Wallace v. Bonner (In re Bonner)

Summarized by Albert Sheen , U.S. Bankruptcy Court
11 years 11 months ago

Citation:

B.A.P. No. NC-13-1365-KiDJu (9th Cir. B.A.P. Mar. 6, 2014) [Not for Publication]

Tag(s):

Ruling:

In an unpublished decision, the Ninth Circuit Bankruptcy Appellate Panel affirmed the bankruptcy court, holding that the bankruptcy court did not err in granting summary judgment avoiding Wallace's unperfected security interest under § 544(a)(1). Because Wallace's security interest was not perfected in accordance with California law, the debtor as a hypothetical lien creditor could avoid her security interest under § 544(a)(1). The court also rejected Wallace's affirmative defense, holding that § 523(a)(2) has no relation to the trustee's strong-arm powers under § 544(a). Furthermore, under federal bankruptcy law, Wallace's attached but unperfected interest did not have priority over other unsecured nonpriority creditors. Finally, the court declined to impose an equitable lien on the estate's assets, on the grounds that Wallace's reliance on the debtor's representations was not justifiable. Even if the court had imposed an equitable lien, Wallace's interest would still have been avoidable under § 544(a).

Procedural context:

Appeal from the Bankruptcy Court for the Northern District of California, granting summary judgment avoiding creditor's unperfected security interest under § 544(a)(1), reviewed de novo.

Facts:

In October 1997, the debtor approached Wallace, an attorney, for a loan. Wallace agreed to lend the debtor $45,350, and the debtor executed a promissory note that purported to give Wallace a security interest in the debtor's medical and office equipment. Wallace relied on the debtor's assurances that Wallace need take no further action to enforce her security interest. A few months later, Wallace lent the debtor an additional $10,000, under similar assurances. Wallace never filed a UCC-1 Financing Statement to perfect her security interests in the debtor's collateral. Subsequently, the debtor filed for chapter 11 relief and initiated an adversary proceeding against Wallace, seeking to avoid her unperfected security interests under § 544(a)(1) and to preserve the avoided interest for the benefit of the bankruptcy estate under § 551. Wallace asserted an affirmative defense that the debt was excepted from discharge under § 523(a)(2) because of the debtor's fraud. Wallace further argued that California law gave her interest priority over general unsecured creditors and that her reliance on the debtor's misrepresentations warranted an equitable lien.

Judge(s):

Kirscher, Dunn, Jury

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