In Re Mba Poultry, LLC

Citations: 261 B.R. 9; 44 U.C.C. Rep. Serv. 2d (West) 593; 2001 U.S. Dist. LEXIS 5425Docket: 4:00CV3267. Bankruptcy No. 00-40122

Court: District Court, D. Nebraska; April 16, 2001; Federal District Court

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In the case of MBA Poultry, L.L.C., the U.S. District Court for the District of Nebraska addressed an appeal concerning the priority of a tax lien held by Johnson County against the personal property of the debtor, MBA Poultry, L.L.C., in relation to a perfected U.C.C. Article 9 security interest held by Bird Watchers LLC. The bankruptcy court had ruled that Johnson County's tax lien had "first lien" status under Nebraska law, specifically Neb.Rev. Stat. Ann. 77-203, which establishes that property taxes create a priority lien on both real and personal property until satisfied. 

MBA Poultry filed for Chapter 11 bankruptcy on January 25, 2000, with Johnson County listed as a creditor for unpaid personal property taxes. The bankruptcy court authorized MBA to use cash collateral and incur debt, but the County was not notified of this motion. Heller Financial's interests, including a perfected security interest, were later assigned to Bird Watchers, which successfully bid on MBA's assets during an auction. Bird Watchers paid the real estate taxes but contested the personal property taxes, claiming Heller's security interest took precedence. 

The County sought to amend the bankruptcy court's Final Order, arguing its tax lien maintained first lien status. The bankruptcy court partially granted this motion, reaffirming the County's priority over Bird Watchers’ security interest. Bird Watchers contended that the statute should be interpreted to mean tax liens only hold priority over statutory liens, not all encumbrances. The court ultimately affirmed the bankruptcy court's decision, supporting the County's position based on the clear statutory language regarding the priority of tax liens.

Neb.Rev.Stat. Ann. 77-208 establishes that real estate tax liens take precedence over other encumbrances, such as mortgages, indicating a priority hierarchy. The appellant argues that the lack of a similar statute for personal property tax liens suggests the Nebraska Legislature did not intend for these liens to supersede perfected security interests under the Uniform Commercial Code (UCC). The relevant UCC provision, Neb.Rev.Stat. Ann. U.C.C. 9-301(4), states that a lien creditor takes subject to a perfected security interest, except for certain conditions. However, Article 9 of the UCC does not apply to statutory liens, as explicitly stated in Neb.Rev.Stat. Ann. U.C.C. 9-102(2), which categorizes tax liens under Section 77-203 as "statutory liens" and outside the purview of Article 9. 

Case law supports this interpretation, with decisions indicating that UCC provisions do not apply to state tax liens, thereby affirming their priority. Notably, courts in Malakoff v. Washington and ITT Diversified Credit Corp. v. Couch reinforced that state tax liens maintain superiority over UCC Article 9 security interests. The Maryland Court of Appeals similarly concluded that state tax liens are statutory and should be prioritized without reference to Article 9. Consequently, the bankruptcy court correctly determined that the personal property tax lien held by Johnson County has priority over Bird Watchers' security interest, leading to the affirmation of the bankruptcy court's order from September 15, 2000.

The document pertains to a bankruptcy proceeding overseen by Judge John C. Minahan, Jr., involving multiple appeals (Case Nos. 4:00CV3224, 4:00CV3225, 4:00CV3226, and 4:00CV3227) where Bird Watchers and the County are the appellees. Each appeal will receive a separate opinion. The bankruptcy court's factual findings are subject to clear error review, while its legal conclusions are reviewed de novo, as clarified by In re Cedar Shore Resort, Inc. 

On June 23, 2000, the County filed a "motion to vacate" the Final Order, which was later superseded by an "amended motion to amend" on June 30, 2000. Bird Watchers did not contest the bankruptcy court's ruling that granted the County relief due to inadequate notice and lack of opportunity for a hearing. Although the County's motion was labeled as a "motion to amend," which would normally be considered untimely under specific rules, the bankruptcy court treated it as a motion under Fed. R. Civ. P. 60(b) and Bankruptcy Rule 9024. The court's decision to grant relief was upheld, with no abuse of discretion found. 

Additionally, the excerpt notes that language added to the statute in 1997 aligns with previous definitions in Section 77-205, which was repealed at the same time as Section 77-203 was amended. The term "lien creditor" is defined broadly under U.C.C. 9-301(3), and the definitions of "person" and "organization" include governmental entities. U.C.C. 9-310 establishes priority rules between perfected security interests and certain possessory liens for services and materials.