Gulf Forge Co. v. Ellwood Quality Steels Co.
| Decision Date | 04 October 1996 |
| Docket Number | Civil Action No. H-95-5347,Bankruptcy No. 95-47434-H5-7. |
| Citation | 202 BR 238 |
| Parties | In re GULF FORGE COMPANY, Debtor, v. ELLWOOD QUALITY STEELS COMPANY and Ellwood City Forge, Appellants, Gulf Forge Company and LaSalle National Bank, Appellees. |
| Court | U.S. District Court — Southern District of Texas |
H. Gray Burks, IV, Houston, TX, for Gulf Forge Company.
J. Robert Van Kirk, Kirkpatrick & Lockhart, Pittsburg, PA, for Ellwood Quality Steels Company and Ellwood City Forge.
Janet Elaine Mortenson, Woodard Hall & Primm, Houston, TX, for LaSalle Nat'l Bank.
Ellwood Quality Steels Company and Ellwood City Forge, a Division of Ellwood Group, Inc., ("Ellwood"), file this consolidated appeal from orders of the bankruptcy court recognizing that LaSalle National Bank (the "Bank") had a perfected security interest in equipment owned by the debtor, Gulf Forge Company ("Gulf Forge"). Based on this finding, the bankruptcy court granted the Bank's motion for relief from the automatic stay; denied relief on Ellwood's involuntary bankruptcy petition; and denied Ellwood's motion to enjoin the transfer of Gulf Forge's assets, or, in the alternative, for appointment of an interim trustee. Ellwood did not seek a stay pending this appeal, and the Bank proceeded to sell the equipment.
In this appeal, Ellwood asserts that the bankruptcy court erred in concluding that the Bank's description of collateral in the financing statement was sufficient to perfect the Bank's security interest in the debtor's equipment. Gulf Forge has filed a motion to dismiss the appeal as moot on the ground that Ellwood did not move for a stay; the equipment at issue has been sold; and there is no adequate remedy at law or other, equitable, relief.
Based on a careful review of the parties' briefs and submissions, the bankruptcy record, and the applicable authorities, this court DENIES the motion to dismiss the appeal as moot. This court finds no reversible error in the bankruptcy court's orders. This appeal is therefore DISMISSED.
Gulf Forge operated a steel forging business in Houston, Texas. In February 1989, the Bank made a loan to Gulf Forge and entered into a security agreement giving the Bank a security interest in certain Gulf Forge property. The Bank filed a UCC-1 financing statement with the Secretary of State, asserting a security interest in:
The following property of Debtor whether now or hereafter existing or acquired and wherever now or hereafter located: accounts, accounts receivable, notes, contract rights, chattel paper, instruments, documents, conditional sales contracts, goods, including without limitation, inventory and furniture, general intangibles (including, but not limited to patents and trademarks) and all proceeds of any of the foregoing.
When the Bank filed this financing statement in 1989, it did not have a security interest in any of Gulf Forge's equipment. It is undisputed that the primary security was inventory and accounts receivable. The written security agreement had a line drawn through the word "equipment" in paragraph 4(d), the section providing for the grant of a security interest.
In March 1992, paragraph 4(d) of the Bank's security agreement was amended to include "all Equipment, vehicles, and fixtures." However, the Bank did not amend the financing statement.
By August 1993, Gulf Forge was unable to pay its debts. It owed Ellwood over one million dollars for steel ingots. In June 1994, Ellwood obtained a judgment against Gulf Forge in the amount of $1,399,867.59. In June 1994, Gulf Forge ceased operations. In April 1995, after unsuccessfully trying to find a single buyer, Gulf Forge surrendered its assets to the Bank. In July 1995, the Bank conducted a nonjudicial foreclosure of Gulf Forge's real estate. In September 1995, the Bank entered into an auction agreement for the sale of the machine shop equipment and into a purchase agreement for the private sale of the forge shop equipment.
On September 28, 1995, before the equipment sales, Ellwood and three other unsecured creditors filed an involuntary petition against Gulf Forge under Chapter 7 of the bankruptcy Code. Ellwood filed an emergency motion for an order enjoining the transfer of the assets or, in the alternative, for appointment of an interim trustee. The Bank filed a motion for relief from the automatic stay and to dismiss. It is undisputed that when the involuntary petition was filed, the only property Gulf Forge owned was the forge operation equipment and the machine shop equipment. It is also undisputed that as of the filing date, Gulf Forge owed the Bank over $1,150,000.00.
Following an evidentiary hearing, the bankruptcy court judge entered findings. The judge found that the foreclosure and the proposed sales were not fraudulent or collusive; that finding is not challenged on appeal. The second finding, the basis of this appeal, was that:
the banks\'s lien does validly attach to the equipment at issue, and that pursuant to section 9.109 of the Texas Business and Commerce Code that goods do apply to equipment, and that if there is any arguable vagueness in the general term, ... a creditor would be on inquiry notice to look for a security agreement by the lender.
(Tr. at 183). The bankruptcy court found that Gulf Forge had no equity remaining in the equipment. The court therefore granted the Bank's motion for relief from the automatic stay; denied Ellwood's motion to enjoin the transfer of the assets or alternatively to appoint an interim trustee; and dismissed the case. On October 12, 1995, the forge operation equipment was sold at a private sale, and on October 17, 1995 the machine shop equipment was sold at auction. The sales were subject to tax liens and to auction expenses.
In this appeal, Ellwood asserts that as a matter of law the Bank's interest in Gulf Forge's equipment was not adequately perfected. Ellwood argues that the Bank's financing statement description of the collateral as "goods" was not sufficient to perfect a security interest in the equipment. Ellwood seeks a reversal of the bankruptcy court's finding that the Bank's lien applied to the equipment at issue. Ellwood asks this court to remand with an order that the Bank return the proceeds of the sale of the equipment, less that portion of the proceeds attributable to vehicles in which the Bank did properly perfect a security interest (through notations on certificates of title), and less any appropriate taxes paid that were senior to the claims of unsecured creditors. Ellwood asks this court to have a trustee appointed to distribute the after-tax proceeds from the equipment sales to the unsecured creditors.1
The Bank responds that the bankruptcy court correctly concluded that the use of the word "goods" to describe "equipment" in the financing statement perfected a security interest in that equipment under the Texas Business and Commerce Code § 9.109. The Bank also responds that the bankruptcy court's factual finding, that the description of the collateral in the Bank's financing statement provided sufficient inquiry notice to a reasonably prudent creditor that the security agreement covered Gulf Forge's equipment, was not clearly erroneous.
In reviewing a bankruptcy court decision, a district court functions as an appellate court and applies the standards of review generally applied in federal courts of appeal. In re Webb, 954 F.2d 1102, 1103-04 (5th Cir.1992). This court will not set aside a bankruptcy court's findings of fact unless they are clearly erroneous. FED.R.BANKR.P. 8013; In re McDaniel, 70 F.3d 841, 842-43 (5th Cir. 1995). A finding of fact is clearly erroneous if, after review of all the evidence, the court is left with a firm and definite conviction that the bankruptcy court erred. In re McDaniel, 70 F.3d at 843. This court reviews legal conclusions de novo. Id.; In re Herby's Foods, Inc., 2 F.3d 128, 130 (5th Cir.1993).
The parties agree on the following statement of the legal issue before this court:
Appellants are asking this court to rule, as a matter of law, that it is never sufficient to use the term "goods" in an financing statement in order to perfect a security interest in equipment, even though "goods" includes "equipment" by definition.
(Docket Entry No. 12, Appellants' Brief, p. 1). The parties also agree that this court reviews de novo the bankruptcy court's conclusion that section 9.402 of the Texas Business and Commerce Code permits a party filing a financing statement to perfect a security interest in the "equipment" by using the term "goods." Section 9.402 of the Texas Business and Commerce Code sets out the requirements for perfecting a security interest, as follows:
(a) A financing statement is sufficient if it gives the names of the debtor and the secured party, is signed by the debtor, gives an address of the secured party from which information concerning the security interest may be obtained, gives a mailing address of the debtor and contains a statement indicating the types, or describing the items, of collateral.
Tex.Bus. & Com.Code Ann. § 9.402(a) (Vernon Supp.1996).
The comment to Section 9.402 explains the purpose of the financing statement in Texas, a "notice filing" state, as follows:
This section adopts the system of "notice filing".... What is required to be filed is ... only a simple notice which may be filed before the security interest attaches or thereafter. The notice itself indicates merely that the secured party who has filed may have a security interest in the collateral described. Further inquiry from the parties concerned will be necessary to disclose the complete state of affairs.
Tex.Bus. & Com.Code Ann. § 9.402, comment 2 (Vernon Supp.1996).
The test for the sufficiency of a financing statement is set out in Section 9.110, which provides:
...To continue reading
Request your trial