## Facts

- Investors sued Aura Systems, Inc. (a Delaware corporation) for alleged federal securities law violations and later settled for $4 million payable in monthly installments.
- Aura defaulted on the settlement payments, and the investors obtained a final judgment for $923,250 in 2002.
- In 2003, the investors filed a “Notice of Judgment Lien” with the California Secretary of State, claiming a lien on Aura’s personal property, including accounts receivable, equipment, and inventory.
- Aura filed a Chapter 11 case in 2005 and the investors filed a proof of claim asserting secured status based on the California judgment lien filing.
- Aura, as debtor-in-possession, objected and moved for summary judgment, arguing the filing did not create or perfect a judicial lien on a non-California corporation’s Article 9 collateral.

## Issues

1. Whether a judgment creditor can perfect a judicial lien on a Delaware corporation’s Article 9 personal property by filing a notice of judgment lien with the California Secretary of State.
2. Whether Revised Article 9’s debtor-location filing rules control the place and manner of perfection for a California judgment lien on collateral governed by Division 9 of the California Commercial Code.

## Decision

- The court granted Aura’s motion for summary judgment on its claim objection as to secured status.
- The court held the investors did not have a perfected judicial lien on Aura’s personal property governed by Division 9.
- Because Aura is a registered organization located in its state of incorporation, perfection required filing in Delaware rather than California.
- The investors’ claim was allowed only as an unsecured claim in the bankruptcy case.

## Legal Principles

- For personal property collateral governed by Division 9 (Revised Article 9), a judgment lien must be perfected in the same jurisdiction and by the same filing-location rules applicable to security interests in that collateral.
- Under Revised Article 9, the place to perfect most non-possessory interests in accounts, inventory, and equipment is determined by the debtor’s location, not the collateral’s physical location.
- A registered organization is “located” in its state of organization for Article 9 choice-of-law and filing purposes.
- A California notice of judgment lien filing does not perfect a lien on Article 9 collateral owned by a corporation organized outside California when Article 9 requires filing in the debtor’s state of organization.

## Conclusion

The bankruptcy court concluded that the creditors’ California notice of judgment lien did not perfect a lien against the debtor’s Article 9 collateral because the debtor was incorporated in Delaware, so the creditors’ asserted secured claim was reclassified as unsecured.


In re Aura Systems, Inc., 347 B.R. 720 (Bankr. C.D. Cal. 2006)