Court Opinion

ID: 9705902
Source: CourtListenerOpinion
Date Created: 2023-08-26 01:26:08.974548+00
Date Added: 2024-06-11T15:26:11.766003
License: Public Domain

SCHERMER, Bankruptcy Judge,
Dissenting.
I respectfully disagree with the majority’s conclusion that the lien of GECC remained senior to the lien of the Class 3 creditors after GECC’s UCC-1 financing statement lapsed. Pursuant to Section 9-403(2) of the Uniform Commercial Code, when a financing statement lapses, the security interest becomes unperfected and such interest is deemed to have been un-perfected as against a person who became a lien creditor before the lapse. Mo.Rev. Stat. § 400.9-403. In this instance, GECC’s financing statements lapsed and is therefore deemed to have been unperfect-ed as against the Class 3 creditors’ perfected hen. As a result, the Class 3 creditors’ hen moved to a senior position when the GECC hen lapsed.
I agree with the majority that the debt- or and creditors, including GECC and the Class 3 creditors, are bound by the confirmed plan which became a binding contract between the parties as of the date of confirmation. 11 U.S.C. § 1141(a). I disagree with the majority’s conclusion that Section 1141(a) of the Bankruptcy Code “trumps” state law thereafter. To the contrary, state law controls the parties’ relationship post-confirmation.
Property interests are created and defined by state law. Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 918, 59 L.Ed.2d 136 (1979). Uniform treatment of property interests within a state serves to reduce uncertainty, to discourage forum shopping, and to “prevent a party from receiving ‘a windfall merely by reason of the happenstance of bankruptcy.’ ” Id. (quoting Lewis v. Mfrs. Nat. Bank, 364 U.S. 603, 609, 81 S.Ct. 347, 350, 5 L.Ed.2d 323). The justifications for application of state law are not limited to ownership interests and “apply with equal force to security interests.” Butner, 440 U.S. at 55, 99 S.Ct. at 918. These principles apply before, during, and after a bankruptcy proceeding; nothing in 11 U.S.C. § 1141 changes this result. I must disagree with the majority’s reasoning which results in GECC gaining a “windfall merely by reason of the happenstance of bankruptcy.” Rather, Missouri’s version of the UCC controls the perfection and priority of the hens of GECC and the Class 3 creditors after confirmation.
The error of the majority’s position is demonstrated in the following example. Assume that as of the confirmation date, *544GECC has a senior lien and the Class 3 creditors have a subordinated lien. One year after confirmation GECC’s financing statement lapses. Two years after confirmation New Bank makes a new secured loan to the debtor. According to the majority’s reasoning, the lien of the Class 3 creditors would be subordinated to the lien of GECC, but the GECC lien would be subordinated to the lien of New Bank (who was not a party to the plan and could not be bound by it), creating an irreconcilable conflict. The majority’s reasoning encourages secret liens6 and may lead to absurd results as set forth in the above example.
For the reasons set forth above, I respectfully dissent and would conclude that the lien of the Class 3 creditors has priority over GECC’s lien as a result of the application of state law.

. One of the principle purposes of the Bankruptcy Reform Act was to strike down secret liens. See, e.g., Clark v. Valley Fed. Sav. & Loan Ass'n (In re Reliance Equities, Inc.), 966 F.2d 1338, 1343 (10th Cir.1992).