## Facts

- C.W. Mining Co. (C.W. Mining), a Utah coal-mining company, entered transactions with Standard Industries, Inc. (Standard) involving C.W. Mining’s accounts receivable, described as an assignment and/or sale of accounts and related rights.
- Before C.W. Mining’s bankruptcy filing, Standard filed a UCC financing statement intended to perfect its interest in the assigned accounts.
- In prior litigation, the financing statement was found “seriously misleading” and therefore ineffective to perfect Standard’s interest.
- C.W. Mining later entered bankruptcy, and a trustee was appointed to administer the estate.
- The trustee filed an adversary proceeding against Standard and sought a court determination regarding (1) whether the assignment of accounts fell within UCC Article 9, (2) whether the accounts were property of C.W. Mining/the estate, and (3) whether the trustee could avoid Standard’s interest using the trustee’s hypothetical lien creditor status.
- The disputed receivables were categorized as (a) “open accounts,” meaning accounts still unpaid on the petition date, and (b) “closed accounts,” meaning accounts that had been paid before the petition date.

## Issues

1. Whether the assignment/transfer of C.W. Mining’s accounts to Standard—whether characterized as a sale or as collateral—was governed by UCC Article 9 and its filing/perfection rules.
2. Whether, on the petition date, C.W. Mining retained sufficient rights in the accounts (and/or their proceeds) for the accounts to be treated as property of the estate.
3. Whether the trustee, as a hypothetical lien creditor under 11 U.S.C. § 544(a), could avoid Standard’s unperfected interest in (a) open accounts and (b) closed accounts paid prepetition.

## Decision

- The court concluded that the transfer of accounts was within the scope of UCC Article 9, including Article 9’s coverage of sales/assignments of accounts for purposes of perfection and priority.
- Because Standard’s financing statement was seriously misleading, Standard’s interest was unperfected under Article 9.
- The trustee, standing as a hypothetical lien creditor as of the petition date under § 544(a), had priority over Standard’s unperfected interest in accounts in which the debtor had rights on the petition date.
- As to open accounts unpaid on the petition date, the trustee could avoid Standard’s unperfected interest under § 544(a).
- As to closed accounts that had been paid before the petition date, the court focused on whether the estate held any remaining rights in the accounts or identifiable proceeds as of the petition date; where nothing remained for the estate, § 544(a) did not provide a basis to avoid Standard’s interest.

## Legal Principles

- UCC Article 9 applies to both security interests in accounts and many outright sales/assignments of accounts; Article 9’s perfection rules govern priority disputes with lien creditors.
- A financing statement that is “seriously misleading” is ineffective to perfect an Article 9 interest, leaving the transferee/secured party unperfected.
- Under 11 U.S.C. § 544(a), a bankruptcy trustee is treated as a hypothetical lien creditor as of the petition date and can avoid unperfected interests in property in which the debtor has rights on that date.
- Section 544(a) avoidance is measured as of the petition date; if the debtor has no remaining rights in the collateral or traceable proceeds on that date (for example, because an account was paid prepetition and nothing remains in the estate), § 544(a) does not supply recovery on that theory.

## Conclusion

In *In re C.W. Mining Co.*, the bankruptcy court treated Standard’s acquisition of C.W. Mining’s accounts as a UCC Article 9 transaction and held Standard unperfected due to a seriously misleading financing statement. Applying § 544(a), the court ruled that the trustee could defeat Standard’s unperfected interest in unpaid (“open”) receivables existing on the petition date, while limiting relief as to prepetition-paid (“closed”) accounts to situations where the estate still held rights in, or identifiable proceeds from, those accounts on the petition date.


In re C.W. Mining Co., 530 B.R. 878 (2015)