UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 92-4209

IN THE MATTER OF: PERNIE BAILEY DRILLING CO., INC.,

Debtor.

W. SIMMONS SANDOZ, Successor Trustee

to William F. Baity, Successor Interim

Trustee to Hugh William Thistlethwaite,

Jr., Etc.,

Plaintiff-Appellant,

versus

FEDERAL DEPOSIT INSURANCE CORPORATION,

ETC., and NCNB TEXAS NATIONAL BANK,

Defendants-Appellees.

Appeal from the United States District Court

for the Western District of Louisiana

May 28, 1993

Before POLITZ, Chief Judge, WISDOM and WIENER, Circuit Judges.

POLITZ, Chief Judge:

The Chapter 7 bankruptcy trustee appeals the ruling of the

bankruptcy court, affirmed b y the district court, concerning the

validity of a secured interest in certain accounts receivable. For

the reasons assigned, we affirm.1 For reasons not relevant to the issues raised in this

case, the Bank's interest ultimately fell into the hands of the

FDI C. For the sake of clarity, "the Bank" will refer to all

successors to Interfirst Bank Fannin's interest.

2 To remain effective, a notice of assignment of accounts

receivable must be reinscribed within five years. La. R.S. 9:3106.

2 Background

In March 1982, Pernie Bailey Drilling Company and Interfirst

Bank Fannin 1 executed an agreement entitled "Security Agreement

--

Assignment of Contract Rights" to sec ure a series of loans. The

instrument gave the Bank a security interest in all of Bailey's

present and future accounts receivable. The instrument was duly

recorded in the mortgage records of various Louisiana parishes in

May of 1984 but was never reinscribed. 2

In February 1986, J.P. Owen & Co. owed Bailey $1,368,490.

This debt is at the core of the present controversy. To facilitate

collection the Bank r equired Bailey to specifically assign all

amounts owed by Owen. The Bank sent Owen notice of this

assignment, directing that all payments be made directly to it.

In March 1986, Bailey filed for bankruptcy pr otection under

Chapter 11. The Bank promptly requested relief from the automatic

stay imposed by 11 U.S.C. § 362 to enable it to exercise its rights

against various collateral, including the Owen receivable. The

bankruptcy court, in lifting the automatic stay by order dated

April 10, 1986, specifically provided that the lifting of the stay

would remain effective in the event of a conversion to a Chapter 7

proceeding. In November 1986, Bailey's Chapter 11 was so3

converted.

The newly appointed Chapter 7 trustee invoked 11 U.S.C. § 548

and filed the instant suit challenging the validity of the 1986

assignment as a fraudulent conveyance. He sought a return of the

Owen receivable to the bankruptcy estate. The sauce thickens --

Owen also was in bankruptcy. The Owen bankruptcy court ultimately

recognized the Ba nk's claim and set aside the funds in its favor

pending resolution of the fraudulent conveyance claim in the Bailey

case. During this period the notice of assignment, filed in May

1984, prescribed.

The Bailey court rejected the trustee's fraudulent conveyance

theory, holding that the Bank's security interest remained

effective throughout the Bailey bankruptcy. According to the

bankruptcy court, the effectiveness of the notice did not cease

because the rights of the parties were fixed well before the

supposed lapse in recordation. The court suggested that the 1986

conversion to Chapter 7 rein stated the stay as a matter of law.

Regrettably, th e lack of a single explanation for the court's

conclusion, understandable as it is in view of the posture of the

case, has encouraged both parties to obfuscate. The district court

affirmed; the trustee timely appealed. The validity of the Bank's

security interest in the Owen account is the sole issue presented

on appeal. Ultimately, the question is whether the Bank owned the

Owen receivable before its notice prescribed or, if n ot, whether

the Bank was still obliged to reinscribe following Bailey's filing

under Chapter 11 and converting to Chapter 7.3 Neither party disputes the role of Louisiana law in

det ermining whether the bank's claim remains secured. For a

discussion of the relationshi p between the Bankruptcy Code and

state law see I n re Groetken

, 843 F.2d 1007 (7th Cir. 1988) , and

R.I.D.C. Indus. Dev. Fund v. Snyder

, 539 F.2d 487 (5th Cir. 1976).

Our disposition of the case pretermits such etherial concerns.

4 La. R.S. 9:3106 p rovides that the recording of such an

interest remains effective as to third parties for five years.

5 In re Bond Enterp., Inc.

, 54 B.R. 366 (Bankr. N.M. 1985).

4 Analysis

The trustee maintains tha t the Bank's failure to reinscribe

terminates its perfected status under Louisiana law 3 and,

accordingly, that the Owen receivable belonged to the bankruptcy

estate. The trustee concedes that the recordation was effective at

the time Bailey filed the Ch a pter 11 petition. 4 He also concedes

that when the Cha pter 11 proceeding was initiated, the automatic

stay fixed the status quo and reinscription was thereby prevented. 5

It is the trustee's position that when the bankruptcy court lifted

the stay, allowing the Bank to exercise its r ights in the Owen

receivable, it concomitantly revived the Bank's duty to reinscribe

its notice of assignment. Thus, the trustee attacks what he

perceives to be the bankruptcy cour t's conclusion that the

conversion to Chapter 7 reinstated the stay as a matter of law, and

argues that the B ank's secured status failed because the filing

ostensibly lapsed shortly thereafter.

We are not persuaded. In this case the court lifted the stay

in the Chapter 11 proceeding to allow the Bank to take the assets6 Shell Western E & P, Inc. v. Fluid Driers, Inc. , 572

So.2d 323, 325-26 (La.App. 1990), cert

. denied

, 5 75 So.2d 823

(1991).

7 La. R.S. 9:3108.

8 The conclusion stems from the court's reading of La.

R.S. 9:3103-9:3110.

5 to which it was entitled under the security agreement, in cluding

the Owen receivable. The Bank cites Louisiana law in support of

its argument that an assignment "although done for the purpose of

serving as a secur ity interest, is nevertheless a transfer of

ownership" if the parties so intended; thus it owned the Owen

receivable from its inception. 6 Likewise, the Bank also points out

that Louisiana law provides that the assignee of an account

receivable has the right to receive proceeds of the receivable

when, as the Bank did here, it serves appropria te notice of the

assignment on the account debtor, in which case the Bank owned the

Owen receivable before the Bailey bankruptcy. 7

The character of the Owen receivable at its inception depended

on the intention of the parties, an intention not clearly defined

a` quo

. The bankruptcy court did find, however, that whatever

rights the Bank had to the receivable resulted from the 1982

security agreement/assignment and 1984 recording thereof, and not

from the 1986 assignment. 8 Perhaps the court declined to consider

whether the 1986 assignment transferred ownership because it found

the 1982 pledge to be sufficient to dispose of the issue regardless

of whether it transferred ownership. Perhaps the court viewed the9 La. R.S. 9:3101 et seq

.

1 0 The automatic stay is imposed immediately upon the filing

and the secured status vel non of creditors is generally regarded

as fixed at that point for th e protection of the creditors "in a

manner consistent with the bankruptcy goal of equal treatment."

Hunt v. Banker's Trust Co.

, 799 F.2d 1060 (5th Cir. 1986);

11 U.S.C. § 362. Courts have noted that requiring reinscription

after commencement of bankruptcy proceedings would serve no

purpose, particularly w hen the case is converted to liquidation.

See Bond (collecting cases).

11 La. R.S. 9:3108; Coastal Credit Co. v. American Waste &

Pollution Control Co.

, 583 So.2d 553 (La.App. 1991); Shell Western

, 572 So.2d at 328 (assignee's rights are superior to the assignor

upon notice to the debtor).

12 As noted, we agree with the holding in B ond . We also

agree with the observations made therein that (1) "the critical

time for determining the respective rights of a debtor and its

6 1982 assignment to be a transfer of ownership under the Louisiana

Assignment of Accounts Receivable Act, 9 making the 1986 assignment

superfluous. In either case, the distinction is not dispositive in

light of the treatment accorded the asset in the bankruptcy

proceedings before the purported lapse in recordation.

The Bank's rights in the Owen receivable came to fruition

before the statutory lapse in the recordation on May 30, 1989

because of a number of acts sufficient in themselves or in

com bination with others: (1) Bailey's filing under Chapter 11; 1 0

(2) the Bank's notice to Owen of the assignment which, under

Louisiana law, provides the assignee with the superior right to

payment; 1 1 (3) the Bank's filing of a notice of claim; (4) the

lifting of the automatic stay and recognition by the Bailey court

of the Bank's vested right to the Owen receivable; 12 and,creditors is the date of the filing of a petition i n bankruptcy"

and (2) "filing of a [notice of reinscr i ption] would

. . . violat[e]" the automatic stay. B ond

, 54 B.R. at 369. The trustee

relies heavily on dicta in Bond suggesting that an order lifting

the automatic stay invariably revives the duty to reinscribe. We

do not agree with this broad reading of Bond , and conclude to the

contrary. Where, as here, the creditor seeks not only payments

already made but also rights to future proceeds, the order lifting

the stay must expressly address the creditor's ability to

reinscribe before it may be given that effect.

13 11 U. S.C. § 1141; In re Serv. Decorating Co.

, 105 B.R.

859, 862 (N.D. Ill. 1989).

7 ultimately, (5) the formal recognition of the Bank's rights to the

proceeds in the Owen bankruptcy proceeding. We focus our attention

on the last event.

When Owen sought the protection of the bankruptc y code, the

rights of his creditors became subject thereto. When the court

confirmed the Owen plan Bailey's trustee's rights and those taking

from and throug h it were dramatically impacted. Under the

bankruptcy co de the claims of creditors arising prior to the

confirmation are discharged and are payable only as provided by the

plan. 13 The only enforceable debts of Owen, therefore, were those

r ecognized in the plan. Only the Bank asserted a relevant debt

recognized in the Owen plan.

The judicial recognition of the assignment and the allowance

of the debt formally, finally, and conclusively terminated the

Bank's security interest and created an actual right to the

proceeds. Stripped to essentials, the Owen receivable represents

a right to receive payment from a third party and is a "p roperty

interest," in the sense that it is a thing that may be sold, given14 The trustee failed in his effort to set aside the

transfer under 11 U.S.C. § 548. That ruling has not been appealed.

8 away, or encumbered. After the Owen plan was confirmed, only the

Bank possessed that right. To reclaim the asset it was incumbent

upon the trustee to defeat the transfer of ownership between the

Bank and Bailey whenever it occurred, as he unsuccessfully

attempted to do. 14

When the Owen court allowed the Bank's claim under the

assignment, it stated that "all rights of the trustee to avoid or

otherwise contest the validity or effect of said claim are fully

reserved." The trustee seizes on this language and argues that the

order did not establish a ny irrevocable rights to the Owen

receivable. The obvious aim of this language, however, was merely

to recognize the trustee's fraudulent conveyance claim in the

Bailey bankruptcy proceeding and to prese rve his effort to avoid

such a transfer. This qualification was appropriate in light of

the trustee's ongoing attempt to reclaim the Owen receivable under

section 548, but we cannot be oblivious to the trustee's failure in

that regard.

We conclude and hold that reinscripti on of the notice of

assignment was not necessary to preserve the Bank's right to the

proceeds of the Owen receivable.

We find no merit in the trustee's conclusionary complaint that

the Bank has taken fatally inconsistent positions in this

litigation as respects the challenged asset. The mere assertion of

alternate legal positions is not unusual and, most ce rtainly, is9

not necessarily anathema; and, in any event, we note the inequity

o f that position in view of the fact that the trustee himself

stands in pari delicto

.

The judgment appealed is AFFIRMED.