Dizard & Getty, Inc. v. Wiley

¶4CHAMBERS, Circuit Judge.

¶5Dizard & Getty, Inc., a masonry contractor, performed work and furnished materials for Grant Corson Henry, a speculative builder who is now a bankrupt, on houses numbered “1” and “2” on Mercer Island in King County, Washington. For this Henry owed Dizard *78and Getty (D & G) the respective unpaid sums of $1,280.24 and $1,334.96. For these sums, at one time at least, D & G had inchoate liens on the properties at sites 1 and 2.

¶6We deal here with whether D & G has lost its security as against Wiley, Henry’s trustee in bankruptcy. The referee, affirmed by the district court, has held the liens gone: that there is no security left.

¶7Henry was adjudicated a bankrupt on or about May 6, 1960. The first meeting of creditors was May 24, 1960. The respective asserted liens for work and materials had been severally recorded theretofore in the appropriate recording office of King County, Washington, on March 29 and April 6, 1960. No steps were ever taken to formally foreclose the asserted liens and D & G never filed a secured claim as such in the bankruptcy. The failure to do so has been held fatal by the referee and the district court.

¶8It appears that about August 1, 1960, the trustee found sales for several properties including the two in which D & G asserted an interest. Following a petition by the trustee, Order to Show Cause No. 1 was entered on August 1, 1960, requiring D & G, among others, to appear and show cause “Why the trustee should not sell, free and clear of any claim [s] of lien or encumbrance the respondent[s], may have therein, such claim[s] to be transferred to the proceeds of the sale, the validity, extent and rank of priority [of liens] to be determined herein on notice ….”

¶9D & G, although named as a respondent, made no objection or appearance with reference to order No. 1. The referee on August 9, 1960, entered order No. 2 or “Order on Order to Show Cause.” This order, No. 2, ordered the sale and, in accordance with that which was proposed in order No. 1, said: “The claims of lien or encumbrance, if any there be, of each and all of said respondents to be transferred to the proceeds of sale herein, their validity, extent and relative rank of priority to be determined by this court at a hearing on due notice to all parties concerned.” [Emphasis supplied.]

¶10On February 28, 1961, Wiley, the trustee, had made his sales free of the liens and on that date he petitioned for orders to establish the validity and priority of the known lien claimants. In his petition, he listed the respective lien claims of D & G for $1,280.24 and $1,-334.96 on parcels 1 and 2. And order No. 3, Order to Show Cause, was entered by the referee on February 28, 1960, the date the trustee filed his petition. This order recited that D & G was one of the lien claimants, and a hearing for determining the claims was set for March 21, 1961. In the interim, D & G filed its response to order No. 3, reporting the amount of its claims as listed hereinabove and the recording steps it had taken on its purported claims against parcels 1 and 2. The trustee asserted that both lien claims were not timely recorded in the King County recording office (within ninety days after completion of D & G’s work) under Washington law1 (and therefore void), that the claims had not been filed within six months after the first meeting of creditors as secured claims 2 under the bankruptcy law, and that D & G had lost all *79by not complying with the Washington state law3 with a foreclosure within eight months after the recording. (The six months period would have expired November 24, 1960. The eight months period would have expired about a week later.)

¶11On July 7, 1961, the referee ruled as to parcel 1 ($1,280.24) that D & G did not record the claim of lien within 90 days of the cessation of its work, taking the view that the last work done after a long intermission was not noteworthy and was a pretense. As to parcel 2, he ruled the recording was timely. But as to parcel 2 he disallowed D & G’s claim of lien for the reason that the “claimant neither filed a claim in this proceeding nor started an action in the courts of the State of Washington within the time required by law.” If the lien claim on parcel No. 1 was recorded in time, the reasoning on parcel No. 2 would apply to parcel No. 1.

¶12We affirm on the question of the timeliness of recording. This depends on the completion date under Washington state law. We do have trouble distinguishing the tag end work done on the two houses, but we have no transcript of the referee’s hearing. And, if we did have one, it would still be lie who heard the witnesses. And, out of that, he may have well concluded that the last work done on the first house was sham. We are in no position to say the ruling was clearly erroneous. At most the question would be a close one of the applicability of Washington law to whatever the full facts are and the district court, sitting in that state, is entitled to some intendments thereon.

¶13But as to the ruling denying recovery on parcel 2, we view it entirely as' presenting a question of the federal bankruptcy law. The ruling of the referee and the district court may have followed In re Warren, W.D.Wash., 192 F.Supp. 801.4 There the district court relied on its reading of United States National Bank in Johnstown v. Chase National Bank, 331 U.S. 28, 67 S.Ct. 1041, 91 L.Ed. 1320, and Isaacs v. Hobbs Tie & Timber Co., 282 U.S. 734, 51 S.Ct. 270, 75 L.Ed. 645, for the statement that it was necessary for a lienholder to file a secured creditor’s claim as such, within six months after the first meeting of creditors. This D & G has never done. It only filed its claim pursuant to the orders to show cause, and more than six months after the first meeting of creditors. However, we incline to the Eighth *80Circuit’s views of the United States National Bank case as expressed in Clem v. Johnson, 185 F.2d 1011, cert. den. 341 U.S. 909, 71 S.Ct. 622, 95 L.Ed. 1346. Cf. DeLaney v. City and County of Denver, 10 Cir., 185 F.2d 246.

¶14It is to be remembered that order No. 2 on August 9, 1960, said the claims of lien of respondents (this included D & G) “ … their validity, extent and relative rank of priority to be determined by this court at a hearing on due notice to all parties concerned.” (Order No. 1 had said the same thing in substance.)

¶15Basically it is our judgment that ordinarily, if all a secured creditor wants to do is preserve his lien, giving up a right to share in other assets, the secured creditor can sit still without filing his secured claim.

¶16We have not quoted from the Eighth Circuit’s Clem case, because we think reference thereto is adequate. Much has been written as to the significance or non-significance of the Supreme Court’s failure to grant certiorari, none of which we shall quote. However, if Clem is right, D & G’s is an a fortiori case. And, Clem is so clear cut that if it had constituted a flouting of United States National Bank, supra, we think it would have been a most appropriate case for certiorari. However, we do not know. Certiorari is not our function. Certainly Clem was an important case in the business world.

¶17As to the eight months for foreclosure under Washington law, under his order No. 2, the referee took away from the state court any possibility of its decreeing a foreclosure. What could a state court have acted upon? What would the complaint or the judgment have said? Should we still say that D & G was required to do something that makes no sense? Even though a res is in bankruptcy there is reason to still require the recording of a lien — and, if the res remains intact, there is often reason to require foreclosure proceedings. But it disappears when the res is converted to cash, is all in the hands of the trustee under such an order as we had here. No one has questioned the validity of the referee’s orders Nos. 1, 2 and 3. And, it may be said with some reason that the effect of order No. 2 was to freeze the status quo as of August 9, 1960, when the time for filing of a foreclosure action had not run. Thus, we think the Washington state time for foreclosure did not continue to run. We do not believe on the facts here that the bankruptcy law requires anything so foolish and incongruous as a “suit to enforce.”

¶18As to parcel No. 2, the district court’s order on review is reversed for proceedings consistent herewith. As to parcel No. 1 it is affirmed.