L.A. Cnty. Treasurer v. Mainline Equip., Inc. (In re Mainline Equip., Inc.)

• Decision Date: 30 September 2015
• Docket Number: Adv. No. 2:13–ap–01705–WB,BAP No. CC–14–1429–TaKuD,Bk. No. 2:12–bk–39746–WB
• Citation: 539 B.R. 165
• Parties: In re: Mainline Equipment, Inc., Debtor. Los Angeles County Treasurer and Tax Collector, Appellant, v. Mainline Equipment, Inc., Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

539 B.R. 165

In re: Mainline Equipment, Inc., Debtor.

Los Angeles County Treasurer and Tax Collector, Appellant

v.Mainline Equipment, Inc., Appellee.

BAP No. CC–14–1429–TaKuD

Bk. No. 2:12–bk–39746–WB

Adv. No. 2:13–ap–01705–WB

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted on June 18, 2015 at Pasadena, California

Filed–September 30, 2015

Barry S. Glaser of Steckbauer Weinhart Jaffe, LLP argued for appellant.

Vanessa Marie Haberbush of Haberbush & Associates, LLP argued for appellee.

Before: TAYLOR, KURTZ, and DUNN, Bankruptcy Judges.

O P I N I O N

TAYLOR, Bankruptcy Judge:

The Los Angeles County Treasurer and Tax Collector (“County”) appeals from a bankruptcy court order setting aside its tax liens on personal property located in Los Angeles County. We AFFIRM.

FACTS¹

Debtor-in-possession Mainline Equipment, Inc., dba Consolidated Repair Group, failed to pay property taxes assessed by Los Angeles County. As a result, the County recorded certificates of tax liens with the Los Angeles County Recorder in 1993, 2010, and 2012. The filings created broad liens on all personal property owned by Mainline and located in Los Angeles County. See Cal. Rev. & T.Code § 2191.4 (“RTC § 2191.4 ”).² The County did not otherwise take action to assert its claims or to obtain liens.

Mainline eventually initiated a chapter 11 case.³ It scheduled the County as an unsecured creditor and initiated an adversary proceeding seeking to set aside the County's personal property tax liens under § 544(a)(1) and, as reflected in an amended complaint, § 545(2). Mainline argued that the personal property liens were not perfected against a bona fide purchaser for value, that as a debtor-in-possession it was entitled to assert the rights of a trustee to set aside such liens, and that judgment in its favor was appropriate.

The parties filed cross-motions for summary judgment. Ultimately, the bankruptcy court agreed with Mainline on its § 545(2) claim. On August 19, 2014, it entered a judgment in favor of Mainline and avoided the tax liens under § 545(2).⁴ The County timely appealed.

JURISDICTION

The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334 and 157(b)(2)(K). We have jurisdiction under 28 U.S.C. § 158.

ISSUE

Whether the bankruptcy court erred when it avoided the County's liens pursuant to § 545(2).

STANDARD OF REVIEW

We review the bankruptcy court's legal conclusions, including its interpretation of the Bankruptcy Code, de novo. See Mwangi v. Wells Fargo Bank, N.A. (In re Mwangi), 764 F.3d 1168, 1173 (9th Cir.2014).

DISCUSSION⁵

The County makes several arguments on appeal; we find none of them persuasive.

A. The plain language of the relevant statutes makes clear that the liens were not properly perfected as to a good faith purchaser of personal property for value and, thus, were subject to set aside.

RTC § 2191.4 provides that:

From the time of filing the certificate for record pursuant to Section 2191.3, the amount required to be paid together with interest and penalty constitutes a lien upon all personal and real property in the county owned by and then assessed to and in the same name as the assessee named in the certificate or acquired by him or her in that name before the lien expires, except that the lien upon unsecured property⁶ shall not be valid against a purchaser for value or encumbrancer without actual knowledge of the lien when he or she acquires his or her interest in the property. The lien has the force, effect, and priority of a judgment lien ....

Emphasis added.

Thus, RTC § 2191.4 unambiguously provides that the County's tax lien, while valid against Mainline, was not valid as to a third party who subsequently purchased Mainline's personal property in good faith for value.⁷

The relevant statute under the Bankruptcy Code is equally clear. Section 545(2) allows a trustee to set aside a lien that is not properly perfected as to a bona fide purchaser. As a debtor-in-possession who enjoys the rights of a trustee, Mainline could utilize § 545(2). See 11 U.S.C. § 1107. Thus, the unambiguous language of the relevant statutes supports affirmance.

B. Ninth Circuit authority is consistent with a plain language interpretation of the relevant statutes and supports affirmance.

In County of Humboldt v. Grover (In re Cummins), 656 F.2d 1262 (9th Cir.1981), the Ninth Circuit considered the interplay between RTC § 2191.4 and a provision of the Bankruptcy Act analogous to § 545(2). It determined that Humboldt County's personal property tax lien was subject to set aside. Id. at 1265. The facts in Cummins and in the case at hand are virtually identical.

That Cummins was a Bankruptcy Act case is of no moment; the antecedent statutory language is substantively the same as § 545. See Cummins, 656 F.2d at 1263 (“The substance of [§ 67c(1)(B) of the Act] has been carried forward into sections 545(2) and 546(b) of the new Bankruptcy Code.”). In such instances, the case law construing a provision of the Bankruptcy Act remains authoritative in interpreting the corollary statute under the Bankruptcy Code. See Lovell v. Stanifer (In re Stanifer), 236 B.R. 709, 713 n. 4 (9th Cir. BAP 1999). And, RTC § 2191.4 remains unchanged. Thus, the statutes primarily at issue in Cummins either mirror or are the same as those we consider on appeal, and the Cummins plain language analysis supports affirmance.

C. Changes in California judgment lien law do not compel reversal.

The County argues, notwithstanding the plain language of the statutes and the Ninth Circuit authority, that we must determine that proper perfection as to a bona fide purchaser existed or that Mainline, as a debtor-in-possession, was not entitled to rely on § 545(2). We disagree with the County's arguments.

The County does not argue that the transition from the Bankruptcy Act to the Bankruptcy Code is a basis for disregarding Cummins. As previously noted, the statutory language in § 545(2) mirrors the Bankruptcy Act provision considered by the Cummins court.

And the County does not argue that the California statute squarely at issue, RTC § 2191.4, has been modified since the Cummins decision. The California statute analyzed in Cummins remains exactly the same; it continues to state that a recording with a county recorder does not create a lien that is valid against a bona fide purchaser of personal property.

Instead, the County argues that because the California legislature enacted a tangentially related statute, California Code of Civil Procedure (“CCP”) § 697.510, this necessarily undercuts the Ninth Circuit's decision in Cummins and requires that we disregard the limits on the RTC § 2191.4 lien imposed by the statute itself. Again, we strongly disagree.

1. The California legislature expanded the ability to obtain a judgment lien on personal property but did not modify RTC § 2191.4.

In 1982, the California legislature enacted CCP § 697.510 and allowed the creation and perfection of judgment liens on personal property through a filing with the Secretary of State and without levy.⁸ See Cal. Code Civ. P. § 697.510(a). This was a logical expansion of judgment creditor rights; under the California Commercial Code, a secured creditor typically perfects a security interest in personal property by filing a document with the Secretary of State, and priority is based on the time of such filings. See Tentative Recommendation Proposing The Enforcement of Judgment Law, 15 Cal. L. Revision Comm'n Reports 2001, 2007, 2045–48 (1980).

The County, however, points to nothing in either case law or relevant legislative history stating or even suggesting any legislative intent to tie enactment of CCP § 697.510 to a change in the interpretation of RTC § 2191.4. Certainly, there was no modification to RTC § 2191.4 itself. Since this is the case, there is nothing to suggest that the plain language analysis in Cummins or the express limitations of RTC § 2191.4 are in any way impacted by this later legislative enactment.

2. This legislative change does not undercut the binding impact of Cummins.

The County does not directly challenge the Cummins plain language discussion; it cannot do so as the plain language has not changed. Instead, it focuses on a second aspect of the Cummins decision. The Cummins court found Franchise Tax Board v. Danning (In re Perry), 487 F.2d 84 (9th Cir.1973), to be controlling on an issue relating to the portion of § 67c(1)(B) now contained in § 546(b). 656 F.2d at 1266. The County argues that as a result of the enactment of CCP § 697.510, the Perry analysis is now questionable and that Cummins, thus, no longer controls. We reject both suggestions.

In Perry, the Ninth Circuit considered California tax statutes that allowed creation of a lien following a failure to pay personal income taxes. The statutes at issue, RTC §§ 18881 and 18882,⁹ provided that recordation of a certificate of non-payment with the county recorder created a broad lien on all assets of the taxpayer located in the county. 487 F.2d at 85. It further provided that the lien had the “force, effect, and priority of a judgment lien.” Id. These statutes, however, did not expressly discuss the impact of the statutory lien on the claim of a bona fide purchaser of personal property. See id.

The Franchise Tax Board argued that the absence of an express reservation of the rights of bona fide purchasers required a determination that its RTC §§ 18881 and 18882 lien was senior to the claims of a bona fide purchaser and not subject to set aside in bankruptcy. Id. at 86. The Ninth Circuit disagreed; it focused on the fact that, at that time, a personal property judgment lien was not good against a bona fide purchaser in the absence of enforcement by levy. Id. Thus, the county filing created a lien vulnerable to a bona fide purchaser even absent express language in the statute. Id.

The Cummins court did not find Perry controlling on the issue of whether the RTC § 2191.4 lien defeated a bona fide purchaser on the bankruptcy petition...