In re: Mainline Equipment, Inc.
CC-14-1429-TaKuD
9th Cir. BAPSep 30, 2015Background
- Mainline Equipment, Inc. (debtor-in‑possession) failed to pay Los Angeles County personal property taxes; County recorded tax lien certificates in 1993, 2010, and 2012 under Cal. Rev. & Tax. Code § 2191.4.
- The County’s recordings created broad liens on Mainline’s personal property located in the county, but § 2191.4 expressly provides that liens on unsecured property are not valid against a purchaser for value without actual knowledge.
- Mainline filed chapter 11, listed the County as an unsecured creditor, and sued in an adversary proceeding to avoid the County’s personal property tax liens under 11 U.S.C. § 545(2) (and § 544(a)(1) in part).
- The bankruptcy court granted summary judgment to Mainline, avoiding the County’s liens under § 545(2); the County appealed.
- The BAP reviewed statutory text, Ninth Circuit precedent, and intervening California statutes (notably CCP § 697.510) and affirmed the avoidance order.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether County’s tax liens on personal property were avoidable under 11 U.S.C. § 545(2) | Mainline: § 2191.4 liens were not valid against a bona fide purchaser for value, so a trustee/DIP may avoid them under § 545(2) | County: County filings created judgment‑lien effect and should be effective against purchasers; § 545(2) should not defeat its liens | Held: Affirmed — § 2191.4 exempts bona fide purchasers; DIP (as trustee) may avoid the liens under § 545(2). |
| Whether Cummins and pre‑Code precedent remain controlling | Mainline: Cummins applies; statutory language unchanged so its holding that county tax filings are vulnerable to bona fide purchasers controls | County: Transition to the Code and later state statutes (CCP § 697.510) undermine Cummins | Held: Cummins remains controlling; § 2191.4 language unchanged and aligns with § 545(2). |
| Effect of CCP § 697.510 (Secretary of State filing for judgment liens) on County’s county‑recorder liens | Mainline: Secretary of State filing is different; CCP § 697.510 does not alter § 2191.4’s express exception for bona fide purchasers | County: Legislative change allowing Secretary of State filings implies county filings should be treated similarly | Held: Rejected — Secretary of State filings can perfect against purchasers, but § 2191.4 still expressly protects bona fide purchasers from county recorder filings. |
| Availability of a § 546(b) or other defenses to County | County: argued post‑petition perfection or other defenses (invoking Perry/Cummins interplay) | Mainline: County did not timely raise § 546(b); § 2191.4 liens were ineffective as to purchasers pre‑petition so § 546(b) defenses don’t apply | Held: § 546(b) defenses inapplicable here; County did not plead them, and statute’s plain text controls. |
Key Cases Cited
- County of Humboldt v. Grover (In re Cummins), 656 F.2d 1262 (9th Cir. 1981) (county personal‑property tax filings vulnerable to bona fide purchasers; lien avoidable)
- Franchise Tax Board v. Danning (In re Perry), 487 F.2d 84 (9th Cir. 1973) (judgment‑lien rules inform whether tax certificates defeat bona fide purchasers)
- Mwangi v. Wells Fargo Bank, N.A. (In re Mwangi), 764 F.3d 1168 (9th Cir. 2014) (de novo review of bankruptcy court statutory interpretation)
- Lamie v. U.S. Trustee, 540 U.S. 526 (2004) (when statutory language is clear, courts do not consult legislative history)