In re: Regional Building Systems, Incorporated

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
 In Re: REGIONAL BUILDING SYSTEMS,
INCORPORATED,
Debtor.
BEDFORD CONSTRUCTION
CORPORATION, No. 01-2319 
Creditor-Appellant,
v.
THE PLAN COMMITTEE OF REGIONAL
BUILDING SYSTEMS, INCORPORATED,
Debtor-Appellee. 
Appeal from the United States District Court
for the District of Maryland, at Baltimore.
Benson Everett Legg, Chief District Judge.
(CA-01-1321-L, BK-93-5-7521-JS)
Argued: September 23, 2002
Decided: February 21, 2003
Before MICHAEL and GREGORY, Circuit Judges, and
Rebecca Beach SMITH, United States District Judge for the
Eastern District of Virginia, sitting by designation.
Affirmed by published opinion. Judge Smith wrote the opinion, in
which Judge Michael and Judge Gregory joined.

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COUNSEL
ARGUED: William Harley Roth, KELLY & ROTH, New York,
New York, for Appellant. Irving Edward Walker, SAUL EWING,
L.L.P., Baltimore, Maryland, for Appellee. ON BRIEF: Linda V.
Donhauser, E. Hutchinson Robbins, Jr., Matthew G. Summers,
MILES & STOCKBRIDGE, P.C., Baltimore, Maryland, for Appellee.
OPINION
SMITH, District Judge:
Plaintiff Bedford Construction Corporation ("Bedford") appeals the
district court’s affirmance of the bankruptcy court’s order denying
Bedford delay damages and interest. We agree with the lower courts
and, accordingly, affirm.
I.
In December 1991, Regional Building Systems ("RBS"), a manu-
facturer of modular housing units, entered into a contract with Aspen
Knolls Construction Corporation ("Aspen Knolls") to manufacture,
deliver, and install 1000 housing units on Aspen Knolls’ property in
Staten Island, New York. In February 1992, RBS entered into a sub-
contract agreement with Bedford Construction Corporation
("Bedford"),1 under which Bedford was responsible for transporting
the modular units manufactured by RBS to the Aspen Knolls building
site, and then erecting and completing the structures.2
1The subcontract provided that its terms were to be interpreted in
accordance with New York law.
2Bedford also performed work for RBS outside the subcontract, which
included routine carpentry adjustments and repairs to the modular units.
The work was separately invoiced to RBS as "reimbursable expenses."
In addition, Bedford did other work for Aspen Knolls directly, for
which RBS was not responsible, including a contract entered into in
November 1992, requiring Bedford to perform finishing work on the
modular units. There were other contracts between Bedford and Aspen
Knolls for site clearing and drainage work, general excavation, and sani-
tary and storm sewers.
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In late 1992, Aspen Knolls experienced financial difficulties and
defaulted on a number of payments to RBS. Without these payments,
RBS experienced a severe cash flow problem and was unable to meet
its contractual obligation to deliver the requisite number of housing
units to Bedford. Consequently, RBS suspended its work under the
subcontract. As a result, Bedford was forced to bear the expense of
supporting idled labor and equipment that would otherwise have been
devoted to productive work. In July 1993, Aspen Knolls ceased pay-
ing RBS altogether, forcing RBS to terminate the Aspen Knolls con-
tract as well as the subcontract with Bedford.
On November 9, 1993, RBS filed a voluntary petition for relief
under chapter 11 of the Bankruptcy Code. The bankruptcy court
established March 15, 1994, as the last day on which creditors could
file proof of unsecured claims in RBS’s chapter 11 case. Bedford filed
no proof of claim; it was, however, listed in RBS’ bankruptcy sched-
ules as holding an unsecured, nonpriority claim in the amount of
$614,203.46.
On May 20, 1997, the bankruptcy court entered an order confirm-
ing the Amended Chapter 11 Plan of Liquidation (the "Plan"), pro-
posed jointly by RBS and the Plan Committee.3 The Plan recognized
a separate class of creditors, designated as Class IV, for those holding
valid claims under Article 3A of the New York Lien Law.4 Under the
Plan, the approximately $5,000,000.00 which RBS recovered from
Aspen Knolls was segregated from the other estate assets and held in
trust for the lien law beneficiaries. According to the Plan, all Allowed
3The Plan vested the Plan Committee with all duties, powers and
responsibilities of a trustee appointed pursuant to 11 U.S.C. § 1104. The
Plan Committee was also charged with objecting to any disputed claims
in the debtor’s case and making sure the monies of the bankruptcy estate
were distributed in accordance with the provisions of the Plan and bank-
ruptcy law.
4N.Y. Lien Law §§ 70-79a (McKinney, 1993). Article 3A protects
those whose skills, labor and materials make improvements to real prop-
erty, thereby giving rise to the owner’s obligation to pay. Frontier Exca-
vating, Inc. v. Sovereign Constr. Co., 30 A.D.2d 487, 489, 294 N.Y.S.2d
994, 997 (1968). Although labeled by the Plan as "lienholder" claims, the
New York Lienholder claims are actually statutory trust claims.
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New York Lienholder Claims were to be paid in full prior to any dis-
tribution of estate property to general unsecured creditors. The Plan
defined an allowed claim as one that is "determined to be valid under
Article 3A of the New York Lien Law and allowed pursuant to a
Final Order of the Court." All claims were deemed to be automati-
cally disputed, and the bankruptcy court was vested with the responsi-
bility of determining the validity and allowance of such claims. After
full payment to the trust beneficiaries, any remaining assets would
revert to the general bankruptcy estate and be divided among other
creditors.
In July 1997, Bedford filed an Article 3A claim in the amount of
$1,448,226.49, plus applicable interest. On October 22, 1997, the Plan
Committee filed its first objection to all claims against the estate. The
Committee compared the claims to RBS’s books and records and
sought to reduce those that had insufficient or no documentation from
which the Committee could ascertain the validity of the variance. The
Committee determined, inter alia, that Bedford’s claim for
$1,448,226.49 was overstated and sought to reduce it to $614,203.46.
The bankruptcy court began the evidentiary hearing on the Bedford
lienholder claim on July 27, 1998. In the midst of the trial, Bedford
moved to compel payment of the portion of Bedford’s Class IV claim
that the Plan Committee agreed was valid. Bedford and the Plan Com-
mittee thereafter reached an agreement, under which Bedford was
paid the undisputed portion of its claim, in the amount of
$718,128.83. The trial proceeded on Bedford’s claim for reimbursable
expenses, additional damages, delay damages, and for interest. In an
extensive opinion, the bankruptcy court determined that Bedford was
only entitled to recover an additional $22,067.82 and denied recovery
for delay damages and interest. The district court affirmed the bank-
ruptcy court’s decision. Bedford first appeals the holding that New
York law does not permit a subcontractor to recover delay damages
from a general contractor. Second, Bedford argues that it is owed pre-
petition interest on all unpaid invoices.
II.
Factual findings below are reviewed by this court under the clearly
erroneous standard while legal conclusions are reviewed by this court
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de novo. See In re Stanley, 66 F.3d 664, 667 (4th Cir. 1995) ("In
essence, we stand in the shoes of the district court, inasmuch as we
may not, generally speaking, set aside a finding of the bankruptcy
court unless it is clearly erroneous.") (citations omitted). A finding of
fact is clearly erroneous only when "the reviewing court on the entire
record is left with the definite and firm conviction that a mistake has
been made." In re Morris Communications, N.C., Inc., 914 F.2d 458,
467 (4th Cir. 1990).
A.
At trial, Bedford sought to recover damages for labor and equip-
ment that were idled when RBS, unable to provide Bedford with the
requisite number of manufactured units, suspended its obligations
under the subcontract. The bankruptcy court denied Bedford’s claim
for delay damages, holding that New York law prevents such a recov-
ery when the contractor is not responsible for the delays. Bedford
argues, as it did before the district court, that financial difficulty does
not excuse performance under a contract and that delay damages are
proper.
It is clear that to the extent Bedford seeks to hold RBS liable for
delays caused by Aspen Knolls, its claim runs counter to established
New York law. In Triangle Sheet Metal Works, Inc. v. James H. Mer-
ritt and Co., 79 N.Y.2d 801, 588 N.E.2d 69 (1991), the New York
Court of Appeals denied a subcontractor recovery for delay damages,
after finding that the delay was not the fault of the general contractor.
Triangle, a subcontractor on a construction project for New York
City, sought recovery against Merritt, the prime contractor, for perfor-
mance delays which were contributed to by the City, other contrac-
tors, and weather delays. The trial court dismissed the claim and the
appeals court affirmed, holding that:
This case falls squarely within the general rule that, absent
a contractual commitment to the contrary, a prime contrac-
tor is not responsible for delays that its subcontractor may
incur unless those delays are caused by some agency or cir-
cumstance under the prime contractor’s direction or con-
trol. Contrary to Triangle’s contention, there is no basis for
concluding that a prime contractor — which oftentimes
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lacks control over much of the work to be performed at a
particular project — has implicitly agreed to assume respon-
sibility for all delays that a subcontractor might experience
— no matter what their cause.
Id. at 802 (citations and quotations omitted) (emphasis added). See
also Norcross v. Wills, 91 N.E. 803, 805 (1910) (holding that a party
to a construction contract will be "answerable for all losses caused by
delays, which his control of the work should make him responsible
for..."). The Triangle court concluded that a subcontractor unhappy
with this rule "should bargain for the inclusion in its subcontract of
a provision" to the contrary. Id. at 803. There was no such warranty
in the instant case.5
Bedford does not dispute the holding of Triangle, but instead dis-
putes its application to the current case. Bedford argues that nonpay-
ment by the owner does not fall within the Triangle holding because
Triangle does not alter the general rule that financial difficulty, even
bankruptcy or insolvency, will not excuse performance of a contract.
Despite Bedford’s arguments to the contrary, Triangle is directly on
point.6 See Port Chester Electrical Construction Corp. v. HBE Corp.,
978 F.2d 820, 822 (2nd Cir. 1992) (applying Triangle to a dispute
between a contractor subcontractor). Thus, we must turn to the ques-
5Bedford argues that the inclusion of the force majeure clause was
actually an attempt to contract out of the Triangle rule. It further con-
tends that the force majeure clause did not explicitly excuse RBS from
its delivery obligations due to financial distress. We find these arguments
to be unpersuasive. The force majeure clause provides that RBS was
entitled to suspend performance due to "inability to obtain labor and/or
materials beyond the control of the Contractor." In this case, RBS was
incapable of obtaining labor and materials because Aspen Knolls
defaulted on payments. This seems to us to fall within the language of
the force majeure clause.
6The cases cited by Bedford for this proposition do not involve the
relationship between a subcontractor and a general contractor, nor do
they deal with the specific issue of delay damages. They instead articu-
late general principles of contract law which are inapposite to the issue
of delay damages. Additionally, not one of the cases questions or over-
rules Triangle.
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tion whether the delays suffered by Bedford were attributable, in
whole or in part, to Aspen Knolls.
In its opinion, the bankruptcy court made specific and detailed fac-
tual findings regarding the cause of the project delays, concluding that
Aspen Knolls’ breach of its payment obligations to RBS was the
cause of RBS’s suspension of work. The court found that RBS acted
reasonably, suspending deliveries only after Aspen Knolls had
defaulted on several payments and resuming them once payments
were again made. RBS terminated the contract only after Aspen
Knolls had defaulted on two invoices totaling over $3,000,000.00,
which the court determined so severely hampered RBS’s cash flow
that RBS was justified in suspending work. During this time, RBS
kept Bedford fully informed about Aspen Knolls’ financial troubles,
knowing that Bedford also had direct contracts with Aspen Knolls.
Finally, the bankruptcy court specifically rejected Bedford’s conten-
tion that RBS was undercapitalized and thus was the real party who
caused the delays. This determination, that Aspen Knolls was wholly
responsible for the delays, cannot be overturned unless clearly errone-
ous. In this case, the bankruptcy court’s findings of fact are fully sup-
ported by the record and consequently are not clearly erroneous.
Having determined that the delay was caused by Aspen Knolls’
failure to pay RBS, not by any wrongdoing of RBS, the bankruptcy
court concluded that under Triangle, RBS was not liable to Bedford
for delay damages. This is the correct result. Triangle recognizes a
specific rule, applicable to construction cases in general, and subcon-
tracts, in particular. In the instant case, the bankruptcy court found
that Aspen Knolls’ default resulted in RBS’s inability to meet its con-
tractual obligations to Bedford under the subcontract. Under New
York law, as set forth in Triangle, Bedford cannot claim delay dam-
ages for circumstances beyond RBS’s control. Accordingly, we affirm
the denial of delay damages to Bedford.
B.
Bedford contends that it is entitled to interest on its claim.7 The
7New York law provides for the recovery of interest in a breach of
contract case. N.Y. C.P.L.R. §§ 5001 (Consol. 2002).
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bankruptcy court held, and the parties agree, that claims for interest
may not be paid out of Article 3A trust assets. In order to receive an
interest payment, Bedford would have to collect from the general
bankruptcy estate as an unsecured creditor. In order for an unsecured
claim to be paid, it must be either filed as a proof of claim or be listed
on the bankruptcy schedule. Bedford did not file a timely proof of
claim. It was, however, listed on the bankruptcy schedule as being
owed $614,203.46.8 Bedford contends it is entitled to collect a portion
of this scheduled amount to pay its claim for interest.9 The bankruptcy
court disagreed, determining that the payment of the New York lien-
holder claim, in the amount of $718,203.46, fully satisfied any claim
that RBS had scheduled as owed to Bedford. Bedford, therefore, was
not entitled to collect on its claim for interest from the general bank-
ruptcy estate. Bedford appeals this ruling as contrary to bankruptcy
law.
A creditor cannot claim more than the total amount scheduled. See,
e.g., Pyramid Investments Co. v. Palmquist, 553 F.2d 1194, 1198 (9th
Cir. 1977). In this case, Bedford asserted that it was owed approxi-
mately $1,500,000.00 under the New York Lien Law. RBS’s books
indicated that Bedford was owed only $614,203.46. Both of these
amounts are based on the same underlying project — Bedford’s work
for RBS on the Aspen Knolls project. They merely represent the dif-
fering positions of the parties as to what was truly owed. Thus, the
payment of $718,128.83 to Bedford under the New York Lien Law
fully satisfied the scheduled amount.
Bedford argues that because the New York Lienholder Trust was
not technically part of the bankruptcy estate, then Bedford had the
right to both the $1,400,000.00 and the $614,203.46 scheduled. It is
8After termination of the subcontract, RBS’s books and records
reflected amounts due to Bedford in the amount of $614,203.46.
Although the schedules did not specify for what Bedford’s unsecured
claim was, RBS derived the amount of the claim by examining various
invoices which did not include interest.
9Bedford does not argue that there are unsatisfied debts arising out of
the Aspen Knolls contract which should be paid. Nor does it dispute that
the payment under the New York lienholder trust was for the same debts
on the bankruptcy schedule.
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true that the trust assets are not property of the bankruptcy estate and
are subject to division outside the distribution scheme found in bank-
ruptcy law. See Scherling v. Hellman Electric Corp. (In re Westches-
ter Structures, Inc.), 181 B.R. 730 (B.S.D.N.Y. 1995). This
distinction, however, is designed merely to ensure that the beneficia-
ries of the trust take complete priority in payment as against other
creditors. It is not to be abused by a creditor seeking to recover twice
for the same losses arising out of the same debt. Bedford is not enti-
tled to collect from non-trust assets once payments on its claims from
the trust assets exceeded the amount the debtor scheduled as owed to
Bedford. In this case, because Bedford did not file a proof of claim
in the amount of the interest and because the unsecured claims have
been satisfied, Bedford cannot recover the claim for interest from the
bankruptcy estate.
One of the cardinal principles of bankruptcy law is equality among
types of creditors. See 11 U.S.C. § 1122(a). Once a creditor receives
from the trust assets more than the debtor scheduled as owing to it,
the creditor cannot then assert a claim against non-trust assets. Bed-
ford received more than was listed on RBS’s schedule. It has no right
to collect on that debt again simply because the New York Lien Law
did not provide for interest out of the trust assets. To hold otherwise
would be to permit a creditor to obtain an undeserved windfall by
recovering for the same debt twice — first from a non-estate trust
asset and then again from the estate for a scheduled claim.
Accordingly, the judgment is
AFFIRMED.
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