Fifth Circuit Court Cases - Case Law and Opinions from the 5th Circuit Federal Court - Court of Appeals

	ROMINGER LEGAL
		Fifth Circuit Court of Appeals Opinions - 5th Circuit
					Need Legal Help?
					Need Legal Help?
LEGAL RESEARCH CENTER
LEGAL RESEARCH CENTER			LEGAL HEADLINES - CASE LAW - LEGAL FORMS	NOT FINDING WHAT YOU NEED? -CLICK HERE

This opinion or court case is from the Fifth Circuit Court or Appeals. Search our site for more cases - CLICK HERE

LEGAL RESEARCH

COURT REPORTERS

PRIVATE INVESTIGATORS

PROCESS SERVERS

DOCUMENT RETRIEVERS

EXPERT WITNESSES

Find a Private Investigator

Find an Expert Witness

Find a Process Server

Case Law - save on Lexis / WestLaw.

Legal News - Legal Headlines

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 92-4209
IN THE MATTER OF: PERNIE BAILEY DRILLING CO., INC.,
Debtor.
W. SIMMONS SANDOZ, Successor Trustee
to William F. Baity, Successor Interim
Trustee to Hugh William Thistlethwaite,
Jr., Etc.,
Plaintiff-Appellant,
versus
FEDERAL DEPOSIT INSURANCE CORPORATION,
ETC., and NCNB TEXAS NATIONAL BANK,
Defendants-Appellees.
Appeal from the United States District Court
for the Western District of Louisiana
May 28, 1993
Before POLITZ, Chief Judge, WISDOM and WIENER, Circuit Judges.
POLITZ, Chief Judge:
The Chapter 7 bankruptcy trustee appeals the ruling of the
bankruptcy court, affirmed by the district court, concerning the
validity of a secured interest in certain accounts receivable. For
the reasons assigned, we affirm.

Background
In March 1982, Pernie Bailey Drilling Company and Interfirst
Bank Fannin1 executed an agreement entitled "Security Agreement --
Assignment of Contract Rights" to secure a series of loans. The
instrument gave the Bank a security interest in all of Bailey's
present and future accounts receivable. The instrument was duly
recorded in the mortgage records of various Louisiana parishes in
May of 1984 but was never reinscribed.2
In February 1986, J.P. Owen & Co. owed Bailey $1,368,490.
This debt is at the core of the present controversy. To facilitate
collection the Bank required Bailey to specifically assign all
amounts owed by Owen. The Bank sent Owen notice of this
assignment, directing that all payments be made directly to it.
In March 1986, Bailey filed for bankruptcy protection under
Chapter 11. The Bank promptly requested relief from the automatic
stay imposed by 11 U.S.C. § 362 to enable it to exercise its rights
against various collateral, including the Owen receivable. The
bankruptcy court, in lifting the automatic stay by order dated
April 10, 1986, specifically provided that the lifting of the stay
would remain effective in the event of a conversion to a Chapter 7
proceeding. In November 1986, Bailey's Chapter 11 was so
1
For reasons not relevant to the issues raised in this
case, the Bank's interest ultimately fell into the hands of the
FDIC. For the sake of clarity, "the Bank" will refer to all
successors to Interfirst Bank Fannin's interest.
2
To remain effective, a notice of assignment of accounts
receivable must be reinscribed within five years. La. R.S. 9:3106.
2

converted.
The newly appointed Chapter 7 trustee invoked 11 U.S.C. § 548
and filed the instant suit challenging the validity of the 1986
assignment as a fraudulent conveyance. He sought a return of the
Owen receivable to the bankruptcy estate. The sauce thickens --
Owen also was in bankruptcy. The Owen bankruptcy court ultimately
recognized the Bank's claim and set aside the funds in its favor
pending resolution of the fraudulent conveyance claim in the Bailey
case. During this period the notice of assignment, filed in May
1984, prescribed.
The Bailey court rejected the trustee's fraudulent conveyance
theory, holding that the Bank's security interest remained
effective throughout the Bailey bankruptcy. According to the
bankruptcy court, the effectiveness of the notice did not cease
because the rights of the parties were fixed well before the
supposed lapse in recordation. The court suggested that the 1986
conversion to Chapter 7 reinstated the stay as a matter of law.
Regrettably, the lack of a single explanation for the court's
conclusion, understandable as it is in view of the posture of the
case, has encouraged both parties to obfuscate. The district court
affirmed; the trustee timely appealed. The validity of the Bank's
security interest in the Owen account is the sole issue presented
on appeal. Ultimately, the question is whether the Bank owned the
Owen receivable before its notice prescribed or, if not, whether
the Bank was still obliged to reinscribe following Bailey's filing
under Chapter 11 and converting to Chapter 7.
3

Analysis
The trustee maintains that the Bank's failure to reinscribe
terminates its perfected status under Louisiana law3 and,
accordingly, that the Owen receivable belonged to the bankruptcy
estate. The trustee concedes that the recordation was effective at
the time Bailey filed the Chapter 11 petition.4 He also concedes
that when the Chapter 11 proceeding was initiated, the automatic
stay fixed the status quo and reinscription was thereby prevented.5
It is the trustee's position that when the bankruptcy court lifted
the stay, allowing the Bank to exercise its rights in the Owen
receivable, it concomitantly revived the Bank's duty to reinscribe
its notice of assignment. Thus, the trustee attacks what he
perceives to be the bankruptcy court's conclusion that the
conversion to Chapter 7 reinstated the stay as a matter of law, and
argues that the Bank's secured status failed because the filing
ostensibly lapsed shortly thereafter.
We are not persuaded. In this case the court lifted the stay
in the Chapter 11 proceeding to allow the Bank to take the assets
3
Neither party disputes the role of Louisiana law in
determining whether the bank's claim remains secured. For a
discussion of the relationship between the Bankruptcy Code and
state law see In re Groetken, 843 F.2d 1007 (7th Cir. 1988), and
R.I.D.C. Indus. Dev. Fund v. Snyder, 539 F.2d 487 (5th Cir. 1976).
Our disposition of the case pretermits such etherial concerns.
4
La. R.S. 9:3106 provides that the recording of such an
interest remains effective as to third parties for five years.
5
In re Bond Enterp., Inc., 54 B.R. 366 (Bankr. N.M. 1985).
4

to which it was entitled under the security agreement, including
the Owen receivable. The Bank cites Louisiana law in support of
its argument that an assignment "although done for the purpose of
serving as a security interest, is nevertheless a transfer of
ownership" if the parties so intended; thus it owned the Owen
receivable from its inception.6 Likewise, the Bank also points out
that Louisiana law provides that the assignee of an account
receivable has the right to receive proceeds of the receivable
when, as the Bank did here, it serves appropriate notice of the
assignment on the account debtor, in which case the Bank owned the
Owen receivable before the Bailey bankruptcy.7
The character of the Owen receivable at its inception depended
on the intention of the parties, an intention not clearly defined
a` quo. The bankruptcy court did find, however, that whatever
rights the Bank had to the receivable resulted from the 1982
security agreement/assignment and 1984 recording thereof, and not
from the 1986 assignment.8 Perhaps the court declined to consider
whether the 1986 assignment transferred ownership because it found
the 1982 pledge to be sufficient to dispose of the issue regardless
of whether it transferred ownership. Perhaps the court viewed the
6
Shell Western E & P, Inc. v. Fluid Driers, Inc., 572
So.2d 323, 325-26 (La.App. 1990), cert. denied, 575 So.2d 823
(1991).
7
La. R.S. 9:3108.
8
The conclusion stems from the court's reading of La.
R.S. 9:3103-9:3110.
5

1982 assignment to be a transfer of ownership under the Louisiana
Assignment of Accounts Receivable Act,9 making the 1986 assignment
superfluous. In either case, the distinction is not dispositive in
light of the treatment accorded the asset in the bankruptcy
proceedings before the purported lapse in recordation.
The Bank's rights in the Owen receivable came to fruition
before the statutory lapse in the recordation on May 30, 1989
because of a number of acts sufficient in themselves or in
combination with others: (1) Bailey's filing under Chapter 11;10
(2) the Bank's notice to Owen of the assignment which, under
Louisiana law, provides the assignee with the superior right to
payment;11 (3) the Bank's filing of a notice of claim; (4) the
lifting of the automatic stay and recognition by the Bailey court
of the Bank's vested right to the Owen receivable;12 and,
9
La. R.S. 9:3101 et seq.
10
The automatic stay is imposed immediately upon the filing
and the secured status vel non of creditors is generally regarded
as fixed at that point for the protection of the creditors "in a
manner consistent with the bankruptcy goal of equal treatment."
Hunt v. Banker's Trust Co., 799 F.2d 1060 (5th Cir. 1986);
11 U.S.C. § 362. Courts have noted that requiring reinscription
after commencement of bankruptcy proceedings would serve no
purpose, particularly when the case is converted to liquidation.
See Bond (collecting cases).
11
La. R.S. 9:3108; Coastal Credit Co. v. American Waste &
Pollution Control Co., 583 So.2d 553 (La.App. 1991); Shell Western,
572 So.2d at 328 (assignee's rights are superior to the assignor
upon notice to the debtor).
12
As noted, we agree with the holding in Bond. We also
agree with the observations made therein that (1) "the critical
time for determining the respective rights of a debtor and its
6

ultimately, (5) the formal recognition of the Bank's rights to the
proceeds in the Owen bankruptcy proceeding. We focus our attention
on the last event.
When Owen sought the protection of the bankruptcy code, the
rights of his creditors became subject thereto. When the court
confirmed the Owen plan Bailey's trustee's rights and those taking
from and through it were dramatically impacted. Under the
bankruptcy code the claims of creditors arising prior to the
confirmation are discharged and are payable only as provided by the
plan.13 The only enforceable debts of Owen, therefore, were those
recognized in the plan. Only the Bank asserted a relevant debt
recognized in the Owen plan.
The judicial recognition of the assignment and the allowance
of the debt formally, finally, and conclusively terminated the
Bank's security interest and created an actual right to the
proceeds. Stripped to essentials, the Owen receivable represents
a right to receive payment from a third party and is a "property
interest," in the sense that it is a thing that may be sold, given
creditors is the date of the filing of a petition in bankruptcy"
and (2) "filing of a [notice of reinscription] would . . .
violat[e]" the automatic stay. Bond, 54 B.R. at 369. The trustee
relies heavily on dicta in Bond suggesting that an order lifting
the automatic stay invariably revives the duty to reinscribe. We
do not agree with this broad reading of Bond, and conclude to the
contrary. Where, as here, the creditor seeks not only payments
already made but also rights to future proceeds, the order lifting
the stay must expressly address the creditor's ability to
reinscribe before it may be given that effect.
13
11 U.S.C. § 1141; In re Serv. Decorating Co., 105 B.R.
859, 862 (N.D. Ill. 1989).
7

away, or encumbered. After the Owen plan was confirmed, only the
Bank possessed that right. To reclaim the asset it was incumbent
upon the trustee to defeat the transfer of ownership between the
Bank and Bailey whenever it occurred, as he unsuccessfully
attempted to do.14
When the Owen court allowed the Bank's claim under the
assignment, it stated that "all rights of the trustee to avoid or
otherwise contest the validity or effect of said claim are fully
reserved." The trustee seizes on this language and argues that the
order did not establish any irrevocable rights to the Owen
receivable. The obvious aim of this language, however, was merely
to recognize the trustee's fraudulent conveyance claim in the
Bailey bankruptcy proceeding and to preserve his effort to avoid
such a transfer. This qualification was appropriate in light of
the trustee's ongoing attempt to reclaim the Owen receivable under
section 548, but we cannot be oblivious to the trustee's failure in
that regard.
We conclude and hold that reinscription of the notice of
assignment was not necessary to preserve the Bank's right to the
proceeds of the Owen receivable.
We find no merit in the trustee's conclusionary complaint that
the Bank has taken fatally inconsistent positions in this
litigation as respects the challenged asset. The mere assertion of
alternate legal positions is not unusual and, most certainly, is
14
The trustee failed in his effort to set aside the
transfer under 11 U.S.C. § 548. That ruling has not been appealed.
8

not necessarily anathema; and, in any event, we note the inequity
of that position in view of the fact that the trustee himself
stands in pari delicto.
The judgment appealed is AFFIRMED.
9