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UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE TENTH CIRCUIT

IN RE THE ELECTRON CORP.,

Debtor.

BAP No. WO-05-046

G. DAVID BRYANT, Trustee of the

Estate of the Electron Corporation,

Plaintiff – Appellee,

Bankr. No. 01-21984-WV

Adv. No. 03-1325-WV

 Chapter 7

v.

JCOR MECHANICAL, INC.,

Defendant – Appellant.

JUDGMENT

Filed January 10, 2006

Before McFEELEY, Chief Judge, NUGENT, and THURMAN, Bankruptcy

Judges.

This case originated in the United States Bankruptcy Court for the Western

District of Oklahoma.

The judgment of that court is REVERSED and REMANDED.

For the Panel:

Barbara A. Schermerhorn, Clerk of Court

By:

Deputy Clerk

BAP Appeal No. 05-46 Docket No. 41 Filed: 01/10/2006 Page: 1 of 8
FILED

U.S. Bankruptcy Appellate Panel

of the Tenth Circuit

January 10, 2006

Barbara A. Schermerhorn

Clerk PUBLISH

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE TENTH CIRCUIT

IN RE THE ELECTRON CORP.,

Debtor.

BAP No. WO-05-046

G. DAVID BRYANT, Trustee of the

Estate of the Electron Corporation,

Plaintiff – Appellee,

Bankr. No. 01-21984-WV

Adv. No. 03-1325-WV

 Chapter 7

v. OPINION

JCOR MECHANICAL, INC.,

Defendant – Appellant.

Appeal from the United States Bankruptcy Court

for the Western District of Oklahoma

Gary D. Hammond of Hammond & Associates, P.L.L.C., Edmond, Oklahoma, for

Defendant – Appellant.

Christopher T. Stein of Kline, Kline, Elliott & Bryant, P.C., Oklahoma City,

Oklahoma, for Plaintiff – Appellee.

Before McFEELEY, Chief Judge, NUGENT, and THURMAN, Bankruptcy

Judges.

McFEELEY, Chief Judge.

Defendant/Appellant JCOR Mechanical, Inc. (“JCOR”) appeals an order of

the bankruptcy court for the Western District of Oklahoma that avoided as

preferential a payment made by the Debtor, The Electron Corp. (“Debtor”), to

JCOR within ninety days before the Debtor filed a proceeding under Chapter 11

of the Bankruptcy Code. JCOR argues that the bankruptcy court erred in

BAP Appeal No. 05-46 Docket No. 41 Filed: 01/10/2006 Page: 2 of 8
1 All future statutory references will be to Title 11 of the United States Code

as it was enacted prior to the effective date of the 2005 amendments, unless

otherwise noted. 

2 In the record, JCOR indicates that the goods and services were performed

between January and July 2001. Payment was received on September 10, 2001. 

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determining that the payment was preferential because JCOR is a materialman

that would have been entitled to file a statutory lien had it not been paid in full. 

For the following reasons, we reverse and remand.

I. Background

On November 19, 2001, the Debtor filed a Chapter 11 proceeding, which 

was converted to a case under Chapter 7 on March 28, 2002. The Chapter 7

Trustee sold the Debtor’s real property located in Littleton, Colorado (“Real

Property”).

On October 17, 2003, the Chapter 7 Trustee filed a “Complaint to Recover

Avoidable Preferences” asking that the court order JCOR to return $14,967.00 it

had been paid for goods and services it had rendered to the Real Property as an

avoidable preference under 11 U.S.C. § 547(b).1

 In response, JCOR argued that

all the elements of § 547 could not be met as it had not received more than it

would have received in a Chapter 7 had a transfer not been made because had it

not been paid, it would have timely filed a lien under the materialman’s statute. 

The parties stipulated to the following facts: JCOR delivered goods and

performed services for improvements made to the Real Property.2

 Based on the

work it had done for the Debtor, JCOR could have filed a materialman’s lien

under Colo. Rev. Stat. § 38-22-101 against the Real Property. The Debtor paid

JCOR $14,967.00. After payment, JCOR could not file a materialman’s lien

under Colo. Rev. Stat. § 38-22-101. The net proceeds were in excess of the

amount required to pay any liens, mortgages, or other encumbrances and were in

excess of the amount of the claimed preference.

BAP Appeal No. 05-46 Docket No. 41 Filed: 01/10/2006 Page: 3 of 8
3 The relevant four requirements provide that a trustee may avoid a transfer

made by an insolvent debtor for an antecedent debt to or for the benefit of a noninsider creditor made within the ninety days before filing bankruptcy. 11 U.S.C.

§ 547(b)(1) - (4). 

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On May 13, 2005, the bankruptcy court entered “Findings of Fact and

Conclusions of Law” and a corresponding judgment avoiding the payment to

JCOR as preferential. 

JCOR timely filed a notice of appeal. The parties have consented to this

Court’s jurisdiction because they did not elect to have the appeal heard by the

United States District Court for the Western District of Oklahoma. 28 U.S.C.

§ 158(c)(1); Fed. R. Bankr. P. 8001; 10th Cir. BAP L.R. 8001-1. 

II. Discussion

The Trustee has the burden of proving under § 547(b) that a transfer is

avoidable as preferential. 11 U.S.C. § 547(g). Section 547(b) delineates five

requirements, which must all be met before a payment may be avoided. The

parties stipulated that the Trustee met the first four requirements of § 547(b).3

 

Whether the Trustee proved the fifth requirement is the subject of this appeal.

Subsection 547(b)(5) provides that a transfer will be avoidable if the

transfer: 

 (5) . . . enables such creditor to receive more than such creditor

would receive if– 

(A) the case were a case under Chapter 7 of this title;

(B) the transfer had not been made; and

(C) such creditor received payment of such debt to the

extent provided by the provisions of this title. 

11 U.S.C. § 547(b)(5). 

Property interests of parties in bankruptcy are created and defined by state

law. Butner v. United States, 440 U.S. 48, 55 (1979). Generally, under

§ 547(b)(5), a trustee cannot avoid most statutory liens created under state law

BAP Appeal No. 05-46 Docket No. 41 Filed: 01/10/2006 Page: 4 of 8
-4-

because such creditors are secured and so would be compensated to the extent of

their secured interest. See 11 U.S.C. §§ 506(a), 547(c)(6), 545. Colorado law

recognizes a statutory lien for materialmen who furnish or supply labor or

materials to the extent of the entire contract price if there is a contract for the

work or, if not, for the value of the services upon such property. Colo. Rev. Stat. 

§ 38-22-101. A materialman’s lien fixes upon the providing of labor or materials. 

Id. Such a lien is perfected by filing notice of a lien and a lien statement within

either two months (if the lien is claimed for labor or work by the day or piece) or

four months after the day on which the last labor is performed or last labor and

materials furnished. Colo. Rev. Stat. § 38-22-109. The focus of this appeal is on

the effect of a debtor’s payment on a materialman’s claim after the fixing of a

statutory lien but before its perfection. This is a question of law, which we

review de novo. De novo review requires an independent determination of the

issue, giving no special weight to the bankruptcy court’s decision. Salve Regina

College v. Russell, 499 U.S. 225, 238 (1991).

The Trustee argues that in the absence of a perfected statutory 

materialman’s lien, JCOR was at all times an unsecured creditor and therefore,

the requirements of § 547(b)(5) are met; for, as an unsecured creditor in a Chapter

7 case, JCOR would only receive a pro rata distribution with all other unsecured

creditors and in this case that would provide less than payment in full. The

bankruptcy court agreed, concluding that at the time of the Debtor’s filing of its

petition JCOR held neither an existing mechanic or materialman’s lien or the right

to file such a lien. In contrast, JCOR argues that the fixing of the lien and the

corresponding right to perfect it means that it was never an unsecured creditor as

described in § 547(b)(5) because the Trustee cannot show that it satisfied

§ 547(b)(5)’s requirement that the transfer “enabled [JCOR] to receive more than

BAP Appeal No. 05-46 Docket No. 41 Filed: 01/10/2006 Page: 5 of 8
4 JCOR also argues that it raised and met its burden of production with

respect to two affirmative defenses: §§ 547(c)(1) and (c)(6). Under § 547(c)(1),

known as the “new value” defense, JCOR argues that in releasing its lien, it gave

new value to the Debtor. There is caselaw both in support of and against this

proposition. Compare, e.g., In re George Rodman, Inc., 792 F.2d 125 (10th Cir.

1986) (holding that creditor was entitled to the § 547(c)(1) defense when the

creditor released a perfected lien equivalent to the full amount of the transfer by

the debtor), with Cimmaron Oil Co., Inc. v. Cameron Consultants, Inc., 71 B.R.

1005, 1009 (N.D. Texas 1987) (holding that an agreement to forbear from taking

action is not within the Bankruptcy Code’s definition of new value and so not

perfecting a statutory lien does not fall within the new value defense); Official

Committee of Unsecured Creditors of 360Networks (USA) Inc. v. AAF-McQuay,

Inc. (In re 360Networks (USA) Inc.), 327 B.R. 187, 193 (Bankr. S.D.N.Y. 2005)

(same). 

Alternatively, JCOR argues that it meets the requirements of the affirmative

defense outlined in § 547(c)(6), which provides that a trustee cannot avoid the

fixing of a lien to the extent that the lien is not avoidable under § 545. Again

there is caselaw that supports this proposition as well as caselaw that rejects it. 

Compare, e.g., Cimmaron, 71 B.R. at 1010 (holding that the legislative history as

well as the policy behind the Bankruptcy Code indicates Congressional intent that

transfers that precluded imposition of statutory liens are not avoidable in

bankruptcy; the alternative would result in commercially unreasonable

circumstances), with In re Nucorp Energy, Inc., 902 F.2d 729 (9th Cir. 1990)

(holding that the 547(c)(6) defense does not apply when a statutory lien has not

been perfected). The bankruptcy court found that JCOR had not raised either of

these affirmative defenses. Because of our disposition of this appeal as further

discussed infra, we need not address the requirements of these affirmative

defenses here.

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[it] would receive if” the Debtor’s estate were distributed under Chapter 7.4

The Tenth Circuit has not squarely addressed this issue. We find this case

analogous to a recent case in the southern district of New York, Official

Committee of Unsecured Creditors of 360Networks (USA) Inc. v. AAF-McQuay,

Inc. (In re 360Networks (USA) Inc.), 327 B.R. 187 (Bankr. S.D.N.Y. 2005). In

360Networks, the defendants established that they provided construction or

building-related materials and services to the Debtor and had the right to perfect a

statutory lien. Id. at 189. Because they were paid, they did not perfect their lien. 

Id. The bankruptcy court concluded that the defendants possessed inchoate liens.

Id. After considering a pre-Code case, Ricotta v. Burns Coal & Building Supply

Co., 264 F.2d 749, 750 (2d Cir. 1959), which concluded that inchoate statutory

liens are different from other statutory liens and payments discharging them are

BAP Appeal No. 05-46 Docket No. 41 Filed: 01/10/2006 Page: 6 of 8
5 The Bankruptcy Code also distinguishes the fixing of a lien from the

perfection of a lien. Farrey v. Sanderfoot, 500 U.S. 291, 296 (1991) (concluding

that under the Bankruptcy Code, the “gerund ‘fixing’ refers to a temporal

event.”).

6 At oral argument, JCOR stated that had the Debtor not paid JCOR on the

date of Debtor’s Chapter 11 petition, JCOR could still have timely filed a

statutory materialman’s lien. Where postpetition perfection of a statutory lien

(continued...)

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immune from attack, the bankruptcy court concluded that Ricotta was still binding

because statutory liens and secured debt are treated similarly in both the Code and

the Act as is evidenced by § 547(c)(6) and § 545. 360Networks, 327 B.R. at 191. 

The bankruptcy court held that such statutory inchoate lienholders were not

unsecured creditors when i) at the time of the payments the lienholder remained

eligible to perfect the lien pursuant to relevant state law, and ii) such perfection

would otherwise not have been avoidable under the Bankruptcy Code. Id. at 193. 

The bankruptcy court further observed that as a policy matter it could not hold

otherwise because “[H]olders of inchoate statutory liens would be faced with an

unreasonable Hobson’s choice between accepting payment or taking the

commercially unreasonable step of declining payment in order to perfect an

inchoate statutory lien.” Id. at 192.

We agree with this reasoning. Further support is found in the plain

language of § 547(b)(5)(B), which provides for an evaluation of the creditor’s

status as if the transfer had not taken place. See 11 U.S.C. § 547(b)(5)(B); see

also Rand Energy Co. v. Strata Directional Tech., Inc. (In re Rand Energy Co.),

259 B.R. 274, 276 (Bankr. N.D. Tex. 2001). As we have already observed, under

Colorado law, JCOR’s lien fixed at the moment JCOR provided the labor or

materials.5

 The parties stipulated that prior to payment, JCOR could have

perfected its statutory lien. As a matter of law, if JCOR had perfected its

statutory lien, the lien would not have been avoidable under the Bankruptcy Code. 

11 U.S.C. § 547(c)(6).6

 Under § 547(b), at the time of the filing of a Chapter 7

BAP Appeal No. 05-46 Docket No. 41 Filed: 01/10/2006 Page: 7 of 8
6 (...continued)

relates back to a date before the filing of a bankruptcy petition, the trustee may

not avoid the lien under § 545 because the lien is perfected and enforceable

against a bona fide purchaser that purchased the property on the date before the

filing of the petition. 11 U.S.C. § 545. 

-7-

bankruptcy case, the court would then have analyzed JCOR’s secured claim under

11 U.S.C. § 506(a). Assuming the value of the collateral covered the claim,

JCOR would have received full payment in a hypothetical Chapter 7. Here, both

parties stipulated and the bankruptcy court found that the Trustee obtained more

than the amount of any liens, mortgages or other encumbrances, including JCOR’s

claim. Therefore, the value of the collateral would have covered JCOR’s claim

and it would have received full payment in a Chapter 7. 

III. Conclusion

For the reasons set forth above, we reverse and remand to the bankruptcy

court for proceedings consistent with this opinion.

BAP Appeal No. 05-46 Docket No. 41 Filed: 01/10/2006 Page: 8 of 8