## Facts

- In 2007, Kevin Gannon (debtor) bought a used boat and granted the selling dealer a security interest in the boat.
- The dealer assigned its security interest to Bank of America (bank).
- The bank perfected its security interest in Kansas by filing a UCC financing statement describing the boat.
- In 2009, while still a Kansas resident, Gannon obtained an Oklahoma certificate of title for the boat.
- The Oklahoma title did not list the bank as a lienholder, but it contained a statement warning that the vessel may be subject to other liens or security interests not shown on the title.
- In 2010, Gannon filed a Chapter 7 bankruptcy case in the District of Kansas.
- The Chapter 7 trustee (Speth) filed an adversary proceeding seeking to avoid the bank’s security interest.
- The trustee obtained a default judgment and sold the boat and trailer for $11,325.
- The bank moved to vacate the default judgment; the court found the trustee had not properly served the bank and vacated the judgment.
- The bank then moved for summary judgment, arguing its lien remained perfected; the trustee argued that the Oklahoma title issuance ended the bank’s perfection or, alternatively, subordinated the bank’s interest.

## Issues

1. Whether the bank’s Kansas-perfected security interest remained perfected after the boat became covered by an Oklahoma certificate of title that did not note the lien.
2. Whether the trustee could use 11 U.S.C. § 544(a), together with the UCC’s “purchaser for value” language, to avoid the bank’s security interest.
3. Whether the trustee could treat himself as the holder of a “conflicting security interest” and claim priority because the Oklahoma title omitted the bank’s lien (despite the title’s general warning about possible undisclosed liens).

## Decision

- The court granted the bank’s motion for summary judgment.
- The court held the bank’s security interest remained perfected on the petition date under the applicable UCC rule governing goods that become covered by another state’s certificate of title.
- The court held the trustee could not avoid the bank’s security interest under § 544(a) based on the UCC provision that deems the out-of-state interest unperfected against a “purchaser for value.”
- The court rejected the trustee’s alternative priority theory based on claiming the status of a holder of a “conflicting security interest.”
- As a result, the bank’s lien was valid against the estate and entitled to priority in the sale proceeds.

## Legal Principles

- Under UCC § 9-316(d) (as applied by the court), when goods become covered by a certificate of title issued by another state, a security interest that was perfected under the law of the original jurisdiction at the time of the new title issuance remains perfected until it would have become unperfected under the original jurisdiction’s law.
- A later certificate of title that does not list an existing lien does not, by itself, terminate continued perfection when the UCC’s continued-perfection rule applies and the original perfection has not lapsed (here, the Kansas financing statement remained effective for its filing period, beyond the bankruptcy petition date).
- The UCC’s statement that the continued-perfected security interest is treated as unperfected against a “purchaser for value” does not automatically give a Chapter 7 trustee “purchaser for value” status for personal property through 11 U.S.C. § 544(a).
- A bankruptcy trustee’s avoidance powers do not convert the trustee into the holder of a consensual, competing (“conflicting”) security interest for purposes of reordering priority under certificate-of-title concepts, especially where the title contains a general warning that other liens may exist even if not shown.

## Conclusion

The bankruptcy court held that Bank of America’s security interest, perfected in Kansas by filing, remained perfected when the debtor later obtained an Oklahoma boat title that omitted the lien, because the UCC continued-perfection rule kept the Kansas perfection effective through the petition date. The court also held the Chapter 7 trustee could not avoid or subordinate the bank’s interest by invoking § 544(a) as a “purchaser for value” or as a holder of a conflicting security interest, so the bank’s lien had priority in the sale proceeds.


In re Gannon, 461 B.R. 869 (2012)