Fidelity Financial Services, Inc. v. Fink

PETITIONER: Fidelity Financial Services, Inc.
LOCATION: United States Department of State

DOCKET NO.: 96-1370
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Eighth Circuit

CITATION: 522 US 211 (1998)
ARGUED: Nov 03, 1997
DECIDED: Jan 13, 1998

Michael P. Gaughan - Argued the cause for the petitioner
Richard V. Fink - Argued the cause for the respondent

Facts of the case

After purchasing a car, Diane Beasley gave Fidelity Financial Services, Inc. a promissory note for the purchase price. The car secured the note. 21 days later, Fidelity mailed Beasley the application to perfect its security interest under Missouri law. After Beasley filed for bankruptcy, Richard V. Fink, the trustee of Beasley's bankruptcy estate, moved to set aside Fidelity's security interest on the ground that the lien was a voidable preference under federal law. 11 USC section 547(c)(3)(B) prohibits the avoidance of a security interest for a loan used to acquire property if, among other things, the security interest is "perfected on or before 20 days after the debtor receives possession of such property." Fink argued that this "enabling loan" exception was inapposite because Fidelity had not perfected its interest within the 20-day period. Affirming the Bankruptcy Court and the District Court, the Court of Appeals held a transfer to be perfected when the transferee takes the last step required by state law to perfect its security interest.


May a creditor invoke 11 USC section 547(c)(3)(B)'s "enabling loan" exception if it performs the acts necessary to perfect its security interest more than 20 days after the debtor receives the property, but within a grace period provided by the otherwise applicable state law?

Media for Fidelity Financial Services, Inc. v. Fink

Audio Transcription for Oral Argument - November 03, 1997 in Fidelity Financial Services, Inc. v. Fink

William H. Rehnquist:

We'll hear argument now in Number 96-11370, Fidelity Financial Services, Inc. v. Fink.

Mr. Gaughan.

Is that the correct pronunciation of your name?

Michael P. Gaughan:

Yes, Mr. Chief Justice--

William H. Rehnquist:

Please proceed.

Michael P. Gaughan:

--and may it please the Court:

This case involves an interpretation of the preference provisions of the Bankruptcy Code, found at 11 U.S.C. section 547.

That is on pages 1 through 5 of petitioner's brief.

The issue in a nutshell is whether or not the petitioner, Fidelity Financial Services, timely perfected its lien so as to qualify for the enabling loan exception provided in 547(c)(3).

It is undisputed that Fidelity satisfied all the requirements of 11 U.S.C. section 547 (c)(3), subsection (A).

The only other requirement is set forth in subsection (B).

That states that the security interest must be perfected on or before 20 days after the debtor receives possession of such property, meaning the financed property.

When a transfer is perfected is defined by the Bankruptcy Code at section 547(e)(1)(B).

That states that a transfer of an interest in property other than real property is perfected when a creditor on a simple contract cannot obtain a judicial lien which is superior to the interest of the transferee.

That determination must in turn be made by reference to State law, in this case Missouri State law.

Missouri has a statute... it's been on the books since 1965.

It's found at 301.600 Revised Statutes of Missouri.

It states that a lien on a motor vehicle or a trailer is perfected as of the time of its creation if certain steps are taken within 30 days.

It is undisputed that Fidelity satisfied all of the requirements of this State statute within 21 days at the earliest, 26 days at the latest.

William H. Rehnquist:

So it satisfied the requirement of Missouri law, as you said, but it did not do it within 20 days.

Michael P. Gaughan:

The physical act of perfecting the lien occurred outside of the 20-day grace period established in 547(c)(3).

However, under Missouri State law... that is correct.

Under Missouri State law, if the lien is perfected within 30 days it is deemed perfected as of the time of its creation.

Therefore, under those circumstances there would be no transfer for or on account of an antecedent debt under section 547(b)(2), or, alternatively, the creditor could raise the enabling loan shield under 547(c)(3).

Sandra Day O'Connor:

Well, it certainly is possible that Congress intended that its provision, the 20-day provision after receiving possession of the property is what governs.

Michael P. Gaughan:

Of course, Congress also included the 547(e)(1)(B) section, which incorporates State law, in defining when a transfer is perfected, and for preference purposes, of course, when a transfer occurs is when it is perfected, when it's made, and that incorporates State law, so State law is implicit in that consideration.

David H. Souter:

Then we have to accept the possibility that in place of the 30 days here it could be the 60 days in West Virginia, I think it is, it could be a year in some State, if some State wanted to take that position... in effect, there would be no guaranteed end point on your position.

Michael P. Gaughan:

I agree that in effect there would not necessarily be an end point.

However, up to this point, to my knowledge only 60 days is the longest limit that has been established, in West Virginia and I think in New Mexico for recreational vehicles.

Ruth Bader Ginsburg:

What happens in a State like Massachusetts, as I understand it, that has a shorter limit?