractor for residential and commercial construction projects. Defendant sold construction materials and supplies to Land Data for its construction projects. Defendant also provided Land Data with performance and payment bonds for some of its construction projects, where the lending institution for a particular project required a bond. Defendant did not charge Land Data a fee for issuing these bonds.

This case concerns the performance and payment bonds which Defendant agreed to provide to Land Data for three separate construction projects. These bonds are more fully described as follows:

(1) Bond dated February 10, 1993, with Kaimana Construction as the Principal, [Defendant] as the Surety, and Bank of Hawaii and Julian Gionson and Felicidad Gionson as the Owners in the sum of $115,985. (The Gionson Bond.)

(2) Bond dated August 18, 1992, with Kaimana Construction as the Principal, [Defendant] as the Surety, and First Hawaiian Bank, Mr. and Mrs. James Endo, and Vernon Endo as the Owners in the sum of $292,000. (The Endo Bond.)

(3) Bond Dated August 16, 1992, with Kaimana Construction as the Principal, [Defendant] as the Surety, and Finance Factors, Ltd., Darlene Nakapalau, Barbara Butcher, and Keith Naone as the Owners in the sum of $320,384. (The Nakapalau Bond.)

The Bonds issued by Defendant were printed on a standard form which was signed by the Principal and the Owner of the construction project. This form contained a paragraph dealing with "Assignment" which provided:

In consideration of the execution of the foregoing Bond by Surety, Principal does hereby sell, assign, transfer and set over unto Surety, its successors and assigns, all moneys now due and payable or that may hereafter become due and payable under said Contract, together with all moneys now due and payable or that may hereafter become due and payable to Principal for extra work and/or extra material now or at any time hereafter furnished by Principal pursuant to the terms of Said Contract and/or any alteration or modification thereof.

Pursuant to the terms of these Bonds, the owners or lenders of the Gionson, Endo, and Nakapalau projects, paid the progress payments for these projects to Defendant.

On June 24, 1993, Land Data filed for Chapter 11 bankruptcy (which was later converted by the Bankruptcy Court to Chapter 7). On October 19, 1993, a Stipulation for Release of Proceeds from Bonded Jobs was filed in the U.S. Bankruptcy Court. This Stipulation was entered into by and between Land Data, the State of Hawaii, the United States, and Defendant. The Stipulation provided that:

the Debtor (Land Data) has made arrangements with [Defendant] to act as an account agent for the payment of certain costs and expenses incurred on certain projects, hereinafter designated the `Bonded Jobs'. These Bonded Jobs include the Endo, Gionson, and Nakapalau contracts.

Pursuant to this Stipulation Agreement, Defendant periodically released funds to Land Data for supplies, labor and general overhead expenses for the Endo, Gionson and Nakapalau projects. After all disbursements had been made, Defendant retained $22,439.87 in excess funds on the Gionson job and $17,939.44 in excess funds on the Nakapalau job.

On May 12, 1995, the Internal Revenue Service ("IRS") served a Notice of Levy on Defendant for any property or rights to property in its possession belonging to Land Data.¹ On June 9, 1995, the IRS served a Final Demand on Defendant for any property or rights to property in its possession belonging to Land Data. Defendant refused to comply with the levy, claiming that it does not have any property belonging to Land Data.²

STANDARD OF REVIEW

Rule 56(c) provides that summary judgment shall be entered when:

[T]he pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law.

Fed.R.Civ.P. 56(c). The moving party has the initial burden of demonstrating for the court that there is no genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986) (citing Adickes v. S.H. Kress & Co., 398 U.S. 144, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970)). However, the moving party need not produce evidence negating the existence of an element for which the opposing party will bear the burden of proof at trial. Id. at 322, 106 S.Ct. at 2552.

Once the movant has met its burden, the opposing party has the affirmative burden of coming forward with specific facts evidencing a need for trial. Fed.R.Civ.P. 56(e). The opposing party cannot stand on its pleadings, nor simply assert that it will be able to discredit the movant's evidence at trial. See T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987); Fed.R.Civ.P. 56(e). There is no genuine issue of fact "where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party." Matsushita Electric Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986) (citation omitted).

A material fact is one that may affect the decision, so that the finding of that fact is relevant and necessary to the proceedings. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). A genuine issue is shown to exist if sufficient evidence is presented such that a reasonable fact finder could decide the question in favor of the nonmoving party. Id. The evidence submitted by the nonmovant, in opposition to a motion for summary judgment, "is to be believed, and all justifiable inferences are to be drawn in [its] favor." Id. at 255, 106 S.Ct. at 2513. In ruling on a motion for summary judgment, the court must bear in mind the actual quantum and quality of proof necessary to support liability under the applicable law. Id. at 254, 106 S.Ct. at 2513. The court must assess the adequacy of the nonmovant's response and must determine whether the showing the nonmovant asserts it will make at trial would be sufficient to carry its burden of proof. See Celotex, 477 U.S. at 322, 106 S.Ct. at 2552.

At the summary judgment stage, this court may not make credibility determinations or weigh conflicting evidence. Musick v. Burke, 913 F.2d 1390, 1394 (9th Cir.1990). The standard for determining a motion for summary judgment is the same standard used to determine a motion for directed verdict: does the evidence present a sufficient disagreement to require submission to a jury or is it so one-sided that one party must prevail as a matter of law. Id. (citation omitted).

DISCUSSION

Defendant makes two arguments in support of its position that it did not have any property or property rights belonging to Land Data at the time of the levy. First, Defendant argues that at the time of the levy, Land Data was separately indebted to Defendant in the sum of $91,422.57. Because Land Data's indebtedness was greater than the money owed to Land Data on the Gionson and Nakapalau projects, Defendant claims that it was not in possession of any property or property rights belonging to Land Data. In its second argument, Defendant contends that pursuant to the terms of the bonds issued on the Gionson and Nakapalau projects, Land Data "assigned" all ownership rights in the proceeds from these projects to Defendant. Defendant therefore alleges that this assignment divested Land Data of any property or property rights in the Gionson and Nakapalau projects to which the levy could attach.

The United States ("Plaintiff") argues that the $40,379.31 profit on...