## Facts

- Expeditors International of Washington, Inc. (Expeditors) provided freight-forwarding and logistics services to Schwinn Cycling & Fitness, Inc. (Schwinn).
- Schwinn granted Expeditors a security interest in all Schwinn property that was under Expeditors’ possession or control.
- While Expeditors held certain Schwinn goods, Expeditors’ security interest in those goods was perfected by possession under UCC § 9-313(a).
- In the weeks before Schwinn filed for Chapter 11 bankruptcy on July 16, 2001, Expeditors returned some of the goods to Schwinn.
- After the goods were returned, Schwinn sold the goods.
- Schwinn deposited the sale proceeds into a segregated cash-collateral fund established in the bankruptcy case.
- Expeditors did not file a financing statement covering the goods or proceeds within 20 days after returning the goods to Schwinn.
- Expeditors nevertheless claimed a continuing perfected security interest in the segregated fund, arguing that the Chapter 11 filing, occurring during the UCC’s temporary-perfection period for proceeds, made its perfection continue without the filing or possession steps normally required after the 20-day period.

## Issues

1. Whether Expeditors’ security interest in the proceeds of goods it returned to Schwinn remained perfected after the UCC’s 20-day temporary-perfection period expired when Expeditors did not file a financing statement.
2. Whether Schwinn’s Chapter 11 filing during the 20-day temporary-perfection period prevented the lapse of Expeditors’ perfection or converted temporary perfection into continuing perfection.
3. Whether the Liquidating Trust, standing in the estate’s position, had priority over Expeditors’ claimed lien in the segregated cash-collateral proceeds.

## Decision

- The court ruled for the Liquidating Trust.
- Expeditors’ security interest was perfected by possession while Expeditors held the goods, and it was only temporarily perfected in identifiable proceeds for a limited period after disposition.
- Because Expeditors did not file (or otherwise satisfy the UCC requirements for continued perfection) within the applicable 20-day period after returning the goods, Expeditors’ security interest in the proceeds became unperfected after that period.
- The bankruptcy filing did not stop the running of the UCC’s time limits and did not convert temporary perfection into continuing perfection.
- As a result, Expeditors did not hold a perfected security interest in the segregated cash-collateral fund as against the estate, and the Liquidating Trust prevailed.

## Legal Principles

- Under UCC § 9-313(a), a security interest may be perfected by possession, and that method of perfection lasts only while the secured party retains possession.
- Article 9 provides only a short, temporary period of automatic perfection in identifiable proceeds following a disposition of collateral; after that period, continued perfection requires satisfaction of the statute’s conditions (commonly filing a financing statement or another authorized method).
- The Bankruptcy Code does not supply a substitute method of perfection and does not extend a state-law temporary-perfection period merely because the debtor files bankruptcy during that period.
- Priority disputes in bankruptcy generally turn on whether the creditor was perfected under applicable nonbankruptcy law; if perfection lapses, the estate (through its representative, including a post-confirmation liquidating trust where authorized) can defeat the unperfected interest using Bankruptcy Code avoidance and priority rules.

## Conclusion

The bankruptcy court held that Expeditors’ perfection in Schwinn’s goods did not carry forward into a continuing perfected lien in the sale proceeds because Expeditors returned the goods and failed to file within the UCC’s 20-day window; the Chapter 11 filing during that temporary period did not prevent lapse, so the Liquidating Trust had priority to the segregated cash-collateral fund.


Expeditors International of Washington, Inc. v. The Liquidating Trust, 313 B.R. 473 (2004)