Moldo v. Matsco, Inc. (In Re Cybernetic Services, Inc.)

239 B.R. 917, 99 Daily Journal DAR 11155, 52 U.S.P.Q. 2d (BNA) 1683, 99 Cal. Daily Op. Serv. 8661, 39 U.C.C. Rep. Serv. 2d (West) 1043, 1999 Bankr. LEXIS 1313, 1999 WL 970150
CourtUnited States Bankruptcy Appellate Panel for the Ninth Circuit
DecidedSeptember 29, 1999
DocketBAP No. CC-98-1690-PKRi. Bankruptcy No. SV 97-15576 AG
StatusPublished
Cited by6 cases

This text of 239 B.R. 917 (Moldo v. Matsco, Inc. (In Re Cybernetic Services, Inc.)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Appellate Panel for the Ninth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Moldo v. Matsco, Inc. (In Re Cybernetic Services, Inc.), 239 B.R. 917, 99 Daily Journal DAR 11155, 52 U.S.P.Q. 2d (BNA) 1683, 99 Cal. Daily Op. Serv. 8661, 39 U.C.C. Rep. Serv. 2d (West) 1043, 1999 Bankr. LEXIS 1313, 1999 WL 970150 (bap9 1999).

Opinion

OPINION

PERRIS, Bankruptcy Judge.

This appeal raises the question of whether perfection of a security interest in a patent requires a filing with the United States Patent & Trademark Office (“Patent Office”). The bankruptcy court decided that it did not, and granted the motion of Matsco, Inc. (“Matsco”) and Matsco Financial Corporation (“Financial”) for relief from the automatic stay 2 to foreclose their patent hen. We AFFIRM.

I.FACTS

The primary asset of the bankruptcy estate of Cybernetic Services, Inc. (“Debtor”) is a patent for a data recorder designed to capture data from a video signal regardless of the horizontal line in which the data is located (“the Patent”).

Matsco and Financial filed a motion requesting relief from the automatic stay in order to foreclose their security interest in the Patent. Matsco and Financial have a blanket security interest in all of Debtor’s assets, including “general intangibles.” The parties agree that this was sufficient to create a security interest in the Patent. A UCC-1 Financing Statement covering, inter alia, general intangibles was properly prepared, executed by Debtor and timely filed with the Secretary of State of the State of California Matsco and Financial timely filed a UCC-2 Continuation Statement. Matsco and Financial did not file either the Financing Statement or any other document with the Patent Office.

The chapter 7 trustee (“Trustee”) asserted that Matsco and Financial should be denied relief from stay because they do not have a perfected security interest in the Patent. Trustee argued that, in order to perfect a security interest in the Patent, a creditor must make the appropriate filing with the Patent Office. The bankruptcy court determined that Matsco and Financial were not required to file with the Patent Office in order to perfect their security interest in the Patent. The court concluded that Article 9 of the Uniform Commercial Code (“UCC”), as adopted by California, rather than the Patent Act, governs the perfection of a security interest in a patent. The bankruptcy court granted Matsco and Financial relief from the automatic stay, and trustee appeals.

II.ISSUE

Whether the bankruptcy court erred in ruling that filing a UCC financing statement with the California Secretary of State rather than with the Patent Office perfected Matsco’s and Financial’s security interest in the Patent.

III.STANDARD OF REVIEW

The panel reviews a bankruptcy court’s order granting relief from the stay for an abuse of discretion. In re Montclair Retail Ctr., L.P., 177 B.R. 663, 664 (9th Cir. BAP 1995). A bankruptcy court *919 necessarily abuses its discretion if it bases its ruling on an erroneous view of the law. Cannery Row Co. v. Leisure Corp. (In re Leisure Corp.), 234 B.R. 916, 920 (9th Cir. BAP 1999). The bankruptcy court’s conclusions of law are reviewed de novo. United States v. Wyle (In re Pacific Far East Lines, Inc.), 889 F.2d 242, 244-45 (9th Cir.1989).

IV. DISCUSSION

A. Overview

The parties agree that, if Matsco’s and Financial’s security interest is perfected, there is no equity in the Patent available for the benefit of the estate and relief from stay should be granted pursuant to 11 U.S.C. § 362(d)(2). If Matsco and Financial did not perfect their lien on the Patent, Trustee’s rights as a hypothetical lien creditor under 11 U.S.C. § 544(a)(1) are superior with respect to the Patent to those of Matsco and Financial.

Thus, the question before the panel is whether Matsco and Financial have a perfected security interest in the Patent. Answering the question depends upon whether a creditor must file or record notice of its interest in a patent with the Patent Office in order to perfect its security interest. This is a question of law that requires the interpretation of §§ 9104(a) and 9302(3)(a) of the California Commercial Code and of the Patent Act, 3 in particular 35 U.S.C. § 261.

B. The Analytical Framework

In dealing with the interrelationship of a federal statute and a state statute, the initial question is whether the federal statute has preempted state law. If the Patent Act has not preempted state law, we must consider whether perfection of a security interest in a patent is governed by Article 9 of the UCC, as adopted in California. 4 The UCC provides two exclusions from its scope that are pertinent in this appeal. Section 9104(a) 5 provides that Article 9 will not apply to security interests “to the extent” that a federal statute regulates the rights of parties to and third parties affected by transactions relating to certain property. Even if the § 9104(h) exclusion does not apply, the Article 9 'filing requirements do not apply to transactions as to which there is a federal statute that provides for national registration of a security interest or that specifies a place for filing a security interest that is different from the place designated in Article 9. § 9302(3)(a). 6 The essence of Trustee’s argument is that the federal patent registration system either preempts *920 state law or results in exclusion of perfection of security interests in patents from the UCC.

For reasons discussed below, we conclude that the Patent Act does not preempt state law and that Article 9 of the UCC controls the perfection of a security interest in a patent.

C. The Patent Act Does Not Preempt State Law Regarding Perfection of Security Interests

Federal law preempts state law when state law “conflicts with federal law, would frustrate a federal scheme, or where Congress clearly intended to occupy the field.” Saridakis v. United Airlines, 166 F.3d 1272, 1276 (9th Cir.1999).

Section 261 of the Patent Act, entitled “Ownership; assignment,” effectively defines the scope of the Act. 7 It provides that an interest in a patent is assignable and an assignment is void against a subsequent purchaser or mortgagee without notice of the assignment, unless the assignment has been recorded in the Patent Office.

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239 B.R. 917, 99 Daily Journal DAR 11155, 52 U.S.P.Q. 2d (BNA) 1683, 99 Cal. Daily Op. Serv. 8661, 39 U.C.C. Rep. Serv. 2d (West) 1043, 1999 Bankr. LEXIS 1313, 1999 WL 970150, Counsel Stack Legal Research, https://law.counselstack.com/opinion/moldo-v-matsco-inc-in-re-cybernetic-services-inc-bap9-1999.