United States Bankruptcy Appellate Panel

FOR THE EIGHTH CIRCUIT

______

No. 01-6061WM

______

In re: *

 *

Gaela A. Crawford, *

f/k/a Hedrick *

 *

Debtor. *

 *

Eastern States Life Insurance *

Company, *

 *

Plaintiff-Appellant, * Appeal from the United States

 * Bankruptcy Court for the Western

v. * District of Missouri

 *

Bruce E. Strauss, Trustee, and *

Gaela A. Crawford, f/k/a Hedrick *

 *

Defendants-Appellees, *

 *

______

Submitted: January 25, 2002

Filed: March 22, 2002

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Before KRESSEL, SCHERMER and DREHER, Bankruptcy Judges.

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KRESSEL, Bankruptcy Judge.
1

 As explained below, in accordance with the terms of a previous court order,

the trustee was entitled to 25 percent of the payments and the remainder was exempt

and going to the debtor.

2

 Although the judgment did not mention the summary judgment motion, in the

accompanying Memorandum Opinion, the court stated that it would “enter an Order

denying Eastern States [sic] motion for summary judgment and a judgment in favor

of the Trustee as to this adversary proceeding.” We construe the court’s judgment as

denying Eastern States’ motion for summary judgment and entering judgment for the

defendants based upon the merits.

2

Eastern States brought an adversary proceeding against the defendants

asserting that it was entitled to a portion of the annuity payments which the

defendants were receiving pursuant to a personal injury settlement obtained by the

debtor prepetition.1

 The complaint alleged that the debtor had assigned a portion of

those payments to Eastern States and that Eastern States held a properly perfected

security interest in those payments. Eastern States filed a motion for summary

judgment and subsequently, a trial was held. Following the trial and a review of the

summary judgment motion, the bankruptcy court entered judgment in favor of the

defendants.2

 The bankruptcy court based its decision upon its finding that Eastern

States did not hold a properly perfected security interest. The court therefore

concluded that Eastern States’ interest was subordinate to the trustee’s interest

pursuant to 11 U.S.C. § 544. We affirm to the extent that the bankruptcy court

granted judgment in favor of the trustee as to the bankruptcy estate’s 25 percent

interest in the annuity payments. To the extent that the judgment ruled that Eastern

States’ interest is subordinate to the debtor’s, or otherwise avoided Eastern States’

interest in favor of the debtor, we reverse and remand.

BACKGROUND

The debtor brought a personal injury lawsuit against several defendants which

was settled pursuant to a Release and Settlement Agreement on May 25, 1995. Under

the terms of that agreement, the tort defendants assigned to Metropolitan Life
3

 In addition to Metropolitan, the structured settlement agreement between the

debtor and tort defendants provided for annuity payments to the debtor from

additional companies. Only the Metropolitan payments are at issue in this case.

4

 The clause provided that the debtor and her beneficiaries “shall not have the

right to . . . [s]ell, mortgage, encumber or anticipate the periodic payments or any part

thereof, by assignment or otherwise.” Appellee’s App. at 13.

3

Insurance & Annuity Company, the defendants’ obligation to pay the debtor

$3,413.00 per month for a 30 year term commencing on July 1, 1995.3

 The amount

increases by 3 percent on July 1st of every year. The agreement has a non-assignment

clause.4

On December 29, 1997, the debtor entered into an agreement with Colonial

Financial Services. The bankruptcy court found that under the terms of this

agreement, which was not made part of the record on appeal, the debtor

unconditionally and irrevocably assigned to Colonial her right to receive a portion of

the Metropolitan annuity payment in exchange for a lump sum of $128,000.00. The

court found that the agreement provided that Colonial was to receive $2,000.00 per

month from each Metropolitan payment for a 10 year period beginning on February

1, 1998, and ending on January 1, 2008. Colonial would also receive a 3 percent

increase in payment each July 1st. The debtor testified that Metropolitan sent

monthly checks made payable to the Gaela Hedrick Irrevocable Trust to Colonial’s

address. Colonial would then stamp the check with the debtor’s signature, cash the

check and keep its payment and send the balance to the debtor.

On January 19, 1998, Colonial assigned its rights to Eastern States. On January

30, 1998, Colonial filed a UCC-1 financing statement with the Missouri Secretary of

State, attempting to perfect a security interest in the debtor’s rights and interests in

the Metropolitan annuity policy. This financing statement was not filed in the

debtor’s then county of residence, Taney County, Missouri.
5

 See supra note 3.

6

 Perhaps belatedly realizing the unnecessary situation the trustee placed

himself in, he noted at oral argument that had he taken the estate’s portion from the

non-Metropolitan funds, he would not have been a party to this action. Indeed,

Eastern States could have attempted to accomplish what it is seeking by attacking

only the 75 percent interest the debtor is receiving, without including the trustee in

this adversary proceeding.

4

The debtor filed a Chapter 11 bankruptcy petition in California on April 5,

1999. This case was converted to Chapter 7 on July 20, 1999, and was subsequently

transferred to Missouri. The debtor attempted to exempt the full amount of all the

annuity payments she was receiving5

 and the Chapter 7 trustee objected. The trustee

and the debtor agreed that 25 percent of the total monthly annuity payments she was

receiving from all sources, not just Metropolitan, belonged to the bankruptcy estate,

and the remaining 75 percent was exempt and did not belong to the estate. An order

was entered accordingly. In his brief on appeal, the trustee stated that the debtor was

receiving two monthly annuity checks. He explained that he passed the larger of the

two checks onto the debtor, and negotiated the smaller check, the Metropolitan check,

taking the estate’s total 25 percent portion from that check and relaying the remaining

funds to the debtor.6

Following the conversion of debtor’s bankruptcy case to Chapter 7,

Metropolitan, in September 1999, ceased sending the payments to the Colonial or

Eastern States address, and began sending them to the Chapter 7 trustee. Eastern

States made a demand upon the trustee for its alleged portion of the Metropolitan

payments. Eastern States then filed a complaint against the trustee and the debtor

alleging that: Eastern States was the assignee of debtor’s right to receive monthly

annuity payments from Metropolitan; Eastern States held a properly perfected interest

in those payments; Eastern States was a secured creditor of the estate in the amount

of $250,000 as reflected by its Amended Proof of Claim; Eastern States was entitled

to a portion of the Metropolitan payments received by the trustee from October 1,
5

1999 through February 1, 2001, in the sum of $36,570.80; and, Eastern States was

entitled to “its” portion of future payments. Notably, Eastern States’ complaint does

not allege that it had any ownership interest in the payments as a result of having

purchased an interest in the payments.

The trustee and the debtor both answered that the debtor’s attempted

assignment to Eastern States’ predecessor-in-interest, Colonial, was invalid because

of the anti-assignment clause in the structured settlement agreement. The trustee also

offered the affirmative defense that Eastern States’ security interest was not properly

perfected and hence was subordinate to the trustee’s 25 percent interest.

Eastern States filed a motion for summary judgment on June 4, 2001. Before

any ruling on the motion, the court held a trial on the merits of the action on June 18,

2001. On July 26, 2001, the bankruptcy court issued judgment in favor of both

defendants. In its accompanying Memorandum Opinion, the court found that Eastern

States’ failure to properly perfect its security interest was dispositive. The court

therefore did not reach the issue of the effect of the non-assignment clause.

DISCUSSION

Standard of Review

We review the bankruptcy court’s factual findings for clear error and its

conclusions of law de novo. Blackwell v. Lurie (In re Popkin & Stern), 223 F.3d 764,

765 (8th Cir. 2000); Wendover Fin. Servs. v. Hervey (In re Hervey), 252 B.R. 763,

765 (B.A.P. 8th Cir. 2000).

At trial, the parties presented conflicting evidence as to whether the transaction

between the debtor and Colonial should be characterized as a sale or loan. The

agreement, which we do not have, was apparently entitled “Purchase and Sale

Agreement” and stated “This is Not a Loan.” The debtor testified that she approached

Colonial seeking a loan in order to consolidate her debts and she thought the
7

 It is well-established law that courts will look beyond the words used to

determine the true nature of a security transaction. See Endico Potatoes, Inc., v. CIT

Group/Factoring, Inc., 67 F.3d 1063, 1068-69 (2d Cir. 1995) (noting that, regardless

of the labels used by the parties, courts will look to several factors to determine the

substance of a transaction, including, recourse and which party bears the risk of nonperformance); Major’s Furniture Mart, Inc., v. Castle Credit Corp., 602 F.2d 538,

543-46 (3d Cir. 1979) (stating that the “determination, as to whether a particular

assignment constitutes a sale or a transfer of security, is left to the courts for

decision”; and examining in detail the factors courts should consider); United States

v. Poling, 73 F. Supp. 882, 893-94 (S.D. Ohio 1999); In re Paul, 83 B.R. 709, 713-14

(Bankr. D.N.D. 1988).

8

 App. at 63.

6

transaction was a loan despite the document’s alleged language. There is other

evidence supporting debtor’s assertion that the assignment was for the purposes of

creating a security interest to secure a loan, and not an absolute assignment.7

 For

example, neither Colonial nor Eastern States ever took actual possession of the

annuity payments. They acted as more of a conduit and the checks from Metropolitan

were never made payable to them. Eastern States filed a claim declaring that it held

a secured claim in the amount of $250,000. The claim did not indicate that Eastern

States had any ownership interest in the payments.

However, the bankruptcy court did not make a finding on this issue finding it

“irrelevant . . . because [the debtor] intended to grant Colonial a security interest in

the stream of payments either way.”8

 On appeal, the parties continue to argue this

issue. Even if this issue were properly before us, which it is not, we would be unable

to properly review the court’s findings because the parties have failed to include the

agreement in the record on appeal. See Wendover, 252 B.R. at 767 (noting that, as

a reviewing court, we cannot determine whether a bankruptcy court committed clear

error in its factual findings where the parties fail to provide the factual record). In

any event, it is not necessary to our review to examine this issue.
7

Eastern’s Claim Against the Trustee

The bankruptcy court ruled that Eastern States did not hold a properly perfected

security interest, and thus, Eastern States’ interest was subordinate to the trustee’s

interest pursuant to 11 U.S.C. § 544.

“Property interests are created and defined by state law.” In re John Chezik

Imports, Inc., 195 B.R. 417, 420 (Bankr. E.D. Mo. 1996) (quoting Butner v. United

States, 440 U.S. 48, 55 (1979)). Article 9 of the Uniform Commercial Code, as

adopted by Missouri, applies to any transaction, regardless of form, which is intended

to create a security interest in personal property. See Mo. Stat. Ann. § 400.9-102

(1994); George W. Ultch Lumber Co. v. Hall Plastering, Inc., 477 F. Supp. 1060,

1064 (W.D. Mo. 1979); Bradley v. K & E Invs., Inc., 847 S.W.2d 915, 920 (Mo. Ct.

App. 1993). It applies to security interests created by contract, including

assignments. George W. Ultch Lumber, 477 F. Supp. at 1064; see also Artoc Bank

& Trust, Ltd., v. Apex Oil Co. (In re Apex Oil Co.), 975 F.2d 1365,1369 (8th Cir.

1992) (stating, “[w]e see no meaningful difference between a security interest and an

assignment for the purposes of security. In fact, they appear to be the same thing

under Article 9.”). As correctly noted by the bankruptcy court, under Missouri law

in effect at the time in question, in order to properly perfect a security interest in a

general intangible such as a contract right, Eastern States was required to file a

financing statement in the proper place. See Mo. Stat. Ann. §§ 400.9-106, 9-302(1),

9-401(1)(c) (1994). Here, the proper place was in two locations: with the Missouri

secretary of state and the recorder’s office of the county in which the debtor resided,

Taney County. See § 400.9-401(1). Without proper perfection, the unperfected

security interest is subordinate to the rights of a person who becomes a lien creditor.

See § 400.9-301(1)(b). A bankruptcy trustee has the rights and powers of a

hypothetical judicial lien creditor, including the power to avoid the unperfected

inferior interest. See 11 U.S.C. § 544(a)(1).
9

 App. at 42-43. Eastern States and the defendants also submitted a written

stipulation regarding the lack of a financing statement on file with the proper county.

10 App. at 44 (emphasis added).

8

Eastern States complaint alleged that Eastern States held a properly perfected

interest securing its right to receive a portion of the Metropolitan annuity payments

which were allegedly assigned to it. Eastern States based its motion for summary

judgment on this same premise. Following the trial, Eastern States submitted a trial

brief in which it stated that: “Plaintiff has since determined that a financing statement

was not filed with the Taney County recorder of deeds. Therefore, Plaintiff’s security

interest is not effective as to the portion of the annuity funds that this Court has

previously adjudicated as not exempt.”9

 Eastern States then went on to argue that the

trustee’s avoidance powers did not affect Eastern States’ security interest in the

debtor’s exempt portion of the payments. Finally, the brief included the following

statement:

As the Plaintiff’s security interest is not perfected against

the Trustee, Plaintiff concedes that judgment against [the

trustee], to the extent of the Trustee’s 25% share in the

annuity funds, would not be appropriate. For all these

reasons, the Plaintiff requests that this Court enter

judgment against Gaela Hedrick for its rightful share of the

Metropolitan annuity payments that have been paid to date,

and for a determination of Plaintiff’s right to receive future

payments from the annuity . . . .10

Therefore, Eastern States conceded that judgment against the trustee was not

appropriate and further requested that the court enter judgment only against the

debtor. Statements contained in a party’s pleadings are binding on that party, and are

considered judicial admissions, unless the statements are withdrawn or amended. See

Knudsen v. United States, 254 F.3d 747, 752 (8th Cir. 2001); Mo. Hous. Dev.

Comm’n v. Brice, 919 F.2d 1306, 1314 (8th Cir. 1990). “[J]udicial efficiency
9

demands that a party not be allowed to controvert what it has already unequivocally

told a court by the most formal and considered means possible.” Knudsen, 254 F.3d

at 752 (quoting Soo Line R. Co. v. St. Louis Southwestern Ry. Co., 125 F.3d 481, 483

(7th Cir. 1997)).

Thus, where the debtors’ attorney stated unambiguously in a motion to alter or

amend judgment that there was no tenancy at will, and a prior determination by the

court that there was a tenancy at will was critical to the earlier judgment in favor of

the debtors, the court held that this was a judicial admission by the debtors’ attorney.

Based upon this admission, the court found that it had no alternative but to strike the

prior findings and vacate its prior judgment in favor of the debtors in its entirety.

Brewer v. Tip Top Credit Union (In the Matter of Brewer), 65 B.R. 75 (Bankr. W.D.

Mo. 1986). Subsequently, the debtors hired new counsel and brought a motion for

reconsideration, but this motion was denied. See Brewer v. Tip Top Credit Union (In

the Matter of Brewer),76 B.R. 707 (Bankr. W.D. Mo. 1987); see also Postscript

Enters. v. City of Bridgeton, 905 F.2d 223, 227-28 (8th Cir. 1990) (finding statements

made by counsel in a brief and orally, as to the effect of a permit ordinance, to be

judicial admissions negating the need to consider due process arguments concerning

the permit process); Carson v. Pierce, 726 F.2d 411 (8th Cir. 1984) (ruling, in a

housing discrimination case, that counsel’s statement at oral argument that the

plaintiffs had voluntarily vacated their apartment was a judicial admission mooting

their claim, notwithstanding that counsel subsequently tried to present evidence that

the move was involuntary).

Here, in plaintiff’s trial brief, counsel for Eastern States clearly and

unambiguously stated that: a financing statement was not filed with the proper

county; its security interest was not perfected against the non-exempt portion of the

annuity payments; and, judgment against the trustee was not proper. In addition, the

brief then requests that the court enter judgment in favor of Eastern States only

against the debtor. These statements by counsel for Eastern States are judicial
11 To the extent that Eastern States is attempting to argue a position that is

inconsistent with its prior concession regarding the effect of its failure to perfect, the

doctrine of judicial estoppel may also apply. See Hossaini v. W. Mo. Med. Ctr., 140

F.3d 1140, 1142-43 (8th Cir. 1998) (stating that this doctrine prohibits a party from

taking a position inconsistent with an earlier position in the same or related

litigation); see also United States v. Transport Admin. Servs., 260 F.3d 909, 917-18

(8th Cir. 2001) (upholding the district court’s application of the doctrine to prevent

debtors from prosecuting a claim which they had previously failed to list on their

bankruptcy schedule of assets).

10

admissions. Eastern States has conceded that the judgment against the trustee, as to

the estate’s non-exempt 25 percent portion of the annuity payments, is not

appropriate. The bankruptcy court did not err in granting judgment in favor of the

trustee.

During oral argument, and in its reply brief, Eastern States made an attempt to

argue that it acquired an absolute ownership interest in the Metropolitan payments

through the assignment, and thus, its failure to perfect is somehow not relevant as to

the trustee.11 However, based upon Eastern States’ judicial admission, this is not a

door that Eastern States may reopen. Indeed, following its concession, and despite

its belated attempts on appeal, Eastern States has focused its argument, including its

opening brief, on the premise that nothing in the bankruptcy court’s analysis of the

perfection issue supports the court’s judgment in favor of the debtor. Eastern States

is right.

Eastern’s Claim Against the Debtor

The entire basis of the bankruptcy court’s decision, and the only analysis

contained in its opinion accompanying the judgment, is the failure to perfect.

However, Eastern States’ failure to properly perfect its interest does not affect its

position regarding the debtor’s 75 percent interest in the payments. Further, the fact

that a court previously ruled that this portion is exempt and does not belong to the
11

bankruptcy estate does not mean that this interest cannot be subject to Eastern States’

lien or interest.

First, the trustee’s ability to subordinate and avoid Eastern States’ security

interest is only applicable as to the bankruptcy estate’s 25 percent interest in the

annuity payments. The perfection and filing requirements are for the benefit of third

parties, not the debtor. See Mo. Stat. Ann. §§ 400.9-301 (1994); Vintero Corp. v.

Corp. Venezolana de Fomento (In the Matter of Vintero Corp.), 735 F.2d 740, 742

(2d Cir. 1984). The courts have universally limited the trustee’s avoidance powers

to situations in which there will be a benefit for the estate’s creditors. If the action

will only benefit the debtor, courts will not allow the avoidance power to be used.

See Official Comm. Of Unsecured Creditors of Cybergenics Corp. v. Chinery (In re

Cybergenics Corp.), 226 F.3d 237, 244 (3d Cir. 2000); Harstad v. First Am. Bank (In

re Harstad), 155 B.R. 500, 511 (Bankr. D. Minn. 1993), aff’d, No. BKY 4-90-869,

CIV 3-93-512, 1994 WL 526013 (D. Minn. Jan.20, 1994), aff’d, 39 F.3d 898 (8th Cir.

1994). There was no showing in this case that would support a finding that avoiding

Eastern States’ interest in the exempt portion of the payments would benefit the

estate.

Moreover, as between Eastern States and the debtor, Eastern States secured

interest remains valid. See Mo. Stat. Ann. § 400.9-301; Bremen Bank & Trust Co. of

St. Louis v. Muskopf, 817 S.W.2d 602, 608 (Mo. Ct. App. 1991); see also Vintero,

735 F.3d at 742 (maintaining that a security interest does need to be perfected in order

to be valid against the debtor; perfection only allows enforcement of the interest

against third parties). The debtor has never taken any steps to avoid Eastern States’

interest. She merely asserted, as a defense, that the assignment to Eastern States was

not valid because of the non-assignment clause contained in the structured settlement

agreement. The bankruptcy court never reached the issue of the effect of the nonassignment clause.
12

Second, the bankruptcy court’s prior order exempting 75 percent of the annuity

payments did not avoid or otherwise negate Eastern States’ interest. Property that is

exempted under 11 U.S.C. § 522 remains liable for debts secured by a lien that has

not been avoided under any of the applicable Bankruptcy Code provisions. See 11

U.S.C. § 522(c)(2); Matter of Lassiter, 104 B.R. 119, 121-22 (Bankr. S.D. Iowa

1989). As noted above, the debtor has never attempted to avoid Eastern States’ lien,

and the trustee’s ability to subordinate and avoid the lien as to the estate’s 25 percent

interest in the annuity payments does not affect Eastern States’ interest in the portion

belonging to the debtor.

Because the record does not support judgment in favor of the debtor, the

bankruptcy court erred in granting judgment for the debtor. We note, though, that the

court did not reach the non-assignment clause issue, and there may be other

unexamined issues concerning Eastern States’ ability to prevail on its complaint as

against the debtor. Therefore, we will remand this matter to the bankruptcy court.

CONCLUSION

The judgment of the bankruptcy court is affirmed to the extent that it

granted judgment in favor of the trustee as to the bankruptcy estate’s 25 percent

interest in the annuity payments. To the extent that the court ruled that Eastern

States’ interest is subordinate to the debtor’s, or otherwise avoided Eastern States’

interest in favor of the debtor, we reverse and remand to the bankruptcy court for

further proceedings consistent with this opinion.

A true copy.

Attest:

CLERK, U.S. BANKRUPTCY APPELLATE

PANEL, EIGHTH CIRCUIT.