Petition for Writ of Certiorari — Armstrong v. State Bank of Towner

TC

1 7 49 Office - Supreme Court, US.

84 ae FILED

Case No. MAY 6 1985

SUPREME COURT OF THE UNITHD AGRAMES - STEvas,

CLERK

October Term 1984

In re:

Victor L. Gelking,

Debtor

Phillip D. Armstrong, Trustee of

the Estate of Victor Gelking,

Petitioner

Vs.

State Bank of Towner,

Respondent

ee eee ee ee ee ee ee eee See

ON WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

PETITION FOR WRIT OF CERTIORARI

Counsel for Counsel for

Petitioner: Respondent:

Phillip D. Armstrong Richard P. Olson

300 U.S. Courthouse P.O. Box 1000 ~

100 lst St. SW Minot, ND 58701

Minot, ND 58701 701/852-0381

701/838-9422

20.

QUESTION PRESENTED FOR REVIEW

Did the circuit court panel

impermissibly apply state law to

determine whether there had been

a transfer of rights in an aircraft?

PERS REE RE RR REE EE

TABLE OF CONTENTS

QUESTION PRESENTED FOR REVIEW. .

TABLE OF CONTENTS . . « « « « « «@

TABLE OF AUTHORITIES .... .\.

OFFICIAL REPORTS a a Oo eee ae

JURISDICTIONAL STATEMENT ... .

CODE PROVISIONS & STATUTES ...

STATEMENT OF THE CASE .....« «

oy ae a a ee a a ee ee i

ARUaMULs «0 © © © 6-e¢ 6 06 © 6 @ «8

Eighth Circuit Opinion...

U.S. District Court Opinion.

= 4 4 4 8 | 4 a g . | '

TABLE OF AUTHORITIES

In re Air Vermont,

Inc.,

41 B.R. 486 (Bkrtcy. VT 1984)

In re Air Vermont,

Inc.,

45 B.R. 820 (D.C.

Cummins v. Sky Cruisers,

VT 1984)

Inc. ,

130 Cal. Rptr. 897 (Ct. App.

1976)

Marsden v. Southern Flight Service,

227 F.Supp. 411 (D.C.

Pepper v. Litton,

308 U.S. 295 (1939) .

NC 1961)

Philko Aviation, Inc. v. Shacket,

103 S.Ct. 2476 (1983) .

In re Quality Holstein Leasing,

752 F.2d 1009 (5th Cir.

South Shore Bank v.

Tony Mat,

1985)

Inc.

712 F.2d 896 (3rd

ll U.S.C.A. Section

ll U.S.C.A. Section

49 U.S.C.A. Section

Cir. 1983)

101( 48)

544(a)

1403(c)

14 C.F.R. Part 49, AC Form 8050-

94 (9-75), Paragraph 12

-iii-

OG eCeGe Section 9-203 (N.D.C.C. Section

41-09-16(1)(c)) . . . . . . . . . 7 3

u.¢@.C. Section 9-301 (N.D.C.C. Sections

41-09-22(1)(b),(3)) . . . . . . . . . 7

UG eCeGCe Section 9-302(4) (N.D.C.C.

Section 41-09-23(4)) . . _ . . . o . 5

OG eGeGe Section 9-303 | wwe Section

41-09-24(1)) . . - . . . . . . . 3

OFFICIAL REPORTS

The opinion of the United States

Court of Appeals for the Eighth Circuit

is reported at 754 F.2d 778.

The opinion of the United States

District Court, District of North

Dakota is not reported. It is Civil

No. A4-84-69.

The opinion of the United States

Bankruptcy Court is not reported. It

is Bankruptcy Case No. 81-05384.

S868 68 6888 ££ SSS

JURISDICTIONAL STATEMENT

On February 12, 1985, the United

States Court of Appeals for the Eighth

Circuit filed its opinion affirming

the judgment of the United States Dis-

trict Court for the District of North

Dakota.

The United States Supreme Court's

jurisdiction is invoked under 28

U.S.C.A. Section 1254(1).

-Vi-e

CODE PROVISIONS & STATUTES INVOLVED

ll U.S.C.A. Section 544(a).

(a) The trustee shall have, as of

the commencement of the case, and with-

out regard to any knowledge of the

trustee or of any creditor, the rights

and powers of, or may avoid any trans-

fer of property of the dektor or any

obligation incurred by the debtor that

is voidable by -

(1) a creditor that extends

credit to the debtor at the time of

the commencement of the case, and that

obtains, at such time and with respect

to such credit, a judicial lien on all

property on which a creditor on a sim-

ple contract could have obtained such a

judicial lien, whether or not such a

creditor exists;

(2) a creditor that extends

credit to the debtor at the time of the

commencement of the case, and obtains,

at such time and with respect to such

credit, an execution against the debt-

or that is returned unsatisfied at such

time, whether or not such a creditor

exists; or

(3) a bona fide purchaser of

real property, other than fixtures,

from the debtor, against whom appli-

cable law permits such transfer to be

perfected, that obtains the status of

bona fide purchaser and has perfected

such transfer at the time of the com-

mencement of the case, whether or not

such a purchaser exists.

-vii-

ae 2 2 a | | a = BEREE a

ll U.8.C.A. Section i101¢48).

"transfer" means every mode, direct

or indirect, absolute or conditional,

voluntary or involuntary, of disposing

of or parting with property or with an

interest in property, including retent-

ion of title as a security interest and

foreclosure of the debtor's equity of

redemption;

AC Form 8050-94 (9-75).

Department of Transportation

Federal Aviation Administration

FAA Aircraft Registry AAC-250

P.O. Box 25504

Oklahoma City, Oklahoma 73125

INFORMATION TO AID IN THE REGISTRATION

OF U.S. CIVIL AIRCRAFT

* * *

12. JUDICIAL SALE. The buyer of an

aircraft at a judicial sale, or at

a sale to satisfy a lien or charge,

must submit a bill of sale signed

by the sheriff, auctioneer, or

other authorized person who con-

ducted the sale and must include a

statement that the sale was made

under applicable local law.

-viii-

49 U.S.C.A. Section 1403(c).

Validity of conveyances or other

instruments; filing

(c) No conveyance or instrument the

recording of which is provided for by

subsection (a) of this section shall be

valid in respect of such aircraft, air-

craft engine or engines, propellers,

appliances, or spare parts against any

person other than the person by whom

the conveyance or other instrument is

made or given, his heir or devisee, or

any person having actual notice thereof,

until such conveyance or other instru-

ment is filed for recordation in the

office of the Secretary of Transporta-

tion: Provided, That previous record-

ing of any conveyance or instrument

with the Administrator of the Civil

Aeronautics Administration under the

provisions of the Civil Aeronautics

Act of 1938 shall have the same force

and effect as though recorded as pro-

vided herein; and conveyances, the re-

cording of which is provided for by

subsection (a)(l) of this section made

on or before August 21, 1938, and in-

struments, the recording of which is

provided for by subsections (a)(2) and

(a)(3) of this section made on or be-

fore June 19, 1948, shall not be sub-

ject to the provisions of this sub-

section.

-ix-

North Dakota Century Code 41-09-16(1)

(Uniform Commercial Code 9-203(1))

Enforceability of security interest -

Proceeds, formal requisites.

1. Subject to the provisions of

section 41-04-18 om the security inter-

est of the collecting bank and section

41-09-13 on a security interest aris-

ing under the chapter on Sales, a se-

curity interest is not enforceable

against the debtor or third parties

with respect to the collateral and does

not attach unless all of the following

take place:

a. The collateral is in the

possession of the secured party pur-

suant to agreement, or the debtor has

Signed a security agreement which con-

tains a description of the collateral

and, in addition, when the security

interest covers crops growing or to be

grown or timber to be cut, a descrip-

tion of the land concerned.

b. Value has been given.

c. The debtor has rights in

the collateral.

North Dakota Century Code 41-09-22(1)(b)

and (3).

(Uniform Commercial Code 9-301(1)(b),(3)).

Persons who take priority over unper-

fected security interests - Right of

"lien creditor".

1. Except as otherwise provided

in subsection 2, an unperfected secur-

ity interest is subordinate to the

rights of:

a. Persons entitled to

priority under section 41-09-33.

b. A person who becomes a

lien creditor before the security in-

terest is perfected.

* * *

3. A “lien creditor" means a

creditor who has acquired a lien on

the property involved by attachment,

levy, or the like and includes an

assignee for benefit of creditors from

the time of assignment, and a trustee

in bankruptcy from the date of the

filing of the petition or a receiver

in equity from the time of appoint-

ment.

North Dakota Century Code 41-09-24(1)

(Uniform Commercial Code 9-303(1))

When security interest is perfected;

Continuity of perfection.

(1) A security interest is per-

fected when it has attached and when

all of the applicable steps required

for perfection have been taken. Such

steps are specified in Sections 41-09-

23, 41-09-25, 41-09-26, and 41-09-27.

If such sv.eps are taken before the se-

curity interest attaches, it is per-

fected at the time when it attaches.

-xi-

North Dakota Century Code 41-09-23(4)

(Uniform Commercial Code 9-302(4)).

When filing is required to perfect

security interest -- Security interest

to which filing provisions of this

chapter do not apply.

* * *

4. Compliance with a statute or

treaty described in subsection 3 is

equivalent to the filing of a financing

statement under this chapter, and a

security interest in property subject to

the statute or treaty can be perfected

only by compliance therewith except as

provided in section 41-09-03 on multiple

state transactions. Duration and renewal

of perfection of a security interest

perfected by compliance with the statute

or treaty are governed by the provisions

of the statute or treaty; in other

respects, the security interest is

subject to this chapter.

-xii-

STATEMENT OF THE CASE

The debtor filed his bankruptcy

petition on August 21, 1981. In the

debtor's possession at that time was a

1978 Piper Lance aircraft. The record

owner of the aircraft at that time was

not the debtor. Three individual co-

owners were the owners of record with

the FAA on August 21, 1981.

The State Bank of Towner claimed

a security interest in the aircraft.

The corporation of the co-owners,

D.D.C., Inc., but not the co-owners

themselves, had given a bill of sale

for the aircraft to the debtor. The

bank filed for recordation the bill of

sale along with its security agreement

with the debtor. The FAA refused to

record the bank's security agreement

-xiii-

SEER ER ERRERER EERE E

because of the lack of documentation

of the debtor's chain of ownership.

The missing link in the debtor's

chain of ownership, the necessary bill

of sale from the co-owners to D.D.C.,

Inc., was not made and filed for record-

ation until after the debtor had filed

his petition. The bank's security agree-

ment was recorded on November 17, 1981.

On March 4, 1983, the trustee filed

an adversary proceeding seeking an order

declaring the lien of the trustee to be

superior to the unperfected security

interest of the bank.

The bankruptcy court held that the

bank had a perfected security interest.

The district court and circuit court

affirmed.

-Xiv-

SEB RE EREER BR ER RB ESEEES

ARGUMENT

The question presented is impor-

tant to federal - state relations under

the Federal Aviation Act, 49 U.S.C.A.

Section 1403 et seq.

The Eighth Circuit Court of Appeals

held that state law is applicable in

determining when a transfer occurs of a

perfected security interest in an air-

craft subject to the Federal Aviation

Act recording requirements. The deci-

sion of the circuit court is in con-

flict with a decision of this Court.

In Philko Aviation, Inc. v.

Shacket, 103 S. Ci. 2476 (1983), this

Court held that state laws regarding

title transfers in aircraft are pre-

empted by the Federal Aviation Act.

Ibid at 681-82. This decision was fol-

lowed by South Shore Bank v. Tony Mat,

Inc., 712 F.2d 896 (3rd Cir. 1983).

These decisions interpreted Sectior

503(c) of the Federal Aviation Act,

49 U.S.C.A. Section 1403(c), to mean

that every transfer of an interest in

aircraft must be evidenced by an in-

strument and that every such instru-

ment must be recorded before the rights

of innocent third parties can be af-

fected. Philko Aviation Inc. v.

Shacket, supia at 2478.

On the other hand the Eighth Cir-

cuit Court of Appeals impermissibly

applied a state law test to determine

when a transfer occurred of a perfect-

ed security interest in an aircraft.

The court held that less than full

legal title was sufficient to perfect

the bank's security interest over the

lien of the trustee. Opinion at 781.

This is Professor Gilmore's statement

regarding the fulfillment of the UCC

requirement that the debtor have rights

in collateral before a security interest

can attach and become perfected. UCC

Sections 9-203, 9-303.

Under the holdings of this Court

and the Third Circuit Court of Appeals

a party claiming an interest in aircraft

either has full legal title or no title.

Written instruments evidencing each

transfer of an interest must be feder-

ally recorded. Unfortunately for the

bank a transfer crucial to its security

interest was not in existence and recor-

ded until after bankruptcy intervened.

Transfer is broadly defined. ll

U.S.C.A. Section 101(48).

The filing of the bankruptcy peti-

tion gave rise to the trustee's strong

arm powers. The trustee's lien is

superior to unperfected security inter-

ests. See generally In re Quality

Holstein Leasing, 752 F.2d 1009, 1012-

1015 (5th Cir. 1985).

It is obvious that the bank's

security interest was not perfect

against the world at the time the peti-

tion was filed. The record owner, the

three individual co-owners, could have

conveyed good title to an innocent third

party, even in fraud of the debtor.

The fact that the record owner did

not convey title to another is not

material to the issue before the lower

courts, that is, whether the bank's

security interest was perfected at the

time the petition was filed.

Under che UCC the preemption by a

federal recording statute changes only

SE RRRERRERRRERESES

the method of filing the appropriate

notice that a security interest is

claimed in collateral. UCC Section

9-302(4). The debtor must still

acquire rights in the collateral before

a security interest can attach and be

perfected. Under the Federal Aviation

Act the aebtor can acquire rights in

the collateral only if there are written

instruments of record which evidence his

ownership of aircraft.

Where federal preemption occurs,

the UCC requires compliance with the

federal statute. UCC Section 9-302(4).

The bank did not comply. It did not

timely file for recordation all the

necessary instruments of transfer.

The burden to properly record is

on the secured party. In re Air

Vermont, Inc., 41 B.R. 486, 492

@M@m@O@BAL4OB KER RRR RE KR ERS eS &

(Bkrtcy. VT 1984); Cummins v. Sky

Cruisers, Inc., 130 Cal. Rptr. 897,

900 (Ct. of Appeals 1976); Marsden v.

Southern Flight Service, Inc., 227 F.

Supp. 4ll, 419 (D.C. NC 1961).

After the debtor had filed his

petition the further acts of the bank

to obtain and record the final instru-

ment of transfer were of no effect.

In re Quality Holstein Leasing, supra

at 1011.

The lack of the debtor's record

ownership at the time of bankruptcy

does not have the same fatal effect on

the trustee as it has on the bank.

The trustee, as successor to the

rights of the debtor, could seek the

assistance of a court of equity to com-

pel a bill of sale from the co-owners

to D.D.C., Inc. Pepper v. Litton,

=e 8 &

BERBER EBE EE EG ES =

308 U.S. 295, 304-305, note 11 (1939).

The trustee is an innocent third

party with the status of a judicial

lien creditor. 11 U.S.C.A. Section

544(a). The trustee's lien attached

at the time of the filing of the peti-

tion. UCC Section 9-301(3). The FAA

has provisions under the regulations

by which judicial liens will lead to

federal record rights. AC Form 8050-

94(9-75), Paragraph 12; 14 CFR Part 49.

The bank, "like the Shackets failed

to take appropriate prophylactic measures

to ensure that the other party to the

transaction performed the acts necessary

for the appropriate recordation of the

transfer. As a result, the transfer was

ineffective. . .

"Although this is a harsh result,

to hold otherwise would permit parties

SERRE RRR RR RRR ER ES

to aircraft transfers to avoid the

reach of 49 U.S.C. Section 1403(c)

merely by failing, intentionally or

not to record certain documents."

In re Air Vermont, Inc., 45 B.R. 820,

623 (D.C. VP 1964).

The circuit court panel erred

in failing to apply federal law to

test the "rights in the collateral"

requirement. The trustee respectfully

requests the Court to review the

decision.

“SeEBREREBRER RHR EB R BREESE E

APPENDIX

The following is the decision of

the United States Court of Appeals of

the Eighth Circuit, which was filed on

February 12, 1985 and reported at

754 F.2d 778.

/779

Victor L. Gelking (debtor) filed

a Chapter 7 bankruptcy petition on

August 21, 1981. The trustee of his

estate, Phillip D. Armstrong, sought

to avoid the State Bank of Towner's

(bank's) security interest in the debt-

or's airplane, pursuant to his status

as an unsatisfied judicial lien cre-

Gitor under ll U.S.C. 8 544(a) (1982),

on the ground that the bank's security

interest was not perfected prior to

the date the debtor filed for bankrupt-

cy. The bankruptcy court found that

edithen

= = | f Bg e | Ez gE , a a a eo z = I = —!

the bank's security interest had been

perfected prior to August 21, 1981.

This determination was affirmed by the

district court. The trustee appeals

to this court. We affirm.

PACTS

From 1969 to January of 1981, the

debtor operated a business in Minot,

North Dakota, known as Minot Aircraft

Sales. On September 27, 1979, the

debtor obtained a loan from the bank

for the purchase of two airplanes.

Subsequently, the debtor exchanged the

two airplanes for a 1978 Piper Lance

airplane owned by D.D.C., Inc. The

bank released its liens on the two ex-

changed airplanes upon the debtor's

execution of a new security agreement

granting the bank a security interest

in the 1978 Piper. /780

ke

PEERS RRR RRREREREEESE

This security agreement was then

mailed, along with the debtor's bill of

sale from D.D.C., Inc. and an applica-

tion for registration, to the Federal

Aviation Administration (FAA). These

documents were filed for recordation

with the FAA on May 12, 1981. The se-

curity agreement was filed a second

time on July 20, 1981. Actual recorda-

tion of the security agreement, however,

did not occur until November 17, 1981.

This delay in recordation was partially

caused by the bank's failure to supply

evidence of the debtor's complete

chain of ownership (i.e., vill of sale

from initial owners to D.D.C., Inc.

and the original bill of sale to the

initial owners).

DISCUSSION

The relevant North Dakota statu-

tory provisions read as follows:

aot.

3. The filing of a financing

statement otherwise required by this

chapter is not necessary or effective

to perfect a security interest in pro-

perty subject to:

a. A statute or treaty of

the United States which provides for a

national or international registra-

tion or a national or international

certificate of title or which speci-

fies a place of filing different from

that specified in this chapter for

filing of the security interest.

* * * *

4. Compliance with a statute or

treaty described in subsection 3 is

equivalent to the filing of a finan-

cing statement under this chapter, and

a security interest in property sub-

ject to the statute or treaty can be

perfected only by compliance therewith

except as provided in section 41-09-03

on multiple state transactions. Dura-

tion and renewal of perfection of a

security interest perfected by compli-

ance with the statute or treaty are

governed by the provisions of the

statute or treaty; in other respects,

the security interest is subject to

this chapter.

N.D.C.C. § 41-09-23(3)(a), (4) (Uni-

form Commercial Code 8 9-302(3)(a),

(4)). The Federal Aviation Act pro-

ak?

SERB ESE RSE RE R ERE ER EEE SE

vides a central clearing house for the

recordation of interests in aircraft

and, as such, is a type of statute re-

ferred to in subsection (3)(a) of N.D.

C.C. § 41-09-23. 49 U.S.C. 8 1403

(1982). See Philko Aviation, Inc. v.

Shacket, 103 S. Ct. 2476, 2479 (1983);

U.C.C. 8 9-302 comment 8. Accordingly,

under North Dakota law, security inter-

ests in aircraft can be perfected ‘only

by compliance" with the Federal Avia-

tion Act.

The pertinent portions of the Fed-

eral Aviation Act provide as follows:

Validity of conveyances or other

instruments; filing

(c) No conveyance or instrument

the recording of which is provided for

by subsection (a) of this section shall

be valid in respect of such aircraft

* * * against any person other than

the person by whom the conveyance or

other instrument is made or given, his

heir or devisee, or any person having

actual notice thereof, until such con-

veyance or other instrument is filed

-13-.

SESS ERERRRER RRR ESSE

for recordation in the office of the

Secretary of Transportation * * *,.

Effect of recording

(d) Each conveyance or other in-

strument recorded by means of or under

the system provided for in subsection

(a) or (b) of this section shall from

the time of its filing for recordation

be valid as to all persons without

further or other recordation * * *.,

49 U.S.C. 8 1403(c), (d) (1982) (empha-

sis added). These sections establish

that perfection of a security interest

occurs on the date the security agree-

ment is “filed for recordation." See

1)

In re Farina, 25 Bankr. 4ll, 413 (Bankr.

D. Me. 1982) (perfection of security

interest in airplane occurs on date

security agreement filed for recorda-

tion); In re Disney, 24 Bankr. 155,

157-58 (Bankr. D. Id. 1982) (same).

Under the Act, actual recordation

is not necessary for perfection.

Actual recordation is necessary, how-

ever, in order for the creditor to reap

+4.

the benefits of any priority his filing

for recordation may have established.

See Philko Aviation, Inc. v. Shacket,

supra, at 2480. ("Although state law

determines priorities, Py eee

must be federally recorded before they

can obtain whatever priority to which

they are entitled under state law").

In this case, actual recordation

of the bank's security agreement occur-

red. Since the bank's security inter-

est was perfected as of the date it

was filed for recordation (May 12,

1981), it was perfected prior to the

date the debtor filed his bankruptcy

petition (August 21, 1981). According-

ly, the bank's security agreement was

not avoidable by the trustee.

The trustee seeks to avoid this

result by arguing that attachment of

| oF

the bank's security agreement did not

occur until the debtor acquired record

ownership in the airplane. Attachment,

of course, is a necessary step in the

perfection of a security interest.

N.D.c.c. gg 41-09-16(1),-24(1) (U.C.C.

gs 9-203(1), 303(1)). Further, in or-

der for a security interest to attach,

the debtor must have "rights in the

collateral." N.D.C.C. § 41-09-16(1)(c)

(U.C.C. § 9-203(1)(Cc)).

The trustee admits that the debt-

or had an equitable interest in the

airplane prior to filing for bankrupt-

cy. The trustee argues, however, that

the debtor's rights in the airplane

were not sufficient to satisfy the

“rights in the collateral" requirement.

He bases this argument on the conten-

tion that, prior to the recordation of

— a

SEBS RB RERE RRR ERR ECE ES

his (sic) and D.D.C., Inc.'s interest in

the airplane, he (sic) could not convey

an interest which would be indefeasible

and valid against third parties. We find

no language in the North Dakota statutes

or caselaw, however, which would support

a conclusion that a debtor must possess

such rights in order to have “rights in

the collateral". Instead, we conclude

that the rights that the debtor possessed

in the airplane prior to filing were

sufficient to meet the "rights in the

collateral" requirement. See 1 G.Gilmore,

Security Interests in Personal Property 2

11.5 at 353 (1965) ("less than full

"legal title'" will satisfy the "rights

in the collateral" requirement).

In conclusion we find that the

bank's security interest in th~> debt-

ok Be

SERB ERB ERB REE REE SBE E

or's airplane was perfected prior to

the date the debtor filed for bank-

ruptcy. Accordingly, the judgment of

the district court is affirmed.

Following is the decision of the

United States District Court, District

of North Dakota, which was filed on

June 15, 1984.

This is an appeal from an order

dismissing the Trustee's complaint.

The bankrupt estate included a

property interest in a Piper airplane

in which the State Bank of Towner held

a security interest. The State Bank of

Towner had not, at the time bankruptcy

was declared, completed registering

its claim with FAA. The Trustee seeks

-18-

BEER REREREREREEEE SE

to set aside the security interest and

recover the value of the airplane for

the general creditors.

The evidence established these

facts: The State Bank of Towner first

held a security lien on two airplanes

as of September 27, 1979. The debtor

traded the old airplanes for a new one,

without the advancement of further

moneys by the bank. The bank released

its liens on the old airplanes in ex-

change for a lien on the new one. The

debtor filed as a bankrupt under Chap-

ter 7, August 12, 1981.

The loan by the bankrupt on April

1. The security agreement was stamped

as a conveyance filed with the FAA air-

craft registry on two dates: May 12,

1981, and, after correction of the re-

cord, again July 20, 1981.

tie

SHEE E ERE ERE REE RE EEEBE

30, 1981 was $60,380.23. The State

Bank of Towner sold the aircraft for

$31,000.00 on October 13, 1982.

The Bankruptcy Judge found the

security claim was not upset by the

bankruptcy filing and dismissed the

Trustee's complaint.

In resolving this appeal, I apply

the "clearly erroneous standard" as to

the findings of fact, Clay v. Traders

Bank of Kansas City, 708 F.2d 1347,

1350-51 (8th Cir. 1983).

Under Title 11 U.S.C. 8 541, fil-

ing for relief in bankruptcy creates

an estate made up of all legal or

equitable interests of the debtor in

property as of the commencement of the

case. Transfers which perfect inter-

ests in estate properties after the

commencement of the bankruptcy pro-

_

ceedings may be set aside by the Trust-

ee of the estate, Title 11 U.S.C. 8 549.

Persons who have unsecured interests

in estate property at the time the

bankruptcy proceeding is commenced may,

in certain circumstances have their

interests avoided by the Trustee,

Title 11 U.S.C. 8 544,

The issue here is whether the

bank's perfection of the security in-

terest, which was completed within the

time for avoiding transfers, is an

avoidable interest. Title 49 U.S.C.

1403(a)(1) requires the Secretary of

Transportation to maintain a recording

system covering any conveyance which

affects title to or interest in any

civil aircraft of the United States.

Title 49 U.S.C. 8 1403(c) states: No

conveyance or instrument the recording

of which is provided for by subsection

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‘-- eoentipetet@eieite?te@iiet fees

(a) of this section shall be valid

- « » against any person other than

the person who gave it, his successors,

or persons who have actual notice

thereof, until it is filed.

This statute has been interpreted

to mean that the instrument of convey-

ance must be recorded before the rights

of innocent third parties can be af-

fected.

See Philko Aviation, Inc. v.

Schacket, 103 S.Ct. 2476, 2478 (1983).

In that case the first purchaser left

it to the seller to perfect the trans-

fer. The seller did not do so but used

the original record to sell the air-

plane a second time to an innocent

buyer who investigated and relied on

the FAA record. (Absence of the air-

craft was explained to the new buyer

by the seller's claim it had been

an

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flown to a shop for maintenance.)

14 CFR 49.19 (1983) explains the

statutory phrase "filed for recorda-

tion" (49 U.S.C. 8 1403(c) as follows:

A conveyance is filed for re-

cordation upon the date and at

the time it is received by the

FAA Aircraft Registry.

In re Farina, 25 B.R. 4ll (Bankr.

D. Me. 1982), the security agreement

registration and bill of sale of the

airplane were received by the FAA for

registration, but were not filed for

nearly one year, until missing docu-

ments and signatures were received;

and the security interest was held

perfected at the time of the original

receipt. So here, where the bank had

undertaken to perfect its claim and

the delay was due largely to the ad-

ministrative problems of the FAA, the

logic of Farina, supra, must govern.

fa,

BHERHRHREEREEHREEHREHEEBEEHRERBESESE FE

IT IS ORDERED that the decision

of the Bankruptcy Judge dismissing

Plaintiff's complaint is confirmed.

Counsel for Petitioner:

Phillip D. Armstrong

300 U.S. Courthouse

100 lst St. SW

Minot, ND 58701

701/838-9422

Counsel for Respondent:

Richard P. Olson

P.O. Box 1000

Minot, ND 58701

701/852-0381

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