May it please the court. My name is Nicholas Brown. My co-counsel is James Angel. We represent Branch Banking and Trust Company who is the appellant in this case. And this morning we're asking the court to reverse the district court's decision because North Carolina subcontractors do not have an interest in property prior to serving notice of claim of lean on property. Therefore the exception to the automatic stay does not apply for them. Does this case rise and fall on whether or not there is such an interest? Yes, I think both parties agree that that is the key issue here whether there is an interest in property as of the petition date in the hands of the subcontractors. Now this case started with a bankruptcy filing by a general contractor. As the court is aware that at the time of the bankruptcy petition Branch Banking and Trust Company had a properly perfected lean on receivables among other things. And at the time of petition the subcontractors had performed work for the benefit of the general contractor. If the court had removed the automatic stay, if the court had done so, could they have perfected their interest? The court has the ability to remove the automatic stay. I said if the court had removed it, could they then have perfected their interest? They could have if the court had lifted the stay specifically to allow the subcontractors to perfect an interest in property. So the answer is if the court had lifted the stay, they would go into the court and said what they wanted to do and the court had lifted the stay, then your answer is they could have perfected. Yes, but I believe the court would have needed to decide that the exception of the stay did not apply in order for that to happen. When the petition was filed, obviously the automatic stay was triggered and it is important to realize the purpose of the automatic stay. That is to prevent a dismemberment of the bankruptcy estate by creditors and to allow the debtor a breathing spell. When you just said the court would have to determine that the state did not apply, you mean then the first part of what Judge Shidt asked would not happen, or was he wouldn't lift the stay? Well, that's exactly right. The exception of the stay would have to not apply. But if it lifted the stay, then you could then be perfect. But I think the court would have to decide that the exception did not apply first, then the court could lift the stay and allow the subcontractors to perfect their interest. Sorry if I wasn't clear about that. Now, notably, the bankruptcy court in this district probably would be
... What is it in the word interest, in the word interest, that under the right circumstances could be perfected? Isn't there have to be an interest that's preceded to perfecting that interest? That's what this case boils down to you. That's a great question, Your Honor. What is the interest in property? And I didn't say all that. I said, doesn't there have to be an interest before any such interest can be perfected? Well, it doesn't follow that that's correct. There must be an interest in property to perfect. You can't perfect something if there's no interest. So we have to identify what is the interest in property if any. And when you answered my question about could be perfected, you suggest that interest issue has to be defined before you get to perfecting. That's right. The interest must be in place at the time of petition. So tell me about the type of interest or lean this here. It's not your garden variety, lean is it? I mean, isn't it one that's created by statute? It certainly is, Your Honor. And it's not your garden variety interest in a lot of ways. It's helpful to refer to other cases that have dealt with this issue, for example, Maryland Glass, which was determined by this court, where we had an interest in property held by the county for property taxes. And in that case, the court determined that the county's interest in real property was ever present, longstanding, and without question, because it is certain that the county will have an ability to charge taxes against real property every year. That happens every year at the same time. You can't avoid it. And that sounds like a good analogy, but I'm trying to at least understand the type of lean here. This is a supplier's type lean material, maintenance lean, it's a material management leaner and mechanical lean
. And under the noir liner version of this, essentially, someone who supplies materials to a construction site has a lean, so to speak. Well, that can be later perfected. And with the statute, provides us a remedy, subcontractors, who have furnished labor and materials. They have a right to obtain a lean. But there's a difference between the mere right to obtain a lean and actually having the lean. And it's based on the specific provision of these supplies. I mean, there's a reason for it. You know, you know, I mean, who would give a contractor a set of bricks to put on a house if you didn't have some assurance that you were going to get your money other than I'm going to get some money in the future and give it to you. I mean, just bankruptcy. It also is the fact that a lot of times you just don't know what goes on on construction site. So there's this provision. Well, let me ask you, because I think I see something that I think is interesting. At least I want to know, because you're representing BNT, which I take it as a cured creditor. That's correct, Your Honor. And so if it goes in the direction you are asking, and then these creditors, so to speak, put in an automatic state situation, and if ultimately they were not able to recover, then I take it BNT could then also seek recovery from the secured property. And that is an important distinction here. Which would include those bricks I just talked about. And that, the bank does not have a lien on the property here. The bank has a lien on property that the debtor has it office on, but this is not the property being improved. There is no lien on the owner's property. All right
. The only lien of the banks that comes into play here is the lien on receivables. And that is the issue here. The construction, well, there's a construction loan where the bank financed construction for the debtor. And in this way, the bank actually provided it to the debtor just like the subs are doing. You asked about, you know, don't subs provide credit to the debtor. So did the bank in the form of construction financing. And so there have been no bankruptcy who would take first between these people who perfected and BNT. And at the time of the petition, I didn't say anything about petition. I said if they had not been bankruptcy. Okay. You painted a picture, which I thought was the case, that really both people may have a claim at certain points on those funds. Because this is, I take it, this is something being built on property owned by another. That's right. That would be another, wouldn't it? That would be another, right? I'm just done by that. I said the property is owned by another. A third party, that's correct. A project owner who's not a party to this appeal. That's why I said another. Right. Okay. So owned by another
. And so the bill is in least in this case, it's not a typical material, a workman's lien on a house that you build on somebody's property, they own the property in the house. This is what do you do with the building that's being placed on there and the funds coming in and going out of the contractor's operation to construct that building? That's correct. But if there had been no bankruptcy, what would happen on an earthquake on a law as between the subcontractors and B&T on those funds? Sure. The bank slain on receivables is properly perfected. Yes. But if this had been perfected, it would have been perfected. Subcontractors have a priming statue under the statue that would allow them to take over BVNT's interest. So you think bankruptcy changes North Carolina law? I don't think that it changes North Carolina law. I think that it freezes the rights of creditors. Let me stop for a second. Can they perfect now? Can they perfect now the subcontractors? They have because they have an order in the bank or something. No, no, no, I'm not talking about that. That's what you're looking. That's what you're looking for. But under bankruptcy law, do you think we went back to one of the first set of questions you had no, they couldn't perfect it unless the court decided that they had an interest in property. If the court had allowed them to perfect, that's the only way that they would be in the same status outside of bankruptcy and in bankruptcy, isn't it? Because you just said, I don't want to be too confusing, but you said no bankruptcy, they would be allowed to perfect and then the subcontractors would really take first over the bank. That's correct. But bankruptcy changes that in your opinion. It does, you're honored. And it changes it for what reason? Some statutory work? That's the issue we have to deal with there, whether bankruptcy changes it. Well, whether it stops the subcontractors from taking steps to obtain a lien
. What word? What word? What word a word in the statute or some statute would say you're right and bankruptcy stops it. I want to focus on those words. Okay. It's the accept or the, sorry, the automatic stay. No, no, no, what word? The act to create perfect or enforce a lien on property of the estate is prohibited by the automatic stay. That's 362A4. And the stay is broad and encompassing. So what is the second? All liens are prohibited, all liens? If you don't have a lien at the time of the bankruptcy case, you cannot take steps to obtain a lien. Subsequent. Well, but I'm looking at North Carolina law and I could have the wrong version of the statute, but it's 44A-18A. It says the first tier subcontractor who furnish labor materials or rental equipment at the site of the improvement shall have a lien upon funds. Okay. We may have a problem here because you may have a updated version of the statute. And this is important. The law was changed after this. After this, after under the new law, under the new law, it's a completely different house under the new law you lose. And I'm not, I haven't analyzed the new law, Your Honor. It's going to be a harder case for the bank, for sure. So you don't want to admit that you lose? Well, I just haven't, I haven't analyzed the new law. Well, you're the expert on it. I'm not, I'm determined by an expert on it
. I'd like to think I'm going to be an absent to bankruptcy you lose. Under the new law you lose, but with the bankruptcy, you say you win. The bankruptcy changes at all as long as it's under the old law. And, and, and, and the right reason is that your position and what do we boils down to? Under the old law. Under the, that's what we boil at where we are here. That's correct. Under the, under the old law, absent to bankruptcy, you lose. Under the new law, even with the bankruptcy, you lose. Under the old law with the bankruptcy, you win. And you win. That's your position. Except that. You were assuming that under the bankruptcy turns to all upside down as long as you got the old law. You were assuming, Your Honor, that the, if there was no bankruptcy, the subcontractors would have filed leans by serving notice of claim-wing unfunce. That didn't happen. The bankruptcy served as an invitation to all subcontractors who were dealing with the general hey. Yeah, that's a pretty fair presumption. And even under the law as you understand it, that if they didn't perfect, they would lose their interest. So we presume they act not of their self interest. Under what scenario would they not perfect their interest to get priority outside of bankruptcy? And we don't know, well, we do know that they didn't take the steps necessary to do that. Let me ask this, would you advise any claim you had under the scenario not to file to perfect? Your Honor, I would have it after Harrelson utilities, which would you have done that to say don't worry
. Of course not, I didn't think you would. But your Honor, after Harrelson utilities, these subs had noticed that that was the law in the eastern New York City of North Carolina. But these very subcontractors did not take steps to obtain a lean on funds. They knew about the law. Tell me now, tell me why. Under the prior law, you win. Why is that so? The Harrelson utilities case was on all fours with this case, except the judge's small determined. I'm going to ask you to describe. Does that case control us? It's not controlling us. So that's not why you win. No, but I do urge the court to look at you. I didn't ask you that though. I said tell me why you win. That may be a fine decision, but it didn't control us, does it? Okay, you have to convince us. And the reason that the bank wins here, Your Honor, is because of plain language of North Carolina, Leela, does not provide for an interest in property. And you were asking about what is it, provide for what? And you were asking about what it reads. The old law starts with in 44A18, upon compliance with this article, first-year subcontractor who furnishes labor materials, she'll be entitled to a lean on funds. Later on in 44A18, it says, lean upon funds, granted under this section, is perfected upon the giving of notice of claim of lean on funds and shall be effective upon the obligers receipt of novus. That lean, let's look at that. That lean upon funds, what does that operate over? Does the interest that creates the lean upon funds, the underlying factual basis, is that made up? What does that operate on? Well, let's general law, you get a lean when you have an interest and you try to protect that interest. And you serve the notice
. No, no, no, no, no, no, I'm not talking about perfecting it. I'm just asking, any way that you read that, I'm just asking this question. You think that there's nothing at all that exists in any fashion vis-a-vis or between the subcontractor and the contractor. There's nothing that exists except until the notices filed and the lean's created, that lean is the interest itself or does that lean represent something that is due? Yeah, what the subcontractor has with the general is a mere contractual right to payment, acclaim or a debt. And that is not an interest in property. The property that we're talking about today is in the hands of that another party, the third party, funds in the hands of the obligor. And until a lean is obtained, there is no ability, the subcontractor, to attach any interest to those funds. And your owners, I see that I'm out of time. Thank you. You've saved a few minutes. You've saved a few minutes for a review. I've seen five minutes thinking. Yeah. You missed a wolf? You don't agree with all that, do you? Except for the part about the bank losing. William J. Wolf here on behalf of the creditor of Pellies. And it is certainly the creditor of Pellies' position that the bank would lose under the new law as an act. I believe your owner was reading from the law existing at the time of the leans at issue in this case. I don't think you have the new statute because under the old law, the bank loses as well for the reasons very clearly analyzed and decided by both the bank rep's e-court and the district court in the case at bar. So you know Judge Small. I do
. He's been around a while and he wrote this very long opinion in Harrison. That's against you. Tell me why is he wrong in that opinion? Because he looked at when the lean became effective, when it became effective as opposed to whom it became effective against. And that was the thing that threw me for a long time because he's an extremely knowledgeable bankruptcy judge. As is Judge Leonard? As is Judge Leonard, absolutely. And in reading it, I kept thinking, you know, certainly they've made a mistake in Carolina lean law here because our lean law is hopelessly confusing. And that must be the origin of the error. And in fact, it isn't. It was actually under the bankruptcy code and analyzing the exception to the stay. And it's a simple black and white test. It's, you know, you don't look at the issue of can you do it or can't you do it initially? You analyze it by saying, all right, if you perfect, as all of the appellate creditors have in the case at bar that we have now perfected, really we could have perfected before the bankruptcy court said that we didn't have to ask for bankruptcy court permission. Legally, we could have perfected. And then you look at that point in time, who the lean is effective against. That's under the exception to the stay. If it's effective against a prior perfected security interest, then it is within the exception. And BB&T is a perfect example. There's no question that they had their UCC one filed way before the appellate creditors perfected their lean on the funds. But there's also no dispute that upon that perfection, we primed BB&T and we were in front of BB&T. So we meet the expressed statutory provisions. That the issue is at the question of the automatic stay. Now there's no question that you're saying
. In terms of whether they go before BB&T or not, I thought we were dealing with the automatic stay provision because the perfection hadn't been put in place before the bankruptcy was filed. No, I mean the whole case turns on whether we were entitled to perfect post petition. Both questions on whether or not that's why I asked the other side. I think you both agree the question really turns on whether or not the subcontractors had an interest in property. Exactly. Before the bankruptcy filing. That's exactly right. If you did, I know the other side said well the court would have to determine that but if you did, then the court has determined that you do and perfection would follow as a matter of course. Exactly. The allowance to perfection. So you agree the whole matter turns on whether or not your clients had an interest before the petition was filed. Exactly and when Mr. Brown was just up here, he said a mere right to payment is not property. Well that's all the bank head too. I mean that's all. You look at the bankruptcy petition. This debtor had something like $7 million worth of assets. Five and a half million dollars worth of them are the receivables on their jobs. That's the ultimate, you know, the 90% or 85% of the debtor's assets. There's this, this case, when you normally look at a bankruptcy case, the question sort of comes who's secured, who's not secured and it's sort of a battle between secured and non-secured. In this case, or unsecured, in this case, is this just a battle between secured if you get your, if you win? And it's not much of a battle because we clearly win. No, I'm saying it's just too secured credit is fighting. I'm just asking this question. Maybe you don't know. Would the determination of that affect unsecured in any way in this case? Yes, because if we're included and secured rather than unsecured, we're going to get paid, you know, I'm talking about, I'm talking about if you're entitled to that. If you're not entitled to that, that's not money. Is the bank going to get it? Is it excess money? The bank would get it. You understand my question then? It's not a question. We'll get back to the argument. This is not a question of how much money the pool of months secured creditors will get. Is the question of who will be in that pool? Exactly. It's whether my clients are unsecured or secured. And why is it that you are secured? Why is it that you have an interest? I'm looking to North Carolina law to decide whether or not you have an interest. And you say it is because you do have a lien, but that lien, you say, is based on something, which is the right to payment. But you say that's the same theory that the other secured credit you want to be battling, although you know you'll win that battle. That's the basis for their claim, too, a contractual right to payment. But ours is more than just a contractual right to payment, because we have a statutory right to payment for the materials that we put on these projects that originates in the North Carolina Constitution. What materials did you all put out there? What did you do? Bricks? Is that what those don'ts win? The Hanson-Agergitz supplied stone and concrete. RW more, these are my three clients. There's other appellies that I don't directly represent. RW more supplied equipment and couch oil supplied the fuel to run the equipment. The equipment to do what? To build the projects
. No, I'm saying it's just too secured credit is fighting. I'm just asking this question. Maybe you don't know. Would the determination of that affect unsecured in any way in this case? Yes, because if we're included and secured rather than unsecured, we're going to get paid, you know, I'm talking about, I'm talking about if you're entitled to that. If you're not entitled to that, that's not money. Is the bank going to get it? Is it excess money? The bank would get it. You understand my question then? It's not a question. We'll get back to the argument. This is not a question of how much money the pool of months secured creditors will get. Is the question of who will be in that pool? Exactly. It's whether my clients are unsecured or secured. And why is it that you are secured? Why is it that you have an interest? I'm looking to North Carolina law to decide whether or not you have an interest. And you say it is because you do have a lien, but that lien, you say, is based on something, which is the right to payment. But you say that's the same theory that the other secured credit you want to be battling, although you know you'll win that battle. That's the basis for their claim, too, a contractual right to payment. But ours is more than just a contractual right to payment, because we have a statutory right to payment for the materials that we put on these projects that originates in the North Carolina Constitution. What materials did you all put out there? What did you do? Bricks? Is that what those don'ts win? The Hanson-Agergitz supplied stone and concrete. RW more, these are my three clients. There's other appellies that I don't directly represent. RW more supplied equipment and couch oil supplied the fuel to run the equipment. The equipment to do what? To build the projects. These are what single family homes? No, typically this was more like developing a subdivision for developers, usually the scenario. There were different scenarios, but typically the debtor was in the business of developing land, putting the utilities underground, and then putting the utilities in. Before they built the home. Right. And then the developer would pay. And again, I think that's important. The question came up to BB&T provide the financing. And I think it was misstated that they did. BB&T did not provide construction financing for any of the projects that the creditor appellies placed their notices of leans on. They just provided general credit to the debtor, mostly secured, secured by its office building, and secured by its equipment, and secured by its vehicles. So BB&T was not providing the construction financing really. The interim construction financing was effectively provided by the creditor appellies because they knew under North Carolina law that they had a super lean priority and that they would ultimately get paid if they acted in a timely manner. And there's much to do about the fact that they didn't file their leans or perfect their leans before the bankruptcy petition. But in this court, and it's been conceded in oral argument just a few minutes ago, all of the creditor appellies were timely in the assertion of their perfection. Even though it was post-petition, that was timely, and it would immediately attach to whatever money was due at that time and would become due in the future. Well, I can understand the policy argument, which I don't think is the first level we look at. But the policy argument is if you're not careful, everybody ever delivers anything to any side that's going to immediately run and perfect their interests, their lean in that property. And then you're going to have other creditors looking at that general contract that going, that guy must be on the verge because everybody's having a file against him. They're trying to go business journal every week. But let me ask you this question. I'll take you back to something you wrote in your brief that said page four
. These are what single family homes? No, typically this was more like developing a subdivision for developers, usually the scenario. There were different scenarios, but typically the debtor was in the business of developing land, putting the utilities underground, and then putting the utilities in. Before they built the home. Right. And then the developer would pay. And again, I think that's important. The question came up to BB&T provide the financing. And I think it was misstated that they did. BB&T did not provide construction financing for any of the projects that the creditor appellies placed their notices of leans on. They just provided general credit to the debtor, mostly secured, secured by its office building, and secured by its equipment, and secured by its vehicles. So BB&T was not providing the construction financing really. The interim construction financing was effectively provided by the creditor appellies because they knew under North Carolina law that they had a super lean priority and that they would ultimately get paid if they acted in a timely manner. And there's much to do about the fact that they didn't file their leans or perfect their leans before the bankruptcy petition. But in this court, and it's been conceded in oral argument just a few minutes ago, all of the creditor appellies were timely in the assertion of their perfection. Even though it was post-petition, that was timely, and it would immediately attach to whatever money was due at that time and would become due in the future. Well, I can understand the policy argument, which I don't think is the first level we look at. But the policy argument is if you're not careful, everybody ever delivers anything to any side that's going to immediately run and perfect their interests, their lean in that property. And then you're going to have other creditors looking at that general contract that going, that guy must be on the verge because everybody's having a file against him. They're trying to go business journal every week. But let me ask you this question. I'll take you back to something you wrote in your brief that said page four. I'll read it to you. Thank you. Because I don't understand this. You say if those in co-ate unperfected lean rights upon perfection would not be effective over an intervening bona fide purchaser for value, then they would fail this federally mandated test and would not be deemed, quote, an interest in property is used in 11 USC 362B3. They're not right, is it? It actually is, but I will say that that's like a double or triple negative and written that way. My question though, it is still an interest in property, isn't it? It's just not an interest in property that's effective under the code. Because the term in 362 is just as permits, well, that's an interest in property to the extent that. Well, it has to be an interest in property to bring us within the exception to the automatic stays so that we can perfect. And so if it's not, I mean, actually this much, are there interest in property, interest in property outside the bankruptcy code that may not be protected by the exception? It seems to me that sounds certainly. It sounds to me like, I know you make the argument, step one is it an interest in property in step two, whatever that is, general applicability. And you say, well, let's look at step two first, but it seems to me step one is the right step to look at first. Because it doesn't have to be an interest in property first. And then you decide whether or not it's a type of interest in property that's protected under under your argument. Exactly. That's me an interest in property. And then the way you determine whether it's protected under the exception is the priority given it after perfection. By way of example, no, no, no, I'm reading an example. 362 doesn't define an interest in property, does it? It just says, no, but it talks about like an interest in property, property in the edges. So does it define interest, the phrase interest in property? No, it does not. Does anything in the bankruptcy code do that? Well, it talks about property of the estate. And I think that would probably be a good place to look for property
. I'll read it to you. Thank you. Because I don't understand this. You say if those in co-ate unperfected lean rights upon perfection would not be effective over an intervening bona fide purchaser for value, then they would fail this federally mandated test and would not be deemed, quote, an interest in property is used in 11 USC 362B3. They're not right, is it? It actually is, but I will say that that's like a double or triple negative and written that way. My question though, it is still an interest in property, isn't it? It's just not an interest in property that's effective under the code. Because the term in 362 is just as permits, well, that's an interest in property to the extent that. Well, it has to be an interest in property to bring us within the exception to the automatic stays so that we can perfect. And so if it's not, I mean, actually this much, are there interest in property, interest in property outside the bankruptcy code that may not be protected by the exception? It seems to me that sounds certainly. It sounds to me like, I know you make the argument, step one is it an interest in property in step two, whatever that is, general applicability. And you say, well, let's look at step two first, but it seems to me step one is the right step to look at first. Because it doesn't have to be an interest in property first. And then you decide whether or not it's a type of interest in property that's protected under under your argument. Exactly. That's me an interest in property. And then the way you determine whether it's protected under the exception is the priority given it after perfection. By way of example, no, no, no, I'm reading an example. 362 doesn't define an interest in property, does it? It just says, no, but it talks about like an interest in property, property in the edges. So does it define interest, the phrase interest in property? No, it does not. Does anything in the bankruptcy code do that? Well, it talks about property of the estate. And I think that would probably be a good place to look for property. To look for interest in property. No, I don't think it does. And 362 doesn't say it is an interest in property. If it says you may a subcontractor may proceed quote with an act to perfect or maintain a continue the perfection of an interest in property to the extent. But that's not defining an interest in property. That did not say if you have an interest in property under 362, you may do certain things with that interest in property. And when you look at 546, it doesn't say what an interest in property is. It says that the perfection of an interest in property to be effective against another entity that tells you what type of interest in property is effective for certain priorities. But none of that defines what an interest in property is. And I'll ask you one more time now that you go on. But it seems to me that's not correct to say that it would fail as an interest in property. It might be that it would fail protections or it would fail to have the status. But it doesn't seem to me it would say it's not an interest in property. You see my point? Absolutely and I agree your honor. It would not fall. It would not be an interest in property that could be perfected post petitions. It would still be an interest in property. Sort of like if this debtor had another bank that had given a security interest security agreement too and that bank had not yet perfected by filing a SEC fund. My question is that's why that ask is does it turn on is this an interest in property before the petition? And there's nothing in the rest of that definition as to what kind of are effective and aren't effective. That's not the argument in this case as I understand it. It's just whether or not there's an interest in property
. To look for interest in property. No, I don't think it does. And 362 doesn't say it is an interest in property. If it says you may a subcontractor may proceed quote with an act to perfect or maintain a continue the perfection of an interest in property to the extent. But that's not defining an interest in property. That did not say if you have an interest in property under 362, you may do certain things with that interest in property. And when you look at 546, it doesn't say what an interest in property is. It says that the perfection of an interest in property to be effective against another entity that tells you what type of interest in property is effective for certain priorities. But none of that defines what an interest in property is. And I'll ask you one more time now that you go on. But it seems to me that's not correct to say that it would fail as an interest in property. It might be that it would fail protections or it would fail to have the status. But it doesn't seem to me it would say it's not an interest in property. You see my point? Absolutely and I agree your honor. It would not fall. It would not be an interest in property that could be perfected post petitions. It would still be an interest in property. Sort of like if this debtor had another bank that had given a security interest security agreement too and that bank had not yet perfected by filing a SEC fund. My question is that's why that ask is does it turn on is this an interest in property before the petition? And there's nothing in the rest of that definition as to what kind of are effective and aren't effective. That's not the argument in this case as I understand it. It's just whether or not there's an interest in property. Is there any really any argument in this case if your clients have an interest in by either side that if your clients have an interest in property pre petition then they have the right to perfect it. That's not the argument isn't you have an interest in property but you can't perfect it. Isn't that correct the whole thing? The whole case turns on whether or not you have an interest. Well that's what I asked the other side repeatedly. That's the first step. Obviously you have to have an interest in it. There's nothing to perfect. Where's there any other step? In this appeal why's there any other step other than is under North Carolina law is there an interest in property before the filing of the bankruptcy petition? It's really not in this case because the parties agree that if it is an interest in property that we could file because there's no disagreement that we would prevail over the bank which is the second step of falling within the exception. The S would be yes wouldn't it. The only thing is whether or not you have an interest before petition tell me now just in very succinct words and I'll let the other judges ask their questions. I stopped taking all the time. Tell me as succinctly as you can why it is that you have an interest and interest in property pre petition. Because under 44A-18 which I think your honor is already read from I may have the wrong version. The lien upon funds granted under the I'm reading subsection five of the version effective 2011. The lien upon funds granted under the sections shall secure amounts earned by the lien claimant as a result of having furnished labor materials or rental equipment at the site of the improvement. The other side said this statute says that the lien upon funds is effective or something like that. That's what he said. Well just make your argument. So my argument is when we deliver materials we have an interest in that receiver. What is that statute? What is that statute? What is that statute? That statute says exactly that. That upon delivery of materials on the job site the subcontractor has a lien upon funds
. Is there any really any argument in this case if your clients have an interest in by either side that if your clients have an interest in property pre petition then they have the right to perfect it. That's not the argument isn't you have an interest in property but you can't perfect it. Isn't that correct the whole thing? The whole case turns on whether or not you have an interest. Well that's what I asked the other side repeatedly. That's the first step. Obviously you have to have an interest in it. There's nothing to perfect. Where's there any other step? In this appeal why's there any other step other than is under North Carolina law is there an interest in property before the filing of the bankruptcy petition? It's really not in this case because the parties agree that if it is an interest in property that we could file because there's no disagreement that we would prevail over the bank which is the second step of falling within the exception. The S would be yes wouldn't it. The only thing is whether or not you have an interest before petition tell me now just in very succinct words and I'll let the other judges ask their questions. I stopped taking all the time. Tell me as succinctly as you can why it is that you have an interest and interest in property pre petition. Because under 44A-18 which I think your honor is already read from I may have the wrong version. The lien upon funds granted under the I'm reading subsection five of the version effective 2011. The lien upon funds granted under the sections shall secure amounts earned by the lien claimant as a result of having furnished labor materials or rental equipment at the site of the improvement. The other side said this statute says that the lien upon funds is effective or something like that. That's what he said. Well just make your argument. So my argument is when we deliver materials we have an interest in that receiver. What is that statute? What is that statute? What is that statute? That statute says exactly that. That upon delivery of materials on the job site the subcontractor has a lien upon funds. I don't think it says that does it. Well anybody that delivers materials to the project can assert a lien on funds. So that's who they're talking about. But it says I'm asking you don't understand as it say you have one or one is effective or one can be created upon perfection. I'm asking for that operative language. It says we have the right. Are you reading from statute? Do you paraphrase you to me? I'm paraphrasing. The statute says that the lien upon funds in subsection five granted under this section shall secure amounts earned by the lien claimant as a result of having furnished labor materials or rental equipment at the site of the improvement. So I do read that that when we supply labor materials at the site that this lien upon funds granted in this section belongs to those suppliers. And then the next paragraph talks about how we have to perfect it for it to be effective against third parties. Bankruptcy Court said that is unambiguous. Do you agree? At least the statute itself. I agree with the bankruptcy court opinion and the district court opinion in this case. So if it's unambiguous we don't need to talk about policy do we? No. But policy is in favor of the subcontractors but no we don't. So this definition of interest that we talked about from the bankruptcy code perspective. The bankruptcy court said it was very broad. Where does that definition arise within the code? It's not that I haven't found it within the code. I think you have to go to state law. And under North Carolina state law when someone supplies labor material to a project they nobody else would tell you what the interest is but the code itself refers to the term interest. And within the code which seems to be the point of the other side is that the code has a limitation here
. I don't think it says that does it. Well anybody that delivers materials to the project can assert a lien on funds. So that's who they're talking about. But it says I'm asking you don't understand as it say you have one or one is effective or one can be created upon perfection. I'm asking for that operative language. It says we have the right. Are you reading from statute? Do you paraphrase you to me? I'm paraphrasing. The statute says that the lien upon funds in subsection five granted under this section shall secure amounts earned by the lien claimant as a result of having furnished labor materials or rental equipment at the site of the improvement. So I do read that that when we supply labor materials at the site that this lien upon funds granted in this section belongs to those suppliers. And then the next paragraph talks about how we have to perfect it for it to be effective against third parties. Bankruptcy Court said that is unambiguous. Do you agree? At least the statute itself. I agree with the bankruptcy court opinion and the district court opinion in this case. So if it's unambiguous we don't need to talk about policy do we? No. But policy is in favor of the subcontractors but no we don't. So this definition of interest that we talked about from the bankruptcy code perspective. The bankruptcy court said it was very broad. Where does that definition arise within the code? It's not that I haven't found it within the code. I think you have to go to state law. And under North Carolina state law when someone supplies labor material to a project they nobody else would tell you what the interest is but the code itself refers to the term interest. And within the code which seems to be the point of the other side is that the code has a limitation here. So where does this definition of interest comes? I mean if we're circling it spoken to it to it seems it though we've indicated it can be broad of in a lien. Wait by it is expressly ruled. But where do you say the definition comes from within the code? I mean how do we do find the interest under the bankruptcy code? I think you have to go to state law for that. And when there's clearly a receivable which is property of the estate and when the state law says that we have the right to a super priority lien on that receivable that's the interest that already exists before the bankruptcy and is created upon the delivery of the materials. Because not everybody has a right to that super priority lien. It's only in a special class of creditors and that is the ones that effectively generate that receivable. It was our materials that generated the receivable that the debtor was attempting to divert to pay the IRS lien and whatever other obligations. Is that is the effective statute at page A54, pinnocks 54 of your brief? Do you know it? Yes it is. Okay. And so you read that as that first paragraph which I think maybe the the same paragraph as I read is the is the first year subcontractor shall be entitled to a lien upon funds and you think that creates your interest. Yes that sentence does and and six talks about how you perfect that but you say you you have to have something to be perfected and you say and you say who furnishes is entitled to a lien that that lien either is the interest or recognizes the interest that you have. One of the two. Correct exactly. And so you don't think I mentioned policy but I said I don't think we go there either. I can understand why policy supports you but we look at the statute first and you think that statute North Carolina law creates that right in a subcontractor which right the bank even agrees to except for final bankruptcy. Exactly and I think you also can read it in context with the North Carolina Constitution which mandates that we be given that right and that interest. Thank you. Thank you Mr. Wolf. Mr. Brown
. So where does this definition of interest comes? I mean if we're circling it spoken to it to it seems it though we've indicated it can be broad of in a lien. Wait by it is expressly ruled. But where do you say the definition comes from within the code? I mean how do we do find the interest under the bankruptcy code? I think you have to go to state law for that. And when there's clearly a receivable which is property of the estate and when the state law says that we have the right to a super priority lien on that receivable that's the interest that already exists before the bankruptcy and is created upon the delivery of the materials. Because not everybody has a right to that super priority lien. It's only in a special class of creditors and that is the ones that effectively generate that receivable. It was our materials that generated the receivable that the debtor was attempting to divert to pay the IRS lien and whatever other obligations. Is that is the effective statute at page A54, pinnocks 54 of your brief? Do you know it? Yes it is. Okay. And so you read that as that first paragraph which I think maybe the the same paragraph as I read is the is the first year subcontractor shall be entitled to a lien upon funds and you think that creates your interest. Yes that sentence does and and six talks about how you perfect that but you say you you have to have something to be perfected and you say and you say who furnishes is entitled to a lien that that lien either is the interest or recognizes the interest that you have. One of the two. Correct exactly. And so you don't think I mentioned policy but I said I don't think we go there either. I can understand why policy supports you but we look at the statute first and you think that statute North Carolina law creates that right in a subcontractor which right the bank even agrees to except for final bankruptcy. Exactly and I think you also can read it in context with the North Carolina Constitution which mandates that we be given that right and that interest. Thank you. Thank you Mr. Wolf. Mr. Brown. You're on your while street that the Constitution provides for an adequate lien the North Carolina course of determining that chapter 44a satisfies the constitutional mandate and so we look to 44a 18. Now this is important. The bankruptcy court completely did not discuss the very first sentence under 44a 18 which says upon compliance with this article a subcontractor who furnishes labor should be entitled to lien upon funds upon compliance with this article that's article two the district court did not ignore that sentence but said that the mere furnishing of labor materials was sufficient to constitute compliance. Well if we plug that into the statute it would read upon the furnishing of labor materials a first tier subcontractor who furnishes labor or materials she'll be entitled to lien on funds. What does okay I take your point what does a subcontractor have until compliance. A subcontractor has a remedy they have a right to assert a right based on what based on what though what does that remedy based on is just a grant from the state it's it's it's provided in the statute in the statute. I'm going to ask him what is that bet on I mean so in other words you think the state in this article would be just the same if it said anybody who lives within a mile upon compliance. Isn't in this statute of compliance based on something though isn't it based on either some preexisting relationship or interest or something it's based on something isn't it. Well and I'm trying to see what you described that as. Yeah well it upon compliance with this article is based on what let's read further down in the article. Important to note 44a20 says that upon receipt of the notice the property that we're talking about upon receipt of the notice the obligor must retain the funds which is the property. Prior to receiving the notice there are no obligation to retain funds here. Prior to receiving the notice subcontractors have no interest in the funds the owner can do whatever it wants with the funds as far as they can pay them to the other. I didn't answer the basic question because the question then is issue then is once he gets that notice he has to act differently doesn't he. That's correct. And so it's not just North Carolina hadn't created a right for people just to give your bank notice and they have to stop spending the fun it has to be something that precedes that notice isn't there and that the furnishing of the materials that allows upon perfection that interest which exists to take a certain status isn't that correct. Well it's helpful if I back up and talk about the interest and property legislative history talks about. Is that scenario correct judge. Either yes or no then you proceed on is not correct. Respectfully I do not think that is correct and not just because under the plain language there is nothing for an interest in funds there's no attachment to the funds until the notice has been served. There's and I didn't hear any clear definition of what interest the subs have other than a mere right to assert a claim that attachment is to enforce what
. You're on your while street that the Constitution provides for an adequate lien the North Carolina course of determining that chapter 44a satisfies the constitutional mandate and so we look to 44a 18. Now this is important. The bankruptcy court completely did not discuss the very first sentence under 44a 18 which says upon compliance with this article a subcontractor who furnishes labor should be entitled to lien upon funds upon compliance with this article that's article two the district court did not ignore that sentence but said that the mere furnishing of labor materials was sufficient to constitute compliance. Well if we plug that into the statute it would read upon the furnishing of labor materials a first tier subcontractor who furnishes labor or materials she'll be entitled to lien on funds. What does okay I take your point what does a subcontractor have until compliance. A subcontractor has a remedy they have a right to assert a right based on what based on what though what does that remedy based on is just a grant from the state it's it's it's provided in the statute in the statute. I'm going to ask him what is that bet on I mean so in other words you think the state in this article would be just the same if it said anybody who lives within a mile upon compliance. Isn't in this statute of compliance based on something though isn't it based on either some preexisting relationship or interest or something it's based on something isn't it. Well and I'm trying to see what you described that as. Yeah well it upon compliance with this article is based on what let's read further down in the article. Important to note 44a20 says that upon receipt of the notice the property that we're talking about upon receipt of the notice the obligor must retain the funds which is the property. Prior to receiving the notice there are no obligation to retain funds here. Prior to receiving the notice subcontractors have no interest in the funds the owner can do whatever it wants with the funds as far as they can pay them to the other. I didn't answer the basic question because the question then is issue then is once he gets that notice he has to act differently doesn't he. That's correct. And so it's not just North Carolina hadn't created a right for people just to give your bank notice and they have to stop spending the fun it has to be something that precedes that notice isn't there and that the furnishing of the materials that allows upon perfection that interest which exists to take a certain status isn't that correct. Well it's helpful if I back up and talk about the interest and property legislative history talks about. Is that scenario correct judge. Either yes or no then you proceed on is not correct. Respectfully I do not think that is correct and not just because under the plain language there is nothing for an interest in funds there's no attachment to the funds until the notice has been served. There's and I didn't hear any clear definition of what interest the subs have other than a mere right to assert a claim that attachment is to enforce what. The attachment is to enforce the lean upon it upon upon obtaining the lean the lean attaches. But the lean is based but the fact that a lean is created that's based on something. Well the lean is provided for but there's not that is provided for but the fact that is provided for is based on something isn't it. I mean there's some basis for lean to be effective after perfection and that has to do something with the relationship between the parties before perfection and otherwise are you equating interest to attachment. Well I am making that comparison because you see as though you were equating it you say it doesn't happen and basically you don't have an interest until it's attached. And if you look to some other decisions itself it'll look at these environmental super lean cases where the courts looked at all right maybe there's a simultaneous creation and perfection situation here which is what is the case here but in each of those cases the court looked at what the state did prior to petition giving notice saying we intend to pursue a lean here and agrat tenaciously pursuing as what the 229 Main Street Court described it as. In this case there was no effort to obtain a lean until after the petition was filed. Well I would there be if that's going to be the basis for your distinction why in fact would somebody do that. It's BB and T's position that if a supplier supplies something to someone over whom they have a line of credit or some kind of right to operational funds. BB and T most advice every subcontractor in North Carolina is as soon as you put something on the job site that we're involved with run and perfect it. And subcontractors I'm out of time your honor. I don't know how to hit the answer. The subcontractors were aware of the Harrelson you told us. I didn't ask you that I said is that BB and T's position that everybody mom and pop every small business anybody that supplies I just want to know what BB and T's position is under the law waiting to be finished. Their position is if you supply anything on any job site that we have funding over we want you to immediately perfect to be sure you get the money. That's the BB and T's position under the law. The position is if they don't light the way the statute reads they can ask it to be changed and the statute was changed. The statute didn't have to be changed under this statute they could perfect before bankruptcy couldn't they? No your honor. I don't think so. Thank you very much Mr Brown. Thank you very much