## Facts

- Aquamarine USA, Inc. (Aquamarine) operated a business selling boats, engines, and trailers, with most sales conducted on a consignment basis.
- Because many consigned boats were subject to liens, Aquamarine regularly dealt with institutional lenders, including SunTrust Bank of Central Florida, N.A. (SunTrust), to obtain payoff figures and title information to complete retail sales.
- Thomas L. Moran purchased a 1998 Sea Ray vessel and related equipment (including an engine and trailer) (collectively, the boat) using financing from SunTrust.
- Moran granted SunTrust a security interest in the boat. SunTrust perfected its interest by noting its lien on the boat’s certificate of title and filing a financing statement covering related equipment. The loan documents barred Moran from transferring the boat without SunTrust’s consent.
- Moran later entered into a consignment agreement with Aquamarine so Aquamarine could sell the boat to a retail buyer. Moran told Aquamarine the boat was subject to SunTrust’s lien, but Moran did not immediately notify SunTrust that the boat had been placed on consignment.
- In connection with a planned sale, Aquamarine contacted SunTrust employees multiple times (including fax communications and a phone call) to obtain payoff and title information for the boat.
- Aquamarine sold the boat to Walter Koetter in the ordinary course of Aquamarine’s business. Koetter paid the full purchase price and took possession of the boat.
- Aquamarine told Koetter that it did not yet have all paperwork needed to transfer title at that time, and Aquamarine did not disclose SunTrust’s lien to Koetter.
- Aquamarine later filed for bankruptcy and did not remit the amounts owed from the consignment sale to Moran or SunTrust.
- SunTrust moved for relief from the automatic stay to assert a continuing lien interest in the boat and to pursue its claimed collateral, arguing it had not been advised of the consignment.

## Issues

1. After Aquamarine’s ordinary-course consignment sale to Koetter, did SunTrust retain a valid and enforceable lien interest in the boat as against Koetter?
2. If SunTrust lacked an enforceable interest in the boat, was SunTrust entitled to relief from the automatic stay under 11 U.S.C. § 362(d) to pursue the boat?

## Decision

- The court denied SunTrust’s motion for relief from the automatic stay.
- The court found that SunTrust did not hold a lien on the boat and trailer as against Koetter following the consignment sale.
- The court relied on its prior determination in the bankruptcy case that a purchaser who buys a boat and trailer from Aquamarine through a consignment sale obtains ownership rights superior to those of the original owner/entruster.
- Given Aquamarine’s role as a merchant-dealer selling boats of that kind and Koetter’s purchase in the ordinary course, Koetter’s ownership rights defeated the interest SunTrust sought to enforce through stay relief.

## Legal Principles

- Under U.C.C. entrustment principles, an owner (entruster) who delivers goods to a merchant who deals in goods of that kind gives the merchant the power to transfer the entruster’s rights to a buyer in the ordinary course of business.
- A buyer in the ordinary course who purchases from a merchant-dealer generally takes the goods free of the entruster’s ownership claim, even if the entruster did not intend the merchant to dispose of the goods without paying the entruster.
- In a stay-relief contest, the movant must show a valid, enforceable interest in the specific property it seeks to pursue; without a surviving lien or enforceable collateral interest, relief from the automatic stay is not warranted.
- A secured lender’s perfected lien and loan restrictions on the borrower’s ability to transfer do not, in this consignment/entrustment setting, preserve the lender’s ability to recover the goods from an ordinary-course buyer when the dealer had power to convey superior rights through the retail sale.

## Conclusion

The bankruptcy court denied SunTrust’s request for relief from the automatic stay because Aquamarine, as a merchant that sold boats on consignment, had power to pass superior rights to Koetter through an ordinary-course retail sale, leaving SunTrust without an enforceable lien in the boat for purposes of stay relief.


In re Aquamarine USA, 330 B.R. 280 (2005)