K-Ram, Inc.

1The relevant documents are: Debtor’s Motion for Summary
Judgment (doc 165); HDSB’s Response to Debtor’s Motion for
Summary Judgment (doc 168); HDSB’s Cross-Motion for Summary
Judgment (doc 169); Debtor’s Response to HDSB’s Cross-Motion for
Summary Judgment (doc 178); and Debtor’s Reply to HDSB’s Response
to Debtor’s Motion for Summary Judgment (doc 179).
UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re:
K-Ram, Inc.,
Debtor. 	No. 11-09-10708 SA
MEMORANDUM OPINION ON CROSS
MOTIONS FOR SUMMARY JUDGMENT
REGARDING FUNDS IN COURT REGISTRY
This matter is before the Court on cross motions 1 for
summary judgment to determine ownership of funds in the Court’s
Registry. 	Debtor is represented by William F. Davis & Assoc.,
P.C. (William F. Davis and Anne D. Goodman). 	High Desert State
Bank (“HDSB”), the claimant, is represented by the Law Office of
George “Dave” Giddens (Christopher M. Gatton). 	This is a core
proceeding concerning administration of the estate. 	28 U.S.C. §
157(b)(2)(A). 	The Court has considered the Memoranda submitted
by the parties and the cases therein, and conducted its own
research of the cases and treatises and finds that the Debtor’s
position should prevail. 	As discussed below, the Court finds
that the Assignment in this case was not effective to keep the
asset out of Debtor’s estate. 	Then, the Court adopts the Deed in
Lieu argument as the most persuasive and bases its ruling
primarily on that ground. 	The Court therefore rules that the
funds in the Court registry should be released to Debtor.
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2See Fact 43, below.
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FACTS
The facts are, generally, not disputed. 	Debtor proposed
forty-one undisputed material facts. 	HDSB agreed they were not
disputed. 	HDSB proposed two additional facts. 	Debtor agreed to
Fact 42 and part of the Fact 43 2. 	In Debtor’s Response to HDSB’s
Cross-Motion, Debtor presented five additional undisputed
material facts, numbered 44 through 48. 	HDSB did not counter
them, and under N.M. L.B.R. 7056-1(c) they are deemed admitted.
The Court finds the following to be undisputed:
1. 	On or about October 2, 2006, the Debtor, as Borrower,
executed a promissory note in favor of HDSB in the original
principal amount of $751,000.00 (the "Note"). 	High Desert State
Bank's Proof of Claim, Claim 15-1 ("HDSB Claim”), pp. 3-6.
2. 	On or about October 2, 2006, the Debtor executed a Line of
Credit Mortgage (the "Grants Mortgage") in favor of HDSB on
property situated in Grants, New Mexico and described as follows:
Lots numbered One (1) through Eleven (11) in Block
numbered One 0); Lots numbered Two (2) through Seven
(7) in Block numbered Two (2); Lots numbered One (1)
through Fourteen (14) in Block numbered Three (3); Lots
numbered One (I) through Fourteen (14) in Block
numbered Four (4); and Lots numbered One (1) through
Nine (9) in Block numbered Five (5) of VISTAS DE LA
VENTANA, an Addition to the City of Grants, Cibola
County, New Mexico, as the same is shown and designated
on the plat thereof filed in the Office of the County
clerk of Valencia County, New Mexico on August 25, 2006
in Book 16 at Page 3202.
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(the "Grants Property"). 	HDSB Claim, 15-1, pp. 7-15; Doc. No.
145-1 (Objection), Exhibit A. 	The Grants Mortgage also appears
at doc 165-2, pp. 5-10 (but missing half the pages, presumably
due to one sided copying of a two sided document), and at doc
168-1, pp. 4-14.
3. 	The Grants Mortgage was recorded on October 5, 2006 at Book
16 p. 5203, as instrument #200603860 in the records of Cibola
County, New Mexico. Doc. No. 145-1 (Objection), Exhibit A.
4. 	The Grants Mortgage secures K-Ram's obligations to the Bank
under the Note, up to a maximum obligation of $1,502,000. Doc.
No. 145-1 (Objection), Exhibit A, ¶¶ 3, 4.
5. 	Pursuant to a Loan Modification Agreement dated as of
October 2, 2007 between the Debtor and HDSB, Gilbert and Karen
Lovato (the "Lovatos") agreed to provide, as additional
collateral for the Note, a mortgage in favor of HDSB on property
described as:
Parcel numbered Four (4) of the Plat showing Parcels
One (1) through Four (4) inclusive, LANDS OF SANTIAGO
HIDALGO.
HDSB Claim, 15-1, p. 13-17. 	This property is referred to in this
Motion as the "Williams Property."
6. 	The Lovatos executed a mortgage (the "Williams Mortgage")
dated November 2, 2007 in favor of HDSB on the Williams Property,
which is also described as 4818 Williams, Albuquerque, New
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Mexico. 	Exhibit 1 to this Motion, Affidavit of Gilbert J. Lovato
(hereinafter "Lovato Aff.”) ¶ 4, Exhibit B.
7. 	The Williams Mortgage was recorded on November 9, 2007, as
instrument #2007155852, of the records of Bernalillo County, New
Mexico. 	Exhibit 1, Lovato Aff., ¶ 4, Exhibit B.
8. 	The Williams Mortgage secures the obligations of Debtor and
the Lovatos under the Note. 	Exhibit 1, Lovato Aff., ¶ 4, Exhibit
B, page 2, ¶ 4.
9. 	Pursuant to a Loan Modification Agreement dated March 24,
2008, the principal amount of the Note was increased to
$1,250,000.00. 	HDSB Claim, Doc. 15-1, pp. 16-18.
10. 	Gilbert and Karen Lovato are guarantors of the Debtor's
obligations to HDSB under the Note. 	Exhibit 1, Lovato Aff, ¶ 3,
Exhibit A, page 1.
11. 	On December 26, 2007, Westar filed a lien against the Grants
Property in the amount of $33,495.00 (the "Lien"), and recorded
in Cibola County, New Mexico in Book 17 at Page 9476 as Document
#200704241. 	Adv. Pro 09-1072, Doc. No. 3, pp. 10-25.
12. 	On May 19,2008, the Debtor and the Lovatos (“Petitioners”)
filed an action against Westar in the Thirteenth Judicial
District Court, Cibola County, numbered CV-2008-0163 to set aside
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3The Westar Litigation was removed to this Court. 	The Court
has taken judicial notice of the adversary file. 	The complaint
was filed by Gilbert J. Lovato, Karen L. Lovato, and K-Ram, Inc.
against Barry Lytle and Westar Concrete & Construction, Inc. 	It
seeks cancellation of a lien; actual, special and punitive
damages for slander of title; and damages including treble
damages under the Unfair Practices Act; plus attorney fees and
pre- and post-judgment interest.
Page -5-
the Lien (the "Westar Litigation"). 	Adv. Pro. 09-1072, Doc. No.
3, p. 1 3.
13. 	On or about August 19, 2008, the "Stipulated Order
Discharging Lien on Deposit of Funds to Secure Claims" was
entered in the Westar Litigation (the "Stipulated Order"). 	Doc.
No. 145-2 (Objection), Exhibit B.
14. 	The parties to the Stipulated Order are K-Ram and the
Lovatos, as Petitioners, and Westar and Barry Lytle, as
Respondents. 	Doc. No. 145-2 (Objection), Exhibit B.
15. 	The Order orders Petitioners to deposit the sum of $50,000
with the clerk of the Thirteenth Judicial District Court "as the
amount of cash necessary to be deposited by Petitioners
for the discharge of the ... Lien ...." and that, upon such
deposit, the "Claim of Lien ... is discharged and the Cibola
County Clerk is directed to cancel such Claim of Lien... ." 	Doc.
No. 145-2 (Objection), Exhibit B, pp. 1-2.
16. 	The Order was recorded on August 21, 2008 in Cibola County,
New Mexico at Book 18 p. 5653, as document #200802260. 	Exhibit 2
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Page -6-
to this Motion, Affidavit of Don Sanchez (hereinafter "Sanchez
Aff.”) ¶¶ 3, 4, Exhibit B.1.
17. 	On or about August 20, 2008, K-Ram sold to Valerie and
Jeremy Liska and conveyed by Warranty Deed Lot numbered Seven (7)
in Block numbered Two (2) of the Grants Property (“Lot 7"), for a
sales price of $240,000.00. 	Exhibit 2, Sanchez Aff., ¶¶ 3, 4, 5,
6, Exhibit B.2, Exhibit C.
18. 	At closing, the "gross amount due to seller" was reduced by
settlement charges including the following:
1304. 	Payoff: High Desert State Bank 	$155,500.00
1305. 	Funds Held: 13th Judicial District Court 	$ 50,000.00
Exhibit 2, Sanchez Aff., ¶¶ 6, 7, Exhibit C lines 601, 602, 1304,
1305.
19. 	The title company that closed the sale disbursed the $50,000
to the Thirteenth Judicial District Court. 	Exhibit 2, Sanchez
Aff., ¶¶ 6, 7, Exhibit C.
20. 	On August 26, 2008, HDSB executed a Partial Release of
Mortgage as to Lot 7 (the “Lot 7 Release”) stating that: “High
Desert State Bank, mortgagee under [the Grants Mortgage] ... does
hereby discharge all of the real estate mentioned in said
mortgage from the lien and operation thereof.” 	Exhibit 2,
Sanchez Aff., ¶¶ 3, 4, 5, Exhibit B.3.
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21. 	The Lot 7 Release was recorded in Cibola County on August
29, 2008 in Book 18 at page 5807. 	Exhibit 2, Sanchez Aff., ¶¶ 3,
4, 5, Exhibit B.3.
22. 	The "Assignment of Any and All Excess Proceeds" (the
"Assignment") attached to the Objection is unrecorded. 	Doc. No.
145 (Objection), Exhibit C.
23. 	On February 6, 2009, HDSB filed a Complaint for Foreclosure
(the "Forec1osure), in the matter styled High Desert State Bank
v. Gilbert J. Lovato, Karen L. Lovato, K-Ram, Inc., et al ., No.
CV-200901321, in the Second Judicial District Court, seeking
forec1osure of the mortgages on the Grants Property and the
Williams Property. 	Doc. No. 51 (Stay Relief Order) ¶11; Exhibit
1, Lovato Aff., ¶ 5, Exhibit C.
24. 	On February 24, 2009, the Debtor filed a chapter 11
petition, commencing this Bankruptcy Case. 	Doc. No. 1
25. 	The Debtor listed the $50,000 as an asset. Doc. No. 17, p.
7, Schedule B.35.
26. 	The Debtor listed HDSB's security for the Note as the Grants
Property owned by the Debtor and the Williams Property. 	Doc. No.
17, pp. 3, 13, Schedule A and D.
27. 	On April 24, 2009, this Court entered the Stipulated Order
Terminating Automatic Stay and Approving Abandonment of Property
of the Estate (the "Stay Relief Order"). 	Doc. No. 51.
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Page -8-
28. 	The Stay Relief Order provides that the "automatic stay is
hereby lifted to allow the Bank in the Forec1osure Action ... to
fully exercise [its] state law rights and remedies in regard to
the [Grants] Property, including, but not limited to continuing
the Foreclosure Action ... . " and approved an abandonment of the
Grants Property. 	Doc. No. 51, page 3.
29. 	On May 22, 2009, the Debtor removed the Westar Litigation to
this court. 	Adv. Pro. 09-1072, Doc. 1.
30. 	On June 10, 2009, HDSB filed a proof of claim in this case,
asserting a secured claim in the amount of $1,093,903.90, secured
by "real estate." 	Claim 15-1.
31. On or about May 12, 2009, K-Ram sold to Dolores Vallejos and
conveyed by Warranty Deed Lots Five (5) and Six (6) of Block Two
(2) of the Grants Property and now known as Lot Numbered 5A of
Block Two (2) ("Lot 5A"). 	Exhibit 2, Sanchez Aff., ¶¶ 3, 4, 5,
8, Exhibit B.4, B.5, Exhibit D.
32. 	On June 16, 2009, HDSB executed a Partial Release of
Mortgage as to Lot 5A (the "Lot 5A Release") stating that: "High
Desert State Bank, mortgagee under [the Grants Mortgage] ... does
hereby discharge all of the real estate mentioned in said
mortgage from the lien and operation thereof." 	Exhibit 2,
Sanchez Aff., ¶¶ 3, 4, 5, Exhibit B.6.
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Page -9-
33. 	The Lot 5A Release was recorded in Cibola County on June 24,
2009 in Book 19 at page 2008. 	Exhibit 2, Sanchez Aff., ¶¶ 3, 5,
Exhibit B.6.
34. 	On July 22, 2009, the $50,000 was transferred from the
Thirteenth Judicial District Court, Cibola County, to the
registry of this Court. 	Adv. Pro Docket #9.
35. 	On or about January 20, 2010, HDSB, as "Lender," and the
Debtor and the Lovatos, as "Borrowers," entered into an Agreement
for Deed in Lieu of Foreclosure (the "Deed in Lieu Agreement").
Exhibit 1, Lovato Aff., ¶ 6, Exhibit D.
36. 	The Deed in Lieu Agreement describes the subject property as
the Grants Property Less Lot 7 and Lot 5A and the Williams
Property. 	Exhibit 1, Lovato Aff., ¶ 6, Exhibit D at pages 1-2.
37. The Deed in Lieu Agreement contains the following provisions:
6. 	Lender agrees to accept a Special Warranty Deeds
[sic] (deed) from Borrowers in lieu of foreclosure of
its Mortgage provided that all of the terms and
conditions of this agreement are fulfilled. Lender
agrees that, upon acceptance of the Deed in Lieu of
Foreclosure, Borrowers will be released from all
further liability pursuant to the Note and/or Mortgage.
This release of liability also includes the guarantors
of the debt.
...
10. Upon the execution of the deed by Borrowers and
acceptance thereof by Lender, and the receipt by Lender
of a merchantable title to the above-referenced real
property, free and clear of liens or encumbrances,
Borrowers shall be released from all liability pursuant
to the Note and Mortgage and Lender will deem the Note
to be paid in full.
Exhibit 1, Lovato Aff., ¶ 6, Exhibit D.
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Page -10-
38. 	On February 1, 2010, a Special Warranty Deed from K-Ram to
HDSB to the Grants Property less Lot 7 and 5A was recorded in
Cibola County, New Mexico, in Book 19 at page 6739 as Document
No. 201000205. 	Exhibit 2, Sanchez Aff., ¶¶ 3, 4, 5, Exhibit B.7.
39. 	On December 30, 2009, a Special Warranty Deed from the
Lovatos to HDSB for the Williams Property was recorded in
Bernalillo County, New Mexico, as Document #2009140869. 	Exhibit
1, Lovato Aff., ¶ 7, Exhibit E.
40. 	By orders entered February 26, 2010 and March 3, 2010, this
Court approved a settlement of the Westar Litigation pursuant to
which Westar accepted $10,000 in full settlement of its claims to
the $50,000, leaving the $40,000 undistributed. 	Doc. No. 147,
Doc. No. 150.
41. 	HDSB objects to Debtor receiving any of the $40,000, on the
following grounds:
a. "[A]s proceeds from the sale of the mortgaged property,
[the Undistributed Funds] rightly belong to HDSB pursuant to
the [Grants] Mortgage.
b. Additionally, the refund of any monies deposited in the
Court Registry was explicitly assigned to HDSB in the
Assignment." 	Doc. #145 (Objection), ¶ 8.
42. 	The funds deposited into the Court Registry pursuant to the
Stipulated Order Discharging Lien on Deposit of Funds to Secure
Claims (the “Stipulated Order”) were deposited with the consent
of High Desert State Bank so that the sale of the mortgaged
property could occur free and clear of the lien of Westar.
Affidavit of Rusty Dillon, attached hereto as Exhibit A, ¶ 3.
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4This dispute does not prevent summary judgment in this
case. 	The intent of the parties is not relevant when a court
determines if a transaction is a security agreement. 	See infra
p. 20.
Page -11-
43. 	Consent of HDSB was necessary for the sale to occur, since
the bank was allowing $50,000 of the sale proceeds which it would
rightly receive to be used to bond around the lien of Westar.
With respect to the second sentence of Fact 43, HDSB
alleges, but Debtor disputes, that consent to the use of the
proceeds to bond around the lien was only given with the
expectation 4 that HDSB would receive any surplus proceeds once
the state court had determined the amount that Westar would
receive. 	HDSB cites Exhibit A, ¶ 4 and the “Assignment of Any
and All Excess Proceeds” attached as Exhibit B.
44. 	In discussions between Gilbert Lovato and representatives of
HDSB including Russell C. Dillon, in connection with the Deed in
Lieu Agreement dated January 20, 2010, no bank representative
said anything about or made reference to the bank having a
continuing claim to the $50,000. 	Affidavit of Gilbert Lovato,
Exhibit 1, ¶¶ 4, 6.
45. 	Mr. Lovato’s understanding was that by entering into the
Deed in Lieu Agreement, K-Ram’s liability to HDSB under the Note
and/or the Mortgages was being satisfied in full by the deeds to
the bank of the remaining Grants property and the Williams
property. 	Exhibit 1, Lovato Response Aff. ¶ 5.
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Page -12-
46. 	At the time the Deed in Lieu Agreement was executed, Mr.
Lovato understood that the bank had no further claim to the
funds. 	Exhibit 1, Lovato Response Aff. ¶ 7.
47. 	The appraised value of the properties deed to HDSB pursuant
to the Deed in Lieu Agreement was $1,175,600. 	Exhibit 1, Lovato
Response Aff. ¶ Exhibit 1.A and 1.B.
48. 	At the time the Deed in Lieu Agreement was executed, the
indebtedness under the Note was $1,163,118.93. 	Debtor’s Motion,
Exhibit 1.D, doc 165-2 at p. 20.
DISCUSSION
a. 	Debtor’s Arguments
Debtor argues five theories that the funds on deposit belong
to Debtor, as follows:
First, Debtor claims that HDSB has no claim to “proceeds”
under the Grants Mortgage. 	Debtor concedes that the remaining
funds are part of the $50,000 paid into the Cibola Court Registry
from the closing of the sale of Lot 7. 	But, Debtor points out
that the Grants Mortgage’s only reference to “proceeds” is in the
section dealing with the assignment of leases and rents. 	It has
no reference to the proceeds from a sale. 	Furthermore, Debtor
claims that HDSB’s release of Lot 7, which contained no language
preserving an interest in proceeds, extinguished any claim by
HDSB to the remaining funds.
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Page -13-
Second, Debtor argues that HDSB’s claim that the Assignment,
dated August 21, 2008, entitles it to the funds must fail.
Debtor states that, assuming the Assignment validly created a
lien on the funds derived from the Lot 7 sale, HDSB had only a
security interest in the funds, which would be considered an
“account” under the New Mexico Uniform Commercial Code. 	A
security interest in accounts is perfected by filing a financing
statement. 	No financing statement was filed. 	Therefore, HDSB
has no perfected lien on the funds.
Third, Debtor argues that the Stipulated Order entered in
the Westar litigation could not and did not create a claim in
favor of HDSB. 	That Order only stated that the $50,000 was
deposited so that Westar’s lien could be released. 	The Order
does not mention HDSB and HDSB was not a party to that case.
Fourth, Debtor argues that HDSB is time barred from
asserting a claim to the funds. 	The bar date in this case was
June 15, 2009. 	The notice of bar date required a creditor to
file a proof of claim if it disagreed with how the Debtor had
scheduled its claim. 	Debtor listed the remaining funds as an
unencumbered asset on Schedule B and did not include the
remaining funds as collateral for HDSB on Schedule D. 	HDSB did
file a proof of claim and made no claim that the remaining funds
were collateral. 	Therefore, Debtor argues that HDSB cannot at
this time claim the funds.
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Page -14-
Fifth, and finally, Debtor argues that even if HDSB had a
valid claim under the Mortgage, the Assignment, or the Order, it
has since released that claim in full. 	The Deed in Lieu
Agreement reflects that Lot 7 and Lot 5A were sold and the legal
description omitted those lots. 	The Deed in Lieu Agreement
addressed the entire existing liability under the mortgage
including accrued interest. 	HDSB agreed to accept the Special
Warranty Deeds to the remaining Grants property and the Williams
property in lieu of foreclosure and released borrowers and
guarantors from all further liability, terminating the mortgagor-
mortgagee relationship and HDSB would deem the Note to be paid in
full. 	The Agreement also stated it was the entire agreement of
the parties. 	Debtor executed the deeds. 	The Agreement made no
mention of the $50,000. 	Debtor argues, therefore, that as a
matter of law there is no remaining liability against which the
funds could be applied.
b. 	HDSB’s Arguments
HDSB also argues five theories that the funds on deposit
belong to HDSB, as follows:
First, HDSB denies Debtor’s argument that HDSB has no claim
to the proceeds because the Grants Mortgage does not specifically
provide a lien on proceeds. 	HDSB claims that the Grants Mortgage
does not need to so because it contains the term “statutory
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5This language appears on the Grants Mortgage as page 2 of
the 10 page document. 	This page is missing from the copy at doc.
165-2, but appears in the copy at doc. 168-1 at page 5.
6That section provides:
§ 47-1-41. Construction of “statutory mortgage condition”
In a mortgage or deed of trust by way of mortgage of real estate
the words, “statutory mortgage condition” shall have the full
force, meaning and effect of the following words and shall be
applied and construed accordingly: “in the event any of the
following terms, conditions or obligations are broken by the
mortgagor, this mortgage (or deed of trust) shall thereupon at
the option of the mortgagee, be subject to foreclosure and the
premises may be sold in the manner and form provided by law, and
the proceeds arising from the sale thereof shall be applied to
the payment of all indebtedness of every kind owing to the
mortgagee by virtue of the terms of this mortgage or by virtue of
the terms of the obligation or obligations secured hereby:
[list of six duties of mortgagor.]
Page -15-
mortgage condition” 5 which under N.M. Stat. Ann. § 47-1-41 6
(1978) means, among other things, that proceeds shall be applied
to the payment of the mortgagee’s debt. 	Debtor disputes that
this statute applies.
Second, HDSB argues that the sale proceeds are not property
of the Debtor or the estate, and that therefore HDSB did not need
to assert a claim to those funds. 	HDSB argues that when it
consented to allow $50,000 of its proceeds to be deposited into
the state court registry with the condition that any surplus
funds would be paid toward the loan balance when the lien was
resolved, it had control over the funds sufficient to establish
constructive possession. 	Consequently, HDSB claims that the
funds were not part of the bankruptcy estate. 	HDSB cites Admin.
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Page -16-
Comm. of the Wal-Mart Assocs. Health & Welfare Plan v. Willard,
393 F.3d 1119 (10 th Cir. 2004) as support.
Third, HDSB claims that although the Assignment of Any and
All Excess Proceeds was not recorded it is still clear evidence
of everyone’s intent that the surplus funds should be paid
directly to HDSB.
Fourth, HDSB argues that the “Lot 7 Release” did not affect
HDSB’s claim to the funds. 	HDSB claims that the document refers
only to the real estate being released from its claim, not any
proceeds from real estate.
Fifth, and finally, HDSB argues that the Deed in Lieu
Agreement did not affect HDSB’s claim to the funds. 	HDSB argues
that this results from the fact that Debtor had no interest in
the funds and that HDSB had constructive possession.
c. 	Court’s decision
1. 	The Assignment did not remove the assets from the
estate.
HDSB’s second and fifth arguments focus on HDSB’s claim of
ownership of the fund. 	The Court finds that neither argument
should prevail.
The state court lawsuit filed by Debtor was for slander of
title to a lot it was developing. 	Adv. Pro. 09-1072, doc. 3, p.
1. 	Under New Mexico law, slander of title is a tort. 	Den-Gar
Enter. v. Romero, 94 N.M. 425, 430, 611 P.2d 1119, 1124
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7See N.M. Stat. Ann. 1978 § 55-9-102(a)(13):
(13) “commercial tort claim” means a claim arising in
tort with respect to which:
(A) the claimant is an organization; or
(B) the claimant is an individual and the claim:
(i) arose in the course of the claimant's business or
profession; and
(ii) does not include damages arising out of personal
injury to or the death of an individual[.]
A commercial tort claim is not a “general intangible.” 	Id. at
(a)(42). 	It is also not an “account.” 	Id. at (a)(2)(c)(ii).
8See N.M. Stat. Ann. 1978 § 55-9-109(d)(12) (“Chapter 55,
Article 9 NMSA 1978 does not apply to ... an assignment of a
claim arising in tort, other than a commercial tort claim[.]”)
The obvious inference is that Article 9 does apply to an
assignment of a commercial tort claim.
Page -17-
(Ct.App.), cert. denied, 94 N.M. 628, 614 P.2d 545 (1980). 	See
also Restatement (Second) of Torts § 624 (1977).
The Uniform Commercial Code was revised in 2001. 	N.M. Stat.
Ann. 1978 § 55-9-101, et. seq. 	Before the Revision all tort
claims were excluded from the scope of Article 9. 	Hillman,
Documenting Secured Transactions § 3:11.10 (2010). 	The Revision
created a new category of collateral, “commercial tort claims 7”
and included them in Article 9's coverage. 8 	Id.
Debtor’s state court case was a commercial tort claim. 	The
assignment of that claim is within the scope of Article 9.
Filing of a financing statement is required to perfect an
interest in a commercial tort claim. 	N.M. Stat. Ann. 1978 § 55-
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9That section provides: “Except as otherwise provided in
Subsection (b) of this section and in Section 55-9-312 NMSA 1978,
a financing statement must be filed to perfect all security
interests and agricultural liens.” 	Note: Neither 55-9-310(b) or
55-9-312 reference commercial tort claims. 	Therefore, the only
method to perfect is by filing.
10 A debtor in possession has all of the rights and powers of
a trustee, with limited exceptions not relevant here. 	11 U.S.C.
§ 1107(a).
11 That section provides:
A security interest or agricultural lien is subordinate
to the rights of:
...
(2) except as otherwise provided in Subsection (e) of
this section, a person that becomes a lien creditor
before the earlier of the time:
(A) the security interest or agricultural lien is
perfected; or
(B) one of the conditions specified in Paragraph (3) of
Subsection (b) of Section 55-9-203 NMSA 1978 is met and
a financing statement covering the collateral is filed.
Page -18-
9-310(a) 9. 	See also Helms v. Certified Packaging Corp., 551 F.3d
675, 679 (7th Cir. 2008). 	HDSB did not file.
When a bankruptcy is filed, the “strong arm” powers of 11
U.S.C. § 544(a)(1) grant the trustee 10 the status of hypothetical
lien creditor. 	Morris v. Hicks (In re Hicks), 491 F.3d 1136,
1140 (10 th Cir. 2007). 	The rights of a lien creditor are
determined under state law. 	Id. 	New Mexico law subordinates an
unperfected security interest to the rights of a person that
becomes a lien creditor before the security interest is
perfected. 	N.M. Stat. Ann. § 55-9-317(a)(2) 11 .
HDSB claims that it is not merely a creditor holding an
unperfected security interest. 	It claims to be the owner of the
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asset by way of the Assignment. 	Black’s Law Dictionary (9th ed.
2009) defines an “absolute assignment” as “an assignment that
leaves the assignor no interest in the assigned property or
right.” 	And, it defines a “collateral assignment” as “an
assignment of property as collateral security for a loan.”
Revised Article 9 on its face does not distinguish between
an absolute assignment and a collateral assignment of commercial
tort claims. 	This is likely intentional. 	Article 9 requires
filing to perfect a buyer’s or assignee’s interest in accounts,
chattel paper, payment intangibles, or promissory notes, whether
they were transferred outright or assigned as collateral.
Compare Ta Chong Bank Ltd. v. Hitachi High Technologies America,
Inc., 610 F.3d 1063, 1066 (9th Cir. 2010)( “In order to perfect
its interest in the CyberHome accounts assigned to the Bank, the
Bank was required to file a financing statement. 	Cal. Com. Code
§ 9310(a).”) See also Octagon Gas Systems, Inc. v. Rimmer (In re
Meridian Reserve, Inc.), 995 F.2d 948, 954 (10th Cir.), cert
denied, 510 U.S. 993 (1993)(“Although Article 9 applies mainly to
transactions intended to create security interests, it also
applies to sales of accounts because sales of wholly intangible
interests in accounts create the same risks of secret liens
inherent in secured transactions.”)(Citations omitted.)(Decided
under former law.) 	Likewise, the Court finds that there exists
the same dangers in assignments of commercial tort claims.
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Under Revised Article 9, a “security interest” is defined as
“security interest” means an interest in personal
property or fixtures that secures payment or
performance of an obligation. 	“Security interest”
includes any interest of a consignor and a buyer of
accounts, chattel paper, a payment intangible or a
promissory note in a transaction that is subject to
Chapter 55, Article 9 NMSA 1978.
N. M. Stat. Ann. 1978, § 55-1-201(b)(35). 	Uniform Commercial
Code Comment 3(b) to N. M. Stat. Ann. 1978, § 55-9-102 provides:
3. Definitions Relating to Creation of a Security
Interest.
...
b. “Security Agreement.”
...
Whether an agreement creates a security interest
depends not on whether the parties intend that the law
characterize the transaction as a security interest but
rather on whether the transaction falls within the
definition of “security interest” in Section 1-201.
Thus, an agreement that the parties characterize as a
“lease” of goods may be a “security agreement,”
notwithstanding the parties' stated intention that the
law treat the transaction as a lease and not as a
secured transaction.
As noted above, assignments of commercial tort claims are subject
to Article 9. 	HDSB’s and Debtor’s intent to create a security
interest in the tort claim were irrelevant. 	The issue is whether
the transaction falls within the definition of security interest.
The Court finds that it does. 	HDSB did not file a financing
statement and was therefore not perfected when Debtor filed its
bankruptcy. 	In consequence, the funds became an asset of the
Debtor’s estate.
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Page -21-
However, even if Article 9 does not apply to “absolute”
assignments of commercial tort claims, the Court finds that the
assignment in this case was not absolute. 	New Mexico has 	few
cases regarding assignments. 	However, the theories have been
fully developed in the common law of other jurisdictions.
Basically,
An assignment is an act or expression of intention
by which one person causes a transfer of a right or
interest in property. 	In re Estate of Boyd, 606 P.2d
1243 (Wyo. 1980).
...
The language of an assignment ... may be informal
so long as the language utilized, coupled with the
surrounding circumstances, reveals an intent by the
owner to transfer a present interest ... . Seasons,
Inc. v. Atwell, 86 N.M. 751, 527 P.2d 792 (1974). ...
To be legally enforceable, an assignment must
describe the subject matter with sufficient
particularity to render it capable of identification.
Nickell v. United States ex rel. D.W. Falls, Inc., 355
F.2d 73 (10th Cir. 1966). 	The intent of an assignor is
to be gleaned, if possible, from the document itself.
Seasons, Inc. v. Atwell. 	The meaning of an assignment
is to be determined with reference to the intention of
the drafter at the time the agreement was made. 	E.g.,
Young v. Thomas, 93 N.M. 677, 604 P.2d 370 (1979) (if
there is ambiguity, intent may be ascertained by
language and conduct of parties, objects sought to be
accomplished by the agreement, and circumstances
surrounding execution of the agreement).
In construing an assignment, as in the
construction of contracts generally, when the words
employed are free from ambiguity, there is no occasion
for interpretation. 	Absent ambiguity reflected in the
wording of the instrument, it is the court's duty to
give effect to the language of the entire document in
accordance with the commonly accepted and ordinary
meaning of the words. 	Broyles v. Iowa Department of
Social Services, 305 N.W.2d 718 (Iowa 1981).
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Page -22-
Benton v. Albuquerque Nat’l Bank, 103 N.M. 5, 10-11, 701 P.2d
1025, 1030-31 (Ct.App. 1985).
To be an effective assignment, the assignor must
divest itself of all right, interest, and control in
the property assigned. 	Any act or words that show an
intention to transfer all interests to the assignee are
sufficient for a valid assignment; in other words, no
specific or magic words are necessary for its
formation. ... . As the trustee points out, however, a
mere promise to pay a debt out of a designated fund
does not operate as an effective assignment where the
assignor continues to control the fund; retention of
control precludes the perfection of an assignment.
Accordingly, our analysis centers on the parties'
intent in entering the June 1995 transactions and
whether and to what extent CEA retained control over
the Contract proceeds.
Advanced Testing Technologies, Inc. v. Desmond (In re Computer
Engineering Associates, Inc.), 337 F.3d 38, 46 (1st Cir. 2003)
(citations and footnotes omitted.)(“CEA”)(Applying both New York
and Massachusetts law, which were the same). 	In the CEA case,
the First Circuit examined the actions the parties took both
before and after the challenged assignment of a contract. 	It
found that all actions taken supported the contention that the
transaction was irrevocable and had divested CEA of its ability
to receive any proceeds from the contract directly. 	Id. at 47.
Specifically, CEA executed an agreement and “irrevocable
assignment,” set up a joint bank account, transferred to
plaintiff the responsibility for preparing invoices and requests
for progress payments, provided plaintiff with full access to its
computer system, instructed the bank to provide copies of all
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Page -23-
notices and actions concerning a related loan account and
obtained authorization from CEA to make inquiries of the account.
Id. 	The court found that CEA had given up all right, title and
interest and that therefore the assignment was absolute. 	Id. at
50. 	Accord Christmas v. Russell, 81 U.S. 69, 84 (1871)
The assignor must not retain any control over the
fund-any authority to collect, or any power of
revocation. 	If he do, it is fatal to the claim of the
assignee. 	The transfer must be of such a character
that the fundholder can safely pay, and is compellable
to do so, though forbidden by the assignor.
See also TPZ Corp. v. Dabbs, 25 A.D.3d 787, 789, 808 N.Y.S.2d
746, 749 (2006)(“In order for an assignment to be valid, the
assignor must be divested of all control over the thing
assigned.” 	Court reversed summary judgment due to question of
fact whether assignor “continued to act as if it owned the
note.”)
In determining whether an assignment is for security, a
court may also look at the business activities of the parties,
their relationship, the objective of the purported assignment,
and whether the evidence suggests that there was a total
divestment of all control by assignor over the thing assigned.
In re Tyson Metal Products, Inc., 117 B.R. 181, 184-85 (Bankr.
W.D. Pa. 1990). 	If the debtor is left with access to the asset
or if the assignee fails to notify the obligor of the assignment,
this is evidence that the parties intended a security interest
and not an absolute assignment. 	Id. at 185.
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Page -24-
In this case, HDSB and Debtor had an ongoing banking
relationship through which HDSB was financing a real estate
development. 	Their prior history involved loans and mortgages.
While this transaction was different in that it involved a cause
of action in tort, it seems odd that the intention would be to
transfer the action to HDSB for $50,000 instead of taking a lien
in the asset. 	Generally, banks are in the business of making
loans and obtaining mortgages and security interests in
collateral, not buying their customer’s tort actions. 	This
suggests that an assignment for security was intended.
If one makes an absolute assignment of a cause of action,
that person loses standing to pursue, continue, or settle it
because they are no longer the real party in interest. 	See
Wright, Miller, Kane and Marcus, 6A Federal Practice & Procedure
§ 1545 (3d ed.)(“Under present law an assignment passes the title
to the assignee so that the assignee is the owner of any claim
arising from the chose and should be treated as the real party in
interest under Rule 17(a).”). 	Debtor instituted the state court
tort action, pursued it, removed it to bankruptcy court, and
settled it. 	If Debtor had truly absolutely assigned the asset to
HDSB, it would have lost its standing to remain in the case after
August 21, 2008. 	HDSB should not be allowed to claim it owned
the lawsuit after allowing Debtor to pursue it to completion.
This suggests the Assignment was for security.
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Page -25-
HDSB did not intervene in the lawsuit either before or after
it was removed from state court. 	There is no indication in the
record that anyone other than Debtor and HDSB knew that HDSB was
claiming ownership or a lien on the asset. 	The only parties to
the lawsuit were Debtor and Westar. 	Anyone examining the court
files would have assumed that Debtor had a claim to the funds.
This is the situation Article 9 is designed to prevent. 	This
suggests the Assignment was for security.
HDSB had no control over the lawsuit. 	It filed no claim of
lien or transfer of ownership in the lawsuit. 	It was not a
party. 	In other words, the “obligor” (the state district court
holding the funds) had no notice of the assignment. 	Compare
Computer One, Inc. v. Grisham & Lawless, P.A., 144 N.M. 424, 429,
188 P.3d 1175, 1180 (2008):
“In New Mexico, there are four requirements for the
imposition of an attorney charging lien.” 	Sowder v.
Sowder, 1999-NMCA-058, ¶ 10, 127 N.M. 114, 977 P.2d
1034. 	First, there must be a valid contract between
the attorney and the client, although the contract need
not be express. 	Id. 	Second, there must be a judgment,
or “fund,” that resulted from the attorney's services.
Id. ¶ 11. 	Third, the attorney must have given clear
and unequivocal notice that he intends to assert a
lien, and notice must be given to the “appropriate
parties.” 	Id. ¶ 12. 	Finally, the lien must be
timely-notice of the lien must be given “before the
proceeds [from] the judgment have been distributed.”
Id. ¶ 14. 	Our cases have put attorneys on notice to
file the charging lien and enforce it “in the court in
which the underlying suit is filed, not in an
independent action.” 	Thompson v. Montgomery & Andrews,
P.A., 112 N.M. 463, 467, 816 P.2d 532, 536 (Ct.App.
1991). 	Failing to meet these requirements, an attorney
may not invoke the equitable powers of the court to
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Page -26-
impose a lien, but must resort to remedies at law, such
as a subsequent lawsuit for breach of contract long
after proceeds have been disbursed. 	See Sowder,
1999-NMCA-058, ¶ 8, 127 N.M. 114, 977 P.2d 1034.
The Court is not suggesting that HDSB should have taken all these
steps; rather, if it had taken any step it might demonstrate that
it attempted to retain some control over the funds. 	As it was,
the Debtor could have sought voluntary dismissal or could have
submitted an Order, if Westar had consented, to disburse the
funds in any way the parties agreed without HDSB’s knowledge or
consent. 	Debtor retained complete control over the asset. 	This
suggests that it was an assignment for security.
In summary, the Court finds that the Assignment was one for
security. 	As such, it was governed by Article 9 of the Uniform
Commercial Code. 	HDSB did not perfect its interest, which falls
to the Debtor’s strong arm powers.
2. 	HDSB released all claims in its Deed in Lieu
Agreement.
The Court finds that the Deed in Lieu Agreement is clear and
unambiguous. 	And, neither party claims otherwise. 	It was duly
executed by the Debtor, by Gilbert J. Lovato its President and
attested to by Debtor’s Corporate Secretary Karen L. Lovato, by
the Lovatos individually as guarantors, and by HDSB by its
executive vice president. 	“When a contract or agreement is
unambiguous, we interpret the meaning of the document and the
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Page -27-
intent of the parties according to the clear language of the
document, and we enforce the contract or agreement as written.”
Espinosa v. United of Omaha Life Ins. Co., 139 N.M. 691, 699, 137
P.3d 631, 639, 2006-NMCA-075, {26} (Ct.App.), cert. denied, 140
N.M. 225, 141 P.3d 1279, 2006-NMCERT-6 (2006).
Relevant paragraphs of the Agreement are as follows:
6. 	Lender agrees to accept a Special Warranty Deeds
[sic] (deed) from Borrowers in lieu of foreclosure of
its Mortgage provided that all of the terms and
conditions of this agreement are fulfilled. Lender
agrees that, upon acceptance of the Deed in Lieu of
Foreclosure, Borrowers will be released from all
further liability pursuant to the Note and/or Mortgage.
This release of liability also includes the guarantors
of the debt.
...
9. 	The execution by Borrowers of the deed will
terminate the mortgagor-mortgagee relationship between
Borrowers and Lender. ...
10. 	Upon the execution of the deed by Borrowers and
acceptance thereof by Lender, and the receipt by Lender
of a merchantable title to the above-referenced real
property, free and clear of liens or encumbrances,
Borrowers shall be released from all liability pursuant
to the Note and Mortgage and Lender will deem the Note
to be paid in full.
...
15. 	...[T]his agreement contains the entire agreement
of the parties. ...
16. 	It is specifically acknowledged and agreed between
the parties hereto that all personal property and or
fixtures including with [sic; without] limitation ...
is and shall be the sole and exclusive property of HDSB
as of the date of this agreement. ...
Facts 38 and 39 demonstrate that the Special Warranty Deeds
referenced in the Agreement were delivered, accepted, and
recorded by HDSB. 	The Borrower and guarantors were released from
all liability and HDSB was deemed to be paid in full. 	The
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Page -28-
Agreement states that it is the entire agreement of the parties.
The Agreement included property other than the real estate in
paragraph 16 but made no reference to the funds on deposit with
the Court. 	The Court must interpret this to mean that the funds
were specifically excluded from the Agreement (i.e., their
turnover to HDSB was not a condition of release) and the debt is
now paid in full.
Furthermore, even if HDSB could prevail on any of its other
arguments, the Deed in Lieu Agreement trumps them all by
cancelling the debt obligations without reference to the funds.
The Court will enter an Order in favor of K-Ram.
3. 	HDSB has no lien on the proceeds in the Court Registry.
HDSB had a valid lien on the real estate but the Court finds
that this lien did not extend to the funds HDSB allowed to be
deposited into the Cibola County Court Registry. 	HDSB argues
that its mortgage includes the term “statutory mortgage
condition” and that this term automatically creates a lien on
proceeds. 	The Court disagrees. 	Section 47-1-41 applies only “in
the event any of the following terms, conditions or obligations
are broken by the mortgagor, ...” 	The undisputed facts do not
establish that Debtor had broken any terms, conditions or
obligations when Lot 7 was sold on August 20, 2008. 	The only
evidence before the Court is that HDSB filed its foreclosure on
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Page -29-
February 6, 2009. 	The Court cannot find that the statutory
mortgage condition was relevant to the sale of Lot 7.
Therefore, if HDSB were to have a lien on these funds, it
would have to be established by other statutes or by case law.
HDSB cited neither, and the Court has found none. 	Cf. Uniform
Commercial Code § 9-315(a), N.M. Stat. Ann. § 55-9-315(a):
Except as otherwise provided in Chapter 55, Article 9
NMSA 1978, the Farm Products Secured Interest Act and
in Subsection (2) of Section 55-2-403 NMSA 1978:
(1) a security interest or agricultural lien continues
in collateral notwithstanding sale, lease, license,
exchange or other disposition thereof unless the
secured party authorized the disposition free of the
security interest or agricultural lien; and
(2) a security interest attaches to any identifiable
proceeds of collateral.
But Article 9 of the Uniform Commercial Code does not apply to
“the creation or transfer of an interest in or lien on real
property...” 	N.M. Stat. Ann. § 55-9-109(d)(11). 	Accord Lin v.
Ehrle (In re Ehrle), 189 B.R. 771, 774-75 (9 th Cir. BAP 1995)
(Under California law, seller under a recorded deed of trust has
no security in proceeds of sale. 	Under the UCC a security
interest extends to cash proceeds of personal property but the
UCC excludes real estate transactions.) 	Compare In re Zych, 379
B.R. 857, 861 (Bankr. D. Minn. 2007)(A perfected interest in
cattle does not perfect an interest in a lawsuit for conversion
of the cattle.)
Furthermore, under the facts of this case, it appears that
HDSB waived its security interest in the proceeds when it
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Page -30-
released those funds to the state court. 	Clovis Nat’l Bank v.
Thomas, 77 N.M. 554, 561, 425 P.2d 726, 730 (1967). 	(When a
creditor allowed sale of collateral and did not collect the
proceeds directly, it lost its security interest and must look to
the debtor personally for payment.)(Personal property case.)
Accord Charterbank Butler v. Central Cooperatives, Inc., 667
S.W.2d 463, 466 (Mo.App. 1984)(Same.).
4. 	Even if HDSB had a lien, it was unperfected.
It is clear to the Court that the lien on proceeds that HDSB
had after the sale of Lot 7, if any, was not secured by real
estate. 	The mortgage was released on Lot 7 and it was sold.
Therefore, any collateral must be personal property or some right
in action. 	HDSB did not file a financing statement.
5. 	The Registry Funds are part of the Debtor’s estate.
HDSB argues that when it transferred the funds to the state
court and obtained an Assignment of Any and All Excess Proceeds
it retained ownership of the funds to the exclusion of Debtor.
It also argues that after the transfer of funds it remained in
constant control and constructive possession. 	And, it argues
that the Assignment demonstrates that all parties intended that
Debtor would obtain no interest in the funds.
First, factually, HDSB transferred funds into a court
registry fund associated with a case between Debtor and Westar;
HDSB did not intervene. 	The Assignment was not filed in that
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12 That section provides:
Property in which the debtor holds, as of the
commencement of the case, only legal title and not an
equitable interest, such as a mortgage secured by real
property, or an interest in such a mortgage, sold by
the debtor but as to which the debtor retains legal
title to service or supervise the servicing of such
mortgage or interest, becomes property of the estate
under subsection (a)(1) or (2) of this section only to
the extent of the debtor's legal title to such
property, but not to the extent of any equitable
interest in such property that the debtor does not
hold.
Page -31-
case. 	Fact 22. 	To the world, it would appear that the funds
belonged either to Debtor or to Westar. 	Nothing in the 	record
showed otherwise. 	And, the very existence of the Assignment
demonstrates that the parties contemplated that funds might fall
into Debtor’s hands and, if they did, Debtor had a duty to pay
them to HDSB. 	This looks like a loan of money to the Debtor, to
be used for a specific purpose, and a retained security interest
in any amount left over after satisfying that purpose. 	And, HDSB
would have an unliquidated claim for a refund of any money that
Westar did not receive. 	Pre-bankruptcy there may have been no
equity in the funds, but this is still property.
The only other way these funds would not be property is if
the Debtor held them in a constructive trust. 	See 11 U.S.C. §
541(d) 12 . 	See also Hill v. Kinzler (In re Foster), 275 F.3d 924,
926 (10 th Cir. 2001)(Citations omitted.) 	State law governs
constructive trust issues, and the person asserting the trust has
the burden to establish the trust requirements. 	Id. 	Before
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13 Incidentally, some courts require that the constructive
trust be declared by another court prepetition for it to be
enforceable. 	See Vineyard v. McKenzie (In re Quality Holstein
Leasing), 752 F.2d 1009, 1013-14 and n.10 (5 th Cir. 1985). 	That
(continued...)
Page -32-
imposing a trust, the Court should examine the equities of the
situation, including examining whether it would be equitable to
allow elevation of the claims of the creditor claiming the trust
over other similarly situated creditors. 	Id. at 928. 	See also
Torres, M.D., P.C. v. Eastlick (In re North American Coin &
Currency, Ltd.), 767 F.2d 1573, 1575 (9 th Cir. 1985), cert.
denied, 475 U.S. 1083 (1986) (“We necessarily act very cautiously
in exercising such a relatively undefined equitable power in
favor of one group of potential creditors at the expense of other
creditors, for ratable distribution among all creditors is one of
the strongest policies behind the bankruptcy laws.”)
Courts addressing the constructive trust issue find that
property claimed to be held in constructive trust actually is
bankruptcy estate property unless or until the creditor proves
the existence of the constructive trust. 	United States v.
Brimberry, 779 F.2d 1339, 1348 (8 th Cir. 1985)(“Until a court
grants the victim such a constructive trust remedy, however, the
victim merely has a right to seek such a remedy ... but the
existence of such a right does not establish an interest in the
specific property.”) 	The burden of establishing the trust is on
the creditor. 	Kinzler, 275 F.3d at 926 (citation omitted). 13
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13 (...continued)
did not happen in this case.
14 And really, not even that, given that by virtue of the
Deed in Lieu Agreement, discussed below, HDSB gave up any further
claims it might have had.
Page -33-
In this case, the Court does not find that imposing a
constructive trust on the Registry Funds would be equitable.
HDSB, a bank, finds itself as an unsecured creditor 14 because it
did not perfect its interest, not because Debtor committed a
wrong.
Furthermore, it is doubtful that on the evidence before the
Court a constructive trust would be imposed. 	Under New Mexico
law,
[a] constructive trust, on the other hand, except to
the extent it may arise out of an express trust or the
attempt to create one, is not imposed to effectuate the
intention of the parties, but is imposed to prevent the
unjust enrichment that would result if the person
having the property were permitted to retain it. [5 A.
Scott & W. Fratcher, The Law of Trusts (4th ed. 1989)]
at §§ 404.2, 462.1. 	The circumstances where a court
might impose such a trust are varied. 	They may involve
fraud, constructive fraud, duress, undue influence,
breach of a fiduciary duty, or similar wrongful
conduct. 	Id. at §§ 404.2 and 462; see, e.g., In re
Estate of McKim, 111 N.M. 517, 807 P.2d 215 (1990);
Garcia v. Marquez, 101 N.M. 427, 684 P.2d 513 (1984).
When the court imposes a constructive trust the person
holding title to the property is subject to an
equitable duty to convey the property to another person
as a remedy.
Aragon v. Rio Costilla Co-op. Livestock Ass'n, 112 N.M. 152, 156,
812 P.2d 1300, 1304 (1991). 	In some situations, the mere
existence of a fiduciary or confidential relationship may be
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Page -34-
sufficient to impose a constructive trust. 	Homes by Marilynn v.
Robinson (Estate of McKim), 111 N.M. 517, 522, 807 P.2d 215, 220
(1991). 	But, the facts in this case do not suggest any improper
behavior by Debtor or anything except a debtor-creditor
relationship between the parties. 	The subject funds will be paid
to the unsecured creditors of K-Ram. 	It is difficult to find
unjust enrichment when the disposition of these funds results
from the operation of a bankruptcy statute.
HDSB’s citation to Admin. Comm. of the Wal-Mart Assocs.
Health & Welfare Plan is not persuasive. 	In that case, the Court
of Appeals for the Tenth Circuit discussed the differences
between “legal” and “equitable” relief. 	393 F.3d at 1121. 	The
Employee Retirement Income Security Act of 1974 (“ERISA”) allows
only “appropriate equitable relief” in certain circumstances.
Id. 	The Tenth Circuit referred to Great-West Life & Annuity Ins.
Co. v. Knudson, 524 U.S. 204, 213 (2002) for the proposition that
a plaintiff could seek restitution in equity, in the form of a
constructive trust or equitable lien, only when money or property
could be identified as belonging in good conscience to plaintiff
and when it could clearly be traced to defendant’s possession.
Wal-Mart Assoc., 393 F.3d at 1121.
In our case, the funds are traceable. 	But, the Court cannot
say that in “good conscience” the funds belong to HDSB. 	The
Court found above that HDSB had only a lien on the funds, and
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that the lien was unperfected. 	Therefore, as a matter of
bankruptcy law, those funds belong to the Debtor and, to the
extent HDSB has any claim at all, it is an unsecured claim to be
treated equally with other unsecured claims.
Wal-Mart Assoc. is further distinguishable because it was
basically a two-party case governed by equitable principles. 	The
bankruptcy case, on the other hand, is governed by statute and
involves all of the creditors. 	Bankruptcy laws have always
struck down “secret liens”, see Butner v. United States, 440 U.S.
48, 54 n.8 (1979)(Citing § 110(c) of the Bankruptcy Act as
allowing a trustee to strike down secret liens), in furtherance
of the policy of equal treatment of similarly situated creditors,
see Howard Delivery Service, Inc. v. Zurich American Ins. Co.,
547 U.S. 651, 655 (2006)(“[W]e are mindful that the Bankruptcy
Code aims, in the main, to secure equal distribution among
creditors.”) 	See also In re Foster, 275 F.3d at 926 (Stating
that Court should first consider whether circumstances of case
allow applying equity to elevate one class of creditors above
another.)
Finally, HDSB’s contention that the funds were under its
control or constructive possession is irrelevant. 	Control and
possession are not relevant to perfection of security interests
in commercial tort claims. 	Perfection by possession applies only
to tangible negotiable documents, goods, instruments, money or
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15 That section provides:
[A] secured party may perfect a security interest in
tangible negotiable documents, goods, instruments,
money or tangible chattel paper by taking possession of
the collateral. 	A secured party may perfect a security
interest in certificated securities by taking delivery
of the certificated securities under Section 55-8-301
NMSA 1978.
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tangible chattel paper. 	N.M. Stat. Ann. 1978 § 55-9-313 15 .
Perfection by control applies only to investment property,
deposit accounts, letter-of-credit rights, electronic chattel
paper and electronic documents. 	N.M. Stat. Ann. 1978 § 55-9-
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16 That section provides:
(a) A security interest in investment property, deposit
accounts, letter-of-credit rights, electronic chattel
paper or electronic documents may be perfected by
control of the collateral under Section 55-7-106,
55-9-104, 55-9-105, 55-9-106 or 55-9-107 NMSA 1978.
(b) A security interest in deposit accounts, electronic
chattel paper, letter-of-credit rights or electronic
documents is perfected by control under Section
55-7-106, 55-9-104, 55-9-105 or 55-9-107 NMSA 1978 when
the secured party obtains control and remains perfected
by control only while the secured party retains
control.
(c) A security interest in investment property is
perfected by control under Section 55-9-106 NMSA 1978
from the time the secured party obtains control and
remains perfected by control until:
(1) the secured party does not have control; and
(2) one of the following occurs:
(A) if the collateral is a certificated security,
the debtor has or acquires possession of the
security certificate;
(B) if the collateral is an uncertificated
security, the issuer has registered or registers
the debtor as the registered owner; or
(C) if the collateral is a security entitlement,
the debtor is or becomes the entitlement holder.
Page -37-
314 16 . 	Neither of these sections provide for perfection in
commercial tort claims.
CONCLUSION
For all the reasons stated, the Court will enter an Order
granting Debtor’s Motion for summary judgment and denying HDSB’s
Cross Motion.
Honorable James S. Starzynski
United States Bankruptcy Judge
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Date Entered on Docket: 	March 22, 2011
Copies to:
Christopher M Gatton
Law Office of George Dave Giddens, PC
10400 Academy Rd., #350
Albuquerque, NM 87111
William F. Davis
6709 Academy NE, Suite A
Albuquerque, NM 87109
Leonard K Martinez-Metzgar
Office of the UST
PO Box 608
Albuquerque, NM 87103-0608
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