Court Opinion

ID: 9701011
Source: CourtListenerOpinion
Date Created: 2023-08-25 21:59:01.306395+00
Date Added: 2024-06-11T18:21:17.185553
License: Public Domain

VOLINN, Bankruptcy Judge
(dissenting):
If the parties were not involved with bankruptcy, there is no question that marshaling would be properly granted over objections by general unsecured creditors. The essential issue then, is whether the fictional status of a judgment creditor granted to the trustee under 11 U.S.C. § 544 was intended to be used in a marshaling context for the purpose of displacing a validly secured creditor in order to provide general unsecured creditors access to assets which otherwise would be unavailable to them.
While the language of § 544 and its Bankruptcy Act predecessor, § 70(c), appears to endow the trustee with the judgment lien, cases under these sections rarely, if ever, hinge on the lien as an intrinsic property right of the trustee. The great number of decisions dealing with these sections have tested the validity or viability of transfers or claims on the debtor’s property against the abstract standard of the hypothetical judgment creditor as if the trustee were of this character. See, In re Weiman, 22 B.R. 49 (Bkrtcy.App. 9th Cir.1982); Caplinger v. Patty, 398 F.2d 471, 475 (8th Cir.1968) (which dealt with the marshaling issue before us). If the transfer or claim failed this test, the trustee would take, free of the defective claim or use it for the benefit of the general creditors, thereby effectuating a fundamental bankruptcy policy — defeasance of secret, undisclosed, or unperfected claims so as to bring about equality of distribution among creditors.
Here, insofar as § 544 is concerned, Wells Fargo does not have an undisclosed or imperfect claim which is defeasible by a judgment creditor. It is a valid, perfected claim. Invocation of § 544 is therefore inappropriate. The case of Lewis v. Manufacturer’s Bank of Detroit, 364 U.S. 603, 81 S.Ct. 347, 5 L.Ed.2d 323 (1961), is pertinent. In refusing to allow the trustee to reach back to a point anterior to the filing of bankruptcy, in order to claim imperfection, and recognizing that “in some instances the trustee has rights which existing creditors may not have”, the court stated:
“The construction of § 70e which petitioner urges would give the trustee power to set aside transactions which no creditor could void and which injured no creditor. That construction would enrich unsecured creditors at the expense of secured creditors, creating a windfall merely by reason of the happenstance of bankruptcy.” 364 U.S. at 608, 81 S.Ct. at 350.
The applicability of § 70(c) to the specific issue before us was clearly before the court in the case of In re Forester, 529 F.2d 310, (9th Cir.1976) which dealt with the California marshaling statutes in question, Cal.Civ. Code, §§ 2899 and 3433. Forester, essentially, held that the trustee would be no more entitled to marshaling than the debtor. It noted, in passing that
“There would be no injustice to others since Forester did not have a justifiable expectation that his collateral security would return to him after he defaulted on his loans; the trustee and through him the general creditors merely stand in Forester’s shoes.” 529 F.2d at 315.
The court was not oblivious to the trustee’s status under § 70(c), noting:
“It is also true that the Act does not vest the trustee with any better right or title to the bankrupt’s property than belonged to the bankrupt at the moment of bankruptcy. (subject to exceptions not applicable here) 4A Collier on Bankruptcy 55 (14th Ed.) 1975.” 529 F.2d at 316.
There was a dissent in Forester which specifically treats of the trustee’s status as a judgment creditor under § 70(c); the majority here adopts the reasoning of the dis*401sent which would have allowed the trustee to compel marshaling in favor of the bankrupt estate because of his status as a judgment creditor.
Citation of Shedoudy v. Beverly Surgical Supply Co., 100 Cal.App.3d 730, 161 Cal.Rptr. 164 (1980), deals only with state law. It does not interpret nor affect application of § 544. The ruling of Forester deals with Federal bankruptcy law and is not affected nor attenuated by Shedoudy.
I would affirm the trial court.