Los Angeles County Treasurer & Tax Collector v. Mainline Equipment, Inc., No. 15-60069 (9th Cir. 2017)
Annotate this CaseThe County of Los Angeles may not enforce a lien on the personal property of a Chapter 11 debtor in possession when the County has failed to perfect the lien as against a bona fide purchaser. In this case, the Ninth Circuit rejected Mainline's argument that this appeal was mooted by the disbursal of Mainline's bankruptcy estate and dismissal of the Chapter 11 case; 11 U.S.C. 545(2) allows a Chapter 11 debtor in possession to set aside liens against its estate; under section 545(2), Mainline may avoid the County's liens; and Cty. of Humboldt v. Grover (In re Cummins), 656 F.2d 1262 (9th Cir. 1981), remained good law.
Court Description: Bankruptcy. The panel affirmed the Bankruptcy Appellate Panel’s affirmance of the bankruptcy court’s summary judgment in favor of a debtor in an adversary proceeding seeking avoidance of tax liens on the debtor’s personal property. The panel held that the appeal was not mooted by the disbursement of the debtor’s bankruptcy estate and the dismissal of the Chapter 11 case. The panel held that under 11 U.S.C. § 545(2), the County of Los Angeles could not enforce a lien on the personal property of a Chapter 11 debtor in possession, when the County had failed to perfect the lien as against a bona fide purchaser. The panel concluded that Cty. of Humboldt v. Grover (In re Cummins), 656 F.2d 1262 (9th Cir. 1981), addressing the statutory antecedent to § 545(2), remained good law. The debtor could set aside the County’s liens because the liens were statutory and were unenforceable against a hypothetical bona fide purchaser under California law. IN RE MAINLINE EQUIPMENT, INC. 3
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