In re Ecology Paper Products Co., Bankruptcy No. B-78-2149-PHX-RGM.

• Decision Date: 26 January 1982
• Docket Number: Bankruptcy No. B-78-2149-PHX-RGM.
• Citation: 17 BR 281
• Parties: In re ECOLOGY PAPER PRODUCTS CO., Debtor.
• Court: U.S. Bankruptcy Court — District of Arizona

17 B.R. 281 (1982)

In re ECOLOGY PAPER PRODUCTS CO., Debtor.

Bankruptcy No. B-78-2149-PHX-RGM.

United States Bankruptcy Court, D. Arizona.

January 26, 1982.

Roderick D. MacMillan, Deputy County Atty., Phoenix, Ariz., for creditor, County of Maricopa.

Powell B. Gillenwater, Phoenix, Ariz., for trustee.

Thayer C. Lindauer, Phoenix, Ariz., for debtor.

OPINION AND ORDER

ROBERT G. MOOREMAN, Bankruptcy Judge.

This matter comes before the court in the context of a Chapter X petition under the Old Bankruptcy Act filed on behalf of the debtor, Ecology Paper Products, on November 8, 1978.

The Trustee has objected to the payment of post-petition interest on certain personal property tax claims filed by Maricopa County. While the Trustee has agreed to pay the base tax of $17,419.70 on such claims, he objects to the payment of post-petition interest on the basis that the claims are invalid as to a Trustee under Section 67(c)(1)(B) of the Old Bankruptcy Act. This section states:

(1) The following liens shall be invalid against the trustee:

(B) every statutory lien which is not perfected or enforceable at the date of bankruptcy against one acquiring the rights of a bona fide purchaser from the debtor on that date, whether or not such purchaser exists:. . . .

Maricopa County responds to the Trustee's objection by relying on Arizona Revised Statute § 42-609 which states:

The tax levied against personal property shall be a lien against the property, prior and superior to any and all other liens of every kind and description regardless of when another lien attached. The lien shall not be discharged until the taxes are paid or the title to the property vests in a purchaser of the property for the taxes. (Emphasis added.)

Based on this statute, Maricopa County contends that its lien claim satisfies the bona fide purchaser test of Section 67(c)(1)(B) of the Old Bankruptcy Act. Thus the question to be decided by the bankruptcy court is whether the county has perfected its liens for personal property taxes prior to the date of the filing of the petition in bankruptcy as against a bona fide purchaser.

In applying the bona fide purchaser test, this court looks to state law in order to determine the degree of perfection of the tax lien in question. In re Higgins, 304 F.Supp. 108 (D.C.S.Dak.1969); 4 Collier on Bankruptcy, ¶ 67.2812.2 (14th Ed.)

At the hearing on the issues raised here, the court referred to the case of In re Cummins, 656 F.2d 1262, 7 B.C.D. 833 as a possible source of guidance in this matter. In that case, the Ninth Circuit Court of Appeals questioned a lien created by California statute. However, the relevant California statutes specifically stated that such liens were not valid against a purchaser without notice. Such is not the case in the instant situation.

Arizona case law does not provide an interpretation of A.R.S. § 42-609 with reference to the rights of a bona fide purchaser. However, a plain reading of the statute evidences a legislative intent to create a lien with the highest priority.

The Trustee contends that it was the intent of Congress in enacting Section 67(c)(1)(B) to invalidate tax liens that were imposed absent actual seizure or possession of the property or some other procedure which would provide constructive notice to a bona fide purchaser. It is alleged by the Trustee that absent such constructive notice, the Arizona statutes allow the creation and enforcement of statutory liens in violation of constitutional precepts of due process. The legislative history underlying the 1966 amendments to Section 67 of the Old Bankruptcy Act reveals an intent to do away with any requirement of possession in invalidating statutory liens. The history states in part:

To insure the supremacy of the order of distribution provided in the Bankruptcy Act insofar as it is consistent with the continued recognition of genuine lien interests, this bill would eliminate lack of possession of personal property as the standard for upsetting liens and would instead invalidate as against the trustee * * *:

(2) Every statutory lien not perfected at the date of bankruptcy as against a subsequent bona fide purchaser from the debtor on that date. Senate Report No. 1159, 2 U.S.Code Cong. and Adm.News, pp. 2442, 2460-2464, 89th Congress (Second Sess. 1966).

Thus it appears clear that any requirement of seizure or possession in order to make a statutory lien valid against a trustee was specifically eliminated by Congress and the bona fide purchaser test was chosen as the proper criteria for scrutinizing statutory liens.

It has been emphasized by Maricopa County that the tax rolls for real or personal property are a public record and as such, are available to inspection by any interested person. From time to time, taxpayers, employees from title insurance companies, and other interested persons inspect the personal and real property tax rolls, or phone in inquiries regarding them to the office of the County Treasurer. Such public access to the tax rolls provides the same degree of constructive notice to a purchaser as would be the case if the rolls were actually filed with the County Recorder. Considering these...