I have been advised that Los Angeles County has appealed the adverse decision in Mainline Equipment to the Ninth Circuit. It has filed its opening brief and the responsive brief should be coming in the next few weeks absent any extensions. Obviously, the county disagrees with Judge Brand’s decision but we’ll see what happens. It seems to me that the tax is still a priority debt and must be paid in full with interest (which is 18% at the present time) so it really only matters if the debtor is trying to sell the property free of the county’s lien.
My brief of the BAP decision is below:
Los Angeles County Treasurer and Tax Collector v. Mainline Equipment, Inc. (In re Mainline Equipment, Inc. ), 539 B.R. 165 (9th Cir. BAP Sept, 2015)
Issue: May a personal property tax lien in California be avoided as a statutory lien under Section 545(2)?
Holding: Yes. Judge Julia Brand, Central District
Taylor, Kurtz, Dunn
Opinion by Taylor
The debtor in this chapter 11 filed an adversary to avoid personal property liens asserted by Los Angeles County. The debtor argued that the lien should be avoided as a statutory lien under section 545(2). That section says that the debtor may avoid a tax lien if it was not perfected to the extent that it could not be defeated by a bona fide purchaser. The California code section that creates the lien states that the lien “shall not be valid against a purchaser for value or encumbrancer without actual knowledge of the lien when he or she acquires his or her interest in the property.” Since the estate takes the property as if it were a bona fide purchaser, the estate’s interest is senior to the county. The bankruptcy court agreed and avoided the lien.
The BAP affirmed. “Section 545(2) allows a trustee to set aside a lien that is not properly perfected as to a bona fide purchaser. As a debtor-in-possession who enjoys the rights of a trustee, Mainline could utilize § 545(2).” “Here, the [California] statutory language expressly states that the statute creates a lien on personal property that is not enforceable against a bona fide purchaser; nothing could be clearer and, as noted, this plain language interpretation does not lead to an absurd result.”