In re Ajax Integrated, LLC

An adversary proceeding arose from the Chapter 11 bankruptcy of AJAX Integrated, LLC (Ajax) (debtor) in which the bankruptcy trustee filed suit against DivLend Equipment Leasing, LLC (DivLend) (creditor), seeking to avoid DivLend’s unperfected security interest in equipment and vehicles. The dispute was resolved except for 30 vehicles subject to New York title-certificate requirements. Under New York law, a security interest in motor vehicles was perfected by delivering the existing title, a notice-of-lien form signed by the borrower, and a fee to the motor-vehicles commissioner. In May 2013, DivLend loaned Ajax $1.1 million under an equipment-lease agreement that required monthly payments and indicated that Ajax would execute financing statements or other documents required to evidence DivLend’s security interest. The contract also gave DivLend rights in the event of default, which could occur on failure to make payments, filing of a bankruptcy petition, or failure to perform any required obligation within 30 days of receiving notice of that failure. In the event of default, DivLend could accelerate the loan, repossess the vehicles, or file suit. After the agreement, DivLend sent notice-of-lien forms to Ajax to be signed and returned. They were never signed and returned. DivLend claimed it made several follow-up calls and emails, and Ajax denied any requests other than a mailed request on July 2, 2013. An involuntary petition for bankruptcy was filed against Ajax on March 24, 2014. The trustee argued that DivLend had failed to perfect its security interest and that the trustee’s strong-arm power took priority over an unperfected security interest. DivLend admitted that its security interest was unperfected but argued that since the failure to obtain perfection was entirely due to Ajax’s failure to sign and return the notice-of-lien forms, the court should craft an equitable remedy—either an equitable lien or a constructive trust—to defeat the trustee’s strong-arm power. Both Ajax and DivLend sought summary judgment.