United States Bankruptcy Appellate Panel of the Ninth Circuit
In re: PETTIT OIL COMPANY, Debtor.
KATHRYN A. ELLIS, Chapter 7 Trustee, Appellee. IPC (USA), INC., Appellant, Adv. No. 3:14-ap-04222-PBS
and Submitted on September 28, 2017 at Seattle, Washington
from the United States Bankruptcy Court for the Western
District of Washington Honorable Paul B. Snyder, Bankruptcy
K. Sato of Bucknell Stehlik Sato & Orth, LLP, argued for
appellant, IPC (USA), Inc.
H. Morton of Foster Pepper PLLC argued for appellee, Kathryn
A. Ellis, Chapter 7 Trustee.
Before: KURTZ, FARIS, and BRAND, Bankruptcy Judges.
A. Ellis, chapter 7 trustee (Trustee), filed an adversary
complaint against appellant, IPC (USA), Inc. (IPC), seeking
to avoid under § 544(a) (1), IPC's unperfected
security interest in consigned fuel inventory, accounts
receivable (A/R), and cash (Cash) all of which were in the
possession of the debtor, Pettit Oil Company (Debtor), on the
bankruptcy court granted partial summary judgment in favor of
Trustee, ruling that the agreement between IPC and Debtor was
a "true" consignment under Revised Article 9
(Article 9) of the Uniform Commercial Code (U.C.C.) §
9-102 (a) (20) . Under U.C.C. § 9-319(a), for purposes
of determining the rights of Debtor's creditors while the
fuel inventory was in its possession, Debtor is deemed to
hold rights and title to the goods identical to those the
consignor, IPC, had or had power to transfer. In contrast,
under U.C.C. § 9-103(d), IPC is deemed to hold only a
purchase-money security interest in the consigned goods as
against creditors of Debtor-consignee. It is undisputed that
IPC did not perfect its interest in the consigned fuel.
Applying these statutes, the bankruptcy court found that IPC
s interest in the fuel inventory was subordinate to the
rights of Trustee as a judicial lien creditor.
the court granted partial summary judgment in favor of
Trustee, ruling that IPC's interests in the A/R and Cash
generated from the sale of the consigned fuel and held by
Debtor on the petition date was also subordinate to the
rights of Trustee because IPC had not complied with the
U.C.C.'s perfection rules for priority in accounts
receivable or cash.
final ruling, the bankruptcy court granted summary judgment
in favor of Trustee awarding damages in the amount of $5,
493, 498.69 on her claims against IPC, consisting of: $1,
161, 754.00 for the fuel inventory, $3, 895, 961.69 for the
A/R, and $435, 783.00 Cash that was in Debtor's bank
account on the petition date.
argues on appeal that the bankruptcy court erred by including
the value of the A/R and Cash in the judgment. IPC contends
that under U.C.C. § 9-319, Trustee could reach only the
"goods" - the fuel inventory - in the possession of
Debtor on the petition date because the U.C.C. definition of
"goods" does not include A/R and Cash. In short,
U.C.C. § 9-319 should not be applied beyond its scope.
Relying on the underlying consignment agreement between the
parties, IPC contends that it is the only party with an
interest in the A/R and Cash.
reasons explained below, we find no support for IPC's
proposition in Article 9 or elsewhere. Accordingly, we
The Consignment Agreement Between IPC and Debtor
was a distributor of bulk oil, gas, diesel and lubricant
products and sold fuel products at self-fueling sites known
as "cardlock sites."
September 1, 2013, IPC entered into a Consignment and Service
Agreement (CSA) with Debtor. Under the CSA, IPC provided fuel
to various cardlock sites owned or leased by Debtor. IPC
retained title to the fuel until the fuel was sold to end
user customers. Debtor was obligated to maintain the
financial records for the consignment transactions, including
booking and accounting for receivables and administering,
invoicing, collecting, and remitting payments to IPC for the
full cost of all consigned fuel sold by Debtor. In
consideration, IPC agreed to pay Debtor a monthly commission.
was also required to instruct its customers to make payments
directly to IPC s lockbox account at Union Bank in San
Francisco. However, upon implementation of the CSA, many
cardlock customers continued to send payments for IPC fuel
purchased at Debtor's cardlock sites to Debtor's
account, a lockbox with Debtor's lender, KeyBank National
Association (KeyBank). The CSA provided that if Debtor's
customers sent payments to Debtor instead of IPC, Debtor was
to promptly forward those payments to IPC. California law
governed the interpretation of the CSA.
undisputed that IPC never filed a financing statement or
otherwise perfected its interests in the consigned fuel, the
A/R, or Cash.
filed a chapter 11 petition in November 2013 (Petition Date).
At the time of filing, there was an unquantified amount of
IPC fuel remaining in the tanks at Debtor's cardlock
sites. In addition, there were unpaid accounts receivable for
IPC fuel that had been sold and invoiced to Debtor's
customers, accounts receivable outstanding for sales of IPC
fuel that had been sold but not yet invoiced to Debtor's
customers, and cash in Debtor's KeyBank lockbox for sold
and invoiced IPC fuel that customers had mistakenly sent to