FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

IN RE MAINLINE EQUIPMENT, INC.,

DBA Consolidated Repair Group,

Debtor,

LOS ANGELES COUNTY TREASURER

& TAX COLLECTOR,

Appellant,

v.

MAINLINE EQUIPMENT, INC.,

Appellee.

No. 15-60069

BAP No.

14-1429

OPINION

Appeal from the Ninth Circuit

Bankruptcy Appellate Panel

Kurtz, Dunn, and Taylor, Bankruptcy Judges, Presiding

Argued and Submitted April 5, 2017

Pasadena, California

Filed July 31, 2017

Before: Kim McLane Wardlaw and Consuelo M. Callahan,

Circuit Judges, and Gordon J. Quist,* District Judge.

Opinion by Judge Wardlaw

* The Honorable Gordon J. Quist, United States District Judge for the

Western District of Michigan, sitting by designation.
2 IN RE MAINLINE EQUIPMENT, INC.

SUMMARY**

Bankruptcy

The panel affirmed the Bankruptcy Appellate Panel’s

affirmance of the bankruptcy court’s summary judgment in

favor of a debtor in an adversary proceeding seeking

avoidance of tax liens on the debtor’s personal property.

The panel held that the appeal was not mooted by the

disbursement of the debtor’s bankruptcy estate and the

dismissal of the Chapter 11 case.

The panel held that under 11 U.S.C. § 545(2), the County

of Los Angeles could not enforce a lien on the personal

property of a Chapter 11 debtor in possession, when the

County had failed to perfect the lien as against a bona fide

purchaser. The panel concluded that Cty. of Humboldt v.

Grover (In re Cummins), 656 F.2d 1262 (9th Cir. 1981),

addressing the statutory antecedent to § 545(2), remained

good law. The debtor could set aside the County’s liens

because the liens were statutory and were unenforceable

against a hypothetical bona fide purchaser under California

law.

** This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.
IN RE MAINLINE EQUIPMENT, INC. 3

COUNSEL

Barry S. Glaser (argued), Susan M. Freedman, and Jacquelyn

H. Choi, Steckbauer Weinhart LLP, Los Angeles, California,

for Appellant.

Vanessa M. Haberbush (argued) and David R. Haberbush,

Haberbush & Associates LLP, Long Beach, California, for

Appellee.

Walter J. de Lorrell, III, Senior Deputy; Thomas E.

Montgomery, County Counsel; Office of County Counsel,

San Diego, California; for Amici Curiae California State

Association ofCounties and California Association of County

Treasurers and Tax Collectors.

OPINION

WARDLAW, Circuit Judge:

May the County of Los Angeles enforce a lien on the

personal property of a Chapter 11 debtor in possession, when

the County has failed to perfect the lien as against a bona fide

purchaser? Under 11 U.S.C. § 545(2), the answer is no, as

the Bankruptcy Appellate Panel (“BAP”) held in reliance on

our decision in County of Humboldt v. Grover (In re

Cummins), 656 F.2d 1262 (9th Cir. 1981), which remains

good law.

I.

Mainline Equipment, Inc., dba Consolidated Repair

Group (“Mainline”) was in the business of manufacturing,
4 IN RE MAINLINE EQUIPMENT, INC.

repairing, and selling cable television equipment. It failed to

pay property taxes assessed by the Los Angeles County

Treasurer and Tax Collector (the “County”) on its personal,

or non-real estate, property. In response, the County recorded

tax delinquency certificates with the Los Angeles County

Recorder in 1993, 2010, and 2012. Pursuant to section

2191.4 of the California Revenue and Taxation Code, the

recording of the certificates created broad liens on all of

Mainline’s property in Los Angeles County. Section 2191.4

provides that “[f]rom the time of filing” tax delinquency

certificates, “the amount required to be paid together with

interest and penalty constitutes a lien upon all personal and

real property in the county” owned by the taxpayer. Though

section 2191.4 liens attach to both personal and real property,

Mainline owned only personal property during the relevant

time period. The County has conceded that it did not record

any of its liens with the Secretary of State of California; it

argues that it was not required to do so to perfect the liens.

In 2012, Mainline filed a voluntary Chapter 11

bankruptcy petition, scheduling the County as an unsecured

creditor. No trustee was appointed, and Mainline

administered its estate as a “debtor in possession.” It initiated

an adversary proceeding to set aside the County’s liens on its

personal property, maintaining that it had the power to do so

under 11 U.S.C. § 545(2). The bankruptcy court granted

summary judgment to Mainline because the liens were

statutory in nature and, under California law, had not been

perfected against a hypothetical bona fide purchaser of
IN RE MAINLINE EQUIPMENT, INC. 5

personal property. Therefore, Mainline was entitled to assert

the rights of a trustee to avoid the liens.1

In 2015, the BAP affirmed the bankruptcy court’s

judgment, issuing a published opinion. L.A. Cty. Treasurer

& Tax Collector v. Mainline Equip., Inc. (In re Mainline

Equip., Inc.), 539 B.R. 165 (BAP 9th Cir. 2015). The BAP

found that our decision in Cummins, 656 F.2d 1262,

controlled the outcome of the case and that our reasoning in

that decision remains sound. In Cummins, we held that a

bankruptcy trustee could invalidate section 2191.4 liens on

personal property under the powers given to a trustee by the

statutory antecedent to § 545(2).

After the BAP affirmed, the County appealed. During its

appeal to the BAP in the adversary proceeding, the County

sought and received a stay of the Chapter 11 bankruptcy case,

to ensure that Mainline’s assets would not be fully disbursed

before the County’s right to those assets was adjudicated. 

After the BAP issued its decision, the County sought another

stay of the bankruptcy case during its appeal to us. The BAP

denied the motion, allowing the bankruptcy case to move

forward. Mainline’s attorneys then filed an application for

attorney’s fees and costs to be disbursed from Mainline’s

estate, and a motion to dismiss the bankruptcy case. On

March 9, 2016—while this appeal was pending—the

bankruptcy court dismissed the bankruptcy case and

authorized payment of attorney’s fees and costs from the

1 Mainline also contended that the liens were avoidable under

11 U.S.C. § 544. The bankruptcy court disagreed and granted judgment

to the County on that claim for relief. Only the § 545(2) claim is at issue

here.
6 IN RE MAINLINE EQUIPMENT, INC.

available cash, “subject to any disgorgement ordered by the

Ninth Circuit” in relation to this appeal.

II.

We have jurisdiction under 28 U.S.C. § 158(d)(1) to

review decisions of the BAP. We review de novo a trustee’s

avoidance power under 11 U.S.C. § 545(2). See Saslow v.

Andrew (In re Loretto Winery Ltd.), 898 F.2d 715, 718 (9th

Cir. 1990).

III.

We reject Mainline’s argument that this appeal was

mooted by the disbursal of Mainline’s bankruptcy estate and

dismissal of the Chapter 11 case.

A bankruptcy appeal may become moot in two different

ways. First, it may become constitutionally moot if

intervening events make it “impossible for the appellate court

to fashion effective relief.” Focus Media, Inc. v. Nat’l Broad.

Co. (In re Focus Media, Inc.), 378 F.3d 916, 922 (9th Cir.

2004). Second, the appeal may become equitably moot if the

appellants failed to diligently pursue a stay of the bankruptcy

case and thus permitted “such a comprehensive change of

circumstances to occur as to render it inequitable” to hear the

appeal. Id. at 923 (quoting Trone v. Roberts Farms, Inc. (In

re Roberts Farms, Inc.), 652 F.2d 793, 798 (9th Cir. 1981)).

This appeal is not constitutionally moot because we can

still provide “effective relief” to the County. In its order

awarding fees and costs to Mainline’s counsel and disbursing

the last of Mainline’s assets, the bankruptcy court expressly

made the payment “subject to any disgorgement” we might
IN RE MAINLINE EQUIPMENT, INC. 7

order in this appeal. The bankruptcy court correctly

interpreted our caselaw, which provides for an award of such

relief. See id. (noting that our court could “order the

disgorgement of attorney’s fees previously paid out of Focus’

estate to the [appellees’] attorneys”).

Nor is this appeal equitably moot. The County diligently

pursued two stays to prevent disbursement of Mainline’s

remaining assets. In addition, though the bankruptcy case

moved forward, there has not been such a “comprehensive

change of circumstances” as to render it inequitable for us to

hear this appeal. This is not a complex case where it is

difficult to unwind the already-completed transactions. “[A]n

order compelling disgorgement of [attorney’s] fees and

expenses [does] not require the bankruptcy court to unravel

a complicated bankruptcy plan.” Id. at 923–24 (second

alteration in original) (quoting S.S. Retail Stores Corp. v.

Ekstrom (In re S.S. Retail Stores Corp.), 216 F.3d 882, 884

(9th Cir. 2000)). It requires “only that one party disgorge

money it has received, money that would then be distributed

pursuant to the bankruptcy court’s final decree.” Id. at 924

(quoting S.S. Retail Stores Corp., 216 F.3d at 884).

IV.

A. 11 U.S.C. § 545(2) Allows a Chapter 11 Debtor in

Possession to Set Aside Liens Against Its Estate.

After a companyfiles a bankruptcypetition under Chapter

11, it must reorganize its affairs and restore its finances. As

a “debtor in possession,” it creates a plan to satisfy its debts

while retaining control of its business operations and

property. See W. Homer Drake & Christopher S. Strickland,

Chapter 11 Reorganizations §§ 1:1, 1:7 (2d ed. 2017). It may
8 IN RE MAINLINE EQUIPMENT, INC.

also initiate separate “adversary proceedings” in bankruptcy

court—similar to civil lawsuits—to abrogate certain claims

on its assets. See Fed. R. Bankr. P. 7001; see also 8 William

L. Norton Jr. & William L. Norton III, Bankruptcy Law and

Practice § 160:4 (3d ed. 2017). Federal bankruptcy statutes

describe claims that may be avoided through an adversary

proceeding.

11 U.S.C. § 545(2) is one of those statutes. It affords a

debtor in possession the power to invalidate liens on its

property, so long as the liens meet certain requirements:

The trustee may avoid the fixing of a statutory

lien on property of the debtor to the extent

that such lien . . . is not perfected or

enforceable at the time of the commencement

of the case against a bona fide purchaser that

purchases such property at the time of the

commencement of the case, whether or not

such a purchaser exists . . . .

Section 545(2) expressly applies to a “trustee” and does not

mention debtors in possession. However, a debtor in

possession has the same powers as a trustee and may

invalidate liens pursuant to § 545(2). See 11 U.S.C.

§ 1107(a); see also James Lockhart, Avoidance Under

§ 545(2) of Bankruptcy Code of 1978, 154 A.L.R. Fed. 1,

§ 2(a) (1999).

Certain requirements must be met for the debtor in

possession to avoid a lien. First, a debtor in possession may

invalidate only statutory liens—liens arising “solely by force

of a statute on specified circumstances or conditions.” See

11 U.S.C. § 101(53). Liens arising out of the common law,
IN RE MAINLINE EQUIPMENT, INC. 9

a judicial proceeding, or a contract are not avoidable. See

4 Norton & Norton, supra § 64:1. Second, the lien must fail

what we have termed the “hypothetical bona fide purchaser

test.” See Loretto Winery, 898 F.2d at 718. Under that test,

the bankruptcy court must consider whether the lien would be

valid if the debtor sold the subject property to a bona fide

purchaser—a purchaser for value, in good faith, and without

notice of the lienholder’s rights in the property. See

Lockhart, supra § 12. If the lien would be valid against such

a purchaser, the lien is also valid against the estate. If not, the

lien may be invalidated. State law governs this analysis. See

Loretto Winery, 898 F.2d at 718.

Congress passed § 545(2) to address state-created

“disguised priorities” which would “exhaust all of the

debtor’s estate, leaving little for general creditors.” Lockhart,

supra § 2(a). Section 545(2) placed restrictions on these

“spurious statutory liens” arising under state law to prevent

distortion of the federal bankruptcy distribution process. Id.

Congress determined that “if the lien created by state law is

so tenuous that it can be defeated by transfer of the subject

property to a bona fide purchaser, it should not be good

against the trustee in bankruptcy.” Id.

B. Under 11 U.S.C. § 545(2), Mainline May Avoid the

County’s Liens.

Section 545(2) allows Mainline to avoid liens that are

(1) statutory and (2) unenforceable against a hypothetical

bona fide purchaser under California law. We agree with the
10 IN RE MAINLINE EQUIPMENT, INC.

bankruptcy court and the BAP that our decision in Cummins

controls and that Mainline may set aside the County’s liens.2

1. The County’s Liens Are Statutory.

The Bankruptcy Code defines a statutory lien as one

“arising solely by force of a statute on specified

circumstances or conditions.” 11 U.S.C. § 101(53).

The County filed certificates documenting Mainline’s tax

delinquency with the Los Angeles County Recorder. Under

California Revenue and Tax Code section 2191.4, by filing

those certificates, the County obtained liens “upon all

personal and real property in the county” owned by Mainline. 

Because the County’s liens arose “solely by force of statute,”

they meet § 545(2)’s first requirement for avoidance.

2. The County’s Liens Are Invalid Against a Bona Fide

Purchaser.

Section 2191.4 not only created the County’s liens but

also describes their enforceability. Therefore, we look to

section 2191.4 to determine whether the County’s liens are

enforceable against a bona fide purchaser. For purposes of

our analysis, we apply California’s definition of a bona fide

purchaser: one who purchases for “value, in good faith, and

without actual or constructive notice of another’s rights.” 

2 The County argues that Cumminsis inapposite because, in that case,

Humboldt County conceded that section 2191.4 liens are avoidable under

§ 545(2). But we did not rely on that concession. Rather, we analyzed the

statutory text and the legislative scheme to reach our decision. 656 F.2d

at 1264–65. Further, thoughCumminsinvolved the statutory predecessors

to § 545(2) and section 2191.4, the statutes at issue here are the same in

all material respects.
IN RE MAINLINE EQUIPMENT, INC. 11

12 B.E. Witkin et al., Summary of California Law § 328 (10th

ed. 2016); see also Gates Rubber Co. v. Ulman, 214 Cal.

App. 3d 356, 364 (1989).

a. The plain language of section 2191.4 establishes

that the County’s liens are unenforceable against

a bona fide purchaser.

In Cummins, we held that section 2191.4 “expressly

ma[kes] invalid against a [bona fide purchaser]” personal

property liens obtained under the statute. 656 F.2d at 1265;

see also Franchise Tax Bd. v. Danning (In re Perry),

487 F.2d 84, 86 (9th Cir. 1973). Section 2191.4 has not

materially changed since that decision, and we reject the

County’s argument that our interpretation of the statute was

incorrect.

Section 2191.4 provides in relevant part:

From the time of filing the certificate for

record pursuant to Section 2191.3, the amount

required to be paid together with interest and

penalty constitutes a lien upon all personal

and real property in the county owned by and

then assessed to and in the same name as the

assessee named in the certificate or acquired

by him or her in that name before the lien

expires, except that the lien upon unsecured

property shall not be valid against a

purchaser for value or encumbrancer without

actual knowledge of the lien when he or she

acquires his or her interest in the property. 

The lien has the force, effect, and priority of

a judgment lien and continues for 10 years
12 IN RE MAINLINE EQUIPMENT, INC.

from the time of the recording of the

certificate unless sooner released or otherwise

discharged. (emphasis added)

The statute expressly provides that liens on personal property

are unenforceable against a bona fide purchaser. It states that

personal property liens are not “valid against a purchaser for

value or encumbrancer without actual knowledge of the lien

when he or she acquires his or her interest in the property.” 

A bona fide purchaser lacks notice of anyone else’s rights in

the subject property. Without any notice, a bona fide

purchaser necessarily lacks knowledge of another’s rights. 

Cf. 12 B.E. Witkin et al., supra § 331 (“[A] subsequent

purchaser may . . . have actual knowledge or constructive

notice . . . and, if so will not be a bona fide purchaser.”). 

Therefore, a bona fide purchaser falls within the statute’s

exception to the enforceability of personal property liens.3

b. That section 2191.4 liens generally have the force

and effect of judgment liens does not make them

enforceable against a bona fide purchaser of

personal property.

The County points out that section 2191.4 provides that

liens created by the statute have “the force, effect, and

priority of a judgment lien.” According to the County, this

“judgment lien” provision renders its liens enforceable

3 The County argues that, for purposes of our analysis, the

hypothetical bona fide purchaser should be defined as one with actual

knowledge of another’s rights in the subject property. However, that

argument runs headlong into California’s definition of a bona fide

purchaser, which explains that a bona fide purchaser lacks any notice of

another’s rights in the property.
IN RE MAINLINE EQUIPMENT, INC. 13

against a bona fide purchaser. It relies on the fact that in

California some judgment liens—those that have been

recorded with the Secretaryof State—are valid against a bona

fide purchaser of personal property. See Cal. Civ. Proc. Code

§ 697.510. We reject the County’s argument for two reasons.

First, even if the County were correct that, construed by

itself, the judgment lien provision suggests that the County’s

liens are perfected against a bona fide purchaser, its reading

of section 2191.4 as a whole is untenable. “A specific

provision relating to a particular subject will govern in

respect to that subject, as against a general provision,

although the latter, standing alone, would be broad enough to

include the subject to which the more particular provision

relates.” S.F. Taxpayers Ass’n v. Bd. of Supervisors, 2 Cal.

4th 571, 577 (1992) (quoting Rose v. State, 19 Cal. 2d 713,

723–24 (1942)); see also Fox Ins. Co. v. Ctrs. for Medicare

& Medicaid Servs., 715 F.3d 1211, 1224 (9th Cir. 2013). As

we discuss above, there is an express exception to the

enforceability of liens created by section 2191.4—liens on

personal property are not perfected against bona fide

purchasers. That exception must control against the more

general judgment lien provision, which applies to both

personal and real property.

Second, the County’s interpretation of the judgment lien

provision is incorrect. In Franchise Tax Board v. Danning

(In re Perry), 487 F.2d 84 (9th Cir. 1973), we were

confronted with an identical judgment lien provision in a

different tax lien statute. Judgment liens recorded with the

county were perfected against real property, and thus the Tax

Board’s liens were perfected against real property. Id.

However, the Tax Board’s liens were not perfected against

personal property. Id. To perfect a judgment lien against
14 IN RE MAINLINE EQUIPMENT, INC.

personal property, a lienholder had to “go[] further” than

recording with the county and “levy[] a warrant for the

collection of the tax.” Id. The Tax Board had not taken those

additional steps, and thus its liens were not perfected against

personal property. Id. Several years later, in Cummins, we

adopted the same interpretation of section 2191.4’s judgment

lien provision. 656 F.2d at 1265.

Under Perry and Cummins, section 2191.4’s judgment

lien provision did not give the County’s liens the same

enforceability as any judgment lien. Rather, it gave the

County’s liens—which were recorded with the county—the

validity of a judgment lien recorded with the county.

Judgment liens recorded with the county are enforceable

against real, but not personal, property. See Cal. Civ. Proc.

Code §§ 697.310, 697.510. Though judgment liens recorded

with the Secretary of State are enforceable against personal

property, the County took no additional steps to perfect its

liens beyond recording them with the county.

4

The County argues that our interpretation of the judgment

lien provision in Perry and Cummins is no longer sound. At

the time those cases were decided, judgment liens could be

enforced against a bona fide purchaser of personal property

only by levying, or seizing, the property. Now, a judgment

lien on personal property can be perfected by recording it

with the Secretary of State. See Cal. Civ. Proc. Code

§ 697.510. But, as the BAP aptly noted, “[A] bedrock fact

considered in [those cases] has not changed; more than a

4 As the BAP recognized, to obtain liens valid against a bona fide

purchaser of personal property, the County would have needed to obtain

a money judgment against Mainline, and then record the judgment with

the Secretary of State.
IN RE MAINLINE EQUIPMENT, INC. 15

county filing is necessary for perfection that defeats the

claims of a bona fide purchaser.” Mainline Equip., 539 B.R.

at 171. Therefore, we reaffirm our holding that a county

filing, by itself, is insufficient to perfect a lien on personal

property against a bona fide purchaser. Our reasoning in

Perry and Cumminsis not undercut by the intervening change

to California law. See TC Heartland LLC v. Kraft Foods

Grp. Brands LLC, 137 S. Ct. 1514, 1520 (2017) (“A clear,

authoritative judicial holding on the meaning of a particular

provision should not be cast in doubt and subjected to

challenge whenever a related though not utterly inconsistent

provision is adopted in the same statute or even in an

affiliated statute.” (quoting A. Scalia & B. Garner, Reading

Law 331 (2012))).

V.

The County obtained statutory liens on Mainline’s

personal property under section 2191.4. That statute

expressly provides that liens on personal property are invalid

against a bona fide purchaser. Therefore, the BAP and the

bankruptcy court correctly concluded that Mainline could

avoid the County’s liens under § 545(2), and properly relied

on our decision in Cummins.

AFFIRMED.