In re Coldwave Systems, LLC

368 Bankr. 91, 2007 Bankr. LEXIS 1651 (2007)

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In re Coldwave Systems, LLC

United States Bankruptcy Court for the District of Massachusetts
368 Bankr. 91, 2007 Bankr. LEXIS 1651 (2007)

Facts

Coldwave Systems, LLC (Coldwave) (debtor) was organized in Massachusetts. Coldwave entered a security agreement with a lender, Gateway Management Services Limited (Gateway) (defendant), granting Gateway a security interest in Coldwave’s patent. Gateway sought to perfect the interest by recording the interest with the United States Patent and Trademark Office (USPTO) on June 28, 2003. Gateway also filed a financing statement in Washington, D.C., on December 1, 2004, and in Massachusetts on December 2, 2004. By December 1, 2004, Coldwave was insolvent and defaulted on its agreement with Gateway. Gateway foreclosed on its security interest, and Coldwave’s patent was transferred to Gateway. Coldwave filed for Chapter 11 bankruptcy on March 1, 2005, which was converted pursuant to Chapter 7 the following month. The bankruptcy trustee (plaintiff) brought an adversary proceeding and sought to avoid Gateway’s interest because Gateway received more from the transfer of the patent than it would have as a distribution from the bankruptcy estate. The key question was when Gateway perfected its interest. Gateway argued that it perfected its interest on June 28, 2003, when it recorded its interest with the United States Patent and Trademark Office months prior to the start of the preference period. However, the bankruptcy trustee argued that Gateway’s interest was not perfected until it filed a financing statement in Massachusetts on December 2, 2004. December 2, 2004, was exactly 89 days prior to the filing of the bankruptcy petition, and, therefore, within the 90-day window prior to a bankruptcy filing during which a preferential transfer may be avoided. The question before the bankruptcy court was whether a security interest in a patent was perfected by recording the interest with the USPTO or by filing a financing statement.

Rule of Law

Issue

Holding and Reasoning (Hillman, J.)

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