LA County Treasurer & Tax Collector v. Mainline Equipment, Inc.
- Case Type:
- Business
- Case Status:
- Affirmed
- Citation:
- 15-60069 (9th Circuit, Jul 31,2017) Published
- Tag(s):
-
- Ruling:
- California personal property tax liens may be avoided in bankruptcy even if the tax collector records tax delinquency certificates ("Tax Certificates") with the appropriate County Recorder because the California tax liens at issue in this case are not enforceable against a bona fide purchaser.
- Procedural context:
- The debtor filed an adversary proceeding against the Los Angeles County Treasurer and Tax Authority, seeking to avoid the lien of the Tax Certificates under 11 U.S.C. § 545(2). The bankruptcy court granted the debtor summary judgment. The Bankruptcy Appellate Panel affirmed, holding that the issue was governed by the pre-Code decision of County of Humboldt v. Grover (In re Cummins), 656 F.2d 1262 (9th Cir. 1981) (the case commenced under the prior Bankruptcy Act).
- Facts:
- The debtor failed to pay certain personal property taxes before filing a Chapter 11 case. Pre-petition, the Los Angeles County Treasurer and Tax Collector filed Tax Certificates for 1993, 2010 and 2012 with the Los Angeles County Recorder. The filing with the Recorder created tax liens under section 2191.4 of the California Revenue and Taxation Code. The Tax Collector did not record any of its liens with the California Secretary of State.
The debtor asserted that the personal property tax liens were avoidable under § 545(2) because they were not enforceable against a bona fide purchaser.
The Court of Appeals applied California law regarding what constitutes a bona fide purchaser (one who purchases for value, in good faith, and without notice of another's rights). The Court of Appeals then analyzed California Revenue and Taxation Code section 2191.4, and concluded that the plain language of that section provides that the tax lien is not enforceable against a bona fide purchaser ("the lien ... shall not be valid against a purchaser for value ... without actual knowledge of the [tax] lien when he or she acquires his or her interest in the property.").
As a result, the tax liens were avoidable under 11 U.S.C. § 545(2).
NOTE -- it appears that the Tax Collector might have prevailed if it had filed the tax liens with the California Secretary of State if the debtor was a California corporation, a fact that is not divulged in the opinion.
- Judge(s):
- WARDLAW, CALLAHAN, GORDON J. QUIST (W.D. Mich., sitting by designation)
ABI Membership is required to access the full summary. Please Sign In using your ABI Member credentials. Not a Member yet? Join ABI now - it is absolutely worth it!
