Court Opinion

ID: 9488856
Source: CourtListenerOpinion
Date Created: 2023-08-05 12:57:33.087931+00
Date Added: 2024-06-11T17:53:08.808462
License: Public Domain

CLARK, Senior Circuit Judge,
concurring in part and dissenting in part:
I agree philosophically with the majority’s result in this case, but regrettably I read the statute differently. I agree that the current [1994] version of 11 U.S.C. § 552 would require the majority’s result. This case is governed by the § 552 which was in effect prior to October 22, 1994, with which the majority agrees. The majority takes the change in the statute by the 1994 Act as bolstering its interpretation of the 1984 statute.
Section 552 has as its subject the “Postpetition effect of security interest.” The 1984 statute, with which we are concerned, provided that a security interest conveyed in an agreement entered into between a creditor and a debtor prior to bankruptcy extended after commencement of a bankruptcy case to “proceeds ... rents, or profits” of the property “to the extent provided by such security agreement and by applicable nonbankruptcy law....” It is my view that the district court was correct in interpreting the phrase “non-bankruptcy” law to mean state law, in this case, Georgia law. I agree with the courts in the Fifth and Ninth Circuits whose opinions are cited in Note 9 of the majority opinion for the proposition that state law defines the meaning of the word “rents” as used in § 552(b).
I am also persuaded by the changes made in the 1994 version of § 552(b) by Congress. The new version of § 552(b) is quoted in the majority opinion on pages 9-10 and I shall not duplicate it here. The 1994 change reflects that Congress thought the phrase in the 1984 law “applicable non-bankruptcy law” referred to state laws. In House Report No. 103-385, 103rd Cong. 2nd Session, reprinted in 1994 U.S.C.C.A.N. 3340 at 3357, in explaining changes wrought by-the Bankruptcy Reform Act under consideration, the report states:
Under current section 552 of the Bankruptcy Code, real estate lenders are deemed to have a security interest in post-petition rents only to the extent their security interest has been “perfected” under applicable State law procedures.16 Inclusion under section 552, in turn, allows such *1126proceeds to be treated as “cash collateral” under section 363(a) of the Bankruptcy Code, which prohibits a trustee or debtor-in-possession from using such proceeds without the consent of the lender or authorization by the court. In a number of States, however, it is not feasible for real estate lenders to perfect their security interest prior to a bankruptcy filing; and, as a result, courts have denied lenders having interests in postpetition rents the protection offered under sections 552 and 363 of the Bankruptcy Code.17 Section 214 provides that lenders may have valid security interests in postpetition rents for bankruptcy purposes notwithstanding their failure to have fully perfected their security interest under applicable State law. This is accomplished by adding a new provision to section 552 of the Bankruptcy Code, applicable to lenders having a valid security interest which extends to the underlying property and the postpetition rents.
Each of the Bankruptcy Court decisions cited in Note 17 holds that State law governs and limits the meaning of the word “rents” as used in § 552(b). Those decisions, and law review articles which have criticized § 552(b) as it existed prior to this 1994 change, interpret the previously existing section as did the district court whose opinion we review here. I applaud the 1994 change. It belatedly brings the statute into line with the philosophy of the Uniform Commercial Code which had as its purpose making the laws of all states alike so that financial institutions across the country could lend across state lines with confidence.
I think the district and bankruptcy court judges correctly interpreted the statute and court decisions which bound them.

 Butner v. United States, 440 U.S. 48, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979).

 See, e.g., In re Multi-Group III Ltd. Partnership, 99 B.R. 5 (Bankr.D.Ariz.1989); In re Association Center Ltd. Partnership, 87 B.R. 142 (Bankr.W.D.Wash.1988); In re TM Carlton House Partners, Ltd., 91 B.R. 349 (Bankr.E.D.Pa.1988); In re Metro Square, 93 B.R. 990 (Bankr.D.Minn.1988).