2017-2018 Commercial Law Developments, Part I.e (priority)

• Publication year: 2019
• Author: Steven O. Weise, Teresa Wilton Harmon, John F. Hilson, Stephen L. Sepinuck, Edwin E. Smith, and Lynn A. Soukup.

2017-2018 Commercial Law Developments, Part I.E (Priority)

Steven O. Weise, Teresa Wilton Harmon, John F. Hilson, Stephen L. Sepinuck, Edwin E. Smith, and Lynn A. Soukup.

Priority

1. Lien Creditors

• Granata v. Broderick, 2017 WL 5478364 (N.J. 2017)¹, ² - A lender that obtained a security agreement covering a lawyer's right to a contingent fee in a specified pending case had an Article 9 security interest in the lawyer's account. The lender had priority because that interest was perfected by filing before two judicial liens were created on the right to the fee.
• In re Hutton, 2017 WL 3704526 (Bankr. E.D.N.C. 2017)³ - Although a judgment creditor had the sheriff levy on two vehicles of the debtor, and thereby obtained a judgment lien on the vehicles, that lien was not perfected because it was not noted on the certificates of title for the vehicles.

2. Statutory Liens; Forfeiture

• In re Schley, 565 B.R. 655, 2017 WL 149944 (Bankr. N.D. Iowa 2017)⁴ - A feed supplier's superpriority, statutory lien on the proceeds of pigs that consumed about half of the feed was not limited to the cost of the feed consumed by the pigs sold. The lien and priority extended to the cost of all the feed supplied to the debtor and consumed by the debtor's pigs, even those not sold.
• In re Edge Pennsylvania, LLC, 2017 WL 6498039 (Bankr. M.D. Pa. 2017)⁵ - A secured party holding a perfected security interest may not have priority over a landlord's statutory lien under a contractual subordination agreement because the agreement also provided that the secured party had no right to leave the collateral on the leased premises for more than 30 days after the lease terminated. It was unclear whether this provision was a condition to the provision on subordination.
• Dusenbery v. Hawks, 895 N.W.2d 640 (Minn. Ct. App. 2017)⁶ - A bailee's possessory lien had priority over a perfected security interest because UCC § 9-333 grants the possessory lien priority unless the statute creating the lien expressly provides otherwise, and that statute did not so provide. Although the statute did provide that some liens do not have priority over a purchaser or encumbrancer without notice, that portion of the statute did not apply to a bailee's possessory lien.
• BMIFederal Credit Union v. Charlton, 2017 WL 5903444 (Ohio Ct. App. 2017)⁷ - An auto mechanic's artisan's lien on a vehicle to secure the cost of repair and storage did not have priority over a security interest in the vehicle previously perfected through compliance with the certificate of title statute because the statute giving priority to artisan's liens does not apply to motor vehicles and the certificate of title statute for vehicles expressly provides that a security interest noted on the certificate of title has priority over other liens.
• Ally Financial Inc. v. Pira, 2017 WL 6014258 (Ill. Ct. App. 2017)⁸ - An auto mechanic was entitled to an artisan's lien on a car, with priority pursuant to UCC § 9-333 over an earlier perfected security interest. The lien covered detailing and repair charges of $658 but not storage charges of $27,780.
• S & H Packing & Sales Co. v. Tanimura Distributing, Inc., 850 F.3d 446 (9th Cir. 2017), rehearing en banc granted, (9th Cir. June 23, 2017)⁹ - A commercially reasonable factoring agreement by a buyer of produce removes accounts receivable from the PACA trust without breaching the trust regardless of whether the factoring transaction is a true sale. Accordingly, the unpaid growers of produce had no claim against the factor that purchased accounts from the produce buyer.
• Farmer's and Miner's Bank v. Lee, 2017 WL 4707457 (E.D. Ky. 2017)¹⁰ - A secured party with a perfected secured interest in an item of equipment used by the debtor in its service contract with a mining lessee had priority over a claimed mechanic's lien of the entities that repaired and stored the equipment after the debtor ceased performing on its contract. There was no mechanic's lien because the mechanic's lien statute provides for a lien on the lessee's property, but the debtor was not the lessee. Even if the claimants did have a mechanic's lien, the bank's security interest would have priority because it was perfected long before the mechanic's lien would have arisen.

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3. Buyers and Other Transferees

• In re SemCrude, L.P., 864 F.3d 280 (3d Cir. 2017)¹¹ - Downstream buyers of oil and gas from the debtors were buyers for value who took free of an unperfected security interest of the debtors' suppliers under UCC § 9-317(b) because the buyers gave value and did not have knowledge of the security interests. Although the buyers allegedly knew of: (i) the state lien laws that created the security interests, (ii) the identities of some of the suppliers, and (iii) the fact that the suppliers were unpaid, that was insufficient proof of knowledge of the security interests, especially because it is customary for payment not to be made until the month following delivery.
• Cyber Solutions International, LLC v. Priva Security Corp., 2017 WL 3599578 (W.D. Mich. 2017)¹² - A secured party with a perfected security interest in the debtor's inventory of computer chips, manufactured pursuant to a licensing agreement, had priority over the buyer/licensor, which had prepaid for the chips. Nothing in the agreements between the debtor and the buyer indicated that the buyer owned the chips.
• Element Financial Corp. v. Marcinkoski Gradall, Inc., 215 So. 3d 1252 (Fla. Dist. Ct. App. 2017), review granted, (Oct. 10, 2017)¹³ - Even if the buyers of three Bobcat utility vehicles were buyers in ordinary course of the business, they did not take free of a perfected security interest because the security interest was not created by the buyers' seller.
• Focarino v. Travelers Personal Insurance Co. , 2017 WL 1456967 (N.J. Super. Ct. 2017)¹⁴ - A buyer of a vehicle from a dealer that failed to pay off a lender with a prior perfected security interest in the vehicle took free of the rights of the prior owner's insurer, which had paid off the lender. The dealer acquired voidable title to the vehicle and could, under UCC § 2-403, convey good title to a good faith purchaser for value.
• SMS Financial JDC, LP v. Cope, 685 F. App'x 648 (10th Cir. 2017)¹⁵ - A secured party's security interest in a yacht, which was unperfected due to the secured party's...