Court Opinion

ID: 9690643
Source: CourtListenerOpinion
Date Created: 2023-08-24 19:29:37.491482+00
Date Added: 2024-06-11T18:19:00.631015
License: Public Domain

JONES, Bankruptcy Judge,
dissenting:
I agree with the majority that 11 U.S.C. §§ 363(a) and 552(b), read together, demand that a security interest in rents be “perfected” pre-petition in order for the rents to be classified as cash collateral in bankruptcy,1 and that state law determines whether and at what time a mortgagee has a “perfected” interest in rents.2 I also agree that Sears properly recorded its assignment of rents and therefore achieved “perfection” pre-petition pursuant to Arizona law.3
However, the “perfection” that comes with recording is a limited perfection — protecting the recording party against subsequently recording parties but giving no present right to receive rents against the title holder of the underlying property. In Arizona, the present right to rents comes only after some “further affirmative act,” such as 1) appointment of a receiver, 2) taking possession of the underlying property, 3) directly collecting the rents, or 4) obtaining an injunction. A.R.S. § 33-702(B).
Sears was precluded from performing any of the listed acts when TIP filed for bankruptcy. Therefore, a strict interpretation of Arizona law would deny Sears any relief, a result that gives TIP greater protection under bankruptcy law than under state law. Such a holding would be both unfair and contrary to Butner v. United States, 440 U.S. 48, 56, 99 S.Ct. 914, 918, 59 L.Ed.2d 136 (1979).
Apparently because of this unfairness the majority has taken the opposite position, holding that the “perfection” which comes with recording is the same as the present right to receive rents. Such a holding, giving Sears greater rights than it would have received in the absence of bankruptcy, is also contrary to Butner. Id.
The BAP has previously addressed this issue, stating that “in the event bankruptcy *626law precludes a mortgagee from acting under state law, the mortgagee may establish its right by sequestering the rents in the bankruptcy court.” Waldron v. Northwest Acceptance Corp. (In re Johnson), 62 B.R. 24, 29 (9th Cir. BAP 1986), (citing Investors Syndicate v. Smith, 105 F.2d 611 (9th Cir. 1939)). The Johnson panel chose to liberally construe state law,4 allowing acts performed post-petition to replace the “further affirmative acts” required under state law — so long as the substituted acts gave notice of intent to obtain rents. Johnson, 62 B.R. at 29 (mortgagee’s claim to rents denied because of failure to indicate intent to obtain rents). Sears’ objection to the use of cash collateral and its request for adequate protection arguably fulfilled this notice requirement.
I would find that Sears had no present right to rents before it filed its objection to use of cash collateral and motion for adequate protection on May 10, 1988. Therefore, I respectfully dissent.

. B.g., In re Multi-Group III Ltd. Partnership, 99 B.R. 5, 8 (Bankr.D.Ariz.1989).

.Butner v. United States, 440 U.S. 48, 54-56, 99 S.Ct. 914, 917-18, 59 L.Ed.2d 136 (1979).

.A.R.S. § 33-412; see also Waldron v. Northwest Acceptance Corp. (In re Johnson), 62 B.R. 24, 28 (9th Cir. BAP 1986).

. In the absence of state law mandating a strict interpretation, a liberal construction of the state statute is not inappropriate. Johnson, 62 B.R. at 29-30. Nothing in the Arizona statute mandates a strict interpretation. See generally In re Ventura-Louise Properties, 490 F.2d 1141 (9th Cir. 1974); but see In re Multi-Group III Ltd. Partnership, 99 B.R. 5, 9 (Bankr.D.Ariz.1989) (the Arizona statute contains no rent sequestration procedures and has no "similar action" clause).