Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-almb-2_06-ap-03010/USCOURTS-almb-2_06-ap-03010-0/pdf.json

Parties Involved:
Crouch Supply Company
Plaintiff
Piknik Products Company, Inc.
Defendant
Wachovia Bank, NA, successor by merger to SouthTrust Bank
Intervenor

Document Text:

5 8/3/06 UNITED STATES BANKRUPTCY COURT

MIDDLE DISTRICT OF ALABAMA

In re Case No. 05-33035-DHW

Chapter 11

PIKNIK PRODUCTS COMPANY, INC.,

 Debtor.

____________________________

CROUCH SUPPLY COMPANY,

Plaintiff,

v. Adv. Proc. No. 06-03010-DHW

PIKNIK PRODUCTS COMPANY, INC.,

Defendant,

WACHOVIA BANK, NA, successor by

merger to SouthTrust Bank,

Intervenor.

MEMORANDUM OPINION

Crouch Supply Company (“Crouch”) filed this adversary

proceeding against Piknik Products Company, Inc. (“Piknik”) seeking a

declaration of the respective rights of the parties in equipment called

a “Juicy Juice System” located at Piknik’s plant in Montgomery,

Alabama. Crouch claims title to the property. Alternatively, Crouch

contends that it has a lien on the property superior to other liens. 

Wachovia Bank (“Wachovia”) intervened and filed an answer to

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1

 The court granted Wachovia’s motion to intervene in this adversary

proceeding by order entered January 26, 2006 (Doc. #7).

2

the complaint (Doc. #6).1 Piknik filed an answer to the complaint (Doc.

#9), which was later amended (Doc. #14). Both Wachovia and Piknik

generally deny the allegations of the complaint.

On May 10, 2006, Crouch and Wachovia filed cross motions for

summary judgment (Doc. #16 and #17, respectively). Piknik filed a

response joining the motion of Wachovia and opposing that of Crouch

(Doc. #23). These motions for summary judgment are now before the

court for decision.

Jurisdiction

The court’s jurisdiction in this adversary proceeding derives from

28 U.S.C. § 1334 and from the United States District Court for this

district’s general order referring title 11 matters to the Bankruptcy

Court. Further, because this proceeding is one to determine the

validity, extent, or priority of a lien, this is a core proceeding under 28

U.S.C. § 157(b)(2)(K) thereby extending this court’s jurisdiction to the

entry of a final judgment. 

Facts

On or about May 2, 2005, Crouch made a proposal to sell and

install the Juicy Juice System at Piknik’s Montgomery, Alabama facility.

Crouch contends that Piknik signed and returned the proposal. Crouch,

however, has lost the executed agreement. Piknik denies signing the

proposal. See Piknik’s Answer, ¶ 5.

Crouch attached an unexecuted copy of the proposal to its motion

for summary judgment. The proposal provides, inter alia, 1) for the

sale and installation of the Juicy Juice System for a total price of

$369,865, exclusive of certain miscellaneous costs such as taxes,

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permits, and freight; 2) for a 35% down-payment; 3) for the seller’s

retention of title pending payment in full; and 4) for the contract to be

governed and construed by the laws of the State of Texas.

On May 26, 2005, Piknik paid Crouch $129,452.75, which

represented the 35% down-payment. See Plaintiff’s Amended

Complaint, Ex. 2. 

The proposal implies a July 2005 projected delivery date. The

majority of the system was delivered and bolted to the floor. Crouch

contends that the system has not been fully installed and is not

operational. The parties agree that the Juicy Juice System, while

bolted to the flooring, is not a fixture and could be removed from

Piknik’s facility without harming the realty.

On September 23, 2005, Crouch filed an affidavit of lien in the

probate court of Montgomery County, Alabama. See Crouch’s Motion

for Summary Judgment, Ex. 4. 

Wachovia has a security interest in essentially all of Piknik’s

personal property including equipment and fixtures. Wachovia first

perfected the security interest in 1995 by filing a UCC-1 financing

statement with the Alabama Secretary of State. That filing remains

continuous to date. See Evidentiary Submission, Ex. 1 ¶ 10. 

Piknik filed a chapter 11 petition for relief in this court on

September 29, 2005.

Conclusions of Law

The standard for summary judgment established by Fed. R. Civ.

Proc. 56 is made applicable to adversary proceedings in bankruptcy by

Fed. R. Bankr. Proc. 7056. The rule provides in part:

The judgment sought shall be rendered forthwith if the

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 Piknik filed an untimely response to the request for admissions

denying that Piknik signed the agreement. The court has not resolved the

issue whether the requests are deemed admitted. Wachovia contends that

even if the requests are deemed admitted by the debtor, that admission is

not binding on Wachovia.

3

 Wachovia argues that an unsigned agreement would violate not only

the statute of frauds but the requirement that a security agreement be

authenticated. See Ala. Code §§ 7-2-201(1) and 7-9A-203(b). Texas’s version

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pleadings, depositions, answers to interrogatories, and

admissions on file, together with the affidavits, if any, show

that there is no genuine issue as to any material fact and

that the moving party is entitled to judgment as a matter of

law.

Fed. R. Civ. Proc. 56(c).

Summary judgment is appropriate when “there is no genuine issue

as to any material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 322,

106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986). “In making this

determination, the court must view all evidence and make all

reasonable inferences in favor of the party opposing summary

judgment.” Chapman v. AI Transport, 229 F.3d 1012, 1023 (11th Cir.

2000).

In this case, the parties dispute whether Piknik executed the

agreement. Crouch contends that Piknik not only signed the agreement

but further admitted this fact by failing to respond timely to requests

for admissions.2

 See Fed. R. Bankr. Proc. 36. This disputed fact,

however, is not material because the legal result is unaffected. The

court will consider the motions for summary judgment assuming that

there was an executed written agreement between the parties, that the

contract formed by that agreement is governed by Texas law, and that

the contract provides for Crouch to retain title to the goods until fully

paid.3

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of the Uniform Commercial Code contains similar provisions.

4

 Actually, Texas law dictates the application of Alabama law regarding

perfection of a security interest in this equipment: “While collateral is

located in a jurisdiction, the local law of that jurisdiction governs perfection,

the effect of perfection or nonperfection, and the priority of a possessory

security interest in that collateral.” Tex. Bus & Com. Code Ann. § 9.301(2)

(2005). However, Alabama law regarding priority of a purchase-money

security interest is similar to that of Texas. See Ala. Code § 7-9A-324(a)

5

At issue here are the respective rights of the parties in the Juicy

Juice System. As stated above, Crouch claims title to the property.

Alternatively, Crouch contends that it has a lien on the property

superior to other liens, namely the lien of Wachovia. Crouch advances

three arguments in support of these contentions.

First, Crouch claims title to the property under the following

provision of the contract: “Seller retains title to the equipment . . until

full payment is made . . . .” Because Crouch has not been paid in full,

Crouch argues that Piknik has no interest in the property and that the

property is not part of the bankruptcy estate. The court disagrees.

Texas law provides that a “retention or reservation by the seller

of the title . . . in goods shipped or delivered to the buyer is limited in

effect to a reservation of a security interest.” Tex. Bus. & Com. Code

Ann. § 2.401(a) (2005). Therefore, in spite of the reservation of title

language, Piknik has title to the property subject to the security

interest of Crouch. When Piknik filed chapter 11, the property became

part of Piknik’s bankruptcy estate pursuant to 11 U.S.C. § 541. Crouch

no longer has title to the property.

Next, Crouch contends that it has a purchase-money security

interest (“PMSI”) in the property with priority over Wachovia’s

competing security interest. Texas law accords priority to a PMSI as

long as the PMSI is perfected within 20 days after the debtor “receives

possession” of the collateral.4 Tex. Bus & Com. Code Ann. § 9.324

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(2001).

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(2001). It is undisputed that Crouch did not file a financing statement

within 20 days after delivery of the Juicy Juice equipment.

However, Crouch contends that the time for perfection of its

security interest has not yet run. Citing to the holding in In re Master

Services, Inc., 172 Fed. Appx. 697, 2006 WL 770494 (8th Cir 2006),

Crouch argues that the debtor “receives possession” on the date that

the equipment becomes fully operational, and that because installation

of the Juicy Juice System is not complete, the time has not yet run for

perfection of its security interest.

The Official Comments to § 9.324 aid the court in defining when

a debtor receives possession of collateral. The Official Comment

states:

Normally, there will be no question when “the debtor

receives possession of the collateral” for the purposes of

subsection (a). However, sometimes a debtor buys goods

and takes possession of them in stages, and then assembly

and testing are completed (by the seller or debtor-buyer)

at the debtor’s location. Under those circumstances, the

buyer “takes possession” within the meaning of subsection

(a) when, after an inspection of the portion of the goods in

the debtor’s possession, it would be apparent to a potential

lender to the debtor that the debtor has acquired an

interest in the goods taken as a whole.

Tex. Bus. & Com. Code Ann. § 9.324 cmt. 3 (2002).

Here, the majority of the Juicy Juice System was delivered to

Piknik’s Montgomery, Alabama facility around July 2005. The

equipment comprising the system was actually bolted to the facility

floor. Under these circumstances, it is clear that a potential lender

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5

 This constitutional lien does not apply to chattels unless specially

manufactured pursuant to the buyer’s specifications: “We hold that the

constitutional lien on manufactured chattels is available to the manufacturer

only upon articles made especially for a purchaser pursuant to a special order

and in accordance with the purchaser's plans or specifications.” First

National Bank v. Whirlpool Corporation, 517 S.W.2d 262, 268 (Tex. 1975).

7

would conclude that Piknik had acquired an interest in the Juicy Juice

System.

Crouch’s reliance upon Master Services is misplaced. In that case,

the PMSI creditor installed equipment at the buyer’s facility, and the

equipment was fully operational. The first payment, however, was not

due until after the installation was complete. The seller argued that

the debtor did not receive possession of the equipment until the date

the first payment was due. In rejecting the seller’s argument, the

court did not make the extent of operative completeness a condition

for possession under the Uniform Commercial Code. Instead, the court

merely noted that the equipment in the case before it was fully

operational. The court, however, made clear that the test for receipt

of possession under § 9.324 is the impression of a potential lender

regarding the debtor’s interest in the property. Master Services, 172

Fed. Appx. at 700. Obviously, the fact that the equipment was fully

operational would strengthen a prospective lender’s impression that the

buyer had an interest in the equipment. However, it is only a factor to

be considered, and it is not the standard prescribed by the statute.

Finally, Crouch claims a materialman’s or mechanic’s lien in the

Juicy Juice System arising under Texas and Alabama law.

Crouch claims a self-executing mechanic’s or materialman’s lien

under Article 16, § 37 of the Texas Constitution. Crouch contends that

such lien enjoys priority over prior recorded deeds of trusts if the

property subject to the lien can be removed without damage to the

realty.5

 

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In the instant case, there is no evidence that the Juicy Juice System was

specially manufactured.

6

 Section 35-11-210 provides in pertinent part as follows:

Every mechanic, person, firm, or corporation who shall do or

perform any work, or labor upon, or furnish any material,

fixture, engine, boiler, waste disposal services and equipment,

or machinery for any building or improvement on land, or for

repairing, altering, or beautifying the same, under or by virtue

of any contract with the owner or proprietor thereof, or his or

her agent, . . . upon complying with the provisions of this

8

However, this court is convinced that a mechanic’s or

materialman’s lien created under Texas law applies only to real

property situated in Texas and does not reach real property located in

another jurisdiction. As stated by a district court in Texas,

A materialman's lien is a creature of the law of the state

where the real property, benefited by the materials, is

situated and that law governs the mode of its operation. .

. . Oklahoma law should thus apply to any agreement for

the supply of materials which benefited real property in

Oklahoma and likewise Texas law should apply to any such

agreement which benefited real property in Texas. 

Nuclear Corp. of America v. Hale, 355 F. Supp. 193, 196-97 (N.D. Tex.

1973) (internal citations omitted).

Crouch also claims a mechanic’s and materialman’s lien under

Alabama’s lien statutes. Crouch does not specify the statute under

which it claims a lien, but two are implicated. 

First, Ala. Code § 35-11-210 (1975) provides a lien in favor of a

mechanic or materialman for work done to realty or for the

enhancement of realty.6 Crouch cannot claim under this statute

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division, shall have a lien therefor on such building or

improvements and on the land on which the same is situated, to

the extent in ownership of all the right, title, and interest

therein of the owner or proprietor . . .

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because the work and materials that it supplied to Piknik did not

benefit the realty.

Second, Ala. Code § 35-11-110 (1975) provides, inter alia, for a

mechanic’s lien favoring those who contribute labor or material to the

production, manufacture, or repair of personal property. The statute,

however, expressly provides that such lien is subordinate to any prior

perfected security interest under Article 9 of the Uniform Commercial

Code unless the prior perfected secured party authorized the

contribution. Because Wachovia’s properly perfected security interest

under Article 9 predates Crouch’s September 23, 2005 effort to create

a mechanic’s lien, Wachovia’s lien enjoys priority under Alabama law.

Conclusion

The result here appears harsh. This court sympathizes with

Crouch. Crouch sold Piknik equipment worth more than $350,000 in

May 2005 for which it was paid only $129,452.75. A mere four months

later, Piknik filed a petition under chapter 11, and Crouch now finds

itself in the position of an unsecured creditor with little hope of

receiving any distribution on its claim. Yet, Crouch failed to properly

perfect a lien as provided by law, and this court’s sympathy must give

way to that reality.

For these reasons the court finds that Wachovia’s motion for

summary judgment is due to be granted. For the same reasons Crouch’s

motion for summary judgment is due to be denied. Pursuant to Fed. R.

Bankr. Proc. 9021 an order, consistent with this opinion, will enter

separately.

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Done this 3rd day of August, 2006.

/s/ Dwight H. Williams, Jr.

United States Bankruptcy Judge

c: Von G. Memory, Attorney for Debtor

 Clay M. Taylor, Attorney for Crouch Supply Company

 Jason D. Woodard, Attorney for Wachovia Bank

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