In re Stanton
| Decision Date | 20 October 2000 |
| Docket Number | Bankruptcy No. 99-62250. Adversary No. 00-6028. |
| Citation | 254 BR 357 |
| Court | U.S. Bankruptcy Court — Eastern District of Texas |
| Parties | In re Charles & Jill STANTON, Debtors. Charles & Jill Stanton, Plaintiffs, v. Texas Drug Company, Defendant. |
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William Sheehy, Wilson, Sheehy, Knowles, Robertson & Cornelius, Tyler, TX, for Plaintiffs.
Jim Echols, Saunders, Schmidt, Echols & Dennis, P.C., Tyler, TX, for Defendant.
This matter is before the Court upon the Motion for Summary Judgment (the "Motion") filed by the Plaintiffs, Charles and Jill Stanton. Based upon the Court's consideration of the pleadings and the proper summary judgment evidence submitted by the parties, including a Stipulation of Facts, the Court concludes that the Plaintiffs' Motion for Summary Judgment should be granted.
This Court has jurisdiction to consider the Motion pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157(a). The Court has authority to enter appropriate orders and judgments in this adversary proceeding since it constitutes a core proceeding as contemplated by 28 U.S.C. § 157(b)(2)(A), (B), (K) and (O).
This adversary proceeding was commenced by the Plaintiffs, Charles and Jill Stanton, in order to avoid the security interest asserted by the Defendant, Texas Drug Company (the "Defendant") on the grounds that such security interest held by the Defendant was unperfected as of the commencement of this case. Charles H. Stanton operates a pharmacy in Elkhart, Texas. Though no assumed name certificate has ever been filed regarding that business, it is often referred to as the Elkhart Pharmacy. At no time has the Plaintiff's pharmacy business ever been operated as anything but a sole proprietorship.
In addition to the misspellings and grammatical errors in the description of the collateral, the Defendant also erroneously listed the Debtor's name as the "Elhart Pharmacy," with no reference to Charles H. Stanton, individually, or to the fact that Stanton owned Elkhart Pharmacy as a sole proprietorship. That UCC-1 financing statement was filed with the Secretary of State of Texas on June 23, 1997.
On October 25, 1999, the Plaintiffs filed a joint voluntary petition for relief under chapter 13 of the Bankruptcy Code.1 On February 10, 2000, the Defendant filed a claim in the Plaintiffs' bankruptcy case, asserting a secured claim in the amount of $173,690.18 and attached, as proof of its right to assert a secured claim, a copy of its security agreement and the UCC-1 financing statement described above.
The Plaintiffs, on May 1, 2000, initiated this adversary proceeding to avoid the asserted security interest of the Defendant on the grounds that it was unperfected as of the date of the commencement of the bankruptcy case, and therefore subject to avoidance under 11 U.S.C. § 544. They have moved for summary judgment based upon the Defendant's failure to identify the true debtor, Charles H. Stanton, as the debtor-party on its UCC-1, as well as upon the misspelling contained in the debtor-party identification portion of that document which identifies the debtor as the "Elhart Pharmacy." The Plaintiffs have presented summary judgment proof that a UCC search regarding "Charles H. Stanton" and "Elkhart Pharmacy," while revealing the existence of other secured claims asserted in this proceeding, failed to reveal the existence of a security interest held by the Defendant, Texas Drug Company. The Defendant failed to file any response to the Plaintiffs' Motion for Summary Judgment.2
The Plaintiffs bring their Motion for Summary Judgment in the adversary proceeding pursuant to Federal Rule of Bankruptcy Procedure 7056. That rule incorporates Federal Rule of Civil Procedure 56 which provides that summary judgment shall be rendered "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986), quoting FED.R.CIV.P. 56(c). If a summary judgment motion is properly supported, a party opposing the motion may not merely rest upon the contents of its pleadings, but rather must demonstrate in specific responsive pleadings the existence of specific facts constituting a genuine issue of material fact for which a trial is necessary. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986), citing FED.R.CIV.P. 56(e). "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson, Id. at 248, 106 S.Ct. at 2510.
The parties have identified no factual dispute in need of resolution3 and the Plaintiffs have presented their motion for summary judgment based upon application of appropriate law. For cases in which the unresolved issues are primarily legal rather than factual, summary judgment is particularly appropriate. Mansker v. TMG Life Ins. Co., 54 F.3d 1322, 1326 (8th Cir.1995); Thompson Everett, Inc. v. National Cable Advertising, L.P., 57 F.3d 1317, 1323 (4th Cir.1995)"A federal court may resolve the legal questions between the parties as a matter of law and enter judgment accordingly.".
Under the "strong-arm" provisions of 11 U.S.C. § 544, a trustee, on the date a debtor files a bankruptcy petition, obtains the status of a hypothetical lien creditor.4 See generally, 5 COLLIER ON BANKRUPTCY ¶ 544.05 at p. 544-9 (15th ed. rev.2000). This statutory power provides the trustee with the ability to seek, in a manner consistent with state law, priority over other claims and interests in property which remain unperfected as of the date of the commencement of the bankruptcy case. In a chapter 11 case, a debtor-in-possession is vested with these avoidance powers5 and may exercise them on behalf of general unsecured creditors, notwithstanding any prior knowledge or practices of the debtor prior to the filing of the case, since a debtor-in-possession is conceptually separate from a debtor for purposes of bankruptcy law. Boatmen's Bank of Benton v. Wiggs (In re Wiggs), 87 B.R. 57, 58 (Bankr.S.D.Ill.1988)"The debtor-in-possession, though physically the same as the debtor, is conceptually separate for purposes of bankruptcy law and is armed with § 544(a) powers without regard to any notice or knowledge of the debtor's practices."; Matter of International Gold Bullion Exchange, Inc., 60 B.R. 256, 260 (Bankr.S.D.Fla.1986)finding that "it is well established that even a debtor-in-possession which is, in actuality, the same entity as the debtor is nevertheless deemed to be separate and distinct from the debtor under bankruptcy law, and is armed with Section 544 powers without regard to any notice or knowledge of the Debtor's practices".
The extent of the trustee's rights, remedies and powers as a hypothetical lien creditor is governed by state law. In re Muller, 185 B.R. 552, 554 (Bankr. M.D.Tenn.1995)"The trustee acquires the status of a judicial lien creditor by virtue of federal law, but applicable state law determines what powers that status confers," citing Midlantic Nat'l Bank v. Bridge (In re Bridge), 18 F.3d 195, 200 (3d Cir.1994)"The scope of § 544(a) avoidance powers vis-a-vis third parties is governed entirely by the substantive law of the state in which the property in question is located as of the bankruptcy petition's filing."; see also Michael v. Martinson (In re Michael), 49 F.3d 499, 500 (9th Cir.1995). Texas law provides that an unperfected security interest is subordinate to the rights of a person who becomes a lien creditor before the security interest is perfected. TEX. BUS. & COM.CODE ANN. § 9.301(a)(2) (Vernon 1991). See also, In re Hancock, 126 B.R. 270, 273 (Bankr. E.D.Tex.1991). Therefore, in order to maintain an interest in property senior to that held by a debtor-in-possession as a hypothetical lien creditor, a creditor must possess a perfected security interest on the date the debtor files its bankruptcy petition. In re Masters, 137 B.R. 254, 259 (Bankr.S.D.Ohio 1992).
The determination of whether a creditor has properly perfected its security interest is also governed by state law. Though the Defendant in this case did file a financing statement, the sufficiency of that financing statement, and hence the effectiveness of the Defendant's efforts to perfect its security interest in the Plaintiffs' property, is governed by TEX. BUS. & COM.CODE ANN. § 9.402(g) (Vernon Supp. 1999) which provides, in relevant part:
A financing statement sufficiently shows the name of the debtor if it gives the individual, partnership, or corporate name of the debtor, whether or not it adds other trade names or the names of partners. Filing under a trade name or assumed name alone shall not be sufficient to perfect a security interest unless the trade name or assumed name is so similar to the debtor\'s legal name that the trade name or assumed name filing would be discovered in a search of the filing officer\'s records . . ., conducted in response to a request using the legal name of the debtor . . . (emphasis added...
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