## Facts

- CIT Group/Equipment Financing, Inc. leased two pieces of heavy equipment to Fehrs Nebraska Tractor & Equipment Co. in 1999.
- The equipment was subject to Nebraska’s certificate-of-title regime; CIT caused the equipment to be titled and retained the certificates of title.
- In 2000, Fehrs sold the equipment to M & S Grading, Inc., but did not transfer certificates of title because it did not possess them.
- Fehrs later ceased operations and CIT stopped receiving lease payments.
- In 2002, M&S filed Chapter 11 and listed the equipment as property of the bankruptcy estate.
- CIT filed an adversary proceeding seeking possession, asserting M&S never acquired ownership because title was never transferred under Nebraska law.
- The bankruptcy court ruled for CIT, relying on Nebraska U.C.C. § 2A-305(3) and the Nebraska Certificate of Title Act, and ordered M&S to relinquish the equipment.
- M&S appealed to the Eighth Circuit Bankruptcy Appellate Panel.

## Issues

1. Whether, under Nebraska U.C.C. § 2A-305(3) and the Nebraska Certificate of Title Act, a buyer can obtain ownership or a superior interest in titled equipment purchased from a lessee without receiving the certificates of title.
2. Whether the equipment constituted property of the Chapter 11 estate when the debtor never obtained certificates of title.

## Decision

- The Bankruptcy Appellate Panel affirmed the bankruptcy court.
- The Panel held CIT retained the superior ownership interest because M&S did not obtain certificates of title as required for transfer of ownership of titled goods.
- The Panel ordered that M&S must relinquish the equipment to CIT because M&S acquired no title from Fehrs.

## Legal Principles

- Under Nebraska law, transfer of ownership of goods covered by a certificate of title requires compliance with certificate-of-title formalities; ownership cannot be transferred without the title.
- Nebraska U.C.C. § 2A-305(3) governs a lessee’s purported sale of leased goods and expressly incorporates the certificate-of-title statute for titled goods.
- When statutory text is unambiguous, courts apply its plain meaning and will not adopt constructions that negate explicit title-transfer requirements.
- A purchaser from a lessee cannot receive better title than the lessee can convey when the certificate-of-title statute controls and title was never transferred.

## Conclusion

Because the equipment was subject to Nebraska’s certificate-of-title requirements and the debtor never obtained certificates of title, the debtor did not acquire ownership from the lessee-seller; CIT’s ownership interest remained superior, and the equipment was not part of the bankruptcy estate.


In re M & S Grading, Inc., 457 F.3d 898 (8th Cir. 2006)