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UNITED STATES COURT OF APPEALS
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
FOR THE FIRST CIRCUIT
No. 95-1036
ADMIRAL DRYWALL, INC., ET AL.,
Plaintiffs, Appellants,
v.
JOHN F. CULLEN,
TRUSTEE OF VAPPI & COMPANY, INC.,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. William G. Young, U.S. District Judge]
Before
Boudin, Circuit Judge,
Aldrich and Bownes, Senior Circuit Judges.
Peter J. Gagne with whom Corwin & Corwin was on brief for
appellants.
Robert Owen Resnick with whom Posternak, Blankstein & Lund was on
brief for appellee.
June 8, 1995
ALDRICH, Senior Circuit Judge. Defendant John F.
Cullen is the trustee in bankruptcy of Vappi & Co., Inc., a
general contractor who defaulted after substantially
completing its contract to build a condominium complex.
Plaintiffs, Admiral Drywall and others, are unpaid
subcontractors who furnished labor and materials, and seek to
impose an equitable lien on undisbursed contract funds ahead
of the trustee and all other creditors. They did not file
statutory liens, nor was there a surety bond or any other
contract for their protection. The district court affirmed
the bankruptcy court's summary judgment in favor of the
trustee. We affirm.
We look to Massachusetts law for determination of
interests in assets of the bankruptcy estate. Butner v.
United States, 440 U.S. 48, 54 (1979). In Ehrlich v. Johnson
Service Co., 272 Mass. 385, 172 N.E. 508 (1930), a general
contractor, within four months of bankruptcy paid some of its
subcontractors, and its trustee in bankruptcy sued to
recover. Defendants claimed they had equitable liens. The
court held that, in the absence of any special contract, they
had none, and hence the payments to them were voidable
preferences. Plaintiffs here, who likewise have no
protection of a surety, and no special contract otherwise,
can escape foreclosure of their equitable claim only by
persuading us that Ehrlich is no longer law.
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Plaintiffs would reach that result by pointing out
that in Canter v. Schlager, 358 Mass. 789, 267 N.E.2d 492
(1971), the court recognized subrogation rights. There it
held that a surety on a performance bond that paid
subcontractors has a priority "right of subrogation over the
rights of a construction contractor's trustee in bankruptcy."
358 Mass. at 792, 267 N.E.2d at 494. Strictly this meant
priority for the surety who was "subrogated . . . to the
rights of the subcontractors it paid." Id. at 791, 267
N.E.2d at 494. This differed from Ehrlich where
subcontractors were held to have no special rights because
here there was a contract. The subcontractors had rights
because "they are entitled to rely on a payment bond
providing expressly that they may sue thereon." Id. at 795,
267 N.E.2d at 496. The court noted, further, that, unlike
Ehrlich, the surety was not claiming, timewise, in violation
of the Bankruptcy Act. "[T]he surety's right dates back to
the date of the bond." Id. at 795-96, 267 N.E.2d at 496.
For present plaintiffs, who lack a bond, and such timeliness,
these are fatal distinctions.
Since we are concerned with state law choices in
the treatment of creditors, and not federal law, it is
pointless for plaintiffs to argue that Canter's reasoning and
its treatment of subcontractors' rights as depending upon the
presence of a surety bond was inconsistent with Ehrlich, and
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therefore must be taken as overruling Ehrlich -- although it
said it distinguished it. Our sole duty is to take state law
as we find it, not build on it. Nor would we be tempted to
build. There is sound public policy in recognizing a
difference when there is a surety in the picture.
"Traditionally sureties compelled to pay debts for their
principal have been deemed entitled to reimbursement." See
Pearlman v. Reliance Insurance Co., 371 U.S. 132, 136 (1962).
If they were not, there would be few sureties. Individual
subcontractors can seek mechanics liens. Mass. Gen. L. c.
254.
Affirmed.
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