A. FACTUAL BACKGROUND.

        Plaintiff, Gordon Zerbetz, is the chapter 7 trustee in Case No. J90-00014, captioned In re GFI Corporation. GFI, prior to the time it filed chapter 7, was a contractor licensed in the State of Alaska. As required by state law, at the time GFI applied for its certificate of registration, it posted a $5,000 certificate of deposit, in lieu of a bond, in favor of the State of Alaska. GFI's certificate lapsed on August 31, 1989, and GFI subsequently filed chapter 7. Zerbetz has filed this adversary proceeding against the State of Alaska and First National Bank of Anchorage seeking turnover of the certificate of deposit (cash bond) held by the bank.

        1 ABR 288 
        Zerbetz and the State of Alaska have filed cross motions for summary judgment in the adversary proceeding. Zerbetz contends that the cash bond is property of the estate which must be surrendered to the trustee. The State contends that the bond is not property of the estate and that it cannot turn over the bond in any event until at least 3 years after the date on which GFI ceased doing business. This court finds that the trustee is correct and that the cash bond must be turned over.

       B.    THE CONTRACTOR'S BOND.

        Pursuant to AS 08.18.071(a), a contractor is required to obtain a surety bond in "favor of the State of Alaska conditioned upon the applicant's promise to pay" certain classes of claimants. In lieu of a surety bond, the contractor may post a cash deposit or other negotiable security. AS 08.18.071(b). For the purposes of the Alaska Statutes pertaining to contractors, the term "cash deposit" means "cash deposit or other negotiable security filed with the commissioner in lieu of a surety bond." AS 08.18.171(2). A party who falls within the class of claimants mentioned in AS 08.18.071(a) may file a suit against the bond in state district court and, in the event of a cash bond, the commissioner shall pay the claimant if a judgment is entered against the cash deposit. AS 08.18.081.

        C.    THE CASH BOND IS PROPERTY OF THE ESTATE.

        The trustee contends that the cash bond is an asset of the bankruptcy estate, per 11 U.S.C. § 541(a)(1), that the State has received no claims against the bond as of the date of the filing of GFI's bankruptcy petition, and that the trustee is therefore entitled to turnover of the proceeds.

        The State, on the other hand, asserts that the cash bond is not property of the estate and that, even if the trustee could make a claim to recover the bond, he cannot do so until at least 3 years from the date that GFI ceased doing business, as provided by AS 08.18.115. The State relies on the Ninth Circuit case, In re Buna Painting & Drywall Co., Inc., 503 F.2d 618 (9th Cir. 1974), to support its position.

The State's reliance on In re Buna Painting is misplaced. In that case, the court determined that a contractor's licensing         1 ABR 290  bond, issued by a surety, was not property of the bankruptcy estate. The Ninth Circuit has distinguished cash bonds from surety bonds and has held in more than one instance that a cash bond is property of the estate. For example, in Matter of Lockard, 884 F.2d 1171, at 1178 (9th Cir. 1989), the Ninth Circuit stated:

        [T]here are cogent reasons for retaining the cash deposit/surety bond distinction for purposes of the bankruptcy law. In the case of a cash deposit, the contractor puts up his own property to guarantee his performance on commercial or personal services contracts. By contrast, a contractor who instead posts a bond interposes a third-party surety between himself and contract claimants; the surety essentially agrees, in exchange for the contractor's promise of indemnification or, as here, a lien on the contractor's assets, to pay the claims of the contract creditors out of the surety's own funds in an aggregate amount up to the limits of the bond in the event of the contractor's breach.

        The basic difference is in the party, the contractor or the surety, who puts its property directly at risk of liability to creditors in the event of nonpayment by the contractor. . . [A] fundamental purpose of the bankruptcy proceedings is to "throw a blanket of protection on all of the property of the debtor."

        Although Kennedy was decided under the old Bankruptcy Act, the result would be the same today. In In re Legend Homes, 69 B.R. 797 (Bankr. D.Ariz. 1987), the Bankruptcy Court for the District of Arizona held that a contractor's cash bond was property of the estate, citing Kennedy in support of its decision and noting that "the definition of 'property of the estate' under the Bankruptcy Code is more expansive than that under the Bankruptcy Act." Id., at 800.

        1 ABR 292 
        The State's trust argument must also fail. The Ninth Circuit will not construe a statutory obligation to post a bond or other security as creating a statutory trust without evidence of a specific intention that such a trust be created. In re Sluggo's Chicaqo Style, Inc., 912 F.2d 1073, 1075 (9th Cir. 1990). The State's trust argument relies on authorities from other circuits which are not binding. Further, the Ninth Circuit has held, in the case of a contractor's cash bond posted in Arizona, that the Arizona State Treasurer was simply the custodian, rather than the owner, of the funds posted. As in Alaska, the Arizona statute provided that the bond would be "in favor of the state for the benefit" of certain classes of claimants. Kennedy v. Powell, 366 F.2d at 348.

        D.    THE TRUSTEE IS ENTITLED TO IMMEDIATE TURNOVER OF THE CASH BOND.

        The State's final contention is that, even if the trustee is entitled to a refund on the bond, the trustee must wait until 3 years after the date that GFI's registration lapsed before any recovery, relying on AS 08.18.115. This position is inconsistent with the Ninth Circuit's holding in Kennedy v. Powell, 366 F.2d 346, which required the Arizona State Treasurer to surrender a cash bond to the trustee in spite of the fact that there were outstanding claims against the bond and the Arizona statutes         1 ABR 293  required a one-year waiting period before a contractor could seek a refund of the bond.

        In a more recent case, the bankruptcy court determined that a creditor in a Chapter ll case could not obtain relief from stay to pursue its claim against the contractor debtor-in-possession's cash bond, because the bond was property of the estate. In re Legend Homes, Inc., 69 B.R. 797.

        The instant case is not a Chapter 11. Creditors who might have a claim against GFI's bond are not able to satisfy the requirements of 11 U.S.C. § 362(d)(2) of establishing that the estate has no equity in the bond. The State contends that a claim has been made against the bond by Coogan Construction. Coogan has not properly pressed its claim against the cash bond. As noted above, AS 08.18.081 requires that a claimant "bring suit against the bond" and requires the commissioner to pay a judgment "entered against the cash deposit" upon receipt of a certified copy of the judgment. The State has submitted a copy of a money judgment entered against the debtor only in support of its contention that a claim has been made against the cash deposit (see Affidavit of JoAnne Cummings, Ex. B). The judgment has not been entered against the cash deposit, as required by the Alaska Statutes. Therefore, Coogan's claim against the bond is invalid.

        If the automatic stay precludes other creditors from suing GFI's cash bond directly, the 3 year waiting period asserted         1 ABR 294  by the State serves no purpose. Accordingly, there is no reason why the State cannot turn over the cash deposit to the trustee now.

        E.    DISTRIBUTION OF THE BOND PROCEEDS.

        The question remains as to how any bond proceeds recovered by the trustee should be distributed. In In re Legend Homes, 69 B.R. 797, the court found justification, in the Chapter 11 context, for placing creditors who may have a claim against the cash bond in a separate class from other unsecured creditors, citing 11 U.S.C. § 1122(a) and finding "both statutory basis and common law basis for different treatment of the class of creditors entitled to make a claim to all or part of the [bond]. " Id. at 801. The Bankruptcy Code does not provide a similar statutory basis for treatment of unsecured creditors in a Chapter 7. Unsecured creditors are paid in the order of priority specified in 11 U.S.C. § 726(a). Any funds recovered by the trustee from GFI's cash bond will be available for distribution to the estate's unsecured creditors. See In re Sluggo's Chicago Style, Inc., 912 F.2d 1073 (9th Cir. 1990).

       F.    CONCLUSION.

        The trustee's motion for summary judgment will be granted. The State is directed to turn over to the trustee the entire bond proceeds. This ruling is based upon Exhibit "B" to the         1 ABR 295  affidavit of JoAnne Cummings, a form judgment. If the form judgment is incorrect as to the parties and the suit contains a proper claim against the bond, the court will entertain a motion for reconsideration.

       Dated:    January 9, 1991.

DONALD MacDONALD IV
United States Bankruptcy Judge