In re Mainline Equipment, Inc., DBA Consolidated Repair Group, Debtor,
Mainline Equipment, Inc., Appellee. Los Angeles County Treasurer & Tax Collector, Appellant,
Submitted April 5, 2017 Pasadena, California
from the Ninth Circuit Bankruptcy Appellate Panel No. 14-1429
Kurtz, Dunn, and Taylor, Bankruptcy Judges, Presiding Argued
S. Glaser (argued), Susan M. Freedman, and Jacquelyn H. Choi,
Steckbauer Weinhart LLP, Los Angeles, California, for
Vanessa M. Haberbush (argued) and David R. Haberbush,
Haberbush & Associates LLP, Long Beach, California, for
J. de Lorrell, III, Senior Deputy; Thomas E. Montgomery,
County Counsel; Office of County Counsel, San Diego,
California; for Amici Curiae California State Association of
Counties and California Association of County Treasurers and
Before: Kim McLane Wardlaw and Consuelo M. Callahan, Circuit
Judges, and Gordon J. Quist, [*] District Judge.
panel affirmed the Bankruptcy Appellate Panel's
affirmance of the bankruptcy court's summary judgment in
favor of a debtor in an adversary proceeding seeking
avoidance of tax liens on the debtor's personal property.
panel held that the appeal was not mooted by the disbursement
of the debtor's bankruptcy estate and the dismissal of
the Chapter 11 case.
panel held that under 11 U.S.C. § 545(2), the County of
Los Angeles could not enforce a lien on the personal property
of a Chapter 11 debtor in possession, when the County had
failed to perfect the lien as against a bona fide purchaser.
The panel concluded that Cty. of Humboldt v. Grover (In
re Cummins), 656 F.2d 1262 (9th Cir. 1981), addressing
the statutory antecedent to § 545(2), remained good law.
The debtor could set aside the County's liens because the
liens were statutory and were unenforceable against a
hypothetical bona fide purchaser under California law.
WARDLAW, Circuit Judge:
County of Los Angeles enforce a lien on the personal property
of a Chapter 11 debtor in possession, when the County has
failed to perfect the lien as against a bona fide purchaser?
Under 11 U.S.C. § 545(2), the answer is no, as the
Bankruptcy Appellate Panel ("BAP") held in reliance
on our decision in County of Humboldt v. Grover (In re
Cummins), 656 F.2d 1262 (9th Cir. 1981), which remains
Equipment, Inc., dba Consolidated Repair Group
("Mainline") was in the business of manufacturing,
repairing, and selling cable television equipment. It failed
to pay property taxes assessed by the Los Angeles County
Treasurer and Tax Collector (the "County") on its
personal, or non-real estate, property. In response, the
County recorded tax delinquency certificates with the Los
Angeles County Recorder in 1993, 2010, and 2012. Pursuant to
section 2191.4 of the California Revenue and Taxation Code,
the recording of the certificates created broad liens on all
of Mainline's property in Los Angeles County. Section
2191.4 provides that "[f]rom the time of filing"
tax delinquency certificates, "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 the taxpayer. Though section 2191.4 liens attach to both
personal and real property, Mainline owned only personal
property during the relevant time period. The County has
conceded that it did not record any of its liens with the
Secretary of State of California; it argues that it was not
required to do so to perfect the liens.
2012, Mainline filed a voluntary Chapter 11 bankruptcy
petition, scheduling the County as an unsecured creditor. No
trustee was appointed, and Mainline administered its estate
as a "debtor in possession." It initiated an
adversary proceeding to set aside the County's liens on
its personal property, maintaining that it had the power to
do so under 11 U.S.C. § 545(2). The bankruptcy court
granted summary judgment to Mainline because the liens were
statutory in nature and, under California law, had not been
perfected against a hypothetical bona fide purchaser of
personal property. Therefore, Mainline was entitled to assert
the rights of a trustee to avoid the liens.
2015, the BAP affirmed the bankruptcy court's judgment,
issuing a published opinion. L.A. Cty. Treasurer &
Tax Collector v. Mainline Equip., Inc. (In re Mainline
Equip., Inc.), 539 B.R. 165 (BAP 9th Cir. 2015). The BAP
found that our decision in Cummins, 656 F.2d 1262,
controlled the outcome of the case and that our reasoning in
that decision remains sound. In Cummins, we held
that a bankruptcy trustee could invalidate section 2191.4
liens on personal property under the powers given to a
trustee by the statutory antecedent to § 545(2).
the BAP affirmed, the County appealed. During its appeal to
the BAP in the adversary proceeding, the County sought and
received a stay of the Chapter 11 bankruptcy case, to ensure
that Mainline's assets would not be fully disbursed
before the County's right to those assets was
adjudicated. After the BAP issued its decision, the County
sought another stay of the bankruptcy case during its appeal
to us. The BAP denied the motion, allowing the bankruptcy
case to move forward. Mainline's attorneys then filed an
application for attorney's fees and costs to be disbursed
from Mainline's estate, and a motion to dismiss the
bankruptcy case. On March 9, 2016-while this appeal was
pending-the bankruptcy court dismissed ...