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Universal Bonding Insurance Co. v. Gittens and Sprinkle Enterprises Inc.

decided: April 1, 1992.

UNIVERSAL BONDING INSURANCE CO. APPELLANT NORTH RIVER INSURANCE CO. APPELLANT WESTCHESTER FIRE INSURANCE CO. APPELLANT
v.
GITTENS AND SPRINKLE ENTERPRISES, INC. APPELLEE GITTENS AND SPRINKLE ENTERPRISES, INC. DEBTOR US TRUSTEE TRUSTEE UNIVERSAL BONDING INSURANCE COMPANY, NORTH RIVER INSURANCE COMPANY AND WESTCHESTER FIRE INSURANCE COMPANY, APPELLANTS



On Appeal from the United States District Court for the District of New Jersey. (D.C. No. 91-01154)

Before: Cowen, Nygaard and Garth, Circuit Judges

Author: Garth

Opinion OF THE COURT

GARTH, Circuit Judge :

Gittens and Sprinkle Enterprises, Inc. ("Gittens"), a contractor, filed for bankruptcy protection and attempted, as debtor in possession, to collect outstanding contract balances due from state, municipal and federal agencies, for the purposes of reorganizing and using such funds as capital in new ventures. Gittens' surety, Universal Bonding Insurance Company ("Universal"), objected and argued that these balances constituted statutory or equitable trusts for the benefit of laborers and materialmen and therefore could not become part of Gittens' general estate. Both the bankruptcy court and the district court rejected Universal's arguments and held that the contract balances belonged to the bankrupt's estate free of any liens of laborers and materialmen.

We agree with the bankruptcy court and the district court that monies owed but not yet paid to Gittens by state, municipal and federal agencies do not constitute statutory or equitable trusts in the hands of the government agencies and therefore may be collected by Gittens. We will therefore affirm the district court's order to the extent that it embodies this holding. However, we reach a different Conclusion than did the bankruptcy court and district court regarding the status of monies owed to Gittens by state, municipal and federal agencies once they have been paid over to Gittens as debtor in possession.

Because we hold that the New Jersey Trust Fund Act directs that the monies paid by state and municipal agencies to Gittens be placed into a statutory trust fund for the benefit of laborers and materialmen, and because we hold that monies owed to Gittens by the federal agencies must, as a result of decisional law, be treated as a trust fund for the benefit of laborers and materialmen once paid to Gittens, we will vacate the district court's order and remand to the district court with instructions to the district court to, in turn, remand this case to the bankruptcy court for further proceedings consistent with this opinion.

I.

Gittens filed a voluntary Chapter 11 bankruptcy petition on December 14, 1990. At the time of the bankruptcy filing, various state, municipal and federal agencies owed money to Gittens for completed contracts, as follows:

Collingswood Board of Education $5,401.00

Thomas Sharp Elementary School

Point Pleasant Board of Education $15,440.52

Fort Dix - Department of the Army $28,059.86

Department of Building and $5,414.80

Construction c/o State of New Jersey

State Police Headquarters

State of New Jersey - DBC $7,552.20

Woodbine Developmental Ctr.

Rancocas Valley Regional High School $13,584.99

Audubon Board of Education $16,545.30

Veterans Administration $50,000.00

(est.)

Waterford Township Board of Education $8,202.61

As debtor in possession, Gittens filed a motion seeking a declaration that these contract balances were property of Gittens' bankrupt's ...


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