United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 14, 2007 Decided November 23, 2007
No. 06-7155
KEVIN R. MCCARTHY, TRUSTEE,
APPELLANT
v.
BMW BANK OF NORTH AMERICA,
APPELLEE
Appeal from the United States District Court
for the District of Columbia
(No. 05cv01409)
Kevin R. McCarthy, appearing pro se, argued the cause
and filed the briefs for appellant.
Ronald G. DeWald argued the cause and filed the brief
for appellee.
Before: HENDERSON, RANDOLPH and BROWN, Circuit
Judges.
RANDOLPH, Circuit Judge: This appeal from the
judgment of the district court affirming the decision of the
bankruptcy judge presents a single issue: whether in the
District of Columbia, a security interest in an automobile may
2
be perfected under the common law before it has been
perfected pursuant to statute by being entered on the
certificate of title.
Kevin R. McCarthy is the trustee of Philip W. Dorton’s
estate under Chapter 7 of the Bankruptcy Code (11 U.S.C.).
The estate’s only asset is a 2000 BMW 328i. Dorton and
another individual jointly purchased the car on October 13,
2003. In financing their car, the co-owners granted a security
interest to the dealer, who immediately transferred it to BMW
Bank of North America. For reasons that are not clear, the
Department of Motor Vehicles (“DMV”) did not issue a
certificate of title until December 24, 2003. The certificate of
title contained a notation of BMW’s security interest. Dorton
filed for Chapter 7 bankruptcy on January 30, 2004, listing the
car as the bankruptcy estate’s only asset. Allowed proofs of
claim against the estate totaled approximately $20,000.
The trustee brought an adversary proceeding and moved
for summary judgment, invoking 11 U.S.C. § 547. This
provides that the trustee may “avoid any transfer of an interest
of the debtor in property . . . made . . . on or within 90 days
before the date of the filing” of the bankruptcy petition, 11
U.S.C. § 547(b)(4)(A), unless the transfer created “a security
interest in property acquired by the debtor . . . that is perfected
on or before 20 days after the debtor receives possession of
such property,” Id. § 547(c)(3)(B) (2000).1 Whether BMW
perfected its security interest outside the 90 day window when
Dorton took possession of the car, or only later when the
1
Congress amended Subsection (c)(3)(B) in 2005 to strike “20”
and insert “30.” See Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005, Pub. L. No. 109-8, § 1222, 119 Stat. 23, 196.
This case deals only with the 20 day rule in effect at the time of the
transaction.
3
certificate of title issued, turns on the law of the District of
Columbia. Fid. Fin. Servs., Inc. v. Fink, 522 U.S. 211, 213
n.1 (1998). The bankruptcy judge, disagreeing with his
opinion in In re Johnson, 230 B.R. 466, 470 (Bankr. D.D.C.
1999), held that BMW had perfected its security interest
outside the 90 day period because, under D.C. common law,
“‘a prior lien gives a prior legal right (“first in time, first in
right”), except where statute varies the common law rule.’”
In re Dorton, 327 B.R. 14, 17 (Bankr. D.D.C. 2005)
(emphasis omitted) (quoting District of Columbia v. Franklin
Inv. Co., 404 A.2d 536, 540 (D.C. 1979)). On review of the
decision, the district judge agreed. District statutes had not
displaced District common law, both judges ruled. It
followed that BMW had perfected a common law lien at the
time of the sale, that the perfected lien remained in effect until
the certificate of title issued several months later, and that the
trustee could not avoid BMW’s security interest.
The correctness of those rulings depends upon Article 9
of the Uniform Commercial Code (UCC), D.C. Code §§ 28:9-
301 to -322, and upon the District’s provisions dealing with
liens on automobiles (title statute), D.C. Code §§ 50-1201 to -
1217. D.C. Code § 28:9-308(a) provides: “Except as
otherwise provided in this section and § 28:9-309, a security
interest is perfected if it has attached and all of the applicable
requirements for perfection in §§ 28:9-310 through 28:9-316
have been satisfied.” D.C. Code § 28:9-308(a). All agree that
none of the exceptions to which § 28:9-308(a) refers is
applicable here. Section 28:9-311(b) – one of the provisions
mentioned in § 28:9-308(a) – states in relevant part that “a
security interest in property subject to [§ 50-1201 et seq.] may
be perfected only by compliance with those requirements.”
Section 50-1202, one of the statutes mentioned in § 28:9-311,
provides as follows: “During the time a certificate is
outstanding for any motor vehicle or trailer, no lien against
4
such motor vehicle or trailer . . . shall be valid except as
between the parties and as to other persons having actual
notice, unless and until entered on such certificate as
hereinafter set forth.”2 D.C. Code § 50-1202.
In holding that the common law “first in time, first in
right” rule perfected the security interest during the period
between the purchaser’s taking possession of the car and the
issuance of certificate of title, the district court reasoned that
§ 50-1202 operated only “[d]uring the time a certificate is
outstanding,” thus leaving a gap before then, a gap the
common law could fill. In re Dorton, 346 B.R. 271, 275
(D.D.C. 2006). This interpretation is not cogent. It reads out
the portion of § 28:9-311(b) stating in the clearest possible
terms that a security interest in a motor vehicle may be
perfected in one way, and one way “only” – by complying
with the requirements of the title statute. Among those
requirements are that the lien holder must pay a fee for
recording the lien on a certificate, § 50-1212, and that the lien
must be entered on the certificate by the recorder, § 50-1203.
It is no answer to say that because the “first in time, first in
right” rule perfects a lien against an automobile only until
issuance of a certificate of title noting the lien, the common
law does not conflict with the UCC or the title statute. Such a
bifurcated system raises the prospect that a lien could be
perfected for the initial period and then later become
“unperfected” when, for instance, the title certificate omits the
lien. It also flies in the face of one of the principal purposes
2
“Certificate” is defined as “a certificate of title for a motor
vehicle or trailer issued by” the “Director of Vehicles and Traffic of
the District of Columbia, including assistants or agents duly
designated by the Mayor of the District of Columbia.” D.C. Code
§ 50-1201(b), (d).
5
of UCC Article 9: to “enforce the policy against secret liens”
by demanding strict compliance with “filing or recording
requirements.” Permanent Editorial Board Commentary for
the Uniform Commercial Code, Final Report, No. 6, § 9-
301(1) (March 10, 1990). It upsets the settled understanding
that “[n]ormally, under the law of the relevant jurisdiction, the
perfection step would consist of compliance with that
jurisdiction’s certificate-of-title statute and a resulting
notation of the security interest on the certificate of title.”
U.C.C. § 9-303 cmt. 3.3 And it does not account for cases in
which no one even bothers to apply for a certificate of title
before bankruptcy. E.g., In re Johnson, 230 B.R. at 470. In
such cases, the district court’s ruling would render
noncompliance with the UCC and the title statute superfluous.
Yet as we have said, compliance with Article 9 is designed to
ensure public notice of security interests.
We recognize that a lender might be at the mercy of a
dawdling DMV. The longer the delay in issuing the title
certificate, the longer the lender is exposed. There is a
solution to this problem, but it is legislative, not judicial. The
Official Comment 5 to UCC § 9-311 recognizes that in
jurisdictions in which a security interest is perfected by
notation on the certificate of title, there will be a gap between
the debtor’s taking possession of the automobile and the
issuance of the title. The solution proposed in the Official
Comment is not application of the common law but an
amendment to the title statute so that it would provide as
3
In interpreting the UCC, this court and other courts have found
the Official Comments to the UCC persuasive. See Goldstein v.
Madison Nat. Bank of Wash., D.C., 807 F.2d 1070, 1074 (D.C. Cir.
1986); see also Guardian Life Ins. Co. of Am. v. Weisman, 223 F.3d
229, 231 (3d Cir. 2000); JOM, Inc. v. Adell Plastics, Inc., 193 F.3d 47,
57 n.6 (1st Cir. 1999) (per curiam).
6
follows: “perfection occurs upon receipt by the appropriate
State official of a properly tendered application for a
certificate of title on which the security interest is to be
indicated.”4 Some states have taken this course. See In re
Horner, 248 B.R. 516, 518 (Bankr. N.D. W. Va. 2000). The
District of Columbia has not. BMW therefore did not perfect
its security interest within the time required, and under 11
U.S.C. § 547(b) the trustee was entitled to avoid any transfer
of interest in the automobile to BMW.
Reversed and remanded.
4
The Official Comment states:
[S]tatutes under which perfection does not occur
until a certificate of title is issued will create a gap
between the time that the goods are covered by the
certificate under Section 9-303 and the time of
perfection. If the gap is long enough, it may result in
turning some unobjectionable transactions into
avoidable preferences under Bankruptcy Code
Section 547. (The preference risk arises if more than
10 days (or 20 days, in the case of a purchase-money
security interest) passes between the time a security
interest attaches (or the debtor receives possession of
the collateral, in the case of a purchase-money
security interest) and the time it is perfected.)
Accordingly, the Legislative Note to this section
instructs the legislature to amend the applicable
certificate-of-title statute to provide that perfection
occurs upon receipt by the appropriate State official
of a properly tendered application for a certificate of
title on which the security interest is to be indicated.
U.C.C. § 9-311 cmt. 5.