
USCA1 Opinion

	




                            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.                               _______                                         -2-                      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                                                             _______                                         -3-            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.                      ________                                         -4-
