Court Opinion

ID: 163538
Source: CourtListenerOpinion
Date Created: 2010-08-14 07:55:54+00
Date Added: 2024-06-11T17:24:42.986854
License: Public Domain

F I L E D
                                                                   United States Court of Appeals
                                                                           Tenth Circuit
                     UNITED STATES COURT OF APPEALS
                                                                           JUN 6 2003
                             FOR THE TENTH CIRCUIT
                                                                      PATRICK FISHER
                                                                               Clerk

    In re:

    TOWER TECH, INC.

                Debtor.                                  No. 02-6305
                                                  (D.C. No. CIV-01-1707-HE)
                                                         (W.D. Okla.)
    ELECTRICAL CONSTRUCTORS,
    LLP,

                Appellant,

    v.

    TOWER TECH, INC.,

                Appellee.

                             ORDER AND JUDGMENT           *

Before BRISCOE , PORFILIO , and ANDERSON , Circuit Judges.

         After examining the briefs and appellate record, this panel has determined

unanimously to grant the parties’ request for a decision on the briefs without oral

*
      This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore

ordered submitted without oral argument.

      Electrical Constructors, LLP (EC) appeals from an order of the district

court, which affirmed a ruling of the bankruptcy court sustaining debtor Tower

Tech Inc.’s objection to EC’s proof of claim. The bankruptcy court concluded

that certain U.S. patents used to secure loans from EC to debtor became the

property of debtor’s bankruptcy estate at the time of its filing. The bankruptcy

court then concluded that, because EC failed to perfect its security interest in the

patents by filing its interest pursuant to the Uniform Commercial Code (UCC),

as enacted in Oklahoma, EC’s unperfected interest was inferior to debtor’s

interest as a hypothetical lien creditor. EC sought review in the district court,

which affirmed the bankruptcy court’s determinations. On appeal, EC argues that

both courts erred when they concluded that the patents were the property of the

bankruptcy estate and that EC failed to properly perfect its security interest in the

patents. We have jurisdiction pursuant to 28 U.S.C. § 158(d), and we affirm.

      “Our review of the bankruptcy court’s decision is governed by the same

standards of review that govern the district court’s review of the bankruptcy

court. Accordingly, we review the bankruptcy court’s legal determinations

de novo and its factual findings under the clearly erroneous standard.”   Conoco,

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Inc. v. Styler (In re Peterson Distrib., Inc.),         82 F.3d 956, 959 (10th Cir. 1996)

(citation omitted).

       The case was submitted on stipulated facts. In 1996 and 1997, EC loaned

debtor $2,000,000.00, evidenced by three promissory notes and secured by an

interest in certain U.S. patents. Each of the three promissory notes contained

the following language:

       RIGHT OF ASSIGNMENT. At the option of Lender, in the event of
       default and upon written notice to Maker that an occurrence of
       default has occurred, the Lender shall receive an immediate
       assignment of all right, title and interest to the patents specified
       as collateral. Lender agrees that Maker shall be entitled to a
       non-exclusive royalty-free license of the subject patents for a period
       of one year from the maturity date together with any renewals or
       extensions thereof. During this license period, the Maker is entitled
       to redeem the assignment and receive all right, title and interest in
       the subject patents upon payment in full of all principal and interest
       accrued. In the event of default due to insolvency or bankruptcy,
       Maker agrees that Lender may during the one-year license period,
       license said patent technology to third parties under reasonable
       commercial terms. Upon redemption of assignment by Maker, Maker
       shall receive credit, less Lender’s expenses, for license fees received
       and Maker shall assume third party agreement as Licensor. Interest
       shall accrue from the effective date of loan funding until payment in
       full of the entire principal.

       GENERAL AUTHORITY and REMEDY. Maker hereby irrevocably
       appoints Lender and any partner or agent thereof, with full power of
       substitution, as its true and lawful attorney-in-fact, in the name of the
       Maker or its own name, for the sole use and benefit of Lender, but at
       Maker’s expense, at any time after an Event of Default, to take any
       and all appropriate action and to execute any and all documents and
       instruments which may be necessary or desirable to carry out the
       terms of this Right of Assignment and, without limiting the
       foregoing, Maker hereby gives Lender the power and right on its

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       behalf, upon notice to Maker to sell, transfer, assign or otherwise
       deal in or with the subject patents, as fully and effectually as if
       Lender were the absolute owner thereof. Upon payment in full of
       this Note, the Right of Assignment and Power of Substitution shall
       expire.

Aplt. App. at 92, 94-95, 98.

       EC recorded its security interest in the patents with the United States Patent

and Trademark Office (PTO), but it did not file a UCC-1 financing statement in

the State of Oklahoma. Debtor failed to make payments on the obligations, and in

August 2000, EC notified debtor that it was in default and that EC was exercising

its rights and remedies as provided in the promissory notes. As noted by the

bankruptcy court, however, the record contains no separate documents executed

by the parties evidencing an assignment of collateral. In December 2000, debtor

filed its petition for Chapter 11 bankruptcy. In April 2001, EC filed a proof of

claim covering the amount of the principal plus interest, fees, and other charges

set forth in the notes.

       The bankruptcy court interpreted the language contained in the promissory

notes and correctly ruled that a plain reading of that language gave EC an

entitlement to an immediate assignment of all right, title, and interest to the

patents, with the right and power to execute and record an assignment of the

patents as attorney-in-fact on behalf of debtor after notice of default. As the

bankruptcy court observed, “the terms of the Notes clearly provide that some

                                          -4-
further act would be required to complete the assignment of the Patents.” Aplt.

App. at 78. Because EC did nothing other than give notice of default, the

bankruptcy court did not err by concluding that no actual assignment of the

patents occurred, and that, therefore, the patents remained in the bankruptcy

estate. Moreover, relying primarily on the Ninth Circuit’s opinion in         Moldo v.

Matsco, Inc. (In re Cybernetic Servs., Inc.),         252 F.3d 1039 (9th Cir. 2001),

cert. denied , 534 U.S. 1130 (2002), the bankruptcy court also correctly ruled that

the perfection of a security interest in a patent in Oklahoma is governed by the

relevant provisions of the Uniform Commercial Code as enacted by that state and

is not preempted by the relevant recording provisions of the Patent Act.          See id.

at 1056-58. Therefore, because EC filed its security interest only in the PTO and

failed to properly perfect its interest pursuant to the filing requirements of the

UCC, we agree with the district court that the bankruptcy court did not err when it

concluded that debtor’s status as a hypothetical lien creditor remained superior

to EC’s unperfected interest in the patents.

       Accordingly, for the reasons stated in the bankruptcy court’s order

sustaining debtor’s objection to EC’s proof of claim, dated September 13, 2001,

                                                -5-
and the district court’s order dated August 27, 2002, the judgment of the United

States District Court for the Western District of Oklahoma is AFFIRMED.

                                                   Entered for the Court

                                                   John C. Porfilio
                                                   Circuit Judge

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