736 F.3d 947
10th Cir.2013Background
- Ute Mesa Lot 1, LLC obtained a $12 million construction loan in 2007; the deed of trust misidentified the grantor and thus failed to create a valid lien in the Bank’s favor.
- In May 2010 the Bank sued in Colorado state court to reform the deed and declare a first-priority lien, then recorded a notice of lis pendens two days later.
- Ute Mesa filed Chapter 11 on August 13, 2010; it later sued in bankruptcy court to avoid the lis pendens as a preferential transfer under 11 U.S.C. § 547(b).
- The bankruptcy court dismissed the adversary complaint; the district court affirmed, concluding a lis pendens is only notice and not a transfer of an interest in property.
- On appeal, the Tenth Circuit reviewed de novo whether Colorado’s lis pendens doctrine can constitute a "transfer of an interest of the debtor in property" under § 547(b) and affirmed the lower courts.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether filing a Colorado lis pendens is a "transfer of an interest of the debtor in property" under § 547(b) | The lis pendens prevents a bona fide purchaser from acquiring superior title, so it effects a transfer of an interest under § 547(e)(1)(A) and § 101(54) | A lis pendens is merely notice under Colorado law, creates no lien or new property interest, and therefore is not a transfer | Held: Not a transfer — Colorado law makes lis pendens only notice, creating no transferable interest to the creditor |
| Whether a lis pendens that clouds marketability is a disposition of a discrete property right (e.g., right to convey free of claims) | Diminution in marketability equates to loss/transfer of the right to convey, so it is an "interest" disposed of | Clouding title does not destroy the owner’s rights; owner still retains the right to convey and lis pendens "harms no legitimate interest" | Held: Diminished marketability is not a disposition; no "transfer" of any discrete interest occurred |
| Whether § 547(e)(1)(A) (perfection against BFPs) transforms perfection into a substantive transfer | The statute’s perfection standard means the lis pendens made the Bank’s interest superior and thus effectuated a transfer for § 547 purposes | § 547(e)(1)(A) governs perfection/timing, not whether a transfer exists; perfection and transfer are distinct inquiries | Held: § 547(e) concerns perfection/timing only; it does not convert perfection into a transfer |
| Whether In re Lane controls (i.e., filing a lis pendens is a transfer) | Lane held filing a valid lis pendens is a transfer, supporting Ute Mesa | Lane involved a different posture (judgment recorded prepetition); it addressed relation-back/perfection, not whether lis pendens alone is a transfer | Held: Lane inapposite — that case involved a recorded judgment lien; it does not support treating a mere lis pendens as a transfer |
Key Cases Cited
- Barnhill v. Johnson, 503 U.S. 393 (federal courts look to state law to define property interests for bankruptcy avoidance)
- Bailey v. Big Sky Motors, Ltd. (In re Ogden), 314 F.3d 1190 (state law governs property interests in bankruptcy)
- Kerns v. Kerns, 53 P.3d 1157 (Colo. 2002) (lis pendens creates no new interest but renders title unmarketable)
- Hewitt v. Rice, 154 P.3d 408 (Colo. 2007) (lis pendens does not constitute a lien)
- Hammersley v. District Court In and For Routt Cnty., 610 P.2d 94 (Colo. 1980) (lis pendens does not harm legitimate owner interests despite impairing marketability)
- In re Lane, 980 F.2d 601 (9th Cir. 1992) (addressed relation-back/perfection where judgment lien recorded prepetition; not dispositive here)
- Freedom Grp., Inc. v. Lapham-Hickey Steel Corp. (In re Freedom Grp.), 50 F.3d 408 (perfection and transfer are distinct inquiries for § 547 purposes)