Justia Bankruptcy Opinion Summaries

Petitioner Dudley King and eight other individuals consigned their recreational vehicles (RVs) to Music City RV, LLC (MCRV), an RV dealer, for sale. On August 28, 2008, an involuntary Chapter 7 bankruptcy petition was filed against MCRV in the United States Bankruptcy Court for the Middle District of Tennessee. The issue before the bankruptcy court was whether the consigned RVs were part of the bankruptcy estate. The parties stipulated that MCRV was not primarily engaged in selling consigned vehicles, was a merchant under UCC § 9-102(20), and performed the services of a consignee. None of the consignors filed a UCC-1 financing statement.The Bankruptcy Trustee argued that the consigned RVs were governed by Article 2 of the Uniform Commercial Code (UCC) and were subordinate to the rights of perfected lien creditors, including the Trustee. Mr. King contended that the consignment was a true consignment of "consumer goods" and not a sale, thus not covered by the UCC, and the RVs should not be part of the estate. The bankruptcy court certified a question to the Supreme Court of Tennessee regarding whether such a consignment is covered under Tennessee Code Annotated section 47-2-326.The Supreme Court of Tennessee reviewed the statutory language and the Official Comments to the UCC. The court concluded that the 2001 amendment to Tennessee Code Annotated section 47-2-326 removed consignment transactions from the scope of Article 2. The court held that the consignment of an RV by a consumer to a Tennessee RV dealer for the purpose of selling the RV to a third person is not covered under section 47-2-326 of the UCC as adopted in Tennessee. The court assessed the costs of the appeal to the respondent, Robert H. Waldschmidt, Trustee. View "State of Tennessee v. Brown" on Justia Law