In re Catamount Dyers, Inc.

• Decision Date: 23 April 1985
• Docket Number: Bankruptcy No. 82-00160,Adv. No. 85-0021.
• Citation: 50 BR 788
• Court: U.S. Bankruptcy Court — District of Vermont
• Parties: In re CATAMOUNT DYERS, INC., Debtor. David D. ROBINSON, Esquire, Trustee, Plaintiff, v. U.S. SMALL BUSINESS ADMINISTRATION and Clark Equipment Credit Corporation, Defendants.

50 B.R. 788 (1985)

In re CATAMOUNT DYERS, INC., Debtor.

David D. ROBINSON, Esquire, Trustee, Plaintiff, v. U.S. SMALL BUSINESS ADMINISTRATION and Clark Equipment Credit Corporation, Defendants.

Bankruptcy No. 82-00160, Adv. No. 85-0021.

United States Bankruptcy Court, D. Vermont.

April 23, 1985.

Timothy N. Maikoff, Office of Trustee, David D. Robinson, Rutland, Vt., George T. Faris, IV, Montpelier, Vt., for U.S. Small Business Administration.

Stephen A. Dardeck, Rutland, Vt., for Clark Equipment Credit Corp.

MEMORANDUM OPINION

CHARLES J. MARRO, Bankruptcy Judge.

In this adversary proceeding the Trustee, David D. Robinson, Esquire, is requesting the Court to determine the validity of security interests held by the U.S. Small Business Administration and by Clark Equipment Credit Corporation. He filed his Complaint supported by a Memorandum of Law on February 25, 1985. The Small Business Administration submitted its Answer on April 3, 1985 and on the same date it moved for Summary Judgment with supporting Memorandum of Law. On April 5, 1985, Clark Equipment Credit Corporation moved for Summary Judgment and in its Motion it adopted and incorporated by reference the Memorandum of Law submitted by the Small Business Administration.

The Motions for Summary Judgment are proper in this case and have been filed pursuant to Bankruptcy Rule 7056, which makes applicable Rule 56 of the Federal Rules of Civil Procedure, since it appears that there are no disputed issues of fact.

FACTS

The Small Business Administration acquired a security interest in machinery, furniture, fixtures, inventory, accounts receivable, contract rights, and other property under a security agreement which was perfected by the filing of financing statements in the proper places on March 20, 1978. These statements did not recite a maturity date.

Clark Equipment Credit Corporation acquired a purchase money security interest in a forklift truck under a security agreement which was perfected by the filing of financing statements in the proper places on December 2, 1977. Likewise, these statements recited no maturity date.

The Debtor, Catamount Dyers, Inc., filed for relief under Chapter 11 of the Bankruptcy Code on July 8, 1982, and the case was converted to a Chapter 7 liquidation proceeding on March 13, 1984 at which time David D. Robinson, Esquire, was appointed trustee. He is still the duly qualified and acting trustee.

Neither Small Business Administration nor Clark Equipment Credit Corporation has ever filed any continuation statements.

DISCUSSION

It is the position of the Trustee that the security interests of both Small Business Administration and of Clark Equipment Credit Corporation have lapsed because of their failure to file continuation statements as required by the Uniform Commercial Code.

It is generally held that the nature of a creditor's property rights in bankruptcy is defined by state law, not federal law. Butner v. United States, 440 U.S. 48, 54; 99 S.Ct. 914, 917, 59 L.Ed.2d 136; In Re Skelly Jr., (U.S. District Court—D. Delaware —1984), 38 B.R. 1000, 1001. State law also defines the nature and extent of debtor's and, therefore, the estate's interest in property. Butner v. U.S., supra; In Re Abdallah (Bankr.D.Mass.1984) 39 B.R. 384, 386; In Re Ford (Bankr.Md.1980) 3 B.R. 559, aff'd 638 Fed.2d 14 (4th Cir.1981). It follows that the rights of Small Business Administration and of Clark Equipment Credit Corporation as to the collateral which is subject to their security interests are controlled by the pertinent sections of the Uniform Commercial Code as adopted in this state and as they apply to the established facts.

Under § 9-403 of the U.C.C. a filed financing statement which recites no maturity date is effective for a period of five years from the date of filing and its effectiveness lapses on the expiration of such five-year period unless a continuation statement is filed prior to the lapse. The filing of the Petition of the Debtor for Relief on July 8, 1982 occurred within this five-year period. Under ordinary circumstances the secured creditors would be prohibited from filing continuation statements by virtue of the automatic stay prescribed by § 362 of the Bankruptcy Code. However, subparagraph (b)(3) provides for an exception to the automatic stay and permits post-petition perfection of certain liens to be effective against the trustee. He contends that, in view of this exception, the secured parties were required to file continuation statements within the five-year period, and, because of their failure to do so, the effectiveness of the financing statements which they originally filed has lapsed. This argument is ill founded.

Under § 544 of the Bankruptcy Code, which is the strong-arm clause under the Code just as § 70c of the former Bankruptcy Act was, the trustee becomes a judicial lien creditor as of the time of the commencement of the case in which the debtor files for relief. It is clear from this section that the date of filing is crucial for the purpose of determining whether the trustee may avoid the security interests held by Small Business Administration and Clark Equipment Credit Corporation. This is aptly expressed in 4 Collier 15th Ed. 544-17 as follows:

"By virtue of section 544(a) the trustee has, from the date of the filing

...