Opinion ID: 777777
Heading Depth: 2
Heading Rank: 2

Heading: The Fixture Issue

Text: 21 Under certain circumstances, Nebraska law gives a perfected security interest in a fixture priority over the conflicting interest of an encumbrancer of the related real estate. See Neb. U.C.C. § 9-313(4) [Operative until July 1, 2001]. 4 A fixture is a chattel which is capable of existing separate and apart from a parcel of real property, but which has become a more or less permanent part of the real estate. See Pick v. Fordyce Coop. Credit Ass'n, 225 Neb. 714, 408 N.W.2d 248, 255 (1987) (citation omitted). Dapec argues that its security interest in the stainless steel superstructure has priority over the trust deed held by the SBA because the superstructure is a fixture. 5 22 The district court did not reach the merits of this argument, finding instead that Dapec waived the argument by failing to object to the bankruptcy court's February 17, 2000 final order. Interpretation of the bankruptcy court's order presents a question of law which we review de novo. See Brady v. McAllister, 101 F.3d 1165, 1168 (6th Cir.1996). The final order of February 17, 2000, created a super-priority interest in certain personal property, including MBA Poultry's overhead conveyor. However, it is not obvious to us that the bankruptcy court meant the term overhead conveyor to include the superstructure. In the purchase orders for the air-chill system, MBA Poultry and Dapec distinguished the components of the conveyor from the superstructure. Perhaps more important, the bankruptcy court apparently did not believe that Dapec had waived the issue, because it ruled on the merits of Dapec's motion. Under these circumstances, we find that the fixture issue was not waived, and we review the bankruptcy court's decision on its merits. 23 The bankruptcy court's determination that the superstructure is not a fixture was a finding of fact. See Washington Metro. Area Transit Auth. v. Precision Small Engines, 227 F.3d 224, 227 (4th Cir.2000) (per curiam); First Wis. Nat'l Bank of Milwaukee v. Fed. Land Bank of St. Paul, 849 F.2d 284, 287 (7th Cir.1988). As such, it may be reversed only if it was clearly erroneous. Fed. R. Bankr.P. 8013; First Wis. Nat'l Bank, 849 F.2d at 287. 6 24 Under Nebraska law, a court must look to three factors in determining whether personal property has become a fixture. These factors are: 25 (1) whether the article or articles are annexed to the realty, or something appurtenant thereto; (2) whether the article or articles have been appropriated to the use or purpose of that part of the realty with which it is or they are connected; and (3) whether the party making the annexation intended to make the article or articles a permanent accession to the freehold. 26 Fed. Land Bank of Omaha v. Swanson, 231 Neb. 868, 438 N.W.2d 765, 767-68 (1989) (citation omitted). The first two factors, annexation and appropriation to the use of the realty, have value primarily as evidence of the owner's intent, which is generally regarded as the most important factor. N. Natural Gas Co. v. State Bd. of Equalization, 232 Neb. 806, 443 N.W.2d 249, 257 (1989). 27 One piece of evidence before the bankruptcy court was the affidavit of Mark Haskins (Haskins), the president and CEO of MBA Poultry. In his affidavit, Haskins states that although the superstructure is bolted to the floor or ceiling, the bolts can be taken out, and the superstructure can be removed from the premises with no damage to the equipment or to the premises. Haskins also states that he always understood that the equipment could be removed at any time, without much difficulty or any damage to either the machinery or building. According to Haskins, it was never [his] intention to have any of the equipment become a permanent part of or accession to the ... premises. 28 The president of Dapec, Peter Goffe (Goffe), signed an affidavit that to some extent conflicts with the affidavit of Haskins. In Goffe's affidavit, he states that it took approximately seven weeks of work, averaging sixty-five hours a week, to complete the superstructure and the rest of the air-chill system. The entire system, he says, was custom designed and constructed in order to be integrated into the plant. Goffe avers that the ceiling of the air chill rooms is laid upon and is supported by the support superstructure. According to Goffe, the components of the superstructure are welded together and affixed to the building, and cannot be removed and reused in any other location or otherwise broken down as reusable component parts. 29 The bankruptcy record also includes color photographs of the superstructure. The photos support much of Goffe's affidavit. The photos show the superstructure being constructed in a large room with walls of concrete block. The room appears to be approximately sixteen feet high, twenty feet wide, and at least thirty-two feet long. The superstructure, which is composed of stainless steel beams, fills the dimensions of the room. At least five pairs of beams, spaced approximately eight feet apart, run vertically from the floor almost to the ceiling. Each pair of vertical beams is connected by four horizontal beams. The highest level of these horizontal beams spans the tops of the vertical beams, and the other levels run successively lower in intervals of about four feet. The horizontal beams are reinforced in the center of the room by approximately four-foot long vertical beams. These shorter beams run vertically between the horizontal beams, from the topmost beams straight down, from one beam to the next, and from the lowest beams to the floor. Although it is clear that most of the joints of the superstructure are welded together, it is not clear whether they all are, or whether a few of them are bolted together instead. 30 The record is inconclusive as to whether, as Goffe claims, the ceiling of the processing plant has been laid upon the superstructure. The photographs, which were taken during construction of the superstructure, show a gap between the top of the superstructure and the ceiling. According to Dapec, the ceiling was lowered after the photographs were taken, and it now rests on the ceiling. The appellees have not disputed this claim. 31 In analyzing the affidavits and the photographs, the bankruptcy court made three main points. First, it noted that the superstructure was only bolted down to the floor of the plant and not permanently attached to the walls or ceiling. Second, while the bankruptcy court noted that the superstructure was specifically designed for use in MBA Poultry's chicken processing plant, it observed that the building itself could be used for other purposes if the superstructure were removed. Third, the bankruptcy court relied on Haskins's affidavit to show that the parties did not intend the superstructure to be a fixture. In summary, the bankruptcy court found, [i]t can be reasonably inferred from the evidence of the use, purpose, and method of construction of the superstructure that the parties intended it to be separate and distinct from the real estate. 32 Reviewing the bankruptcy court's decision, the first factor we address is the manner in which the superstructure is affixed to the real estate. In analyzing this factor, the bankruptcy court concentrated on the fact that the superstructure is only bolted down. In their briefs, the parties argue about the significance of this fact. 33 Under Nebraska case law, it is possible for an item that is merely bolted down to become a fixture. The SBA cites Swanson, 438 N.W.2d at 768, in which the Nebraska Supreme Court held that two grain bins were not fixtures, where they were merely bolted down to concrete slabs and were capable of being removed without any significant difficulty. In other cases, however, the Nebraska Supreme Court has found items to be fixtures even though they were only bolted down. For example, in Tillotson v. Stephens, 195 Neb. 104, 237 N.W.2d 108, 109 (1975), the court treated another grain bin as a fixture, where the bin was anchored to a concrete base and became an integral part of the grain elevator to which it was connected. Similarly, in Oliver v. Lansing, 59 Neb. 219, 80 N.W. 829, 831 (1899), the court upheld a trial court's finding that opera chairs in a theater were fixtures, where the chairs had been specially adapted to the theater and affixed thereto by screws. These cases counsel us not to put too much weight on the fact that the superstructure was only bolted to the floor of the processing plant. 34 In evaluating the superstructure's annexation to the real estate, we think it is more useful to examine how difficult it would be to remove the superstructure from the plant. An article is more likely to be a fixture when removal of the article will injure the realty or will injure the article itself. See N. Natural Gas, 443 N.W.2d at 257-58. The affidavits submitted to the bankruptcy court conflict on this issue. The photographs in the record, however, resolve the issue decidedly in Dapec's favor. Looking at the photos, we can see no way in which the superstructure can be removed without causing substantial damage either to the plant, or to the superstructure itself, or both. For all practical purposes, the superstructure is part of the processing plant, and this fact weighs heavily in favor of finding that it is a fixture. 35 The second factor — appropriation to the use of the realty — also points strongly towards the conclusion that the superstructure is a fixture. Like the opera chairs in Oliver, the superstructure was specifically designed for use in MBA Poultry's processing plant. And, like the grain bin in Tillotson, the superstructure was integrated into the processing plant during several weeks of construction. The bankruptcy court discounted these facts, because, in its view, the real estate could be used for other purposes. The Nebraska Supreme Court, however, has not looked to the full range of purposes to which real estate might be applied, but rather to the use to which [it] is applied. N. Natural Gas, 443 N.W.2d at 259 (emphasis added). The real estate in this case was being used as a chicken processing plant, and Bird Watchers, which purchased the plant in the bankruptcy sale, planned to continue that use. Under these circumstances, the superstructure was clearly appropriated to the use of the realty. 36 Finally, we believe MBA Poultry intended the superstructure to be a permanent feature of its processing plant. As the bankruptcy court observed, the principal evidence against this conclusion is the affidavit of Haskins, MBA Poultry's president and CEO, who claims he had no such intent. Haskins, however, was not a disinterested party. He personally guaranteed the $1,000,000 NEDCO loan that was financed by the SBA, and he has a strong financial interest in seeing the SBA repaid from the bankruptcy estate. 37 The Nebraska Supreme Court has indicated that, to be trustworthy, evidence of intent should come primarily from objective sources, such as the nature of the articles affixed, the relation and situation of the party making the annexation, the structure and mode of the annexation, and the purpose or use for which the annexation has been made. N. Natural Gas, 443 N.W.2d at 257; see also Pick, 408 N.W.2d at 255. For reasons stated above, we believe these factors point inescapably toward an intention on the part of MBA Poultry to make the superstructure a permanent part of its plant. 38 In short, the evidence plainly shows that the stainless steel superstructure is a fixture. The bankruptcy court's finding to the contrary was clearly erroneous. Accordingly, we remand the case for a determination of priority between Dapec's security interest in the superstructure and the security interest held by the SBA.