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FILED

SEP 30 2015

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

ORDERED PUBLISHED

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. CC-14-1429-TaKuD

)

MAINLINE EQUIPMENT, INC., ) Bk. No. 2:12-bk-39746-WB

)

Debtor. ) Adv. No. 2:13-ap-01705-WB

______________________________)

)

LOS ANGELES COUNTY TREASURER )

AND TAX COLLECTOR, )

)

Appellant, )

)

v. ) O P I N I O N

)

MAINLINE EQUIPMENT, INC., )

)

Appellee. )

______________________________)

Argued and Submitted on June 18, 2015

at Pasadena, California

Filed – September 30, 2015

Appeal from the United States Bankruptcy Court

for the Central District of California

Honorable Julia W. Brand, Bankruptcy Judge, Presiding

 

Appearances: Barry S. Glaser of Steckbauer Weinhart Jaffe, LLP

argued for appellant; Vanessa Marie Haberbush of

Haberbush & Associates, LLP argued for appellee.

 

Before: TAYLOR, KURTZ, and DUNN, Bankruptcy Judges.
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TAYLOR, Bankruptcy Judge:

The Los Angeles County Treasurer and Tax Collector

(“County”) appeals from a bankruptcy court order setting aside

its tax liens on personal property located in Los Angeles

County. We AFFIRM.

FACTS1

Debtor-in-possession Mainline Equipment, Inc., dba

Consolidated Repair Group, failed to pay property taxes assessed

by Los Angeles County. As a result, the County recorded

certificates of tax liens with the Los Angeles County Recorder

in 1993, 2010, and 2012. The filings created broad liens on all

personal property owned by Mainline and located in Los Angeles

County. See Cal. Rev. & T. Code § 2191.4 (“RTC § 2191.4”).2

The County did not otherwise take action to assert its claims or

to obtain liens.

Mainline eventually initiated a chapter 11 case.3 It

scheduled the County as an unsecured creditor and initiated an

adversary proceeding seeking to set aside the County’s personal

1 We exercise our discretion to take judicial notice of

documents electronically filed in the adversary proceeding and

in the underlying bankruptcy case. See Atwood v. Chase

Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th

Cir. BAP 2003).

2 RTC § 2191.4 also creates a broad lien on real property

located in a county. Mainline, however, did not schedule real

property in its bankruptcy case.

3 Unless otherwise indicated, all chapter and section

references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.

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property tax liens under § 544(a)(1) and, as reflected in an

amended complaint, § 545(2). Mainline argued that the personal

property liens were not perfected against a bona fide purchaser

for value, that as a debtor-in-possession it was entitled to

assert the rights of a trustee to set aside such liens, and that

judgment in its favor was appropriate.

The parties filed cross-motions for summary judgment. 

Ultimately, the bankruptcy court agreed with Mainline on its

§ 545(2) claim. On August 19, 2014, it entered a judgment in

favor of Mainline and avoided the tax liens under § 545(2).4

The County timely appealed.

JURISDICTION

The bankruptcy court had jurisdiction pursuant to 28 U.S.C.

§§ 1334 and 157(b)(2)(K). We have jurisdiction under 28 U.S.C.

§ 158.

ISSUE

Whether the bankruptcy court erred when it avoided the

County’s liens pursuant to § 545(2).

STANDARD OF REVIEW

We review the bankruptcy court’s legal conclusions,

including its interpretation of the Bankruptcy Code, de novo. 

See Mwangi v. Wells Fargo Bank, N.A. (In re Mwangi), 764 F.3d

1168, 1173 (9th Cir. 2014).

///

///

4 The bankruptcy court also granted judgment to the County

on Mainline’s § 544(a)(1) claim.

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DISCUSSION5

The County makes several arguments on appeal; we find none

of them persuasive.

A. The plain language of the relevant statutes makes clear

that the liens were not properly perfected as to a good

faith purchaser of personal property for value and, thus,

were subject to set aside.

RTC § 2191.4 provides that:

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 property6 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 . . . .

Emphasis added.

5 On February 2, 2015, a BAP motions panel granted the

County’s motion to submit letters from other California counties

in support of its position on appeal, in lieu of amicus curiae

briefs. The County did so, submitting amici letters from the

counties of Alameda, Kern, San Diego, Sonoma, and Stanislaus. 

It also submitted a joinder letter from the California

Association of County Treasurers and Tax Collectors. The

Association, however, is not a county within the state of

California. Thus, we do not consider its letter in lieu of an

amicus brief.

6 RTC § 2191.3 allows for recordation of a tax certificate

upon a delinquency in payment of a tax on “[u]nsecured property

not secured by a lien on any real property . . . .” Cal. Rev. &

T. Code § 2191.3(a)(1)(E). RTC § 2191.4, thus, necessarily

includes personal property within the definition of “unsecured

property.”

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Thus, RTC § 2191.4 unambiguously provides that the County’s

tax lien, while valid against Mainline, was not valid as to a

third party who subsequently purchased Mainline’s personal

property in good faith for value.7

The relevant statute under the Bankruptcy Code is equally

clear. Section 545(2) allows a trustee to set aside a lien that

is not properly perfected as to a bona fide purchaser. As a

debtor-in-possession who enjoys the rights of a trustee,

Mainline could utilize § 545(2). See 11 U.S.C. § 1107. Thus,

the unambiguous language of the relevant statutes supports

affirmance.

B. Ninth Circuit authority is consistent with a plain language

interpretation of the relevant statutes and supports

affirmance.

In County of Humboldt v. Grover (In re Cummins), 656 F.2d

1262 (9th Cir. 1981), the Ninth Circuit considered the interplay

between RTC § 2191.4 and a provision of the Bankruptcy Act

analogous to § 545(2). It determined that Humboldt County’s

personal property tax lien was subject to set aside. Id. at

1265. The facts in Cummins and in the case at hand are

virtually identical.

That Cummins was a Bankruptcy Act case is of no moment; the

antecedent statutory language is substantively the same as

§ 545. See Cummins, 656 F.2d at 1263 (“The substance of

[§ 67c(1)(B) of the Act] has been carried forward into sections

7 For ease of reference we use the shortened term “bona

fide purchaser” hereafter.

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545(2) and 546(b) of the new Bankruptcy Code.”). In such

instances, the case law construing a provision of the Bankruptcy

Act remains authoritative in interpreting the corollary statute

under the Bankruptcy Code. See Lovell v. Stanifer (In re

Stanifer), 236 B.R. 709, 713 n.4 (9th Cir. BAP 1999). And, RTC

§ 2191.4 remains unchanged. Thus, the statutes primarily at

issue in Cummins either mirror or are the same as those we

consider on appeal, and the Cummins plain language analysis

supports affirmance.

C. Changes in California judgment lien law do not compel

reversal.

The County argues, notwithstanding the plain language of

the statutes and the Ninth Circuit authority, that we must

determine that proper perfection as to a bona fide purchaser

existed or that Mainline, as a debtor-in-possession, was not

entitled to rely on § 545(2). We disagree with the County’s

arguments.

The County does not argue that the transition from the

Bankruptcy Act to the Bankruptcy Code is a basis for

disregarding Cummins. As previously noted, the statutory

language in § 545(2) mirrors the Bankruptcy Act provision

considered by the Cummins court.

And the County does not argue that the California statute

squarely at issue, RTC § 2191.4, has been modified since the

Cummins decision. The California statute analyzed in Cummins

remains exactly the same; it continues to state that a recording

with a county recorder does not create a lien that is valid

against a bona fide purchaser of personal property.

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Instead, the County argues that because the California

legislature enacted a tangentially related statute, California

Code of Civil Procedure (“CCP”) § 697.510, this necessarily

undercuts the Ninth Circuit’s decision in Cummins and requires

that we disregard the limits on the RTC § 2191.4 lien imposed by

the statute itself. Again, we strongly disagree.

1. The California legislature expanded the ability to

obtain a judgment lien on personal property but did

not modify RTC § 2191.4.

In 1982, the California legislature enacted CCP § 697.510

and allowed the creation and perfection of judgment liens on

personal property through a filing with the Secretary of State

and without levy.8 See Cal. Code Civ. P. § 697.510(a). This

was a logical expansion of judgment creditor rights; under the

California Commercial Code, a secured creditor typically

perfects a security interest in personal property by filing a

document with the Secretary of State, and priority is based on

the time of such filings. See Tentative Recommendation

Proposing The Enforcement of Judgment Law, 15 Cal. L. Revision

8 The California legislature, however, did not totally do

away with the concept of levy. CCP § 699.010, et seq. continue

to provide for execution of a judgment through levy. See Cal.

Code Civ. P. §§ 697.520 and 699.010, et seq. Further, while a

county recording creates a lien on all personal property located

within the county, the Secretary of State filing arguably is not

so broad. See Cal. Code Civ. P. § 697.530(d) (listing

exceptions to attachment). And finally, recordation is not a

perfection option available in all instances. A judgment lien

may not be created through a Secretary of State filing where the

judgment is payable in installments in the future. See Cal.

Code Civ. P. § 697.510.

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Comm’n Reports 2001, 2007, 2045-48 (1980).

The County, however, points to nothing in either case law

or relevant legislative history stating or even suggesting any

legislative intent to tie enactment of CCP § 697.510 to a change

in the interpretation of RTC § 2191.4. Certainly, there was no

modification to RTC § 2191.4 itself. Since this is the case,

there is nothing to suggest that the plain language analysis in

Cummins or the express limitations of RTC § 2191.4 are in any

way impacted by this later legislative enactment.

2. This legislative change does not undercut the binding

impact of Cummins.

The County does not directly challenge the Cummins plain

language discussion; it cannot do so as the plain language has

not changed. Instead, it focuses on a second aspect of the

Cummins decision. The Cummins court found Franchise Tax Board

v. Danning (In re Perry), 487 F.2d 84 (9th Cir. 1973), to be

controlling on an issue relating to the portion of § 67c(1)(B)

now contained in § 546(b). 656 F.2d at 1266. The County argues

that as a result of the enactment of CCP § 697.510, the Perry

analysis is now questionable and that Cummins, thus, no longer

controls. We reject both suggestions.

In Perry, the Ninth Circuit considered California tax

statutes that allowed creation of a lien following a failure to

pay personal income taxes. The statutes at issue, RTC §§ 18881

and 18882,9 provided that recordation of a certificate of non9 RTC §§ 18881 and 18882 were subsequently repealed by

Stats. 1977, ch. 481, p. 1580, § 45, p. 1583, § 47, operative

(continued...)

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payment with the county recorder created a broad lien on all

assets of the taxpayer located in the county. 487 F.2d at 85. 

It further provided that the lien had the “force, effect, and

priority of a judgment lien.” Id. These statutes, however, did

not expressly discuss the impact of the statutory lien on the

claim of a bona fide purchaser of personal property. See id.

The Franchise Tax Board argued that the absence of an

express reservation of the rights of bona fide purchasers

required a determination that its RTC §§ 18881 and 18882 lien

was senior to the claims of a bona fide purchaser and not

subject to set aside in bankruptcy. Id. at 86. The Ninth

Circuit disagreed; it focused on the fact that, at that time, a

personal property judgment lien was not good against a bona fide

purchaser in the absence of enforcement by levy. Id. Thus, the

county filing created a lien vulnerable to a bona fide purchaser

even absent express language in the statute. Id.

The Cummins court did not find Perry controlling on the

issue of whether the RTC § 2191.4 lien defeated a bona fide

purchaser on the bankruptcy petition date; Humboldt County

conceded this issue, and the plain language of the statute

compelled this conclusion. 656 F.2d at 1265. Instead, it

relied on Perry in determining that Humboldt County could not

perfect its lien post-petition through notice to the bankruptcy

court. Id. at 1265-66. This issue arose under a portion of the

Bankruptcy Act now included in § 546(b). As a result, this

9(...continued)

July 1, 1978.

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portion of the Cummins decision is not relevant to the

determinations we reach here.

The County did not raise a § 546(b) defense in the summary

judgment proceedings and did not raise such a defense in its

arguments on appeal. And a review of § 546(b) makes clear that

such a defense is not available to the County. RTC § 2191.4

does not create a lien that is effective against a bona fide

purchaser who acquired Mainline’s assets prior to recordation of

the County’s tax lien. Thus, § 546(b)(1)(A) does not provide a

defense. And this is not a situation involving the maintenance

or continuation of a lien, so § 546(b)(1)(B) is also

inapplicable. Thus, even if Perry lacks vitality, a

determination we do not make, Cummins remains controlling.

3. Contrary to the County’s argument, there are

compelling reasons to determine that a filing with the

Secretary of State defeats a bona fide purchaser while

a filing with a county recorder does not.

CCP § 697.530, unlike RTC § 2191.4, has no language

limiting perfection against a bona fide purchaser. Thus, as the

County suggests, a notice of judgment lien filed with the

Secretary of State, just like a notice of security interest

filed with the Secretary of State, imparts constructive notice

of a lien and defeats a bankruptcy trustee’s claim based on

alleged bona fide purchaser status. The County misses the mark,

however, when it then argues that a county recording has or

should be deemed to have the same effect.

First, we note, yet again, that the plain language of RTC

§ 2191.4 states to the contrary. We acknowledge that the

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statute also has a general statement that it has the force,

effect, and priority of a judgment lien, but the express

exception to this broad statement is in the narrow circumstance

of a bona fide purchaser of personal property. In analyzing a

statute, this specific limitation must control over the broader

general statement. See San Francisco Taxpayers Ass’n v. Bd. of

Supervisors, 2 Cal. 4th 571, 577 (1992).

Second, we emphasize that this plain language

interpretation is reasonable. Real property liens of all types

are perfected through filings at the county level. Such a

filing provides constructive notice of the existence of the

lien; purchasers or encumbrancers of real property must search

the county records to ascertain whether real property liens

exist.

In connection with personal property, however, the

situation is completely the opposite. A purchaser (or

encumbrancer) of personal property must look to Secretary of

State records because it is there that one perfects security

interests in personal property through filing. See, e.g., Cal.

Com. Code §§ 9310(a), 9501.

Apparently, the California legislature, recognizing that

personal property liens were not typically recorded at the

county level, determined that it was inappropriate to infer

notice to third parties from a county level filing. Here, the

statutory language is clear, and the logic behind the statutory

scheme is sound.

Finally, we note that a bedrock fact considered in Cummins

has not changed; more than a county filing is necessary for

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perfection that defeats the claims of a bona fide purchaser. At

the time of Cummins, it was levy. At this time it is either

levy or a Secretary of State filing. Put bluntly, the analysis

in Cummins remains sound and continues to control here.

4. To the extent there is unfairness or difficulty as a

result of the RTC § 2191.4 exception for bona fide

purchasers, the California legislature must resolve

the problem.

We acknowledge that a county must obtain a money judgment

prior to utilizing CCP § 697.510. We take no position regarding

the burden litigation would place on the County but note that by

virtue of RTC § 3101, et seq., a streamlined procedure appears

to be in place to acquire such a judgment. Once a Secretary of

State filing is available, such filing would not be unduly

oppressive to counties. Filing the notice of judgment lien

requires nothing more than filling out a form and mailing it

(with a nominal payment) to the Secretary of State. See

http://www.sos.ca.gov/business-programs/ucc/forms, Notice of

Judgment Lien & Addendum (Form JL1, rev. 06/2001).

We also acknowledge that the current statutory scheme

allows the filing of tax liens held at the state level to be

filed directly with the Secretary of State. Cal. Gov. Code

§§ 7171, 7220. The fact that the California legislature has not

allowed counties to take this route may be unfair, but

California statutes govern the priority and status of tax liens. 

See In re Cummins, 656 F.2d at 1264. It is for the California

legislature, not the courts, to address any perceived or real

unfairness in the statutory scheme.

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D. The legislative history of RTC § 2191.4 does not suggest a

different result.

The County asks that we review the legislative history of

RTC § 2191.4 and focus on the fact that it was intended to

provide counties with a broad and easily attainable lien. 

First, where the statutory language is clear and does not lead

to an absurd result, we do not look to legislative history. See

Lamie v. U.S. Tr., 540 U.S. 526, 536 (2004). Here, the

statutory language expressly states that the statute creates a

lien on personal property that is not enforceable against a bona

fide purchaser; nothing could be clearer and, as noted, this

plain language interpretation does not lead to an absurd result.

Even if we consult legislative history, however, it would

not compel or even suggest a reversal. RTC § 2191.4 provided

the County with an easy way to create a broad lien on both

Mainline’s real and personal property. The only exception is

narrow; only a bona fide purchaser — not the taxpayer itself —

can defeat the personal property lien. We do not find the cited

legislative history problematic.

CONCLUSION

Based on the foregoing, we determine that the bankruptcy

court correctly set aside the lien, and we AFFIRM.

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