## Facts

- Trans World Airlines, Inc. and affiliated debtors filed Chapter 11 petitions on January 10, 2001.
- Substantially all assets were sold to American Airlines pursuant to a court-approved sale order.
- A liquidation plan was confirmed on June 14, 2002, transferring remaining rights to the TWA Inc. Post Confirmation Estate and reserving avoidance powers to the estate representative.
- During the Chapter 11 case, the United States Department of Agriculture (USDA) performed statutory inspections of TWA aircraft and asserted unpaid inspection fees.
- USDA filed a proof of claim asserting the fees were secured by a statutory lien on TWA’s aircraft and equipment.
- The Post Confirmation Estate filed an adversary proceeding seeking to reclassify USDA’s claim as unsecured, arguing the asserted aircraft lien was unperfected because it was not recorded with the Federal Aviation Administration (FAA).
- The Post Confirmation Estate moved for summary judgment on lien perfection and avoidability.

## Issues

1. Whether USDA’s statutory lien for aircraft inspection services had to be recorded in the FAA registry to be perfected and enforceable against third parties.
2. If not recorded, whether the lien was avoidable by the estate representative under the Bankruptcy Code’s avoidance powers and therefore could not support secured claim status.

## Decision

- The court held USDA’s asserted statutory lien was not perfected because it was not recorded with the FAA.
- The court held the unrecorded lien was not enforceable against a hypothetical bona fide purchaser and was avoidable by the Post Confirmation Estate under bankruptcy avoidance powers.
- The court granted summary judgment for the Post Confirmation Estate and treated USDA’s claim as unsecured rather than secured.

## Legal Principles

- Congress established a centralized federal recording system for interests in aircraft; perfection against third parties generally requires FAA recordation.
- A statutory lien that constitutes an interest in aircraft must comply with the FAA recording scheme to be perfected as against purchasers and creditors.
- Under Bankruptcy Code strong-arm and statutory lien avoidance provisions (including 11 U.S.C. §§ 544 and 545), an estate representative may avoid an unperfected statutory lien that is not enforceable against a hypothetical bona fide purchaser as of the petition date.
- Absent a separate, specific federal notice regime for a particular federal lien, failure to provide the public notice required by the FAA recording system leaves the lien unperfected as to third parties.

## Conclusion

The court ruled that USDA’s unrecorded statutory lien for aircraft inspection fees lacked FAA recordation, was unperfected and avoidable in bankruptcy, and therefore could not support secured status for USDA’s claim, which was reclassified as unsecured.


In re TWA Inc. Post Confirmation Estate, 312 B.R. 759 (Bankr. D. Del. 2004)