CFLC, Inc., In re

Decision Date02 February 1999
Docket NumberNo. 97-17345,97-17345
Citation166 F.3d 1012
Parties, 37 UCC Rep.Serv.2d 475, 99 Cal. Daily Op. Serv. 905, 1999 Daily Journal D.A.R. 1151 In re: CFLC, INC., a Delaware Corporation, Debtor. Expeditors International of Washington, Inc., Appellant, v. The Official Creditors Committee, of CFLC, Inc., Appellee.
CourtU.S. Court of Appeals — Ninth Circuit

Robert E. White and Jean P. Tepper, San Francisco, California, for the appellant.

Terrence V. Ponsford and Carl R. Goldberg, Bronson, Bronson & McKinnon, San Francisco, California, for the appellee.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel; Ollason, Volinn and Meyers, Judges, Presiding. BAP No. NC-96-01232-OlVoMe.

Before: ROBERT R. BEEZER, CYNTHIA HOLCOMB HALL and PAMELA ANN RYMER, Circuit Judges.

BEEZER, Circuit Judge:

Expeditors International of Washington, Inc. ("Expeditors") appeals the Bankruptcy Appellate Panel's affirmance of partial summary judgment and dismissal of Expeditors' claim. We have jurisdiction pursuant to 28 U.S.C. § 158(d). We hold that Expeditors' pre-printed invoice terms did not create a security interest in Everex's property, either explicitly or through course of dealing analysis under Article 2 or Article 9 of the Uniform Commercial Code. We affirm.

I

In August 1991, Expeditors began providing transportation-related services for Debtor CFLC, Inc., formerly known as Everex Systems, Inc. ("Everex"), including freight forwarding, ocean shipping and customs brokerage. For 17 months prior to Everex's filing its bankruptcy petition, Expeditors handled Everex's export and import shipments. Expeditors negotiated with Everex for all of the air freight forwarder rates and services performed by Expeditors' subsidiaries. Expeditors was in continuous possession, either directly or through its agents, of Everex's goods.

Expeditors billed Everex on Expeditors' regular invoices, issued contemporaneously with receipt of the shipments. From August 1991 until January 1993, Expeditors sent approximately 330 invoices that contained fine print on the reverse side entitled "Terms and Conditions of Service." Section 15 of the invoice states:

15. General Lien on Any Property. The Company shall have a general lien on any and all property (and documents relating thereto) of the Customer, in its possession, custody or control or en route, for all claims for charges, expenses or advances incurred by the company in connection with any shipments of the Customer and if such claim remains unsatisfied for thirty (30) days after demand for its payment is made, the Company may sell at public auction or private sale, upon ten (10) days written notice, sent certified or registered mail with return receipt requested to the Customer, the goods, wares and/or merchandise, or so much thereof as may be necessary to satisfy such lien, and apply the net proceeds of such sale to the payment of the amount due to the Company. Any surplus from such sale shall be transmitted to the Customer, and the Customer shall be liable for any deficiency in the sale.

Section 16 states, in pertinent part:

16. In any referral for collection or action against the Customer for monies due to the Company, upon recovery by the Company, the Customer shall pay the expenses of collection and/or litigation, including a reasonable attorney fee.

Everex never signed the invoices or any agreement with Expeditors regarding the printed invoice terms. The parties neither discussed nor expressly bargained over Sections 15 and 16 of the invoice or any other provision on the reverse side of the invoice. Everex did not object to the invoice terms prior to its bankruptcy, and Expeditors did not attempt to enforce Section 15 of the invoice by asserting a security interest or lien against the shipments prior to the 90-day period before the petition date. On October 29, 1992, Expeditors notified an Everex employee that it would be asserting its lien on the Everex goods in its possession until payments were made on outstanding invoices. Before the bankruptcy petition was filed, the parties continued normal business operations. At the time of Everex's bankruptcy filing, Expeditors was in possession of Everex property valued at $81,402. 1

Everex filed a voluntary Chapter 11 petition on January 4, 1993. In March 1994, Expeditors filed a complaint in the Bankruptcy Court to determine the validity, priority and extent of the claimed lien. Expeditors alleged that Everex owed a balance of $42,919.33, exclusive of postpetition interest, attorneys' fees and costs, for 68 past-due invoices dated January through October 1992.

In May 1995, the Official Creditors Committee of CFLC, as a party defendant, and Expeditors filed cross-motions for summary judgment based on stipulated facts. The bankruptcy judge held that Expeditors did not have a security interest in Everex property and that U.C.C. Article 2 did not apply because Expeditors provided a service. The bankruptcy judge granted the Creditors Committee's partial motion for summary judgment and denied Expeditors' cross-motion. The bankruptcy court later dismissed Expeditors' complaint.

Expeditors appealed the bankruptcy court's decision to the Bankruptcy Appellate Panel ("BAP"). The BAP affirmed the grant of partial summary judgment and dismissal of Expeditors' complaint. The BAP determined, inter alia, that: (1) the invoices did not amount to an agreement for a security interest; (2) Expeditors repeated delivery of invoice terms was not evidence of course of dealing because no security agreement existed that could be supplemented by such evidence; and (3) Article 2 of the U.C.C. did not apply to the service transactions involved. See In re CFLC, Inc., 209 B.R. 508, 513-16 (9th Cir.BAP 1997). Because the BAP determined that Expeditors did not have a security interest in Everex's property, it did not reach the question whether the transfer of the security interest was subject to preference under § 547(c)(5) of the Bankruptcy Code. 2 This timely appeal followed.

II

We review de novo decisions of the BAP. See In re Mantle, 153 F.3d 1082, 1084 (9th Cir.1998). We independently review the bankruptcy court's rulings on appeal from the BAP. See id. We review the bankruptcy court's conclusions of law de novo and its factual findings for clear error. See id.; In re Claremont Acquisition Corp., Inc., 113 F.3d 1029, 1031 (9th Cir.1997).

III

Article 2 of the U.C.C. applies only to transactions involving goods, not services. See Cal. Com.Code § 2102 ("this division applies to transactions in goods"). 3 We hold that Article 2 does not apply to the contract between Expeditors and Everex because the parties contracted for services. Therefore, Expeditors' assertion that invoice terms rendered without objection constitute valid additions to the parties' contract under § 2-207 is inapplicable. 4

IV

Expeditors argues that it has a valid security interest in Everex's property under Article 9. Expeditors contends that its pre-printed invoices created an enforceable security interest in Everex's property in either of two ways: (1) receipt of Expeditors' invoices without objection by Everex created an agreement that contained the security interest, or (2) the invoices formed a basis for course of dealing analysis to supplement the terms of the contract, thereby including a security interest. We hold that no security interest was formed between the parties.

A

Section 9203 of the California Commercial Code 5 outlines three requirements for the attachment and enforceability of a security interest: possession pursuant to an agreement, value given and debtor rights in the collateral. "No magic words or precise form are necessary to create or provide for a security interest so long as the minimum formal requirements of the Code are met." In re Amex-Protein Dev. Corp., 504 F.2d 1056, 1058-59 (9th Cir.1974). "Although the U.C.C. does not specifically state that intention to create a security agreement is an element necessary to creating a valid security agreement, it is clear that intention to do so is required." In re Airwest Int'l, 70 B.R. 914, 919 (Bkrtcy.D.Hawai'i 1987). Determining whether the parties intended to create a security interest is a two-step process. The court must find both language in a written agreement that objectively indicates the parties' intent to create a security interest and the presence of a subjective intent by the parties to create a security interest. See id. (citing White & Summers, Handbook of the Law Under the Uniform Commercial Code, § 23-3 (1980)). The intent to create a security interest must appear on the face of a written document executed by the debtor. See In re Ace Lumber Supply, Inc., 105 B.R. 964, 968 (Bankr.D.Mont.1989).

Although Expeditors appears to have met the three requirements delineated in the U.C.C., the transactions lack the intent to create a security interest. No documents were executed by Everex manifesting its intention to give Expeditors a security interest. The terms for a security interest appear only on the creditor's forms. The parties stipulated that they never discussed these terms and that Everex never signed the invoices or any other agreement containing these terms. The invoices alone are insufficient to form a security interest because pre-printed agreements used by a creditor do not create a security interest if the debtor never intended the collateral to be used for this purpose. See In re Airwest Int'l, 70 B.R. at 919. In Airwest, the debtor pledged certificates of deposit as collateral for a specific debt. The creditor could not utilize the certificates for other debts, even though the creditor's pre-printed agreement stated that certificates would cover all other indebtedness of the debtor. See id.

Expeditors contends that Everex's failure to object to the invoice terms constituted a tacit approval of the creation of a security...

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