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In re Highland Construction Management Services, LP

497 B.R. 829 (2013)

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In re Highland Construction Management Services, LP

United States Bankruptcy Court for the Eastern District of Virginia

497 B.R. 829 (2013)

Facts

Wells Fargo, N.A. f/b/o Jerome Guyant IRA (Guyant) (creditor) loaned Highland Construction Management Services, L.P. (Highland) (debtor) over $1 million beginning on December 22, 2005. The loan was secured by Highland’s interest in a pair of Virginia limited-liability companies, and a financing statement was filed on October 11, 2006. Highland filed for Chapter 11 bankruptcy on February 28, 2011. Guyant did not file a continuation statement, and, according to Virginia law, the financing statement lapsed on October 10, 2011, with no other liens being filed against the collateral. Virginia Code §8.9A-515 provided that a filed financing statement lapses after five years, unless a continuation statement is filed. On lapse, the financing statement ceases to be effective, and the security interest in question becomes unperfected and is then “deemed never to have been perfected as against a purchaser of the collateral for value.” Highland, as debtor-in-possession, argued that the financing statement had lapsed and become ineffective and that Guyant’s security interest was unperfected. Highland would then hold priority itself, because it would be construed as a hypothetical lien creditor as of the date of filing of the bankruptcy petition, similar to the treatment given a bankruptcy trustee. Guyant argued that the termination did not impact its priority position regarding the collateral. The United States Bankruptcy Court for the Eastern District of Virginia found that the statute was ambiguous in that reasonable people could disagree as to the meaning of same. The court sustained an objection of Highland to the secured status of Guyant’s proof of claim. Guyant filed a motion for reconsideration.

Rule of Law

Issue

Holding and Reasoning (Mayer, J.)

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