623 B.R. 786
Bankr. D. Mont.2020Background:
- Hawaii Motorsports, LLC filed Chapter 7; American Honda Finance Corp. (Honda) moved to modify the automatic stay to repossess inventory and sales proceeds, claiming an express trust under a Wholesale Financing Agreement (WFA).
- Honda acknowledged it was not asserting a perfected security interest but argued the WFA created an express trust such that the inventory/proceeds were not estate property.
- Hawaii State Federal Credit Union (HSFCU), the debtor, and the Chapter 7 Trustee objected, asserting the WFA and a Wholesale Finance Security Agreement (WFSA) created an Article 9 security interest and that Honda never filed a UCC financing statement.
- The court reviewed the WFA and WFSA together, noting they: (1) provide wholesale credit; (2) grant Honda a security interest in collateral and proceeds; and (3) describe the typical floorplan financing arrangement.
- Debtor is a Montana LLC, so Montana law governs perfection; Montana requires filing a financing statement to perfect Honda’s security interest, which Honda failed to do.
- Conclusion: the agreements created an Article 9 security interest that attached but was unperfected; Honda is not entitled to relief from the automatic stay, and the Motion was denied.
Issues:
| Issue | Honda's Argument | HSFCU/Debtor/Trustee's Argument | Held |
|---|---|---|---|
| Whether inventory and proceeds are held in an express trust outside Article 9 | WFA §24 creates an express trust; Honda owns inventory and proceeds, so they are not estate property | The WFA and WFSA together create a lender–borrower security arrangement governed by Article 9 | The instruments create a security interest under Article 9, not an express trust |
| Whether Article 9 governs the parties' arrangement | The parties labeled some language as "trust," but Honda contends trust language controls | Substance over form: the WFA/WFSA secure indebtedness, incorporate collateral definitions, and evidence floorplan financing | Article 9 applies; substance controls over labels |
| Whether Honda's security interest attached and/or was perfected | Honda advanced value and secured collateral so it has priority rights | Attachment occurred but perfection requires public filing under Montana law; Honda did not file | Security interest attached but was not perfected (no UCC filing in Montana) |
| Whether Honda is entitled to relief from the automatic stay under §362(d) | If Honda owns the property (trust), stay relief is appropriate under §§362(d)(1) and (d)(2) | An unperfected secured creditor is not entitled to stay relief; collateral is estate property under §541 | Honda not entitled to relief; Motion denied |
Key Cases Cited
- Keys Jeep Eagle, Inc. v. Chrysler Corp., [citation="897 F. Supp. 1437"] (S.D. Fla. 1995) (describing floorplan financing and typical trust/proceeds arrangements)
- Omega Envtl., Inc. v. Valley Bank N.A., [citation="219 F.3d 984"] (9th Cir. 2000) (creditor with unperfected security interest not entitled to stay relief)
- In re CFLC, Inc., [citation="166 F.3d 1012"] (9th Cir. 1999) (attachment elements for Article 9 security interests)