Haynes and Boone's Newsroom

Texas Legislative Update: Open Roads Ahead: Texas Legislature Clears the Jam
11/18/2009
Laurie Grant Lang

This past summer, the Texas Legislature narrowly averted a crisis in the Texas auto loan securitization market with the passage of Senate Bill 1592, which overturned an opinion entered on November 28, 2008, by Judge Leif Clark, United States Bankruptcy Court for the Western District of Texas, in the case In re Clark Contracting Services, Inc. See Clark Contracting Servs., Inc. v. Wells Fargo Equip. (In re Clark Contracting Servs., Inc.), 399 B.R. 789 (Bankr. W.D. Tex. 2008); see also Jewesson, Michael D., Lone Star State Wrestles with Car Loan Fate, available at http://www.americansecuritization.com/uploadedfiles/TexasAutoABS.pdf.

The Decision: Clark Contracting Services, Inc. v. Wells Fargo Equipment Finance (In re Clark Contracting Services, Inc.), 399 B.R. 789 (Bankr. W.D. Tex. 2008)

In Clark Contracting, Judge Clark set forth the issue as: What, if anything, does Chapter 501 of the Texas Transportation Code, i.e., the Certificate of Title Act, require of a lienholder to perfect an assigned lien? In this case, Wells Fargo Equipment Finance had liens on some of the debtor’s vehicles. Wells Fargo had obtained the liens by assignment from CIT Group/Equipment Financing Inc. The debtor, Clark Contracting Services, Inc., sought to use its strong-arm powers under § 544(a) of the Bankruptcy Code to avoid Wells Fargo’s liens. Wells Fargo acknowledged that its liens were subject to the Certificate of Title Act, but argued that the Certificate of Title Act did not expressly require recordation of assigned liens to continue perfection.

Excerpted from the State Bar of Texas Bankruptcy Law Section Newsletter, Vol. 9, No. 2, November 2009. To read the full article, click on the PDF linked below.