Source: https://openjurist.org/323/f3d/841
Timestamp: 2020-04-06 05:06:19
Document Index: 444098703

Matched Legal Cases: ['§ 544', '§ 158', '§ 544', '§ 84', '§ 84', '§ 84', '§ 84']

323 F3d 841 Charles v. Cit | OpenJurist
323 F. 3d 841 - Charles v. Cit
323 F3d 841 Charles v. Cit
323 F.3d 841
In re Robert Fritz CHARLES; Jan Aloise Charles, Debtors.
The CIT Group/Equipment Financing, Inc., Defendant-Appellee.
No. 02-3072.
Christopher A. McElgunn of Klenda, Mitchell, Austerman & Zuercher, L.L.C., Wichita, KS, for Plaintiff-Appellant.
Jack C. Marvin and Van M. Halley of Stinson Morrison Hecker LLP, Wichita, KS, for Defendant-Appellee.
J. Michael Morris, bankruptcy trustee (trustee), appeals the district court's order affirming the bankruptcy court's entry of summary judgment in favor of The CIT Group/Equipment Financing, Inc. (CIT) on the trustee's claim to avoid unperfected security interests pursuant to 11 U.S.C. § 544(a). Our jurisdiction arises under 28 U.S.C. § 158(d). We affirm.1
* On or about June 26, 1997, the debtor, Robert F. Charles, entered into a "Master Lease Agreement" with CIT that, on its face, gave the debtor leasehold interests in four trucks. CIT is named as the owner of the trucks on the certificates of title issued by the State of Kansas, and the certificates were duly filed with the appropriate state agency.
The bankruptcy court determined that, even if the Master Lease Agreement is a disguised security agreement and not a true lease, the trustee could not avoid CIT's security interests because CIT substantially complied with the perfection requirements for motor vehicles under Kansas law. Morris v. The CIT Group/Equip. Fin., Inc. (In re Charles), 268 B.R. 575, 578 (Bankr.D.Kan.2001). It therefore granted summary judgment for CIT. The trustee appealed to the district court. After reviewing the perfection issue de novo, the district court affirmed summary judgment in favor of CIT. This appeal followed.
"Our review of the bankruptcy court's decision is governed by the same standards of review that govern the district court's review of the bankruptcy court." Connolly v. Harris Trust Co. of Cal. (In re Miniscribe Corp.), 309 F.3d 1234, 1240 (10th Cir.2002) (quotation omitted). There are no disputed factual issues pertaining to the perfection issue here, and the bankruptcy court resolved the question purely as a matter of law. Our review is therefore de novo. Id. Like the bankruptcy court, we will assume for purposes of this appeal that the Master Lease Agreement was a disguised security agreement, and that "the debtor acquired an ownership interest in the trucks thereby giving CIT a security interest." In re Charles, 268 B.R. at 578.
Section 544(a) of the Bankruptcy Code "confers on a trustee in bankruptcy the same rights that an ideal hypothetical lien claimant without notice possesses as of the date the bankruptcy petition is filed." Pearson v. Salina Coffee House, Inc., 831 F.2d 1531, 1532 (10th Cir.1987). Consequently, "[s]ection 544(a) allows the trustee to avoid any unperfected liens on property belonging to the bankruptcy estate." Id. The determination of whether a creditor's security interest is unperfected, and therefore avoidable under § 544(a), is controlled by state law. Id. at 1533.
Neither the Kansas Supreme Court nor the Kansas Court of Appeals has addressed the perfection issue raised by this appeal. "In the absence of [Kansas] law directly on point, we attempt to predict how [the Kansas Supreme Court] would rule." FDIC v. Schuchmann, 235 F.3d 1217, 1225 (10th Cir.2000). "In conducting our inquiry, we are free to consider all resources available, including decisions of [Kansas] courts, other state courts and federal courts, in addition to the general weight and trend of authority." Id.
Kansas has adopted Article 9 of the Uniform Commercial Code. Under Kan. Stat. Ann. §§ 84-9-302(3)(c) (1996) and 8-135(c)(2) and (5) (1996),2 "there are two alternative ways that a secured creditor on a motor vehicle can perfect its security interest: (1) by having its lien noted on the certificate of title which is then duly filed, or (2) by filing a `notice of security interest' ("NOSI")." In re Charles, 268 B.R. at 577; accord Beneficial Fin. Co. of Kan., Inc. v. Schroeder, 12 Kan.App.2d 150, 737 P.2d 52, 53 (1987). In this case, CIT is identified on the certificates of title as the owner rather than a lienholder, and CIT did not file a NOSI.
This approach has the effect of "modernizing" the certificate of title statutes to fit better with the policies underlying Article 9 in general. Several courts have taken this approach, in effect allowing "substantial compliance" with the certificate of title statute rather than requiring "strict compliance." These decisions seem correct.... When a motor vehicle lease is a disguised Article 9 financing, showing the name of the lessor as owner rather than lienholder on the certificate of title should be sufficient because no third party could be misled.
Under the majority approach, regardless of any express statutory requirements, a secured creditor is not required to disclose its status as a lienholder on a vehicle's certificate of title in order to achieve perfected status. Instead, it is sufficient if the creditor is identified as the owner of the vehicle. See Load-It, Inc. v. VTCC, Inc. (In re Load-It, Inc.), 774 F.2d 1077, 1078-79 (11th Cir.1985) (holding security interest in motor vehicle perfected under Georgia law where secured creditor identified as owner on certificate of title); In re Circus Time, Inc., 641 F.2d 39, 42-44 (1st Cir.1981) (same, applying Maine and New Hampshire law); In re Nat'l Welding of Mich., Inc., 61 B.R. 314, 317 (W.D.Mich. 1986) (same, applying Michigan law); In re Microband Cos., Inc., 135 B.R. 2, 4-6 (Bankr.S.D.N.Y.1991) (same, applying New York, New Jersey, Maryland, and Michigan law); Yeager Trucking v. Circle Leasing of Colo. Corp. (In re Yeager Trucking), 29 B.R. 131, 134-35 (Bankr. D.Colo.1983) (same, applying Colorado law); Coble Sys., Inc. v. Coors of the Cumberland, Inc. (In re Coors of the Cumberland, Inc.), 19 B.R. 313, 320-21 (Bankr. M.D.Tenn.1982) (same, applying Tennessee law).3
The trustee nevertheless argues that the substantial compliance standard is inconsistent with Kansas law. We disagree. First, while the two Kansas cases primarily relied upon by the trustee hold that there are two ways to perfect a security interest in a motor vehicle under Kansas law, see Mid Am. Credit Union v. Bd. of County Comm'rs, 15 Kan.App.2d 216, 806 P.2d 479, 483-84 (1991); Beneficial Fin., 737 P.2d at 53, they did not address the substantial compliance issue this case presents. Similarly, although the commentary to Kan. Stat. Ann. § 84-9-302 (1996) provides that "security interests in motor vehicles can be perfected only by indication of the security interest on the certificate of title," we agree with the district court that the commentary does "not, in any manner, discuss or imply an opinion with respect to the situation presented here." Aplt.App. at 145.
This court's decisions in Lentz v. Bank of Independence (In re Kerr), 598 F.2d 1206 (10th Cir.1979), and Pearson are also not on point. In Kerr, we considered whether a secured creditor must file a NOSI under Kan. Stat. Ann. § 84-9-302(3)(c) to perfect a security interest in a motor vehicle if the debtor fails to obtain a certificate of title noting the creditor's lien, but we did not address the issues presented by this case. See In re Kerr, 598 F.2d at 1207-09. In Pearson, we held that UCC-1 financing statements for security interests in furnishings and kitchen equipment that only identified the debtor's trade name were deficient and did not substantially comply with Kansas' Article 9 perfection requirements because subsequent creditors searching the UCC-1 filings against the debtor's legal name would not have been put on notice of any liens filed against the debtor's trade name. See Pearson, 831 F.2d at 1536. But Pearson is distinguishable because here CIT is identified on the certificates of title, and any potential secured creditor who performs a search of the Kansas certificate of title records for the trucks would be put on notice that CIT is claiming an interest in the trucks.
Subsection (1)(b) subordinates an unperfected security interest to a lien creditor who becomes such before the security interest is perfected. The term `lien creditor' is defined in subsection (3) to mean a judgment creditor who has obtained a levy of attachment or execution under Kansas law, and includes the trustee in bankruptcy. Thus, if the security interest is unperfected when a levy of attachment or execution is obtained, or when a petition in bankruptcy is filed, the security interest is subordinate, except as provided in subsection 2. It is irrelevant that the lien creditor knows of the security interest, as it was under pre-UCC Kansas law.
Accordingly, consistent with Kan. Stat. Ann. § 84-9-402(8), see supra at 844-845, and based on the general weight and trend of authority from other jurisdictions, we predict that the Kansas Supreme Court would adopt a substantial compliance standard for motor vehicle certificates of title. We hold that CIT satisfied the standard in this case.
All references herein to Kansas statutes are to the statutes that were in effect in June 1997 when the parties entered into the Master Lease Agreement
But see Wheels, Inc. v. Otasco, Inc. (In re Otasco, Inc.), 111 B.R. 976, 994 (Bankr. N.D.Okla.1990) (holding, under Oklahoma law, that lease of motor vehicles was disguised security agreement and that identification of lessor on certificates of title as owner of vehicles was insufficient to perfect security interests in vehicles since Oklahoma law required delivery of "lien entry forms" to state agency), rev'd on other grounds, 196 B.R. 554, 560 (N.D.Okla.1991) (holding that transaction involving the vehicles was true lease and not disguised security agreement).