Bankruptcy Litigation Committee

ABI Committee News

When a Statutory Lien Becomes a Secret Lien

The U.S. Bankruptcy Court for the Eastern District of New York recently decided in In re R.F. Cunningham & Co. Inc., 355 B.R. 408 (Bankr. E.D.N.Y. 2006), in the context of a motion to lift the automatic stay, that a statutory lien under Ohio law was susceptible to being avoided as a secret lien under §544(a)(1) of the Bankruptcy Code. Champaign Landmark, an Ohio vendor, was owed approximately $150,000 for grain picked up by the New York debtor. Pursuant to the Ohio statute, Champaign claimed it had a statutory lien on the grain sold and its proceeds and asked permission to enforce the lien against the debtor’s assets. The debtor and the creditors’ committee opposed the motion and offered several grounds to deny it, chief of which was that the Ohio lien was a secret lien.

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Practice Tip: Using Summary Judgment to Establish a Fraudulent Conveyance

A widely held assumption in bankruptcy cases and other litigation is that fraudulent intent cannot be established on a summary judgment motion but may only be found after a full trial on the merits. Judges in fraudulent conveyance cases are not accustomed to deciding intent, solvency or constructive fraudulent conveyances on summary judgment evidence and may simply assume that if a case is not settled, it will be tried. However, some recent – and some not-so-recent – cases demonstrate that, given the right underlying facts, you should give some serious thought to bringing a summary judgment motion in a fraudulent conveyance case.

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