## Facts

- Georgetown Steel Company, LLC operated a steel facility and used hot briquetted iron (HBI) as a raw material.
- Progress Rail Services Corporation supplied HBI to Georgetown Steel under a written agreement titled “Consignment Agreement” dated October 10, 2003.
- Progress Rail delivered HBI to Georgetown Steel’s facility between October 10 and October 20, 2003.
- The HBI was kept on the debtor’s premises in a segregated area; Georgetown Steel withdrew and used it as needed in manufacturing.
- The agreement provided that Progress Rail retained title to the HBI until used; Georgetown Steel reported usage weekly and paid for the quantity consumed during the prior week.
- Progress Rail did not file a UCC financing statement to perfect any interest in the HBI.
- Georgetown Steel filed a Chapter 11 case and, as debtor-in-possession, filed an adversary proceeding seeking a declaration that its rights in the HBI and proceeds were superior to Progress Rail’s claimed interest.
- The bankruptcy court considered cross-motions for summary judgment focused on characterizing the transaction.

## Issues

1. Whether the parties’ arrangement was a “consignment” within UCC Article 9 (treated as a security interest requiring perfection) or a transaction outside Article 9’s consignment rules.
2. If Article 9 applied, whether Progress Rail’s failure to perfect by filing made its interest subordinate to the debtor-in-possession’s rights in the HBI and its proceeds.

## Decision

- The court characterized the transaction as a consignment within the meaning of UCC Article 9, notwithstanding the parties’ contractual label and retained-title language.
- Because Progress Rail did not perfect its Article 9 interest by filing a financing statement, its interest in the consigned HBI was unperfected.
- The debtor-in-possession had priority over Progress Rail’s unperfected interest with respect to the HBI and related proceeds.
- The court resolved the cross-motions for summary judgment consistent with that characterization and priority outcome.

## Legal Principles

- Courts determine whether a transaction is an Article 9 consignment based on statutory definitions and the parties’ actual commercial arrangement, not solely on contract labels.
- A consignor’s retention of title in goods delivered to a merchant under an Article 9 consignment is treated as a security interest for purposes of perfection and priority.
- A consignor must perfect its Article 9 interest (typically by filing a financing statement) to obtain priority over the consignee’s creditors.
- In bankruptcy, a debtor-in-possession may use strong-arm powers to defeat unperfected security interests, including unperfected Article 9 consignment interests, and claim priority in the goods and proceeds.

## Conclusion

The court held that the HBI supply arrangement fell within UCC Article 9’s consignment rules and that, because the consignor did not perfect by filing, the debtor-in-possession’s rights in the HBI and its proceeds were superior.


In re Georgetown Steel Co., LLC, 318 B.R. 352 (Bankr. D.S.C. 2004)