In re Southern Illinois Railcar Co.

• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Southern District of Illinois
• Citation: 301 B.R. 305
• Docket Number: No. 02-30456.,No. 02-30457.,02-30456.,02-30457.
• Parties: In re SOUTHERN ILLINOIS RAILCAR CO., Debtor.
• Decision Date: 11 December 2002

301 B.R. 305

In re SOUTHERN ILLINOIS RAILCAR CO., Debtor.

No. 02-30456.

No. 02-30457.

United States Bankruptcy Court, S.D. Illinois.

December 11, 2002.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

D. Phillip Anderson, Peoria, IL, United States Trustee.

Linus L. Baker, Prairie Village, KS, Harold G. Belsheim, O'Fallon, IL, Renee Bassett Butler, Wood River, IL, Spencer P. Desai, Polsinelli Shalton Welte, P.C., St. Louis, MO, Robert E. Eggmann, Clayton, MO, Teresa A. Generous, Belleville, IL, John L. Gilbert, Belleville, IL, David L. Going, Armstrong Teasdale LLP, St Louis, MO, Laura K. Grandy, Mathis Marifian Richter and Grandy Ltd, Belleville, IL, Gary E. Green, Coston and Lichtman, Chicago, IL, Scott Greenberg, St Louis, MO, Eugene Gross, DuQuoin, IL, Stephen E. Gruendel, Moore & Van Allen, PLLC, Charlotte, NC, John J. Hall, St Louis, MO, Robert L. Jackstadt, Mickes, Tueth, Keeney, Cooper, et al, Edwardsville, IL, Peter D. Kerth, St Louis, MO, Mary Ann Kilgore, Union Pacific Railroad Company, Omaha, NE, Robert Kleinman, Ross & Hardies, Chicago, IL, Thomas J. Noonan, Law Offices of Thomas J. Noonan P.C., St Louis, MO, Ronald L. Pallmann, Clayton, MO, Larry E. Parres, St Louis, MO, Robert Woods Phillips, Thompson Coburn LLP, St Louis, MO, Keith D. Price, St Louis, MO, Toni Price, San Antonio, TX, Geoffrey T. Raicht, Sidley Austin Brown & Wood LLP, New York City, David H. Rubin, Thompson Coburn LLP, St. Louis, MO, Daniel A. Silver, Carbondale, IL, Katherine Margaret Smith, Edwardsville, IL, Fred Strege, Smith & Strege Ltd, Wahpeton, ND, Robert M. Susman, St Louis, MO, David A. Warfield, St Louis, MO, Samuel C. Wisotzkey, Kohner, Mann & Kailas, S.C., Milwaukee, WI, Amy T. Tucker, St, Louis, MO, Lori G. Robertson, Linebarger, Goggan, Blair et al., Austin, TX, Jennifer Arbogast, Bryan Cave LLP, Daniel C. Nester, St. Louis, MO, Jennifer Arbogast Merlo, Bryan Cave LLP, St. Louis, MO, Daniel C. Nester, St. Louis, MO, Lori G. Robertson, Linebarger Goggan Blair et al, Austin, TX, Steven M. Wallace, St. Louis, MO, for Creditors.

Edward Heller, Murphysboro, IL, pro se.

Amy E. Rose, Murphysboro, IL, pro se.

Terry Sharp, Mt. Vernon, IL, pro se.

David A. Sosne, St. Louis, MO, Bonnie L. Clair, St. Louis, MO, Michael A. Fagone, Portland, ME, Theodore J. Tacconelli, Wilmington, DE, for Debtors.

OPINION

GERALD D. FINES, Chief Judge.

This matter having come before the Court on a Motion to Lift Stay and for Adequate Protection of Wells Fargo Equipment Finance Company and Debtor's Objection Motion to Lift Stay and for Adequate Protection of Wells Fargo Equipment Finance Company; the Court, having heard arguments of counsel and being otherwise fully advised in the premises, makes the following findings of fact and conclusions of law pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure.

Findings of Fact

On November 12, 2002, by agreement, the parties filed a Joint Stipulation of Facts which contains the material facts relating to the matters presently before the Court. That Joint Stipulation of Facts, as filed on November 12, 2002, is incorporated herein as though fully set forth in this Opinion. The Court finds it unnecessary to reiterate the stipulated facts for the purposes of this Opinion.

Conclusions of Law

A secured creditor only may receive relief from the automatic stay pursuant to § 362(d) of the United States Bankruptcy Code if that creditor's interest in property is not protected adequately or if the debtor does not have equity in such property and that property is not necessary to an effective reorganization. See: 11 U.S.C. § 362(d)(1) & (2). Wells Fargo asserts a security interest or lien in certain railcars (the "Equipment") and a railcar lease between Southern Illinois Railcar Co. (SIRC), as lessor, and OmniSource, LLC, as lessee (the "OmniSource Lease," with the Equipment the "Collateral"), and seeks to have the automatic stay lifted to permit it to foreclose upon the Collateral.

As a creditor seeking to lift the automatic stay, Wells Fargo has the burden of demonstrating the existence, the validity, and the perfection of its security interest in the Collateral. Whether Wells Fargo can meet this burden is dependent upon state law, because state law determines whether a valid security interest exists in any property. See: Butner v. United States, 440 U.S. 48, 54-57, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979). Article 9 of the Uniform Commercial Code (the "UCC"), governs the creation of security interests in personal property. See: U.C.C. § 9-101 cmt. 1 (stating that the UCC "provides a comprehensive scheme for the regulation of security interests in personal property and fixtures."). Further, the application of the UCC in this matter should be governed by New York law, because Loan # 3711 provides that it "shall in all respects be governed by and construed in accordance with the internal laws of the State of New York, including all matters of construction, validity and performance." See: Stipulation Exhibit B, ¶ 14. However, because New York and Illinois adopted virtually identical versions of the revised UCC, case law from both states that interprets the UCC is persuasive and cited herein.

Section 9-203 of the UCC governs the enforceability of security interests. See generally: U.C.C. § 9-203; Ill.Ann.Stat., ch. 810, para. 5/9-203 (Smith-Hurd 2002); N.Y. Uniform Commercial Code § 9-203 (McKinney 2002). The relevant portion of that statute provides that a security interest only attaches to collateral so as to be enforceable against other parties if value has been given, if the debtor has rights in the collateral, and if the debtor has authenticated a security agreement describing the collateral. See: U.C.C. § 9-203(b)(1-3); accord Ill.Ann.Stat., ch. 810, para. 5/9-203(b)(1-3) (Smith-Hurd 2002) (same), N.Y. Uniform Commercial Code § 9-203(b)(1-3) (McKinney 2002) (same). There are no disputes before the Court regarding whether Wells Fargo gave value for the Collateral, whether SIRC had rights in the Collateral, or whether SIRC executed writings regarding Loan # 3711.

The UCC provides that a description of the property is adequate if it "reasonably identifies" the collateral. See: U.C.C. § 9-108(a); accord Ill.Ann.Stat., ch. 810, para. 5/9-203(b)(1-3) (Smith-Hurd 2002), N.Y. Uniform Commercial Code § 9-203(b)(1-3) (McKinney 2002). Moreover, collateral is reasonably identified as long as the "identity of the collateral is objectively determinable." See: U.C.C. § 9-108(b)(6); accord Ill.Ann.Stat., ch. 810, para. 5/9-108(b)(6) (Smith-Hurd 2002), N.Y. Uniform Commercial Code § 9-108(b)(6) (McKinney 2002). Drawing from case law, this means that property is reasonably identified in a security agreement if a third party could determine what items of the debtor's collateral are subject to the creditor's security interest. See, e.g.: In re Bennett Funding Group, Inc., 255 B.R. 616, 636 (N.D.N.Y.2000) (applying the New York UCC to find that a description must be sufficient to allow a third party to distinguish between collateral and like items that a debtor owns); In re Niles, 72 B.R. 84, 86 (Bankr.N.D.Ill.1987) (applying the Illinois UCC to find a description inadequate if a third party could not identify the collateral without additional information); See also: Aronson Furniture Company v. Johnson, 47 Ill.App.3d 648, 653, 7 Ill.Dec. 776, 365 N.E.2d 61 (1977) (applying the Illinois UCC to find that "the description must be specific enough to allow the creditor's agents to distinguish between the goods subject to the security interest and other consumer goods owned by the debtor which may be similar in type but not subject to the security interest."). Where a debtor owns numerous similar items of collateral that cannot be distinguished by a more general description, a description of collateral is insufficient without the correct serial numbers of collateral. See: Bennett Funding, 255 B.R. 616, 636-37 (applying the New York law to require a security agreement to include serial numbers of office equipment when the pledged items otherwise were indistinguishable from similar items owned by the debtor but not pledged to the creditor); accord In re Keene Corp., 188 B.R. 881, 901 (Bankr.S.D.N.Y.1995) (applying Illinois law to require a security agreement to have a detailed description of each Treasury note pledged when the debtor's account held numerous Treasury notes similar to the collateral at issue). A description of collateral in a security agreement is not adequate if the writing had unfilled blanks or omitted attachments that normally would provide the description of the collateral. See. e.g.: In re Kevin W. Emerick Farms, Inc., 201 B.R. 790, 797-798 (Bankr.C.D.Ill.1996) (applying Illinois law to find creditors' descriptions of collateral inadequate where one security agreement had blanks instead of the necessary description of the property and where the other security agreement described the collateral only in an attachment that was neither attached to or incorporated in the security agreement); Rusch Factors, Inc. v. Passport Fashion Limited, 67 Misc.2d 3, 322 N.Y.S.2d 765, 768 (N.Y.Sup.Ct.1971) aff'd, 38 A.D.2d 690, 327 N.Y.S.2d 536 (1971), appeal denied, 30 N.Y.2d 482, 330 N.Y.S.2d 1026, 280 N.E.2d 895 (1972) (applying New York law to find security agreement unenforceable because documents that would have described collateral and that purported to be incorporated in the agreement by reference were not attached to the agreement).

Under the cases cited above, Wells Fargo's security agreements fail to include an adequate description of its Equipment collateral. Loan # 3711 purports to secure payment and performance with a lien in favor of the creditor on "Equipment as more fully described on Schedule A." See: Stipulation Exhibit B, at 1. However, no Schedule A is attached to the Loan and Security Agreement. See: Stipulation Exhibit b. This description is inadequate because it fails to identify...