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Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 

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United States Bankruptcy Appellate Panel

FOR THE EIGHTH CIRCUIT

_______________

No. 06-6001NE

________________

In re: *

*

M&S Grading, Inc., *

*

Debtor. *

*

The CIT Group / Equipment *

Financing, Inc., *

* Appeal from the United States

Plaintiff - Appellee, * Bankruptcy Court for the District 

* of Nebraska

v. *

*

M&S Grading, Inc., *

*

Debtor - Appellant. *

_____

Submitted: July 6, 2006

Filed: July 27, 2006

_____

Before SCHERMER, FEDERMAN and VENTERS, Bankruptcy Judges.

_____

VENTERS, Bankruptcy Judge.

This is an appeal of the bankruptcy court’s determination that the Plaintiff’s

interest in certain personal property in the Debtor’s possession is superior to the

Debtor’s interest in that property and that the Debtor must relinquish possession to the

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1

 The Honorable Timothy J. Mahoney, United States Bankruptcy Judge for

the District of Nebraska.

2 Kelly v. Jeter (In re Jeter), 257 B.R. 907, 909 (B.A.P. 8th Cir. 2001). 

3 Johnson v. Methorst, 110 F.3d 1313, 1315 (8th Cir. 1997) (de novo review

of federal court’s interpretation of state statute).

4

 The Equipment consists of an Etnyre Model PRTN50TD3-T1 Lowboy

Trailer and an Etnyre Flip Axle.

5

 Neb. Rev. Stat. §§ 60-101 to 60-197.

2

Plaintiff. We have jurisdiction over this appeal pursuant to 28 U.S.C. § 158(b). For

the reasons set forth below, we affirm the decision of the bankruptcy court.1

I. STANDARD OF REVIEW

We review findings of fact for clear error and conclusions of law de novo.

2

 The

sole issue on appeal is whether the court properly interpreted Nebraska UCC § 2A305. Matters of statutory interpretation are reviewed de novo.

3

II. BACKGROUND

The issue on appeal is purely legal; the facts are straightforward and

undisputed. In March 1999 the Plaintiff, The CIT Group / Equipment Financing, Inc.

(“CIT”), leased two pieces of equipment (“Equipment”) to Fehrs Nebraska Tractor &

Equipment Co. (“Fehrs”).4

 The parties agree that the Equipment is subject to the

Nebraska Certificate of Title Act.5

 In September 2000, Fehrs sold the Equipment to

the Debtor. Fehrs executed a bill of sale, and the Debtor executed a promissory note

promising to pay Fehrs the full amount of the sales price on an installment basis.

Fehrs did not, however, deliver the certificate of title for the Equipment to the Debtor

because Fehrs did not have it, nor did Fehrs have a right under Fehrs’s lease

agreement with CIT to request it. At the time of the transfer, Fehrs had not made all

of the payments under the lease and the lease term had not expired. Shortly after the

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sale, Fehrs went out of business, and CIT received no further payments under the

lease.

Almost two years later, in May 2002, the Debtor filed a chapter 11 bankruptcy

and listed the Equipment as property of the bankruptcy estate. Sometime in late 2003,

CIT became aware of the Debtor’s claim of ownership in the Equipment. When the

Debtor refused to relinquish possession of the Equipment, CIT initiated this adversary

proceeding to obtain an order requiring the Debtor to turn over the Equipment.

The adversary proceeding was tried on October 3, 2005, and on December 21,

2005, the court issued a memorandum opinion in which it held that, under Nebraska

UCC § 2A-305, CIT held a superior interest in the Equipment because the Debtor did

not obtain a certificate of title to the Equipment when it purchased the Equipment

from Fehrs. Rather, CIT still held the title to the Equipment. 

III. DISCUSSION

The sole issue on appeal is whether the bankruptcy court properly interpreted

and applied Nebraska UCC § 2A-305. Section 2A-305, entitled “Sale or sublease of

goods by lessee,” provides in pertinent part:

(1) Subject to the provisions of section 2A-303, a buyer or sublessee

from the lessee of goods under an existing lease contract obtains, to the

extent of the interest transferred, the leasehold interest in the goods that

the lessee had or had power to transfer, and except as provided in

subsection (2) and section 2A-511(4), takes subject to the existing lease

contract. . . .

(2) A buyer in the ordinary course of business or a sublessee in the

ordinary course of business from a lessee who is a merchant dealing in

goods of that kind to whom the goods were entrusted by the lessor

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obtains, to the extent of the interest transferred, all of the lessor's and

lessee's rights to the goods, and takes free of the existing lease contract.

(3) A buyer or sublessee from the lessee of goods that are subject to an

existing lease contract and are covered by a certificate of title issued

under a statute of this state or of another jurisdiction takes no greater

rights than those provided both by this section and by the certificate of

title statute.

The bankruptcy court carefully analyzed each provision of this statute. It

explained that section (1) states the general rule that a buyer receives only the interest

that the lessee had and takes subject to the existing lease contract; section (2) provides

an exception to that general rule, permitting a lessee who also happens to be a

merchant dealing in the goods leased to transfer both the lessee’s and the lessor’s

rights in the goods to a buyer in the ordinary course of business; and section (3)

provides an exception to the exception whereby the interest transferred to the buyer

is limited by the certificate of title statute, even if the lessee is a merchant dealing in

the goods and the buyer is a buyer in the ordinary course of business.

Applying the statute to the Debtor’s purchase of the Equipment from Fehrs, the

bankruptcy court found that the Debtor was a buyer in the ordinary course of business

and that Fehrs was a merchant dealing in goods of the same kind as the Equipment,

but that the Debtor did not obtain title to the Equipment because the Debtor did not

receive the certificate of title from Fehrs, and under the certificate of title statute, Neb.

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 Section 60-105, the provision of the Nebraska Certificate of Title Act in

effect at the time of M&S’s purchase of the Equipment, provides in pertinent part: 

(1) No person....acquiring a motor vehicle. . . shall acquire any

right, title, claim, or interest in or to such motor vehicle. . . until he shall

have had delivered to him physical possession of such motor vehicle. .

. and a certificate of title. . . . No court in any case at law or in equity

shall recognize the right, title, claim, or interest of any person in or to

any motor vehicle...sold or disposed of. . . unless there is compliance

with this section. (emphasis supplied)

The Certificate of Title Act was amended in 2005, but the substance of § 60-105

remained unchanged; it is now found at § 60-164.

7 420 N.W.2d 273 (Neb. 1988).

8

 The official comment to § 2A-305 states that “while section 2-403 was

used as a model for this section, the provisions of section 2-403 were significantly

revised to reflect leasing practice and to integrate this article with certificate of title

statutes.” With specific regard to subsection (3), the comment notes, “Subsection

(3) states a rule of construction with respect to a transfer of goods from a lessee to

a buyer or sublessee, where the goods are subject to an existing lease and covered

by a certificate of title.”

5

Rev. Stat. § 60-105,6 the holder of the certificate of title, CIT, holds a superior interest

in the Equipment.

The Debtor contends that the court misinterpreted § 2A-305, arguing that 

§ 2A-305 is analogous to Nebraska UCC § 2-403, which the Nebraska Supreme Court

held in Dugdale of Nebraska, Inc., v. First State Bank,7 does not require a buyer in the

ordinary course to obtain a certificate of title in order to obtain title to certificated

goods. In further support of this argument, the Debtor cites the official comment to

§ 2A-305,8

 which in turn references the comment to a neighboring code section, 

§ 2A-304. The comment to § 2A-304 states that § 2A-304 should be interpreted

consistently with the Nebraska Supreme Court’s construal of the relationship between

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9 “Where the relationship between the certificate of title statute and section

2-403, the statutory analogue to this section, has been construed by a court, that

construction is incorporated here. Sections 1-102(1) and (2) and 2A-103(4). The

better rule is that the certificate of title statutes are in harmony with section 2-403

and thus would be in harmony with this section. Where the certificate of title

statute is silent on this issue of transfer, this section will control.” Neb. Rev. Stat.

UCC § 2A-304, cmt. 7 (2005).

10 Johnson, 110 F.3d at 1315.

11 Neb. Rev. Stat. UCC § 2A-305(3) (emphasis added).

6

the certificate of title statute and Nebraska UCC § 2-403.9 The Debtor maintains that

this is a reference to Dugdale and that it applies equally to § 2A-305.

We find no error in the court’s interpretation or application of § 2A-305.

Whether interpreting federal or state law, a federal court’s analysis of a statute must

begin with the plain language. “[A] court's primary objective is to ascertain the intent

of the legislature by looking at the language of the statute itself and giving it its plain,

ordinary and commonly understood meaning.”10 Subsection (3) of § 2A-305

specifically states that “a buyer or sublessee from the lessee of goods that are subject

to an existing lease contract and are covered by a certificate of title issued under a

statute of this state or of another jurisdiction takes no greater rights than those

provided both by this section and by the certificate of title statute.”11 (emphasis

added) The certificate of title statute, § 60-105, states that a buyer of a vehicle

covered by the statute cannot obtain title to the vehicle until the buyer has physical

possession and a certificate of title. Thus, the plain language of these statutes

unambiguously supports the bankruptcy court’s conclusion that a buyer of certificated

goods must obtain the certificate of title to claim title to those goods, notwithstanding

the buyer’s status as a buyer in the ordinary course.

Neither Dugdale nor the comments to §§ 2A-304 and 2A-305 warrant a

deviation from the plain language of the statute. The bankruptcy court declined to

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12 Thompson v. U.S., 408 F.2d 1075, 1084 n.15 (8th Cir. 1969) (“Official

Comments to the Uniform Commercial Code are not binding upon the courts but

they are persuasive in matters of interpretation . . . .”).

13 82 C.J.S. Statutes § 310 (2006).

7

apply Dugdale’s interpretation of § 2-403 to § 2A-305 on several grounds, the most

salient being that § 2A-305(3) specifically incorporates the Nebraska certificate of title

statute, whereas § 2-403 is silent on the relationship between the two. The bankruptcy

court explained: “To assume that Dugdale, which was not a lease case and which was

not decided under a statutory provision that specifically makes the certificate of title

act applicable to lease cases, is binding precedent would require the court to ignore

a specific provision of the statute.” The bankruptcy court’s reasoning here is sound

and will be affirmed.

The Debtor’s suggestion that the comments to §§ 2A-304 and 2A-305 support

interpreting those provisions in accordance with Dugdale is not wholly without merit,

but courts are bound by statutes, not statutory commentary,12 and, as noted above, the

plain language of § 2A-305 compels the result reached by the bankruptcy court.

Moreover, § 2A-305 was enacted after the Nebraska Supreme Court ruled Dugdale

(a fact the bankruptcy court also observed), and a legislature is presumed to have

knowledge of judicial precedent relating to the subject matter under inquiry,13 so 

§ 2A-305's specific incorporation of the certificate of title act cannot be disregarded,

even if the comments to the statute suggest a contrary interpretation. The Nebraska

legislature might have intended to draft § 2A-305 to incorporate the holding in

Dugdale, but the statutory language does not reflect that intent. If anything, the

specific incorporation of the certificate of title act into § 2A-305 suggests that the

Nebraska legislature intended to preclude the application of Dugdale to § 2A-305.

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IV. CONCLUSION

For the reasons stated above, we affirm the bankruptcy court’s decision.

 

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