United States Court of Appeals
For the First Circuit
No. 06-9006
IN RE MILLIVISION, INC.,
Debtor
DAVID W. OSTRANDER, CHAPTER 7 TRUSTEE,
Plaintiff, Appellee,
v.
MICHAEL GARDNER AND ROY FURMAN,
Defendants, Appellants.
APPEAL FROM THE BANKRUPTCY APPELLATE PANEL
OF THE FIRST CIRCUIT
Before
Torruella, Circuit Judge,
Cyr, Senior Circuit Judge,
and Lynch, Circuit Judge.
Melvin S. Hoffman, with whom Pamela A. Harbeson and Looney &
Grossman LLP were on brief for appellants.
David W. Ostrander, with whom Ostrander Law Office was on
brief for appellee.
January 16, 2007
CYR, Senior Circuit Judge. On December 11, 2003, Michael
Gardner and Roy Furman, while negotiating to acquire the assets of
Millivision, Inc., loaned Millivision $500,000 with which to pay
its essential debts and avoid an operational shutdown. The next
day, Millivision’s creditors filed an involuntary chapter 11
petition. Unaware of the chapter 11 filing, Gardner and Furman did
not record a financing statement relating to their loan until
December 16. The bankruptcy court permitted the chapter 11 trustee
to invoke the "strong-arm" provision in Bankruptcy Code § 544(a) to
avoid the Gardner/Furman unrecorded, unperfected security interest
in the chapter 11 debtor’s assets. See In re Millivision, Inc.,
331 B.R. 515, 522-23 (Bankr. D. Mass. 2005). The Bankruptcy
Appellate Panel summarily affirmed the bankruptcy court decision.
On appeal, Gardner and Furman contend, inter alia, that
the bankruptcy court’s decision (i) ignores explicit exceptions to
the trustee’s strong-arm power in Bankruptcy Code § 547(c) and (e),
which would permit their December 16 recording to “relate back” to
December 11; and (ii) offends the underlying equitable principles
of the Bankruptcy Code by conferring a “windfall” cash infusion
upon Millivision’s creditors.
We affirm the bankruptcy court’s grant of summary
judgment to the chapter 11 trustee. The appellants’ argument that
§ 547(c) and (e) are exceptions to § 544(b)’s avoidance provisions
is foreclosed, since § 547(c) and (e) do not constitute “generally
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applicable [relation-back] law,” 11 U.S.C. § 546(b). See
Millivision, 331 B.R. at 521; H.R. Rep. No. 95-595, at 371 (1977);
S. Rep. No. 95-989, at 86 (1978), reprinted in 1978 U.S.C.C.A.N.
5787, 5872, 6327 (noting that § 546(b)’s reference to “generally
applicable law” refers to “applicable nonbankruptcy law”) (emphasis
added); see also In re 229 Main St. Ltd. P’ship, 262 F.3d 1, 9-10
(1st Cir. 2001); In re Moore, No. 06-01311, 2006 WL 3064781, at *2
(Bankr. D. Ariz. Oct. 27, 2006) (noting that bankruptcy law does
not qualify as “generally applicable law”); In re Microfab, Inc.,
105 B.R. 152, 156-57 (Bankr. D. Mass. 1989).
In addition, the bankruptcy court appropriately rejected
appellant’s argument that the involuntary chapter 7 case did not
“commence” on December 12, but on January 21, 2004, once an order
for relief had been entered. See Millivision, 331 B.R. at 523
(citing 11 U.S.C. § 303(b) (“An involuntary case against a person
is commenced by the filing with the bankruptcy court of a petition
under chapter 7 or 11 of this title.”)).
Finally, with respect to appellants' equitable arguments,
the bankruptcy court aptly noted that appellants could have avoided
their predicament by the simple expedient of recording (thus
perfecting) their security interest in the Millivision assets prior
to advancing the $500,000, see id. at 523 n.15, particularly in
light of Millivision’s representation that it was so short on cash
that it might need to cease operations. “Under long-established
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principles, petitioner's lack of diligence precludes equity's
operation.” Pace v. DiGuglielmo, 544 U.S. 408, 419 (2005); see
Cresswell v. Sullivan & Cromwell, 922 F.2d 60, 71 (2d Cir. 1990)
(“[I]n order to obtain the requested equitable relief, a plaintiff
must show ‘the absence of fault or negligence’ on his own part.”).
Affirmed.
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