In re Gannon

Kevin Gannon (debtor) bought a used boat from a dealer in 2007 and provided a security interest to the dealer. The dealer assigned its security interest to Bank of America (the bank) (creditor). The bank filed a financing statement in Kansas listing the boat, which perfected the bank’s security interest. In 2009, Gannon obtained an Oklahoma title for the boat. Gannon still lived in Kansas and was a Kansas resident. No lien was noted on the Oklahoma title, but the title contained a statement that the vessel may be subject to other liens or security interests. In 2010, Gannon filed for bankruptcy. The bankruptcy trustee filed an adversary proceeding, looking to avoid the bank’s security interest. The trustee was awarded default judgment and sold the boat and trailer for $11,325. The bank then moved to vacate the default judgment, and the court found that the trustee had not properly served process on the bank and vacated the judgment. The bank then filed a motion for summary judgment, arguing that its lien on the boat remained perfected. The trustee argued that the issuance of the Oklahoma title terminated the perfection of the bank’s lien. The Oklahoma Uniform Commercial Code (UCC) had a provision that a security interest in goods covered by a certificate of title that was perfected in another jurisdiction when the title was issued remains perfected until it would have become otherwise unperfected under the law of the original jurisdiction. Under this provision, the bank’s security interest would have remained in effect for five years, which was well beyond the date of bankruptcy filing. The same UCC provision indicated that the security interest from the other jurisdiction would be deemed unperfected against a purchaser for value. The trustee contended that this gave the trustee the ability to avoid the lien. The trustee also contended that if this was wrong, then the trustee was the holder of a conflicting security interest under which the bank’s lien would be subordinated if the new state’s title did not indicate the security interest or indicate that the title might be subject to other security interests not shown on the title.