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In re Pettit Oil Co.

United States Court of Appeals, Ninth Circuit

March 11, 2019

In re Pettit Oil Company, Debtor,
v.
Kathryn A. Ellis, Chapter 7 Trustee, Appellee. IPC (USA), Inc., a California corporation, Appellant,

          Argued and Submitted December 6, 2018 Seattle, Washington

          Appeal from the Ninth Circuit Bankruptcy Appellate Panel Kurtz, Faris, and Brand, Bankruptcy Judges

          Edwin K. Sato (argued), Bucknell Stehlik Sato & Orth LLP, Seattle, Washington, for Appellant.

          Andrew H. Morton (argued), Deborah A. Crabbe, Foster Pepper PLLC, Seattle, Washington, for Appellee.

          Before: William A. Fletcher and Jay S. Bybee, Circuit Judges, and Larry A. Burns, [*] Chief District Judge.

         SUMMARY [**]

         Bankruptcy

         The panel affirmed the Bankruptcy Appellate Panel's affirmance of the bankruptcy court's summary judgment in favor of a bankruptcy trustee who brought an adversary proceeding seeking avoidance of transfers.

         The debtor, a distributor of bulk petroleum products, entered into a consignment agreement with IPC (USA), Inc. Under the agreement, IPC delivered fuel to "card lock" sites from which the debtor's commercial customers purchased fuel using access cards. When the debtor filed for bankruptcy, it had in its possession IPC fuel as well as proceeds from sold fuel, in the form of cash and accounts receivable, that had not yet been remitted to IPC.

         U.C.C. § 9-319(a) grants a consignee "rights and title to the goods." If a consignee files for bankruptcy, any consigned "goods" in its possession become property of the bankruptcy estate unless the seller has previously provided public notice of its interest in the goods (normally by filing a document known as a "financing statement") and thereby "perfected" its interest. The panel held that this rule also extends to the proceeds from goods sold that are held by the consignee on the date it files for bankruptcy. Thus, IPC's unperfected security interest in the fuel and the proceeds was subordinate to the trustee's interest.

          OPINION

          BURNS, CHIEF DISTRICT JUDGE

         In a consignment transaction, a seller (the "consignor") delivers goods to a middleman (the "consignee") who holds the goods until they are sold to a buyer, at which point the sale proceeds are transferred back to the seller. Under settled bankruptcy law, if a consignee files for bankruptcy, any consigned "goods" in its possession become property of the bankruptcy estate unless the seller has previously provided public notice of its interest in the goods (normally by filing a document known as a "financing statement") and thereby "perfected" its interest. At issue in this case is whether this rule also extends to the proceeds from goods sold that are held by the consignee on the date it files for bankruptcy. We conclude that it does, and affirm the judgment of the Bankruptcy Court and the Bankruptcy Appellate Panel.

         I.

         The Debtor here, Pettit Oil Company, was a distributor of bulk petroleum products. Part of Pettit's business involved operating "card lock" sites, where commercial customers purchased fuel products using access cards. In 2013, Pettit entered into a consignment agreement with IPC (USA), Inc. ("IPC"), under which IPC was to deliver consigned fuel to card lock sites so Pettit could sell the fuel to its customers. The aim was to reduce Pettit's working capital needs by outsourcing its fuel ...


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