Opinion
CASE NO. 99-51410 Chapter 11
October, 2000
OPINION
Now before the Court for consideration is the Motion To Require Debtor And Chapter 11 Trustee To Provide Adequate Protection And To Compel Compliance With Prior Order of This Court ("Motion") filed by Center Capital Corporation ("CCC"). This opinion constitutes the Court's findings of fact and conclusions of law required by Fed.R.Bankr.Proc. 7052 and disposes of all issues before the Court.
FACTUAL AND PROCEDURAL BACKGROUND
Hydro-Services, Inc.(the "Debtor") provides hydro-blasting, steam cleaning and chemical cleaning services. Included among the Debtor's assets is certain equipment used in the course of its business which constitutes property of the estate as that term is defined under 11 U.S.C. § 541. Four skid-mounted hydro-blasters are the subject of the instant controversy because both CCC and FirstBank of Texarkana ("FirstBank") claim to hold first and prior liens against them. The significant transactions giving rise to the controversy are as follows.
Evidence of numerous transactions involving Hydro-Services's assets and many other security agreements and filings in Texas and Arkansas was introduced at trial.
CCC 1994
On March 18, 1994, CCC, as Lessor, and Hydro-Services, Inc., as Lessee, executed a contract entitled "Equipment Lease No. 12649", the subject of which was equipment designated on "Lease Schedule A-1" and on "Lease Schedule II", two skid-mounted blasters identified as a New NLB Model 10250D Skid Mounted Liquid Blaster, "S/N: ___" [no S/N was written in the space provided] and as a model 12300D Skid Mounted Liquid Blaster, S/N 494040-1. (Plaintiff's Exhibit 2 or "the P-2 Lease"). CCC recorded a financing statement (No. 37734) for the blaster identified as S/N 39512 ("a model 10250D Skid Mounted Liquid Blaster") with the Secretary of State of the State of Texas ("SOS") on April 1, 1994. CCC recorded a financing statement (No. 072774) for the blaster identified as S/N 494040-1 with the SOS on April 15, 1994. A continuation statement was filed with the SOS on October 23, 1998 for each of the two blasters. Thereafter, on September 13, 1999, termination statements were filed with the SOS for each of the above two blasters stating, "the Secured Party(ies) of Record [CCC] no longer claims a security interest and the financing statement is terminated." The terminations identified the extinguished financing statements by the numbers and dates above.
CCC 1995
On March 15, 1995, CCC and the Debtor executed a Promissory Note and Security Agreement as an additional loan to the Debtor for the purchase of two skid-mounted blasters identified as S/N 593130 and S/N 595103. CCC recorded a financing statement (No. 062696)for the blaster identified as S/N 593130 with the SOS on April 3, 1995 and CCC recorded a financing statement (No. 062695) for the blaster identified as S/N 595130 with the SOS on April 3, 1995. Thereafter, on November 23, 1998, termination statements were filed with the SOS for each of the latter acquired two blasters stating, "the Secured Party(ies) of Record [CCC] no longer claims a security interest and the financing statement is terminated." The terminations identified the extinguished financing statements by the numbers and dates above.
NBC/FirstBank 1994-1996
On July 20, 1994, to refinance an existing debt, the Debtor executed a Promissory Note Security Agreement to the benefit of National Bank of Commerce of El Dorado ("NBC") granting NBC a security interest in all equipment owned or thereafter acquired. A UCC-2 filing was made on July 25, 1994 with the Arkansas Secretary of State. In addition, on March 22, 1996, National Bank of Commerce of El Dorado (NBC), properly filed and recorded with the Secretary of State of Texas, a UCC Financing Statement Form-1 naming Hydro-Services, Inc., as Debtor, covering
"ALL ACCOUNTS RECEIVABLE, EQUIPMENT, INVENTORY, FURNITURE AND FIXTURES NOW OWNED OR HEREAFTER ACQUIRED; . . . ASSIGNMENT OF UCC'S [SIC] DATED 7-25-94. . .".
National Bank of Commerce of El Dorado executed an Assignment of its Note, with the liens securing same, to FirstBank and recorded such assignment on February 9, 1998 in Arkansas.
NBC/FirstBank 1997
On July 21, 1997, National Bank of Commerce of El Dorado filed a Standard Form UCC-3 with the Secretary of State of Texas assigning certain security interests to Commercial Capital Funding, Inc. ("CCFI"), as Assignee. The UCC-3 provides that, following certain other specified exceptions pertaining to accounts receivable, "Upon satisfaction of Debtor's [Hydro-Service's] indebtedness to Secured Party [National Bank of Commerce] Secured party hereby assigns all remaining security interest of original financing statement to Assignee." The original financing statement to which the UCC-3 refers is 96-00056588. [UCC-1 dated March 22, 1996.] A subsequent UCC-3, also references 96-00056588 [UCC-1 dated March 22, 1996], dated March 21, 1998, makes a total assignment of CCFI's interests to FirstBank.
CCC 1998
In February, 1998, CCC loaned Debtor monies under a note and security agreement for the purchase of new blasters. CCC required collateral in addition to the security agreement on the new blasters and received it in the form of a Security Agreement for Additional Collateral and a new financing statement on skid-blasters identified as Nos. 39512, 494040, 595130 and 593130, i.e. the Blasters. The February, 1998 financing statement was recorded with the SOS on February 17, 1998, with the SOS identifying all four of the Blasters identified above as collateral.
The evidence before this Court also includes a copy of a recorded UCC -1 filing with the Texas Secretary of State of the State of Texas, dated Aug. 11, 1997 granting a security interest in the Debtor's equipment to Merchants Planters Bank, N.A. and two later UCC-3 filings with the Secretary of State of Texas, dated Nov. 10, 1997 and Dec. 2, 1997, assigning Merchants Planters Bank, N.A.'s interest to FirstBank. An assignment of interests under the August 11, 1997 Financing statement was made to the benefit of FirstBank on Nov. 1, 1997.
1999
Hydro Services, Inc., initiated this case by the filing of a voluntary petition under Chapter 11 of Title 11 on May 3, 1999. CCC, claiming to hold the valid and perfected first lien against the Blasters, promptly filed a Motion for Relief from the Automatic Stay "to permit [CCC] to take action to recover the Equipment from the Debtor." On June 18, 1999, an Agreement And Stipulation Regarding Center Capital Corp.'s Motion For Relief From Automatic Stay, Administrative Rents and Adequate Protection Payments ("Stipulation") was filed with the Court. Thereafter, on July 9, 1999, an order was entered by the Court approving the Stipulation. The Stipulation calls for express payments and for installment payments and provides that in the event of a default, the stay will lift automatically without any further action of "the Bankruptcy Court, Center Capital and/or any other person or entity". The Motion for Relief, the Stipulation and July 9, 1999 Order address equipment including the four skid-mounted blasters which are the subject of the Motion before this Court (hereinafter, the four skid-mounted blasters will be referred to collectively as the "Blasters").
The Motion now before the Court alleges that the Debtor has refused to make the adequate protection payments required under the July 9, 1999 order. CCC takes the position that it had an agreement which promised that the stay would lift if a default occurred, a default occurred and that the stay automatically lifted. CCC attempted to foreclose unsuccessfully, then filed an action for sequestration to obtain possession of the Blasters. CCC also filed an adversary proceeding in this Court against the Trustee and FirstBank of Texarkana. Specifically, the Motion currently before the Court requests that the Court require the Trustee to make adequate protection payments to CCC rather than to FirstBank.
Jason Searcy was appointed Chapter 11 Trustee ("Trustee") of the estate in September, 1999, after the entry of the order approving the Stipulation. The Trustee is of the opinion that FirstBank holds the valid lien against the Blasters and is making adequate protection payments to FirstBank rather than to CCC for use of the Blasters. In his response to the Motion, the Trustee agrees that the stay had lifted with respect to CCC at the time he was appointed and admits CCC holds a lien against various truck mounted blasters and a Press-Vac vehicle not addressed by CCC in the Motion. Both parties agree that the truck mounted blasters and Press-Vac have been surrendered to CCC. Although the Trustee admits CCC holds a lien against the Blasters, he denies the validity of such lien.
It weighs against CCC that Paragraph 21 of the Stipulation provides that "Center Capital shall, upon its receipt of the entire remaining rental balance and sales tax payable under the Lease (and the schedules thereto), abandon the subject property to Debtor and provide written notice to Debtor of such abandonment, and execute and cause the filing of releases the UCC-1 financing statements regarding that property." [No words have been omitted here.] From the actions taken by CCC after CCC made such stipulation, this Court must infer that CCC abandoned the subject property including any security interest in same and should be estopped from denying abandonment.
FirstBank and the Debtor entered into an agreement and stipulation respecting use of cash collateral and other collateral pledged as security for debts and providing for adequate protection payments to be made to FirstBank on or about June 23, 1999 which was approved by this Court. FirstBank filed a response to the Motion denying CCC's claim that CCC holds a valid and perfected first lien in the Blasters. FirstBank claims it holds the first and prior lien in the Blasters as a result of the blanket lien in all of the Debtor's equipment dated March 22, 1996. FirstBank therefore asserts that the Trustee should not be required to make adequate protection payments for same to CCC.
The matter came before the Court pursuant to regular setting and, after trial, was taken under advisement. This opinion constitutes the Court's findings of fact and conclusions of law required by Federal Rule of Bankruptcy Procedure 7052 and disposes of all issues before this Court.
JURISDICTION
This Court has jurisdiction over the within proceeding pursuant to 28 U.S.C. § 157(a) and 1334. This is a core proceeding under 28 U.S.C. § 157(b)(2)(k).
DISCUSSION
The Trustee argues that the nature of CCC's interest in the two blasters under the P-2 Lease was a leasehold interest rather than a security interest.
Under Section 1.201(37)(A) of the Texas Business and Commerce Code, "Security interest" means an interest in personal property or fixtures that secures payment or performance of an obligation. The term also includes any interest of a consignor and a buyer of accounts, chattel paper, a payment intangible, or a promissory note in a transaction that is subject to Chapter 9. The special property interest of a buyer of goods on identification of such goods to a contract for sale under Section 2.401 is not a "security interest", but a buyer may also acquire a "security interest" by complying with Chapter 9. Except as otherwise provided in Section 2.505, the right of a seller or lessor of goods under Chapter 2 or 2A to retain or acquire possession of the goods is not a "security interest", but a seller or lessor may also acquire a "security interest" by complying with Chapter 9. The retention or reservation of title by a seller of goods notwithstanding shipment or delivery to the buyer (Section 2.401) is limited in effect to a reservation of a "security interest".
The Trustee avers that because the nature of CCC's interest in the first two blasters was merely a leasehold interest and not a security interest under the lease admitted into evidence as P-2, CCC's claimed security interest from 1998 could not have been perfected at the time the bankruptcy was filed because the two leased blasters did not belong to the Debtor at that time, as contemplated under V.T.C.A. § 9.203 in order for the security interest to attach. The Debtor's rights in the two blasters would not have existed until the post-petition period according to the Trustee. Further, a post-petition lien may only be granted after notice and a hearing under 11 U.S.C. § 364 which did not occur. The P-2 Lease contains elements of both lease and sale transactions, as do many documents of its type. The lease contains language contemplating the event of the lease being determined to be a security agreement. Under the terms of the P-2 Lease, Hydro Services bore the risk of loss or damage and was responsible for insuring the equipment as well as paying the taxes on same; any claims for dissatisfaction were to be made to the manufacturer of the equipment by Hydro Services rather than to CCC; and CCC had no obligation for maintenance or service. However, a transaction does not create a security interest merely because it provides for such. See V.T.C.A. § 1.201(37)(C).
If the Trustee is correct, then it follows that CCC's claimed security interest from 1998 could not have been perfected on the date of the filing of the petition because it could not have attached if the two leased blasters did not belong to the Debtor at that time (i.e., the requirements contemplated under V.T.C.A. § 9.203, for attachment of CCC's security interest to occur simply had not been met). Under the Trustee's analysis, the Debtor's rights in the two blasters did not exist until the post-petition period. The P-2 Lease contains elements of both lease and sale transactions, as do many documents of its type. Therefore, before considering the question of priority, the Court must determine whether the P-2 Lease is a true lease, as denominated or creates a security interest.
A post-petition lien may only be granted after notice and a hearing under 11 U.S.C. § 364 which did not occur.
Whether a transaction is considered a sale or a lease for security interest purposes is governed by the Texas Business and Commerce Code. Tex. Bus. Com. Code Ann.
The terms of the Equipment Lease No. 12649 provide for it to be governed by the law in the State of Connecticut. The party requesting that the trial court take judicial notice of foreign laws must furnish the court sufficient information to enable it properly to comply with the request, and upon receiving such motion, the trial court is required to take judicial notice. Pittsburgh Corning Corp. v. Walters (App. 13 Dist. 1999) 1 S.W.3d 759, rule 53.7(f). In this case, neither party has urged the Court to apply the law of the State of Connecticut. All parties rely upon Texas law in their pleadings. Under the Rule 202, Texas Rules of Evidence:
A court upon its own motion may, or upon the motion of a party shall, take judicial notice of the constitutions, public statutes, rules, regulations, ordinances, court decisions, and common law of every other state, territory, or jurisdiction of the United States. A party requesting that judicial notice be taken of such matter shall furnish the court sufficient information to enable it properly to comply with the request, and shall give all parties such notice, if any, as the court may deem necessary, to enable all parties fairly to prepare to meet the request. A party is entitled upon timely request to an opportunity to be heard as to the propriety of taking judicial notice and the tenor of the matter noticed. In the absence of prior notification, the request may be made after judicial notice has been taken. Judicial notice of such matters may be taken at any stage of the proceeding. The court's determination shall be subject to review as a ruling on a question of law.
Fed.R.Ev.202. Accordingly, given that no party has requested otherwise, this Court applies Texas law in interpreting the Equipment Lease. See also, Erie R. Co.v.Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).
Whether a transaction creates a lease or security interest is determined by the facts of each case; however, a transaction creates a security interest if the consideration the lessee is to pay the lessor for the right to possession and use of the goods is an obligation for the term of the lease not subject to termination by the lessee, and:
(i) the original term of the lease is equal to or greater than the remaining economic life of the goods;(ii) the lessee is bound to renew the lease for the remaining economic life of the goods or is bound to become the owner of the goods;(iii) the lessee has an option to renew the lease for the remaining economic life of the goods for no additional consideration or nominal additional consideration upon compliance with the lease agreement; or(iv) the lessee has an option to become the owner of the goods for no additional consideration or nominal additional consideration upon compliance with the lease agreement.
V.T.C.A. § 1.201(37)(B). Thus, V.T.C.A. § 1.201(37)(B) creates a two part test to be applied to the facts in each case.
The Court has read Plaintiff's Exhibit P-2, Equipment Lease No. 12649, together with the Schedules A-1 and II attached. The P-2 Lease includes the following provisions which this Court determines demonstrate that the consideration the Debtor is to pay CCC for possession and use of the two blasters for the term of the lease was "not subject to termination by the [Debtor] during the term of the lease."
(A) Section 2: "If the equipment is unsatisfactory for any reason, Lessee. . . . shall nevertheless pay Lessor all rent and other charges payable under the Lease.";
(B) Section 3: "Lessee's obligation to pay all rentals are [SIC] absolute and unconditional and not subject to any abatement, set-off, defense or counterclaim for any reason whatsoever.";
(C) Section 4: "Neither the lease nor any schedule can be cancelled by the lessee during the term hereof."
The sole termination right accruing to the Debtor under the lease is a termination right that ripens upon "expiration or earlier termination of the Lease" provided the equipment is not returned and the contract were to continue on a ninety-day to ninety day basis. Para. 8 entitled "Redelivery". There is no provision which would allow for termination by the Lessee during the "term of the lease"as per the requirement of the statute. Given that the Debtor's one termination right under the lease ripens if the Debtor chooses to extend the life of the lease after its termination or expiration, "the consideration the lessee is to pay the lessor for the right to possession and use of the goods is an obligation for the term of the lease not subject to termination by the lessee during the term of the lease".
Insofar as the terms of the lease satisfy the requirement identified in first portion of the test under Section 1.202(37)(B), the Court must examine each of the four additional conditions itemized in such Section (i through iv) to ascertain whether one of the four applies to the P-2 Lease.
The first, "(i) the original term of the lease is equal to or greater than the remaining economic life of the goods", does not apply. It is evident to this Court based upon the testimony of the parties and the record in this case that the economic life of the two leased blasters has exceeded the original five -year term of the P-2 Lease.
The second, "(ii) the lessee is bound to renew the lease for the remaining economic life of the goods for no additional consideration or nominal additional consideration upon compliance with the lease agreement . . .", does not apply. Paragraph 8 of the P-2 Lease indicates that the lessor is not bound to renew the lease. Paragraph 8 sets forth: "Upon expiration or earlier termination of this Lease or any schedule hereto as to any equipment, Lessee shall return the Equipment,. . . .". Failure to return the equipment extends the lease, but there is no obligation to renew. No other lease provision requires the Debtor/Lessor to renew the lease. Therefore, § 1.201(37)(B)(ii) does not apply.
The third sub-section does not apply to the P-2 Lease: "(iii) the lessee has an option to renew the lease for the remaining economic life of the goods for no additional consideration or nominal additional consideration upon compliance with the lease agreement;. . .". The Debtor, as lessor under the P-2 Lease, has an option to continue the lease for the "fair market rental value not to exceed the monthly equivalent of the periodic installment of the rent" pursuant to Paragraph 8. Such amount is not nominal consideration.
"Nominal" is defined under the Texas Business and Commerce Code: "(D) For the purposes of this subdivision, additional consideration is nominal if it is less than the lessee's reasonably predictable cost of performing under the lease agreement if the option is not exercised. Additional consideration is not nominal if:(i) when the option to renew the lease is granted to the lessee, the rent is stated to be the fair market rent for the use of the goods for the term of the renewal determined at the time the option is to be performed; or (ii) when the option to become the owner of the goods is granted to the lessee, the price is stated to be the fair market value of the goods determined at the time the option is to be performed. V.T.C.A. 1.202(37)(D).
The facts of the case bear out, however, that §§ 1.201(37)(B)(iv) applies to the P-2 Lease. V.T.C.A § 1.202(37)(B)(iv) sets forth that "the lessee has an option to become the owner of the goods for no additional consideration or nominal additional consideration upon compliance with the lease agreement." V.T.C.A § 1.202(37)(B)(iv). Two bills of sale, both dated August 6, 1999, convey the two skid-mounted blasters identified, respectively, as S/N 395120 and S/N 494040-1 from Center Capital Corporation, as Seller, to the Debtor. Defendant's Exhibit "T-Q" is a copy of the Bill of Sale of the Skid Mounted Blaster identified as S/N 395120-2 to the Debtor by CCC for "$1.00 and other good and valuable consideration". Defendant's Exhibit "T-R" is a copy of the Bill of Sale of the Skid Mounted Blaster identified as S/N 494040 to the Debtor by CCC for "$1.00 and other good and valuable consideration". See CCC Post -Hearing Brief at p. 13. No evidence contradicts the $1.00 amount recited in the bills of sale or challenges that such amount over and above the lease payments completed was anything but "nominal". Accordingly, the Court must find that upon compliance with the P-2 Lease agreement, the Debtor, as lessee, exercised an option to become the owner of the goods for nominal additional consideration as contemplated under the Texas Business Commerce Code. For the foregoing reasons, this Court must find that the agreement entered into by and between the Debtor and CCC with respect to the two blasters identified as S/N 494040 and S/N 39512 created a security interest in same subject to Article 9.
The 1995 Transaction
On March 14, 1995, the Debtor and CCC executed a Promissory Note and Security Agreement granting CCC a security interest in the two blasters, identified as 595130 and 593130; the nature of this transaction as one creating a security interest has not been challenged.
THE PRIORITY OF THE COMPETING SECURITY INTERESTS
Insofar as this case deals with a ranking of security interests and the law of Texas is clear that first in time is first in right, the party who properly perfected the security interest first must be held to prevail. V.T.C.A. § 9.312(e) provides that priority between conflicting security interests in the same collateral shall be determined according to the following rules:
(1) Conflicting security interests rank according to priority in time of filing or perfection. Priority dates from the time a filing is first made covering the collateral or the time the security interest is first perfected, whichever is earlier, provided that there is no period thereafter when there is neither filing nor perfection.[. . .].
V.T.C.A. § 9.312(e). CCC's position is that it maintained the continuity of recorded financing statements for the subject Blasters (despite the filings of notices of termination with the SOS in 1998 and 1999) as a result of its filing of the UCC-1 Financing Statement dated February, 1998. CCC relies upon a reading of § 9.303(b) for this proposition. Tex. Bus. Com. Code § 9.303(b), the language of which is directly adopted from the UCC, provides: "(b) — If a security interest is originally perfected in any way permitted under this chapter and is subsequently perfected in some other way under this chapter, without an intermediate period when it was unperfected, the security interest shall be deemed to be perfected continuously for the purposes of this chapter. V.T.C.A. 9.303(b). In other words, CCC would show that by filing the 1998 UCC financing statement on the identical collateral as the 1994 and 1995 filings, the 1998 filing reverts back to the 1994 and 1995 dates, respectively, for purposes of priority of the liens, because CCC maintained a continuous record of Financing Statements. CCC supports its argument with the holding of the Fifth Circuit Court in First Interstate Bank of Arizona v. Interfund Corporation, 924 F.2d 588 (5th Cir. 1991). In its Memorandum of Law of Center Capital Corporation Sur Lien Priority Issue filed in this case, CCC states that "the [First Interstate] Court held that a subsequent Financing Statement relates back in time to the original Financing Statement as long as both Financing Statements cover the same collateral and there is no break in continuity."
Acts 1999, 76th Leg., ch. 414, § 1.01, amends Chapter 9 effective July 1, 2001.
The facts in the First Interstate case are distinguishable from the facts in this matter. Therefore, this Court considers it appropriate to apply the rationale of the Eighth Circuit Court in Worthen Bank Trust v. Hilyard Drilling Co. (In re Hilyard Drilling Co., Inc.), 840 F.2d 596 (1988) and the Bankruptcy CourtIn re Funding Systems Asset Management Corp., 111 B.R. 500 (Bkrtcy. W.D. Pa. 1990) to these facts. Under the analysis of In re Hilyard and In re Funding Systems, the result in this case will conform with the result in First Interstate. A brief recitation of the facts of each is in order.
In the First Interstate case, First Interstate Bank ("FIB") was the holder of a first security interest in a promissory note and horse registration certificate (chattel paper) and filed Financing Statements with the Secretary of State and the County Clerk in 1984. Later, FIB released its general interest in a horse, AK Kadira, to allow the debtor, Bentwood Farms, to sell the horse (Dec. 1986). Simultaneously, Bentwood Farms filed a UCC-3 assigning its interest in the horse to FIB (Jan. 1987). Shortly thereafter, on Bentwood Farm's request, FIB sent the chattel paper to Interfund, because Interfund was considering purchasing the note. See also V. T. C. A. § 9.304(a) and (e). Interfund declined to purchase the chattel paper, but did not return the chattel paper and instead retained it as additional security for undersecured paper it had previously purchased from the Bentwood Farms. After Interfund refused FIB's demands for return of the paper, FIB filed suit for conversion and unjust enrichment. The United States District Court entered judgment on a jury verdict for FIB and Interfund appealed. The Court of Appeals holding, which favored FIB, was based, in part, on a finding that FIB's interest in the chattel paper was superior to Interfund's subsequent, unrecorded interest under an August, 1986, Master Assignment Agreement. The Court concluded that, under Section 9.303(b), FIB's interest was continuously perfected and superior to Interfund's unrecorded interest. The release of FIB's perfected security interest for purposes of sale of the horse AK Kadira, the assignment of interest in the collateral recorded by Bentwood Farms to the benefit of FIB, and the forwarding of the endorsed note on AK Kadira held by FIB to Interfund for its purchase, invoke § 9.303(b), not because of the continuity clause (as CCC suggests), but because of the phrase "subsequently perfected in some other way". "First Interstate originally perfected its interest in all of Bentwood's horses [including AK Kadira] and chattel paper when it filed its financing statements on December 10, 1984.. . . . . In addition, First Interstate perfected its interest in the [. . .] chattel paper by actually taking possession of it on December 2, 1986." First Interstate, Supra at 593. The foregoing facts differ from those in the case at bar where the perfection did not occur "in some other way". Sequential filings of UCC-1 financing statements such as CCC's in this case (1994 and 1995 filings followed by the 1998 filing) will not invoke continuity of perfection. Additionally, the result in First Interstate was driven by the fact that the Court was examining the priority of an unrecorded security interest as against a recorded one.
In Worthen Bank Trust v. Hilyard Drilling Co. (In re Hilyard Drilling Co., Inc.), 840 F.2d 596 (1988), lienholders disputed priorities of their perfected security interests. The Eighth Circuit Court discussed the Arkansas statute that directly corresponds to Texas' § 9.303(b). The Eighth Circuit Court held that:
Ark.Stat.Ann. § 85-9-303(2) (1961) provides:
(2) If a security interest is originally perfected in any way permitted under this Article [chapter] and is subsequently perfected in some other way under this Article [chapter], without an intermediate period when it was unperfected, the security interest shall be deemed to be perfected continuously for the purposes of this Article [chapter].
To interpret Ark.Stat.Ann. § 85-9-303(2) as providing that a security interest can be continuously perfected by consecutively filed financing statements contradicts the express language of Ark.Stat.Ann. § 85-9-403(2). [. . .] Ark.Stat.Ann. § 85-9-303(2) is applicable to security interests that are originally perfected in one way and then subsequently perfected in some other way, without an intermediate unperfected period. NBC, which initially perfected by filing, subsequently perfected in the same way, by filing, as opposed to "in some other way" as required by the statute. Accordingly, Ark.Stat.Ann. §§ 85-9-303(2) is inapplicable to NBC's security interest in Hilyard's accounts receivable.
Worthen v. Hilyard, 840 F.2d at 600. This Court agrees with the Eighth Circuit that `to interpret § 9.303(b) as providing that a security interest can be continuously perfected by consecutively filed financing statements contradicts the express language of [V.T.C.A.] § 9.403(b)' which provides for the filing of continuation statements. However, it is more important that to interpret § 9.303(b) as CCC would have this Court do, contradicts the express language of § 9.303(b) and, specifically, the words "in some other way". This Court is bound, when statutory language is unambiguous to interpret statutes according to the clear meaning of their language. United States v. Turkette, 452 U.S. 576, 580, 101 S.Ct. 2524, 2527, 69 L.Ed.2d 246 (1980). Accordingly, "in some other way" cannot and does not mean `in the same way', i.e. consecutively filed UCC financing statements.
In 1990, a Pennsylvania Bankruptcy Court interpreted Pennsylvania's adoption of U.C.C. § 9.303(b) identically. In In re Funding Systems Asset Management Corp., a debtor commenced an adversary proceeding to avoid a security interest in certain computer leases granted to creditors. The Pennsylvania Bankruptcy Court held that the creditor had a perfected security interest only in three of twelve questioned leases. The creditor claimed that it had continuously perfected its security interests by taking possession of a stream of rental payments. The Pennsylvania Bankruptcy Court ruled that the creditor's reliance upon 13 Pa.C.S.A. § 9303(b), the language of which is identical to V.T.C.A. § 9.303(b), was "inappropriate. By its terms, §§ 9303(b) applies only where a security interest has been perfected in different ways, without an intervening time when it was not perfected. As shown earlier, [the creditor] had not previously perfected by some other means." In re Funding Systems Asset Management Corp., Ibid at 521. The documentary evidence before the Court reveals and this Court must find that at the time of the recording of the 1998 Financing Statement, the 1994 and 1995 Financing Statements had not expired. Further, this Court must find that the testimonial and documentary evidence is abundantly clear that the Debtor's obligations to CCC under the 1994 and 1995 leases were paid in full and extinguished in 1999.
Given the facts of the controversy before the Court, the statutes and the jurisprudence, the UCC-1 filing in February of 1998 cannot "resurrect" or relate back to the 1994 and 1995 financing statements under § 9.303(b), because CCC has not demonstrated that it perfected its security interest in the Blasters by some other, different means. CCC attempted to perfect by the same means. CCC terminated its interests in the Blasters by filing its termination statements with the SOS in 1998 and 1999. Once CCC's 1994 and 1995 security interest in the Blasters terminated under such financing statements, the second lienholder, FirstBank moved up in priority. Any security interest attaching to the Blasters under a subsequently filed financing statement, including CCC's 1998 financing statement, is junior to FirstBank's properly perfected interest. Based upon the evidence before this Court, CCC is not entitled to adequate protection payments for the Debtor's use of the Blasters and the value of CCC's lien over and above FirstBank's has not been demonstrated here. A secured creditor only holds an interest in property to the extent of the value of its lien. 11 U.S.C. § 506(a). The senior lien terminated; the value of any junior lien has not been demonstrated to this Court.
The Merchant's Planter's Bank, N.A.'s 1997 interest merged with FirstBank's 1996 security interest upon assignment to FirstBank in the sense that there was no additional competing interest-holder. Had a 1997 security filing been made that was not subsequently assigned, it too would have been junior to FirstBank's 1996 security interest.
CCC additionally argues that the assignment of the notes from Merchants and Planters Bank in 1997 and from NBC to FirstBank extinguished the underlying debt. The evidence does not support CCC's contention. The evidence adduced at trial demonstrated that the debts owed by the Debtor to the Merchants and Planters Bank and NBC were purchased by and properly assigned to FirstBank rather than paid or cancelled. FirstBank's Exhibits "D" and "E". The evidence further shows that such assignment was recorded notwithstanding that no further filing was required. Where an assignment is valid, the assignee steps into the shoes of the assignor. Tex. Bus. Com. Code § 9.302(b). In this case, FirstBank receives the benefit of the properly perfected March 22, 1996 lien against the equipment. Accordingly, this Court must find that FirstBank holds the first and prior lien against the Blasters that are the subject of the Motion.
Finally, one of the bases of CCC's request for relief is that the Debtor is in violation of this Court's order of July 9, 1999. The order entered on July 9, 1999, was not entered by this Court as the resolution of a contested matter following a trial on the merits. Rather, the order was entered approving the stipulations and agreement of the parties presented to this Court. The evidence adduced at trial further reveals that FirstBank was not noticed of the Motion for Relief, Stipulation and Order adverse to its interests. Given the nature of the July 9, 1999, order, that order fails to provide an alternative ground for CCC's Motion.
CONCLUSION
Based upon the foregoing, this Court must DENY the relief requested in the Motion To Require Debtor And Chapter 11 Trustee To Provide Adequate Protection And To Compel Compliance With Prior Order of This Court filed by Center Capital Corporation. An order will be entered accordingly.