Court Opinion

ID: 8978672
Source: CourtListenerOpinion
Date Created: 2022-11-27 11:09:46.011891+00
Date Added: 2024-06-11T17:10:36.584461
License: Public Domain

BEEZER, Circuit Judge,
dissenting:
I respectfully dissent. I would affirm and hold that the Producers’ lien is not enforceable against a bona fide purchaser.
Section 545(2) of the Bankruptcy Code allows a trustee to avoid a lien that
is not perfected or enforceable on the date of the filing of the petition [for bankruptcy] against a bona fide purchaser that purchases such property on the date of the filing of the petition, whether or not such a purchaser exists.
11 U.S.C. § 545(2). Federal preemption makes this law superior to any state scheme of creditor priorities. International Shoe Co. v. Pinkus, 278 U.S. 261, 265, 49 S.Ct. 108, 110, 73 L.Ed. 318 (1929) (citing U.S. Const, art. I, sec. 8, cl. 4). Congress intended the avoiding power of the trustee to be pursued vigorously. H.R. Doc. No. 127, 930 Cong., 1st Sess. 212, quoted in In re Hughes, 9 B.R. 251, 257 (Bankr.W.D.La. 1981). “[I]f all statutory liens, regardless of what they were in substance, were to be treated as liens in bankruptcy, the order of federally created priorities would be completely disrupted.” S.Rep. No. 1159, 89th Cong., 2d Sess. 2-3, reprinted in 1966 U.S. Code Cong. & AdmimNews 2456, 2457.
Although the language of section 545(2) may be difficult to apply, it is not difficult to construe. The lien is avoidable if it could not be enforced against a hypothetical bona fide purchaser.
Other circuits have addressed the question presented. See In re Mission Marine Associates, 633 F.2d 678 (3d Cir.1980); In re Tape City, U.S.A., Inc., 677 F.2d 401 (5th Cir.1982) (per curiam). In Mission Marine Associates a New Jersey statute provided a non-possessory materialman’s lien for work done on marine vessels prior to launching, but did not require recording. As in this case, there was no clear instruction in the state’s caselaw. 633 F.2d at 861. However, the Third Circuit discerned a state “policy concerning the protection of bona fide purchasers against secret non-possessory liens_” Id. The court determined that the Supreme Court of New Jersey “would apply [this] policy to protect a [buyer] who purchased from Mission Marine without notice of [the creditor’s] claim.” Id.
The Fifth Circuit has addressed this issue in at least four cases. See In re Martin Exploration Co., 731 F.2d 1210 (5th Cir.1984); In re Tape City, U.S.A., Inc., 677 F.2d 401 (5th Cir.1982) (per curiam); In re Lowery Bros., Inc., 589 F.2d 851 (5th Cir.1979); In re Trahan, 402 F.2d 796 (5th Cir.1968). Although the relevant statutes did not require filing or otherwise provide for notice, the court held in each case that the trustee or debtor-in-possession could not avoid the statutory lien. In fact, the court simply noted that the statutes did not require filing. It has yet to acknowledge the impact of a policy against secret liens.
I find the Third Circuit’s reasoning in Mission Marine Associates to be more persuasive than that of the Fifth Circuit. At least one commentator agrees:
Because of its inherent advantages, the “notice” approach should be uniformly adopted by the bankruptcy courts. The “notice” approach best enforces the congressional intent underlying the bona fide purchaser test. Under this approach, the states are properly limited in their use of statutory liens. If the states want to give certain groups of creditors secured status, then they may give these creditors lien rights that are evidenced in general commerce by a notice filing. Furthermore, bankruptcy courts can readily administer the “notice” approach. This approach reduces the ambiguity created by the hypothetical bona fide purchaser status of the trustee in bankruptcy. The courts more easily can determine if this hypothetical entity could *726have had notice of a particular lien than they can determine what type of purchaser he is or what actions beyond purchase he may or may not be supposed to have taken.
Note, The California Agricultural Producer’s Lien, Processing Company Insolvencies, and Federal Bankruptcy Law: An Evaluation and Alternative Methods of Protecting Farmers, 36 Hastings L.J. 609, 621-23, 628 (1985).
California’s courts have not considered the enforceability of the producer’s lien against bona fide purchasers.1 California courts, however, like the New Jersey courts, have a longstanding policy against upholding liens that fail to give notice to subsequent purchasers. See Schut v. Doyle, 168 Cal.App.2d 698, 702, 336 P.2d 567, 569 (1959); cf. G. Gilmore, Security Interests in Personal Property § 14.1, at 439 (1965) (“The antagonism to the ‘secret lien’ runs through [California’s] law of sales and secured transactions alike.”).
The producer’s lien does not give notice to subsequent purchasers. There is no notice or filing requirement; rather, the lien is completed and attaches upon delivery of an agricultural product to a processor. Cal.Food & Agric.Code §§ 55632, 55635. The Producers’ argument that a hypothetical bona fide purchaser would have constructive notice is unconvincing. The argument is unsupported by California case law,2 what law there is holds the opposite. When the legislature has enacted a lien without provisions requiring filing or rec-ordation, the lien will be enforced “so far as it can ... without injury to the rights of bona fide purchasers.” Finnell v. Finnell, 156 Cal. 589, 594, 105 P. 740, 742 (1909).3
Our recent decision in In re Badger Mountain Irrigation District, 885 F.2d 606 (9th Cir.1989), does not conflict with this analysis. In that case we emphasized that “[t]he comprehensive statutory scheme gives notice to anyone purchasing land from the District that the land is encumbered.” Id. at 610. We noted that
[a]n examination of the District’s claim of title would show that the District’s acquisition of the land had been accomplished pursuant to foreclosure proceedings under [the Washington statute]. [The statute requires that] [t]he Superior Court order ratifying the formation and election of directors of an irrigation district ... be filed with the auditor and assessor of any county in which the district property is located_ Additionally, the statute requires an order to be filed, noted, and carried forward in the county assessor’s office opposite the legal description of every parcel of land in the district.
Id. at 610. Under Washington law, such a properly recorded instrument is constructive notice of the rights created by the instrument and of all recitals in the instrument. Id. at 610, n. 5 (citing Jones v. Berg, 105 Wash. 69, 177 P. 712, 717-18 (Wash. 1919)). No such instrument was filed in this case. Therefore, a hypothetical bona fide purchaser cannot be held to have had constructive notice of the lien.
In a proceeding before another panel of this court, In re Sacramento Foods, Inc., No. 88-2749, the Producers have pointed out that California law makes it unlawful to sell liened products, and argue that the creation of a hypothetical bona fide purchaser would force the trustee to commit an unlawful act. This convoluted argument was neither made nor briefed by the parties in this appeal, nonetheless, it is easily dismissed.
In the first place, the argument strays from the language of section 545(2). The *727Bankruptcy Code does not construct a hypothetical situation in which the trustee takes possession of the liened property and then sells it to a bona fide purchaser. Section 545(2) merely asks: would the lien be enforceable against a bona fide purchaser if one were to exist at the moment the bankruptcy petition was filed. In the second place, the argument overstates the force of the California statutes: it is not illegal to sell the lien produce, it is merely illegal to use the funds from the sale of liened produce other than to satisfy the underlying debt. In the third place, even if the sale of the liened produce was illegal, that would not affect the bona fide nature of the subsequent purchaser. California law recognizes the good title of a bona fide purchaser even if the seller violates the law. Cal.Com.Code § 2403. In innumerable cases, transfer of liened property would violate law. Section 545(2) does not inquire into the legality of the transfer, it asks only whether the lien would be enforceable against a hypothetical bona fide purchaser. To do otherwise would disrupt the ability of the trustee to fairly distribute the assets of an insolvent party according to a federal scheme. See Note, supra, at 627-28.
The California producer’s lien gives no actual or constructive notice to subsequent purchasers. It could not be enforced against a bona fide purchaser.

. The decisions referred to by the Producers in their briefs hold that possession by the party who also holds the security interest may impart constructive notice to a subsequent purchaser.

.The California Legislature does at times provide for the impact of a lien on subsequent purchasers. E.g., CaLFood & Agric.Code § 55702(b) (livestock lien). Its failure to do so with the producer’s lien indicates that the normal notice requirement should be applied.