# Opposition Brief — J. E. Schecter Corp. v. Carrier Corp. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385602_0858%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Opposition Brief - **Published:** January 1, 1965 - **Citation:** 382 U.S. 904 ## Text Office-Supreme Court, U.S. 2 eifeweme COMB Lb By | SEP 14 1866 | | | JOHN F. DAVIS, CLERK Supreme Court of the United States OCTOBER TERM, 1965 A. vv No. 463 IN THE MATTER = of . J..E. SCHECTER CORPORATION, nara Petitioner, and CARRIER CORPORATION, AMERICAN: RADIATOR & STANDARD SANITARY CORPORATION, SARCO COM- ” ae PANY, INC. and SARCOTHERM CONTROLS, ing Respondents. 7% On PETITION FOR A WRIT oF CERTIORARI TO THE UNITED STATES - Court OF APPEALS FOR THE SECOND CIRCUIT BRIEF FOR RESPONDENTS IN OPPOSITION Herman N. Scuwartz, Attorney for Respondents, . _120 Broadway, New York, N. Y. 10005. _ScHWARTZ, WEISSBERGER, LEICHTER & STORCH, ‘IRVING RONALD STORCH, - ‘ Of Counsel. . ACKERMAN PRESS, Phones BO 9-7107-8 x . TABLE OF CONTENTS ‘ PAGE Opinions Below ..... Cekav Citak biastaniaaeen 1 Natali icine deiccass Res AMI EC 2 Statutes Involved poet tare gebaesaneweuns 2 Questions Presented for HevieW ....00..00- eases oon Statement of the Case .........0..seeceees Be a 4 ARGUMENT: : I—There is no basis for granting certiorari ....... 7 - A. Solely State-created rights are involved and Erie v. Tompkins has no applicability ....... 7 B. There are no matters of federal semana to DO CORNIINNES «0c cc ccevescdpeedsvadoeessacess ' 9 11—The decision below is clearly senveid —ceawwes coon Cem «6.55 occsissacks Biases nehseeacekenetes 23 ip BPPOMGIE .nccccccovcccccccccsccresscccececcccces 24 li TABLE OF CONTENTS Caszs Crrep_ | ; PAGE Albert Pick Co. v. iii 6 F. Supp. 486 = D. N.Y. ah rg al 3 wes 8 , 19, 20 Aquilino v. U.S. A., “ey 10 N. Y. 24 271, ee 19 Aquilino v. U.S. A., et al., 363 U. S. 509, 80S. Ct.1277 11 - Babbitt v. wv Trust Co., 72 N. J. Eq. 745, = A. TT OMRMaeee Tse sae eek heas i nke seeks sone ies 10 Berry v. Root, 5 Cir, 148 F. 2a 945, cért. den. 326 la Con Gada ds LCE hab ae xe ve dete 'on 6e 10 Clews v. J amieson, 182 U.S. 461 (1901) Ca, «21 Erie v. Tompkins, 304 U.S. 64, 58 S. ty 817, 82 Mm era aoe yi tb eh ies dvee 00.0% 3, 7,9 Estate of Liebman, 189 Mise. 282, 60 N. Y. S. od 482 | (Surrogate’s Court, N. Y. County, 1945) :....:. °@ Filardo y. Foley Bros. Inc., 297 N. Y. 217 (1948), cert. den. 336 U.S. 281 ...........-.eeeeeeee 8, 21, 23 Highway Construction Co. of Ohio v. City - Miami, Fila. 5 Cir., 126 F. 20-777 «2.6. Pee eee ence ee - Hiller & Skogland, Inc. v. Atlantic Creosoting Co., Inc., 40 N. J. 6, 20 n. 3, 190 A. —— a , —_ tieececcsccccesccccoess ae Pre 8, 9, 13, 18 ey SOR Sane 19 In re Kornder’s Estate, 168. Mise. 553, 6 N. Y. oa ee ee ciceikcinrs’ 20. Kirkpatrick v. Eastern Milling & Export Co., 135 F. Ee Pee rr rere reer ere 11 Marceau v. Great Lakes Transit Corp., 2 Cir., 146 F. IID a2 eeixctelxcres sete ecoh ss. tie Maull v. Stokes, 31 Del. Ch. 188 5 198) Peres TABLE OF CONTENTS iii PAGE Morris Picker v. City of ‘Bayonne, et al., 60 N. J. NO, Fs civ nc cr evereusvtevetesnssecceysees 22 National Surety Corp. v. Barth, 11 N. J. 506 (1953) . . 8,22 Pearlman v. Reliance Insurance Company, 371 U. S. 132, 135 ...... late ae ae eh alien, 11 Plevy v. Schaedel, 44 N. J. Super. 450, 130 A. 2d 910 | (Superior Court, Law Division, 1957) :.....13, 14, 16, jai It relied mainly on the following for its decision: (1) An éxpression. by the highest. court of New Jersey in. ‘the recent case of Hiller '& Skogland, Inc. v. Atlanti¢ Creosoting Co., Inc., 40 N. J. 6, 20 n. 3, 190 A. 2d 380, 388, n. 3 (1963) citing with: approval a decision of the Superior _ Court, Appellate Division of the State of New Jersey, Samuel D. Wasserman, Inc. v. Klahre, 24'‘N: J. Super. 143.4 93 A. 2d 638, which said that if there were’ a violation of the private improvement statute, the Court would give : ‘‘whatever civil remedy might be“appropriate to the cir- ' @umstances under the general principles of law and equity’’. (2). Holdings in several New Jersey cases wherein trusts were impressed, not directly under the statutes there in- volved, but under general equitable principles. National : Surety Corp. v. Barth, 11 N. J. 506 us) and other cases cited ‘in the opinion. | The Court of Appeals also cited a tadeesd | case in New “York involving a similar statute, former Section 36a of =———~the New York Lien Law, which was deemed to be a crimi- nal statute, but where the Court nevertheless impressed a trust. Wickes Boiler Co. Inc. v. Godfrey-Keeler, Inc., 2 Cir., 116 F. 2d 842, mod. 121 F. 2d 415, cert. den. 314 U. 8. "686, and. another casé of far-reaching importance, - Filardo v. Foley Bros. Inc., 297 N. Y. 217, cert. den. 336. U. S. 281 (1948), where: the New ‘York Court of es a ee ees i BSE 5 ee or ore ON a ON, if plaintiff may not sue to enforce it, the benefits ac- — corded would indeed. be empty and illusory. He would. fiid himself in ‘the position of having been given a 1 gs ane Nip ales dad na Siar ee /_ to enforee.” ies t 9 _ The petitioner, on the other hand, does not even mention — _ or cite the Hiller é Skogland case, supra, which is rather astonishing when considered in the light of its contention -. . that the Court of Appeals, did ‘not apply New J ersey law. The petitioner also makes no attempt to explain the vitally important statement made by the Appellate Court in the. Wasserman case, as quoted in the Court of Appeals’ opinion—which is the crux of this’ case. Thus, the peti- ‘tioner has ignored the very same criteria set forth in 4° case it cited on pages 10-11 of its petition, Yoder et al. v.. Nu-Enamel Corporation, 8 Cir. 117 F. 2d ree ‘The ‘Court’ of Appeals decided that ‘New J ersey “law. applied and granted relief unanimously on.equitable prin- ciples as enunciated. by the authoritative New Jersey cases cited in its opinion, and certiorari on the grounds that Erie v. sana cose! has been asia should therefore be denied. “There j is: Jno conflict among the circuits on - the issue presented, and no cases are cited in the petition to demon- strate any conflict. There. is no important question of - federal law which: has not been, or should. be settled by ~ this Court.. No issue touching the federal interest is pre- sented. The issue is narrow and not likely to recur. The trust fund issue is strictly a matter of local law. See’ : __Collier-on Bankruptcy, Volume. 4, pages 1210-1211. As to the power of the bankruptey court to award counsel fees out of the fund, this matter had long ago been settled by this Court in. Trustees v. Greenough, ioe S-587, 533, when this Court said: > “The fule that a party who recovers a fund for the : ~ - common benefit of creditors is entitled to have his costs oe gre a a ea ca a ae ruptcy cases.’” ; oe 10 “And in Sprague'y. Ticonic Bank, 307 U.S. 161, 167, ‘hin : .Court said: ea : “Tn any event such tallowallice are appropiate aly in | - exceptional cases'and for dominating reasons of jus- | ' tiee.. But here we are concerned solely with the ee -to entertain’ agen dl mee wie pone uae ey Po ee | '. New Jersey has also accepted the doctrine of Trustees ATS Greenough, supra, See Babbitt v. eyes Trust = 72 N. J. Eq. 746, 66 A. moe _— ‘Any limitations that may exist on ‘the | power of the bank- ruptey court-to~allow counsel fees are those imposed in the-bankruptcy itself, and not in any. controversy in equity - .arising out of the bankruptcy in which the bankruptcy court will follow the precedents and practice of a court of equity and allow counsel fees, referred to traditionally as . Soa Gea x solicitor and client. Even the case of Berry v. Root, 5\Cir., 148 F. 2d 945, cert. den. 326 U. 8.-755, and others cited by. petitioner, and which did not involve a fund before the Court, acknowledged the power.:to’ allow counsel fees under circumstances present in this case. The _ only reservation sometimes laced is the requirement, that: the benefits be accepted bythe beneficiaries. However, as demonstrated heretofore, steps.are under way’ (24) to ' give the other beneficiaries an sppertpalte: = shate'i in. -_ fund and to accept the benefits. In any event, the petition should not be ae alaag: on the question of counsel fees for the further” reason that petitioner is: not an aggrieved party and therefore has no standing to review the decision. allowing if? ‘Respondents. ' do not.seék any sum over and beyondsthe amount due the : - unpaid claimants for counsel fees, but merely an allowance out of the sums being paid to. each creditor, so that the creditors who did not participate in this litigation are’ not fe. unjustly enriched at the expense of the four claimants and . their attorneys: ‘who instituted the > pecmnedin Wefarg!the Oe BS pee eae = = | pA am 3 ee ie _ Referee, petitioned the District Court for review and then . -. appealed to and obtained a reversal-from the ,Court of Appeals and are now opposing-certiorari before this Court... In fairness and in equity, the experises and legal fees as determined by the Distriet Court should be shared ratably~ - eut_of the fund. The petitioner will be unaffected by this ~ ; __-relief.. The only ones affected by any allowance of counsel fees would be the thirty-five other participants in the fund against which the fees would be chargeable: | : : It is well-settled ‘that an appellant cannot be heard to | complain of an error which does not harm him. He must be aggrieved by-the judgment or decree for which the relief is sought. - It must prejudice, him in his rights or adversely affect his legal interests, otherwise, he is not entitled to appeal therefrom. Public Service Commission v. Brashear Freight Lises, Inc., 306 U.:S. 204, 83 L. Ed. 608, rearg. den:, 306 U. S. 669, 83:L. Ed. 1063; Kirkpatrick Wing & Export Co:, 125 F. 151; Marceau v. v. Eastern M1 Great Lakes Transit Corp., 2 Cir., 146 F. 2d 416; Highway — . Construction Co. of Ohio v. City of Miami, Fla.,.5 Cir., 126. |B, 24 777; Cyclopedia of Federal Procedure, Volume 14, The Court of Appeals did not decide any federal question . in a way to conflict with applicable decisions of this Court,. ‘nor did it conflict with any guaranty of basic fairness secured by the Constitution or implied in the nation’s laws so as to call for the exercise of this Court’s power of ; “supervision. In fact, the decision of the Court of Appeals is in furtherance of this Court’s doctrines. See: Aqutimo . ¥. United States of America, et al., 363 U. S. 509,80 S. Ct. 1277; Pearlman v. Reliance Insurarice Company, 371 U. 8. | 132, 135.*In the latter case, this Court said: ¢. nee 4¢Property interests in a fund not owned by a bankr __ at-the time of the adjudication, whether complete or . partial, legal or equitable, mortgages, liens, or simple — _ priority of rights, are of course not 4 part of the S 3%: | Pi ; ee er bankrupt’s property. and do not vest in the trustee. The Bankruptcy. Act simply does not authorize a trustee to distribute other people’s property among a bankrupt’s creditors. So here if the surety at the time * of adjudication was, as it claimed, either the outright legal or equitable owner of this fund, or had an equi-, ‘table lien or prior right to.it, this property interest of the surety never became a part of the bankrupt estate _. to be administered, liquidated and distributed to gen- - eral creditors of the bankrupt.”” — | hos Moreover, the Court of Appeals made it clear that the — consequence of its decision would be: to guarantee basic . fairness and to bring about the fulfillment of the New | Jersey legislative intent that funds from a real property . _ improvement went to those who contributed to the im-. — provement. — 1 + ae 408 a: ft: While the Supreme Court of New Jersey in State v. Low, 18 N. J. 179 (1955), and the clear language of Sec- tion 2A:102-11 of the New Jersey statutes describe the - Monies received as “‘trust funds’’, the New Jersey courts -+ have not ruled. squarely on the issue presented herein, i.e., whether a bankruptcy court could impress a trust - under New Jersey law in favor of job claimants on funds . ‘in the possession.of a debtor derived from a New Jersey _* However, as noted: before, clear expressions by the highest and next highest courts of the State indicate that civil relief would be afforded and formed the main basis _ for the decision of the Court of Appeals. Reet aan It should be noted that nothing more is sought herein: than the precise application of the. statute ‘in favor of — My = oF the statutory beneficidries and against the statutory trus- — tee, without any complicated issue of tracing the res, _ ereation’of a.constrictive trust against funds in the hands of third parties, or the imposition of a civil remedy against ‘ someone other than the trustee. pe. rie ; - The petitioner relies heavily on a lower court New _ Jersey case, Plevy v. Schaedel, 44 N. J. Super. 450, 130 _ A. 2d 910 (Superior Court, Law Division, 1957), and the _ Statutory interpretation. of the court in contrasting the — | legislative treatment given by the State of New Jersey | to public improvements as against privgte improvements. © Respondents contend this reliance ncga@s unwarranted for | the following reasons: Hereee celle Paveitin Gl) The Plevy case is clearly distinguishable from our 7 case in that Plevy involved a suit against officers of the - corporate debtor-trustee for a diversion and not one against the statutory trustee for an accounting; (2) The Supreme 3 Court of New Jersey, in its footnote reference to the pri-_ vate improvement statute in the Hiller ¢ Skogland v. Atlantic Creosoting Co. Enc. case, supra, cited the case of Samuel D. Wasserman Inc. v. Klahre, supra, as allowing _» Givil liability under the statute, but did not cite Plevy, the only other decision interpreting the statute and more - recent in time than Wasserman; .(3) In the same footnote . _ Feference, the court noted that a different legislator intro-_ duced the private improvement statute than the one who introduced ‘the public improvement statute;:and (4) A . _ Closer look at the public and private improvement statutes _ , demonstrates that the differences in substance are nil; and . they were treated differently only -because ofa different. ‘ approach by the two legislators introducing the respective — Respondents contend that the Statements in the Hiller « 4 ‘port for its view that civil remedies are available under ad and honorable thing...” and later, the Court- said: , 14 o . & Skogland opinion lend strength to this conviction and demonstrate that as- between the parties, the beneficiaries must prevail. ‘With: respect to the trust fund statute . on: a public job, which should apply equally to a private ys eee the Supreme Court of New J ersey: “said: ‘‘While it eannot be said that thetrust fund prescribes @ full-blown trust relationship all the way down. the . ladder with consequent+ effect upon strangers to the. construction project, the underlying thought ‘is clear that all those diréctly exvolved should do the — co court should not hesitate to ‘translate that ‘lee - lative conception into a,positive duty and to compel the ‘appropriate use of payments where the payee knows their source and obviously intended purpose aa “for a court to do Yess would bé to. sanction sharp practice—indeed immoral . conduct—in the business community. That day should have long since. passed” | a8 far as, the judiciary is ‘concerned. ”” ~ Its endorsement: of the Wieborwign case, its failure to cite Plevy v. Schaedel; its mention that different legislators introduced the public improvement and private improve- “ ment statutes, coupled with the: sweeping language of its - decision. insofar as the public improvement statute was concerned, make it evident that the Supreme: Court: of ’ New Jersey would. sanction the relief vitgoes bia the Conrt of Appeals, | ‘The. court in the Plevy case cited poe cases in eee of its decision, the Wasserman case, supra, and: Raymond |. Concrete. Pile Co. v. Federation Bank & Trust Co., 288 N. Y. 452; 45 N. E. 2d 486, affd.'on reargument, 290 N. Y. 811, 48 N..E. 2d 709.- These cases likewise are distinguishable _ int. that both involved efforts to impose constructive trusts ee ¥ ~ ™ {bags X 15. aN statute who lacked ioties of the trust. fand character of the ‘monies. In neither case was relief sought directly —— = the statutory trustee. In the Wasserman pre. a job deans who had acospted _S checks from the debtor in release of a mechanie’s lien sought . _ to recover monies collécted by another creditor on a sheriff’s ’ execution against the debtor’s bank account. The court re- - - fused ‘to impress ‘a trust against the execution creditor on ‘ the ground that such action was not authorized by: the statute. However, in adoalling the ‘trust beneficiary's claim, the court nevertheless enunciated principles which support the - relief sought herein, to wit, that criminal statutes do have: incidental effects and civil remedies arising therefrom. The ' following are exce from the opinion: ) ‘“We are satisfied that had Candrille . violiied: ‘the - statute, the plaintiffs would have had whatever civil Me. remedy might be- appropriate to the circumstances under the general principles of law and equity but -- _ Candrille did not, violate the statute; the sheriff levied on the fund without leave of Candrille.. . ‘‘The mingling of the fund with. other “monies in os Candrille’s general bank account did not destroy plaintiff’s interest in the funds . , . “*The interest that plaintiff mini had i in the account was at most an undisclosed equitable lien . Bot ‘New Jersey, there is no clear rule on és subject - . . . We think that in*each case the facts must ‘be is) analyzed to determine on broad principles whether the ‘judgment creditor or the lienor has the stronger Claim . ves " (Emphasis added.) s i parr ie reading of- the Wasserman’ case ‘indicates (1) : that job claimants embraced within the statutory protection have an interest in the fund as trust beneficiaries and (2) fh » 5 ‘f 8 f ¥ - & ea ~ Ly ae ns sir ei eben tial tut.eurely not. limited to a violation of the statute by the trustee, civil remedies would be available (other than for goods sold and delivered). An accounting by the trustee, either in a bank- _ Tuptey, insolvency or estate proceeding, should likewise be available as a logical outgrowth of the Wasserman decision. It should be noted that in neither the Plevy, Wasserman | nor Raymond Concrete cases did the courts sanction a mis- . ‘ appropriation of he gebtor’s trust funds by the debtor itself. _. A comparison of the public and private improvements does not lead. to any contrary result. - Tn the early part of 1932, three statutes were passed, dealing with mortgagors, general coritractors and sub-con- _ tractors respectively on private improvements, and with changes not relevant herein, these laws are in effect today as Sections 2A :102-9, 2A :102-10 and 2A:102-11. Later in 1932, a different legislator introduced two other separate . statutes dealing with public improvements, and which are now embodied in Sections 2A :44-148 and 2A :102-12. Section 2A:102-11, the private improvement statute we . are dealing with, provides as follows: ‘* All monies received by a subcontractor . . -, from a contractor, for the purpose of having a building: erected . ... are trust funds in the hands of the sub- contractor to be applied to the amount of all claims due or to become due and owing from the subcontrac- tor to all persons furnishing ... . materials to him. . . « Any subcontractor or any officer, director or agent of the subcontractor, who pays or consents to the appropriation of such funds for any ’other pur- pose prior to the paymient of all claims and charges for the payment of which the funds constitute a trast fae aoa tn ealeneptener,”” (Emphasis, added.) 17 | It should be noted that this section consists of two _. sentences. The first sentence provides that all monies re-— ceived by a subcontractor are trust funds in the hands of the subcontractor to be applied to the amount of all ciauns © due or to become.due to materialmen and others. The sec- ond sentence of the statute creates the criminal offense..:: Section 2A: :102-12, the public improvement statute, differs from the private improvement statute but these . differences favor respondents’ view herein. It provides as follows: ‘* All monies paid by the hats . to any person . for the making of any public improvement, shall con- - | stitute a trust fund in the hands of such person as . . contractor.. Any -such person who shall use any ,of the moneys so received for .a'purpose other than the , payment of claims for labor or material . . . is. easily ay of a misdemeanor. id ene, added.) . Thus; this statute is also i in two parts, but the first part | ends with the establishment of the trust fund in the hands of the contractor and does not contain any directions about its application nor does it name any beneficiaries. The sec- ond sentence simply creates the erimsioal offense for misuse | of the fund. — | Section 2A :44.148, also dealing with. public improve- ments, starts> ff by repeating substantially the same lan- guage as a rs in the first part of 2A :102-12 (the criminal | - statute) but then continues with an ae. clause, as follows: : . *All monies paid by the State of New Jersey eee shall constitute a trust, fund in the hands of such person as such contractor until all claims for labor, - hep iat) enoteed eee (Emphasis pee sa . 18 Tt is. apparent, that the tneialator; in 5 the ease of the public: improvement. statutes, wished to separate the civil from the criminal and accomplished that objective by han- . dling the ‘application of the trust funds in a separate statute. In the“case'of the private improvement statutes, the civil — - and criminal provisions were handled together and the first sentence of those statutes embodies all the elements of a trust, i.e., a trustee, a fund, directions as to its use and " specified beneficiaries, The public improvement ociesinal statute (2A. :102-12) is obviously only criminal because the clause creating the trust ends without stating its purpose ‘or providing for its application, and logically so, for the disposition of the trust fund is dealt with in 2A:44-148, where the legislator re- stated, the creation of the trust but added the words ‘‘until all claims for labor, matéfials’. . . shall have been fully paid’, In contrast, substantially ‘the same words were al- _ ready: contained in the private improvement statute, Sec- , tion 2A :102-11 which provided that ‘‘All monies . . . are trust funds in the hands of a subcontractor to be applied to the amount of all claims ... due. ..fromthe subcon- tractor to all Persons furnishing . . materials . We - Respondents therefore submit that a closer examination of the New Jersey statutes draws one to the conclusion that no inference can be drawn by any different legislative _ treatment, except an inference favorable to the respondents, to wit, that both groups of statutes created civil, remedies, but in different ways, only because the legislator on the . public improvement statute merely desired more clarity ‘ and an orderly separation of. the civil from the criminal provisions. Tf the law of New pao is to be 5 Waal et by a choice ef between the lower court decision of Plevy or the Appellate _ . Division decision of Wasserman, it is clear that Wasser- man, especially in the light of its approval by the Supreme Court ‘of New Jersey ii in the Hiller & a case, is 19. - @ more authoritative exposition of New J ersey law ‘than : _ Plevy. And the Wasserman case clearly keeps the ‘door open for civil remedies under the statute. — In any event, neither the Wasserman nor the Plevy case is clearcut authority for the factual situation involved ~ herein—a conflict between job claimants on the one hand _and the debtor and, indirectly, its unsecured creditors on the other hand. On this conflict, there are no New J ersey ~ casés directly in point. It is submitted, therefore, that the Court of Appeals was. free to determine what the highest court of the state would rule in a similar case. : - .. ‘Phe other case cited in the Plevy case, Raymond. Conerete . Piling Co. v. Federation Bank & Trust Co., supra, also involved rights of a third party under a comparable New York criminal statute, but the dicta in that case which geemed to.deny a civil remedy was later disapproved by the New York Court: of Appeals in the case of 4aerinn i eee 10 N.Y. 2d 271, 276, when it said: —- . This holding, distinguished’ from the dicta in has case, clearly supports the view that,a 36-0 con- tractor-trustee holds the funds he receives as trustee, rather than as owner, until he has paid the claims , Of all the statutory beneficiaries.’’ Whee axe 'thises' eliag tn! tin’ Wideral, déuicte “ids “ait squarely in point, and while they involve application of the law ‘of New York, the statute then involved, Section 36-a of the Lien Law, was similar to the present. New Jersey statute, i.e., it was on its face criminal in impact, _ and yet, the Federal Courts did not hesitate to impress. a trust when the fund was in the possession of the bankrupt or debtor. Albert Pick Co..v. Travis, 6 F. Supp. 486 (E, D; N. Y. 1933); In re Heintzelman Const. Co., 34 F, ‘Supp.- -109 (W. D. N. ¥. 1940) ; Wickes Boiler Co. ‘Ine. v. Godfrey:Keeler, Inc, .2.Cir., 116 F. 2d sp _ 121 . F, 24.415; cert. den. 314 U. 5 686... om inca Ania citar iiasit ean tninieatitigpaeed - “Contractor - who diverts funds. guilty of larceny’’. The Court, in Albert Pick Co. v. ‘Travis, supra, held that the funds in the hands of the contractor were trust funds under the New York criminal statute and so aptly said: | ' The intention of the Legislature of the State of New York was tq protect sub-contractors, materialmen — and laborers-contractors cannot ‘avoid their responsi- . bilities by making preferential payments out of trust ' funds and then filing petitions in bankruptcy or hav- ing involuntary petitions filed against them. To. fol- low the trustee’s contention that the funds. should be distributed among all the creditors would’ nullify the very purpose of the statute, which was to distrib- ute the specific fund to a preferred class of creditors. There would be no purpose for the lien law. were it - . not that the State intended to protect the very. class _ that the statute outlined. If the contractor attempts to deprive the lienors of their rights, the court should restrain and not help facilitate the srolianre of law- ‘fal obligations.” = | The case of Wickes Boiler 00.-Ié v. Godfrey Keeler, _ Inc., supra, is even more authoritative because it involved. an application to a Referee in a Chapter XI bankruptcy proceeding for an order similar to the one herein, except that the petitioners there sought to impress a ‘trust on @ receivable and not on monies in the debtor’s bank account. The Wickes Boiler case dealt with the same crimi- nal statute as in the Albert Pick Co. v. Travis case, and the debtor likewise sought to use the monies to consummate a settlement with its creditors. The Circuit Court of Ap- peals sustained the Referee in impressing a trust. Several other rélated cases support the respondents’ view. Maull v. Stokes, 31 Del. Ch. 188 (1949); Estate of Liebman, 189 Mise. 282, 60.N. Y. 8. 2d 482; In Re Korn- der’s Estate, 168 Misc. 553, 6 N. Y. 8. 2d 324. : 21 J th any: ert Come ae Wink slats tat is a crimizal one, it should be strictly: construed. ‘While this is a general rule of construction, it is also firmly established that where a statute is both remedial and penal, : the remedial part will be liberally construed and the penal — ; - part strictly construed. Respondents are not attem to penalize or imprison the debtor; they are. to recover monies which the legislature ‘intended them to | Teceive. See State v. Meinken, 10 N. J. 348 (1952) ; Filardo ‘v. Foley- Bros. Inc., swpra. Moreover, appellants contend that \the statute is so clear that it calls for little or no con- . retin as between the sub-contractor and the material- , The remedies cited by the petitioner as being available . under the laws of New Jersey dealing with mechanic’s liens and ‘‘stop notices’’ are only concerned with tying up monies in the hands of the owner of the réal property improvement, whereas the trust fund statutes are designed to insure that/tonies in the hands ‘of a contractor or sub-contractor are paid over to materialmen and other sub-contractors. And while the Appellate Court in the Wasserman case did mention the fact that a lien could have been filed in weighing the equities of the parties, the court there was fot dealing with a controversy between the trustee and the beneficiaries, but: between the bene- ficiaries and # third party, nor did the court in the Wasser- mam case hold that filing of a lien or ‘‘stop notice’? was @ condition precedent in order to receive ‘‘whatever civil. - remedy might be appropriate_under the cireumstances,”’ Cf. Wickes Bower Co., Inc. v. Godfrey-Keeler, Inc., supra. A trust was properly impressed on equitable principles. It is elementary that a Court of bankruptcy is also a Court ‘of equity, and in ‘view of all the facts and circumstances : in this matter, the Court of Appeals'was correct in afford- ing relief herein on genéral principles of equity and justice. Clews v. Jamieson, 182 U. S, 461 (1901);:1. Pomeroy on sprint resaerterasers ? . - The record reveals quite clearly that the petitioner. made no excuse for its attempt to prefer a small group of job creditors to the exclusion of and without notice to thirty- five others. The circumstances show that the petitioner — was aware of trust fund claims (16a). .When its payments to the select few were revealed, it made an about-face and denied any trust fund obligations (17a). If the petitioner is} ‘allowed to use trust funds in this ‘manner, then surely it would be a simple matter for any contractor to misappropriate construction funds with com- _ plete.immunity by merely receiving all funds on a New - Jersey job.in the State of New York. The contractor would thereby: thwart the New Jersey criminal statute and be free of any trust fund obligations, or the contractor could simply hold the monies in’a New. Jersey bank account indefinitely, file.a Chapter XT petition, with no consequences to it for not ; paying out to its job creditors. | Surely a Federal Court, under. principles. of a, ‘should not permit a debtor to violate the New J ersey stat- ute and frustrate the intent of the New J ersey legislature. Such interpretation of the legislative intent should not be made by any ies no less a court of prhiahied and = The Court of . Appeals aise relied on numerous Ne ew Jersey cases which hold that where a fund is created for a special purpose even though it does not fall within the confines of the: ‘statutory trust, a trust will be impressed under general equity principles. National Surety Corp. v. Barth, 11 N. J. 506 (1953); Morris Picker v. City of Bayonne, et ali, 60 N. J. Super. 251; Wilson v. Robert - A, Stretch, Inc., 44 N. J. Super. 52, 58; Stule-Sickles Co. Uv. Fiedburn Const. Corp., 114 N. J. Eq. 475. 3 It would seem immaterial that the foregoing cases in- ‘ volved the’ public improvement statutes, and the Court of ‘Appeals correctly used all the equitablé principles at its command, such as aon iat @ person to avoid DS SE OL ARI SAIS Be em eee és coe 8B _ responsibility hy violating's stibiat. entonytl hada equity - to do what should be done, applying a fund for its intended use when the fund is under the control of a court and other. principles of law and justice, in order to grant the . relief prayed for herein: See Filardo v. Foley Bros., swpra... ‘If the. petitioner i is to prevail i in this case, would it not be tantamount to holding that the very ones whom the law was intended to protect were helpless to secure, that .pro-_ tection, and, even in. New J ersey, that the petitioner would _ be immune from criminal prosecution so. long as it retained — possession of the fund indefinitely, or, as in this: case, re- ceived the funds outside of the State of New Jersey and . would be free to divert same in or out of a bankruptcy Court? Respondents do not believe that this Court will countenance such a result, or that the case is the kind of case warranting the exercise of —_. Court’s discretionary - Teview. ‘Under -the strict. tests for discretionary review, there ' . moust be an actual conflict with applicable local law deci-. sions. See Weiner, 68 Harvard Law Review 20, 61. Such conflict is not present'in this case. To the contrary, the decision of the Court of Appa is in wracns with New. Jersey law. _ CONCLUSION : For the foregoing reasons it is respectfully submitted _ that this petition for'a writ of certiorari should “be denied. | ie ‘Respeotflly submitted, ae cab Attorney for Reapendanen: ~~ - 120Broadway, : Tai gee Sperohsa oe 10005. _ Sonw 2,, WEISSBERGER, Latcnrer & ames ory ni STorcH, . | SS esa Of Counsel. ; vient —— co APPENDIX UNITED ) eins DISTRICT COURT, . ; Easrean Disraor o New York. ‘No. 62-B.934 In the Matter _ 5 a _. JE. Scnecren Corporation, peer: > ‘Wis petitioners Cation Carpotation, Americas Radiator - _ & Standard Sanitary Corporation, Sarco Company, Inc. _ and Sarcotherm Controls, Inc. having appealed to the. ‘United States Circuit Court of Appeals for the Second Circuit from an order of the Hon.’Leo J. Rayfiel, one of the Judges of this Court, entered in this proceeding on the 17th day of November, 1964, which denied a petition for review of an order of The Honorable William J. Rudin, __ Referee in Bankruptcy, dated the 20th day. of July, 1964, ' .to the extent that the petition sought to impress a trust on funds in the possession of the debtor, and to recover counsel feés out of said funds, but, which granted the peti- .tion for review to the extent that the matter was remanded to the Referee for the purpose of directing the debtor to | proceed with an appropriate motion to recover funds paid _ to six creditors pursuant to a prior order of the Referee dated July 23, 1963, and said Circuit Court of Appeals having issued its order dated the 2ist day of May, 1965, and its mandate dated the 11th day of June, 1965 having been transmitted to-and received by the Clerk of this Court j SORES Ta eee [eee ene ne nee — — — “ — on the 14th “day of June, 1965, wherein it was. ordered, adjudged and decreed that such order of the District Court be reversed, with costs assessed at $282.66 in favor of - ~ petitioners-appellants, and that the matter be remanded to the District Court'for furthef proceedings im accordance with the opinion of the Court wherein it was held that the District Court erred in not impressing a trust‘on the funds - . im question and directed that counsel fees be awarded out of ‘said funds as determined by the District Court, and that the alternative relief of directing the recovery of funds paid ‘Now, upon the aforesaid order, mandate and opinion of the United States Circuit Court of Appeals for the Second . Onpezep, Apsupczp and Dzcneep that the sum of $92,- 316.87 and any additions or accretions thereto paid by. William L. Crow Construction Company to the debtor on account of the real property improvement known as ‘‘En- gineering Quadrangle”’ at Princeton University, Princeton, New Jersey, pursuant to the order of this Court dated _- Suly 23, 1963, constitute and are trust funds in the hands of said debtor to: be applied first to the payment of unpeid Claims of all persons furnishing labor and materials to - _ J. E. Schecter Corporation for the erection, construction. and completion of said improvement or. any alteration, re- , pair or addition thereto, and any other reasonable and necessary, charges in connection therewith, and it is Schecter Corporation is liable to the petitioner Carrier - ‘Corporation, in the sum of $9,029.50 with interest from : | July 30, 1963, for materials furnished in connection with such improvement, and the said petitioner Carrier Cor- "poration is entitled to share in such trast funds in the amount and axtent as. aforésaid and J..E. Schecter Cor--- . poration is liable to petitioner American Radiator & Stand- ard Sanitary Corporation in the sum of $2,610.00, with interest from July 30,.1963, for materials furnished. in _connection with such improvement, and the said petitioner American Radiator & Standard Sanitary Corporation ‘is entitled to share in such trust funds in the amount and ‘extent as aforesaid and J. E. Schecter Corporation . is ... liable te Sarco Company, Inc. in the sum of $363.45 with — interest from July 30, 1963, for materials furnished in ‘connection with such improvement, and the said petitioner - Sarco Company, Inc. is entitled to share in such trust funds in: the amount and extent as aforesaid and_J.: E. Schecter Corporation is-liable to, Sarcotherm Controls, Inc. in the sum of $176.64 with interest from July 30, 1963 for materials furnished in connection with such im- ‘provement, and the said petitioner Sarcotherm Controls, Ine. is entitled°to share in such trust funds in the amount . and/extent as aforesaid, and it is .6 ForTHer;: Orperep that’ all other persons icine claims for labor. or matérials furnished to J. E. Schecter Cor- poration in connection with the aforesaid improvement, __-and’any other reasonable’ and necessary’. charge in con- nection therewith, be .given notice by the attorneys for the petitioners to file verified claims -with the attorneys '* -for the petitioners on or before. September 15, 1965, and on default. to be forever barred from ‘making any claim _-to ‘said trust fund, said notice to be ‘accompanied by a +3 ng? “7 copy of this order, and it is FURTHER, ‘Ornperep that the debtor furnish ‘to the “A: ' torneys for petitioners-a certified list of the unpaid claims against such trust fund, setting forth its best available . information ofthe full name and address of each claiin- ant and the amount of its respective claim, within ten days after service of a copy. of this. —e and it is © Q . Appendix. Paxtum: Cees that petitioners shall serve said notice | _ to file claims and a copy of this order upon each of said claimants by certified mail, return receipt requested, and itis _ Forraer, Orperep that the silicntae notice be published - once in the Long Island Daily Press, a newspaper pub- lished in the County of Queens, State of New York, ‘and_ once in the Princeton’ Herald, a newspaper published in Princeton, the County of Mercer, State of New Jersey: “UNITED STATES DISTRICT COURT _ Eastern Distaicr OF New York - No. 62-B-934 ee In the Matter * —of—. J. E. Scuecrer Corporation, | Debtor, cd To: All persons who have furnished labor or materials to J. E. Schecter Corporation for the erection, construc- tion and completion of the Engineering Quadrangle . at Princeton University, ceton, New Jersey, or | > any alteration, repair - or addition thereto and any other reasonable and necessary ree in connection therewith - PLEASE TAKE NOTICE that an pre has et entered in the United States District Court for the Eastern ‘District of New York impressing a trust on funds in the possession of J. E. Schecter Corporation, debtor, obtained from William L. Crow Construction Company and arising out of an improvement in the State of New Jersey known as the “Engineering re: | and itis : Fonraes, Onpzzen that counsel fees shall bé paid to | 8B . Appendic. Princeton University, Princeton, New Jersey, “ be applied to the payment of claims of all persons who have furnished labor or materials to J. E. Schecter Corporation for the erection, construction or comple- tion of said improvement or any alterations, repairs or additions thereto, and any other reasonable or ‘necessary charges in connection therewith, and pro- eS See tt Se Se ee ee Oe to the attorneys for the petitioners, and PLEASE TAKE FURTHER Notice that you are hereby required to present your verified claim to the office of William J. Rudin, Referee in Bankruptcy, 195 Willis Avenue, Mineola, New York no later than the 15th day of September, 1965,-and in default thereof you will be barred from making any claim to said trust fund or any part thereof, Scuwartz, Weisssercer & LEICHTER Attorneys for Petitioners 141 Broadway New York, N. Y. 10006’’ Schwartz, Weissberger & Leichter, attorneys for the peti- __. tioners, out of said trust funds in an amount to be deter- mined ‘pursuant to a further order of this Court on ap- plication by said attorneys at such time as they deem it appropriate and in conjunction with the order of distribu- tion of the trust funds to the beneficiaries thereof at which time a judgment for costs shall be entered in favor of petitioners in a sum to be taxed by the Clerk of this Court. ~ Dated: Mineola, N. Y., July 29, 1965. . Wuius J. Rov, Referee in Bankruptcy. --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385602_0858%3A2. Public record. Not legal advice.