Opposition — Parker v. Klochko Equipment Rental Co.

—

~~ “Suprem ne — U. DH” |

-ED

JUN 22 W979 |

IN THE

Supreme Court of the United States

OCTOBER TERM, 1978

———@ ————_.

No. 78-1701

©

ROBERT E. PARKER, Trustee for

OLYMPIA CONSTRUCTION CO., Bankrupt,

Petitioner,

vs.

KLOCHKO EQUIPMENT RENTAL CO., INC.

MARIO TRUCKING COMPANY,

PRICE BROTHERS COMPANY,

Respondents.

——_e——__

ON PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

°

BRIEF FOR RESPONDENTS

—e——_

D’AVANZO, DANKO & AYCOCK LANGS, SCHATZBERG,

By: Stephen G. Danko PATTERSON & LANGS

12154 Dix-Toledo Road By: Richard J. Langs

Southgate, Michigan 48195 4200 Penobscot Building

Phone: (313) 282-1611 Detroit, Michigan 48226

Counsel for Respondent Phone: (313) 962-9460

Mario Trucking Co. Counsel for Respondent

Klochko Equipment

Rental Co., Inc.

KERR, WATTLES & RUSSELL

By: Donald Crane Morgan

Robert R. Nix, Il

2100 Detroit Bank & Trust Bldg.

Detroit, Michigan 48226

Phone: (313) 961-0200

Counsel for Respondent

Price Brothers Company

Interstate Brief & Record Co., Wurlitzer Bldg., 1509 Broadway, Detroit, Mi 48226

962-8745 962-8746

iR., CLERK

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TABLE OF CONTENTS

Page

Re GE FI abv e's Sead oleasetea nea kehesns ii

STS eer er err ne Vv

gL Re Pr renee err are 1

Argument

A. The Ruling Below Is Consistent With The

Previous Law Established By The United

res Pe rye ee 2

B. The Ruling Below Does Not Conflict With

State Law Which Has Not Directly Addressed

pT eee ri Tete eerie 3

C. Rule 35(a) Of The Federal Rules Of Appellate

Procedure Does Not Mandate A Hearing En

Banc To Overrule A Previous Decision Of

po ge | err rye ry Trier st sree 5

COREE Si vscakca can vicaee peansade te neuen ee 6

pF PPE TT OTE PET TT STEEP ee ee ey A-1

pg Se ee rer errr eS eMpaire sre ma NUN! A-1

pt | EMEP Pees Teer ery oom TT. te A-2

pt ES) ere er rr rerere rr ere rer ts A-3

il

TABLE OF AUTHORITIES

Page

Federal Cases:

Aquilino v. United States, 363 U.S. 509 (1960) ... 2

First National Bank v. Staake, 202 U.S. 141 (1905) 3

General Insurance Co. v. Lamar Corp., 482 F2d

i ee lg k a hit bd Oh om 1,2,4,6

Hawkins v. Blake, 108 U.S. 422 (1882)........... 3

Holmes v. Insurance Co. of North America, 288

F. Supp. 325, 328 (W.D. Mich. 1963).......... 5

Perlman v. Reliance Insurance Co., 371 U.S. 132

SE a CG cae s wants. da yal dt Ske k.0% oh ke pasa 3

Selby v. Ford Motor Co., 590 F2d 642 (6th Cir.,

BE ae hee Ue aia oc atk Viethen & 00 hE PR AC 05 Sk slows 2,3

Michigan Cases:

B. F. Farnell Co. v. Monahan, 377 Mich. 522, 141

es ey eid e-ein2 4

Club Holding Co. v. Flint Citizens Loan &

Investment Co., 272 Mich 66, 261 N.W. 133

SRUSGATNs Lah WEA Chou Cap Ree NN Dahesh 3

National Bank of Detroit v. Eames and Brown,

396 Mich. 611, 242 N.W. 2d 412 (1976) ........ 4

People of Michigan ex rel. F. Yeager & Culvert

Co. v. Cooke Contracting Co., 372 Mich. 563,

EAE O0;98, BEd Oe SP GOMOD es ke ee vet cee es 5

ili

Page

Federal Statutes and Rules:

Federal Rules of Appellate Procedure, Rule 35(a) . 5,6

Michigan Statutes:

MCLA §129.201; MSA 5.2321(1)...........-: 5; A-1

MCLA §570.101; MSA 26.321 ..............: 5; A-1

MCLA §570.151; MSA 26.331 (1966) ........----- 23

MCLA §570.102; MSA 26.322 ............-:: 5; A-2

Miscellaneous:

P.L. 95-598, 95th Cong., 2d Sess., §545 and

BE EE a ekume SC neRcwk eee kip eS 3; A-3

QUESTIONS PRESENTED

A.

THE RULING BELOW IS CONSISTENT WITH THE PRE-

VIOUS LAW ESTABLISHED BY THE UNITED STATES

SUPREME COURT.

B.

THE RL’ ING BELOW DOES NOT CONFLICT WITH STATE

LAW WHICH HAS NOT DIRECTLY ADDRESSED THE

ISSUE.

j.

RULE 35(a) OF THE FEDERAL RULES OF APPELLATE

PROCEDURE DOES NOT MANDATE A HEARING EN BANC

TO OVERRULE A PREVIOUS DECISION OF ANOTHER

PANEL.

Vii

STATUTORY PROVISIONS INVOLVED

MCLA 129.201; MSA 5.2321(1)

(See Appendix A for full text of MCLA 129.201;

- MSA 5.2321(1))

MCLA 570.101; MSA 26.231

(See Appendix B for fuil text of MCLA 570.101;

MSA 26.231)

MCLA 570.102; MSA 26.322

(See Appendix C for full text of MCLA 570.102;

MSA 26.322)

P.L. 95-598, 95th Cong., 2d Sess., §545 and §547

(See Appendix D for full text of P.L. 95-598, 95th

Cong., 2d Sess., §545 and §547)

IN THE

Supreme Court of the United States

OCTOBER TERM, 1978

——_o ——_

No. 78-1701

©

ROBERT E. PARKER, Trustee for

OLYMPIA CONSTRUCTION CO., Bankrupt,

Petitioner,

vs.

KLOCHKO EQUIPMENT RENTAL CO., INC.

MARIO TRUCKING COMPANY,

PRICE BROTHERS COMPANY,

Respondents.

©

ON PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

e

BRIEF FOR RESPONDENTS

STATEMENT OF THE CASE

We adopt Petitioner’s Statement of the case, with the

exception of Petitioner’s statement on the Court of

Appeals holding in General Insurance Co. v. Lamar

Corp., 482 F2d 856 (6th Cir., 1973):

2

The Court of Appeals applied the holding of the

companion case, Selby v. Ford Motor Co., 590 F2d 642

(6th Cir., 1979) and held that ‘by virtue of the Michigan

Builders Trust Fund Act, Michigan Comp. Laws Ann.

§570.151 (1966), the funds paid to Schroeder (on the

private construction job) were never Olympia’s

property.” The Court also applied the same rationale to

the remaining claims arising out of the public

construction jobs. In so doing, the Court of Appeals

overruled its previous decision of General Insurance Co.

v. Lamar Corp., 482 F2d 856 (6th Cir., 1973) which held

the Michigan Builders Trust Fund Act not applicable to

public construction jobs.

ARGUMENT

A.

THE RULING BELOW IS CONSISTENT WITH THE

PREVIOUS LAW ESTABLISHED BY THE UNITED

STATES SUPREME COURT.

The Court of Appeals, in its opinion in Selby v. Ford

Motor Company, 590 F2d 642 (6th Cir., 1979), has

thoroughly outlined the prior rulings of the Supreme

Court to substantiate the validity of its position which

has not created any state statute supremacy over the

distribution scheme of the Bankruptcy Act. In Aquilino

v. United States, 363 U.S. 509 (1960), a case involving a

federal tax lien and New York's builder’s trust fund

statute, the Supreme Court ruled that property rights,

their creation and defiiition are established by state

3

law. Thus, state statutes creating trusts are valid. The

Supreme Court has held that a traditional trust would

not be the property of the bankrupt’s estate. Hawkins v.

Blake, 108 U.S. 422 (1882); Perlman v. Reliance Insurance

Co., 371 U.S. 132 (1962); First National Bank v. Staake,

202 U.S. 141 (1905).

Further, the ruling of the Court below is consistent

with the new Bankruptcy Act. As the Court of Appeals

details in its opinion in Selby, supra, the new Act

recognizes statuiorily created trusts and places them

outside the lien and preference provisions of the new

Act. P.L. 95-598, 95th Cong., 2d Sess., §545 and §547. The

new Act becoming effective as of July 1, 1979 makes

petitioner’s proposal in Argument A a moot question

inasmuch as its adoption would be clearly contrary to

the specific provisions of the new Bankruptcy Act.

THE RULING BELOW DOES NOT CONFLICT

WITH STATE LAW WHICH HAS NOT DIRECTLY

ADDRESSED THE ISSUE.

The application of the Michigan Builders Trust Fund

Act, MCLA §570.151; MSA 26.331 (1966), to public

construction projects has never been directly ruled upon

by the Michigan Courts.

The cases relied upon by petitioner do not represent

specific holdings by the Michigan Supreme Court but

are merely dicta. In Club Holding Co. v. Flint Citizens

Loan & Investment Co., 272 Mich. 66, 261 N.W. 133

(1935), the Michigan Supreme Court’s finding that the

4

Trust Fund Act did not provide a civil remedy has been

overruled in B.F. Farnell Co. v. Monahan, 377 Mich. 552,

141 N.W. 2d 58 (1966) by a later Michigan Supreme

Court stating: ‘‘That is a wrong this Court has

perpetrated and now may correct”. 141 N.W. 2d at 61.

In National Bank of Detroit v. Eames and Brown, 396

Mich. 611, 242 N.W. 2d 412 (1976), the Court again

addressed itself to a private project, not a public

project, and referred to the decision of the Sixth Circuit

in General Insurance Company v. Lamar Corp., 482 F2d

856 (6th Cir., 1973), merely to detail the legislative

history of the Act. It did not, as petitioner indicates in

his brief, approve of the General Insurance case. We are

left, therefore, with the General Insurance case, supra,

being the only pronouncement concerning the issue of

public projects.

The Court of Appeals in aeclining to follow its own

ruling in General Insurance has followed instead the

principles of the Michigan Supreme Court detailed in

the Farnell case:

(W)henever the law gives a right or prohibits an

injury, it will also afford a remedy. Hence,

where there has been an injury for which none

of the established forms of action will lie, an

action on the case may be maintained, it being

no objection that there is no precedent for the

particular action, since the action is suited to

every wrong and grievance that a person may

suffer, and varies according to the circumstances

of the case. 11 C.J. p. 4’. 141 N.W. 2d at 61.

5

The Court below recognized as illogical that the

assumption made in General Insurance that materialmen

on a public project did not need the benefit of the trust

fund because of reliance on the payment bond statute.

MCLA 129.201; MSA 5.2321(1); MCLA 570.101; MSA

26.321 (1966). The materialmen in the present case

relinquished their ‘bond rights” by not filing the

statutorily required written notice to the surety after

receiving the funds in dispute. MCLA 570.102; MSA

26.322. Where timely notice is not given, it has been

held that the surety is not liable on its bond. Holmes v.

Insurance Company of North America, 288 F. Supp. 325,

328 (W.D. Mich. 1963), citing People of Michigan ex rel.

F. Yeager Bridge & Culvert Co. v. Cooke Contracting Co.,

372 Mich. 563, 127 N.W. 2d 308, 309 (1964). Thus, it is

both illogical and inequitable to follow a rule of law

which permits materialmen on private jobs to rely upon

the trust fund statute but deny the same protection to

materialmen on public projects.

The ruling of the Court below is entirely consistent

with the principles of the state courts and not contrary

to state law. It has, in fact, filled a void not filled by the

state courts, and corrected its previous erroneous

decision.

Cc.

RULE 35(a) OF THE FEDERAL RULES OF APPEL-

LATE PROCEDURE DOES NOT MANDATE A

HEARING EN BANC TO OVERRULE A PREVIOUS

DECISION OF ANOTHER PANEL.

Rule 35(a) of the Federal Rules of Appellate Procedure

provides for an en banc hearing when ‘necessary to

6

secure or maintain uniformity’’ of the circuit's

decisions. Because it is a procedural rule, each circuit

should be allowed to implement the rule to meet its

particular circumstances and requirements. The Sixth

Circuit has not deemed it necessary to implement the

procedures of the Third and Fifth Circuits, and the rule

itself has not been interpreted to be mandatory but

available when determined to be necessary.

The Court below has unanimously stated that en banc

hearing was not necessary on petitioner’s request for

rehearing. It is a fair assumption that the Sixth Circuit

has decided that Circuit Judge Weick, who had

participated in the General Insurance case and voted

with the majority and now declined to foilow that

ruling, provided the necessary uniformity and internal

stability espoused by petitioner and other circuits.

CONCLUSION

The Court of Appeals has followed the principles of

laws as established by the Supreme Court and the

state’s highest court in determining an issue never

previously decided by the state court.

The Court has further provided adequate safeguards

under Rule 35(a) by unanimously rejecting the necessity

of an en banc hearing and by a common member of

each panel rejecting his own position in following the

majority opinion in this case.

~e—

Therefore, petitioner's writ of certiorari should be

denied.

7

Respectfully submitted,

D’AVANZO, DANKO & AYCOCK

By: Stephen G. Danko

Counsel for Mario Trucking Co.

12154 Dix-Toledo Road

Southgate, Michigan 48195

LANGS, SCHATZBERG,

PATTERSON & LANGS

By: Richard J. Langs

Counsel for Klochko Equipment

4200 Penobscot Building

Detroit, Michigan 48226

KERR, WATTLES & RUSSELL

By: Donald Crane Morgan

Robert R. Nix, Il

Counsel for Price Brothers Company

2100 Detroit Bank & Trust Bldg.

Detroit, Michigan 48226

Dated: June 8, 1979

7

A-1

APPENDIX A

MCLA 129.201; MSA 5.2321(1)

Before any contract, exceeding $50,000.00 for the

construction, alteration or repair of any public building

or public work or improvement of the state or a county,

city, village, township, school district, public

‘educational institution, other political subdivision,

public authority or public agency hereinafter referred to

as the “governmental unit’, is awarded, the proposed

contractor, hereinafter referred to as the “principal

contractor’, shall furnish at his own cost to the

governmental unit a performance bond and a payment

bond which shall become binding upon the award of

the contract to the principal contractor. Neither the

invitation for bids, nor any person acting, or purporting

to act, on behalf of the governmental unit shall require

that the bonds be furnished by a particular bank or

surety company, or through a particular agent or

broker, or through a bank, company, agent or broker in

any particular locality.

APPENDIX B

MCLA 570.101; MSA 26.231

When public buildings or other public works are

about to be built, repaired or ornamented under

contract at the expense of the state, or of any county,

city, village, township or school district thereof, it shall

be the duty of the board of officers or agents,

contracting on behalf of the state, county, city, village,

township or school district, to require sufficient security

by bond for the payment by the contractor of all

subcontractors and fer the payment for all labor

performed and materials and certain [sic] supplies

furnished and used in the erection, repairing or

ornamenting of such public buildings or works.

A-2

APPENDIX C

MCLA 570.102; MSA 26.322

In the case of a subcontractor, he shall within sixty

[60] days after furnishing the last material or supplies or

performing the last work covered by his subcontract,

serve a written notice in duplicate upon the board of

officers or agents contracting on behalf of the state,

county, city, village, township or school district as

aforesaid, that he is a subcontractor for the doing of

some part of such work, which he shall specify in his

notice and that he relies upon the security of the bond

by this act required to be given by the principal

contractor, and the said board of officers or agents shall

within ten [10] days thereafter furnish a copy of such

notice to the sureties for the principal contractor:

Provided, however, That if such notice is not furnished

by the said board of officers or agents within the said

ten [10] days such failure shall in no wise release or

impair the obligation of said sureties, and whenever

this shall have been done, the said subcontractor shall

be entitled, subject to the rights of the persons with

whom he has contracted for labor, materials or supplies

to the benefit of the security given by the principal

contractor, and to be subrogated to the liens of the

persons who have performed labor or furnished

materials or supplies for such building, repairs or

ornamentation, whom he shall have actually paid, but

the subcontractor and the persons who shall have

performed labor or furnished materials or supplies to

him shall not in the aggregate be entitled to receive

larger sums that [than] may be required from the

principal contractor under his contract with the

subcontractor, nor shall this act be construed to change

in any way the contract which may have been made

a

A-3

between the principal contractor and the subcontractor,

except when such contract shall attempt to relieve the

principal contractor as against the demands of those

performing labor or furnishing materials or supplies to

the subcontractor. All others, excepting those furnishing

labor, relying upon the security given by the principal

contractor, shall within sixty [60] days after furnishing

the last materiai or supplies, serve a written notice in

duplicate upon the board of officers or agents

contracting on behalf of the state, county, city, village,

township, or school district as aforesaid, that such

contractor or subcontractor is indebted to them in a

specified amount or for the furnishing of certain

specified materials or supplies on account of such

contract, and the said board of officers or agents shall

within ten [10] days thereafter furnish a copy of such

notice to the sureties for the principal contractor:

Provided, however, That if such notice is not furnished

by the said board of officers or agents within the said

ten [10] days such failure shall in no wise release or

impair the obligations of said sureties.

APPENDIX D

P.L. 95-598, 95th Cong., 2d Sess., §545

The trustee may avoid the fixing of a statutory lien on

property of the debtor to the extent that such lien —

(1) first becomes effective against the debtor —

(A) when a case under this title concerning the

debtor is commenced;

A-4

(B) when an insolvency proceeding other than

under this title concerning the debtor is

commenced;

‘C) when a custodian is appointed or takes

possession;

(D) when the debtor becomes insolvent;

(E) when the debtor’s financial condition fails

to meet a specified standard; or

(F) at the time of an execution against property

of the debtor levied at the instance of an entity

other than the holder of such statutory lien;

(2) is not perfected or enforceable on the date of the

filing of the petition against a bona fide

purchaser that purchases such property on the

date of the filing of the petition, whether or not

such a purchaser exists;

(3) is for rent; or

(4) is alien of distress for rent.

P.L. 95-598, 95th Cong., 2d Sess., §547

(a) In this section —

(1) “inventory” means personal property leased or

furnished, held for sale or lease, or to be furnished

under a contract for service, raw materials, work in

process, or materials used or consumed in a business,

including farm products such as crops or livestock, held

for sale or lease;

(2) “‘new value’’ means money or money’s worth in

goods, services, or new credit, or release by a transferee

of property previously transferred to such transferee in

a transaction that is neither void nor voidable by the

debtor or the trustee under any applicable law, but does

not include an obligation substituted for an existing

obligation;

A-5

(3) ‘receivable’ means right to payment, whether

or not such right has been earned by performance; and

(4) a debt for a tax is incurred on the day when

such tax is last payable, including any extension,

without penalty.

(b) Except as provided in subsection (c) of this section,

the trustee may avoid any transfer of property of the

debtor —

(1) to or for the benefit of a creditor;

(2) for or on account of an antecedent debt owed by

the debtor before such transfer was made;

(3) made while the debtor was insolvent;

(4) made —

(A) on or within 90 days before the date of the

filing of the petition; or

(B) between 90 days and one year before the date

of the filing of the petition, if such creditor, at the

time of such transfer —

(i) was an insider; and

(ii) had reasonable cause to believe the debtor

was insolvent at the time of such transfer; and

(5) that enables such creditor to receive more than

such creditor would receive if —

(A) the case were a case under chapter 7 of this

title;

(B) the transfer had not been made; and

(C) such creditor received payment of such debt

to the extent provided by the provisions of this

title.

A-6

(c) The trustee may not avoid under this section a

transfer —

(1) to the extent that such transfer was —

(A) intended by the debtor and the creditor to or

for whose benefit such transfer was made to be a

contemporaneous exchange for new value given to

the debtor; and

(B) in fact a substantially contemporaneous

exchange;

(2) to the extent that such transfer was —

(A) in payment of a debt incurred in the

ordinary course of business or financial affairs of

the debtor and the transferee;

(B) made not later than 45 days after such debt

was incurred;

(C) made in the ordinary course of business or

financial affairs of the debtor and the transferee;

and

(D) made according to ordinary business terins;

(3) of a security interest in property acquired by

the debtor —

(A) to the extent such security interest secures

new value that was —

(i) given at or after the signing of a security

agreement that contains a description of such

property as collateral;

(ii) given by or on behalf of the secured party

under such agreement;

(iii) given to enable the debtor to acquire such

property; and

A-7

(iv) in fact used by the debtor to acquire such

property; and

(B) that is perfected before 10 days after such

security interest attaches;

(4) to or for the bene‘it of a creditor, to the extent

that, after such transfer, such creditor gave new value to

or for the benefit of the debtor—

(A) not secured by an otherwise unavoidable

security interest; and

(B) on account of which new value the debtor

did not make an otherwise unavoidable transfer to

or for the benefit of such creditor;

(5) of a perfected security interest in inventory or a

receivable or the proceeds of either, except to the

extent that the aggregate of all such transfers to the

transferree caused a reduction, as of the date of the

filing of the petition and to the prejudice of other

creditors holding unsecured claims, of any amount by

which the debt secured by such security interes

exceeded the value of all security interest for such

debt on the later of —

(A) (i) with respect to a transfer to which

subsection (b) (4) (A) of this section applies, 90

days before the date of the filing of the petition; or

(ii) with respect to a transfer to which subsection

(b) (4) (B) of this section applies, one year before

the date of the filing of the petition; and

(B) the date on which new value was first given

under the security agreement creating such security

interest; or

(6) that is the fixing of a statutory lien that is not

avoidable under section 545 of this title.

A-8

(d) A trustee may avoid a transfer of property of the

debtor transferred to secure reimbursement of a surety

that furnished a bond or other obligation to dissolve a

judicial lien that would have been avoidable by the

trustee under subsection (b) of this section. The liability

of such surety under such bond or obligation shall be

discharged to the extent of the value of such property

recovered by the trustee or the amount paid to the

trustee.

(e) (1) For the purposes of this section —

(A) a transfer of real property other than fixtures,

but including the interest of a seller or purchaser

under a contract for the sale of real property, is

perfected when a bona fide purchaser of such

property from the debtor against whom applicable

law permits such transfer to be perfected cannot

acquire an interest that is superior to the interest of

the transferee; and

(B) a transfer of a fixture or property other than

real property is perfected when a creditor on a

simple contract cannot acquire a judicial lien that is

superior to the interest of the transferee.

(2) For the purposes of this section, except as

provided in paragraph (3) of this subsection, a

transfer is made —

(A) at the time such transfer takes effect between

the transferor and the transferee, if such transfer is

perfected at, or within 10 days after, such time;

(B) at the time such transfer is perfected, if such

transfer is perfected after such 10 days; or

A-9

(C) immediately before the date of the filing of

the petition, if such transfer is not perfected at the

later of —

(i) the commencement of the case; and

(ii) 10 days after such transfer takes effect

between the transferor and the transferee.

(3) For the purposes of this section, a transfer is not

made until the debtor has acquired rights in the

property transferred.

(f) For the purposes of this section, the debtor is

presumed to have been insolvent on and during the 90

days immediately preceding the date of the filing of the

petition.