In re Lewis Irving Cohen

305 B.R. 886 (2003)

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In re Lewis Irving Cohen

United States Bankruptcy Appellate Panel for the Ninth Circuit
305 B.R. 886 (2003)

Facts

In 1999, before moving to Oregon, Lewis Cohen and Peggy Chesnut-Cohen (debtors) filed a personal-injury lawsuit in California against a third party regarding a car accident. The Cohens’ neighbor, Fred Houston, owned a business that did not typically make loans. Nevertheless, Houston’s business loaned the Cohens money to help cover their lawsuit expenses. As security for the loan, Houston’s business took an interest in the anticipated proceeds from the Cohens’ personal-injury claim. Houston’s business subsequently transferred the interest to Christine Houston and Helen Getsey (the transferees) (creditors). No financing statement was ever filed. The Cohens filed for bankruptcy while still indebted to the transferees. Soon thereafter, the Cohens settled the personal-injury lawsuit for $195,000. During bankruptcy proceedings, the bankruptcy trustee sought to avoid the transferees’ interest pursuant to 11 U.S.C. § 544(a). The bankruptcy trustee argued that the transferees held an unperfected interest because a financing statement had never been filed. The transferees characterized their interest as absolute ownership due to an equitable assignment and contended that Uniform Commercial Code Article 9 did not apply. The transferees alternatively contended that their interest was automatically perfected under Article 9 as a security interest based on an assignment of a payment intangible. The bankruptcy court found that Oregon law applied but California law would have reached the same result: that the transaction was not an equitable assignment, that Article 9 applied, and that the transferees’ interest in the proceeds constituted an interest in a general intangible, which must be perfected by filing. Accordingly, the bankruptcy court ruled that the bankruptcy trustee could avoid the transferees’ interest. The transferees appealed and did not dispute the application of Oregon law.

Rule of Law

Issue

Holding and Reasoning (Klein, J.)

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