District Court Recognizes Texas Legislation in Overturning Clark Contracting Decision

In Clark Contracting, the lender, Wells Fargo, in accordance with standard industry practice, did not apply for new certificates of title to reflect itself as the new lienholder after CIT (the original lender) assigned the loan and the related lien in the trucks to Wells Fargo. Instead, Wells Fargo relied on permissive language in the Texas Certificate of Title Act (“TCTA”) (TEX. TRANSP. CODE ANN. ” 501.001-501.159 (2007)) and commentary to Chapter 9 of the Texas Uniform Commercial Code that indicated that re-titling in such circumstances was not necessary to transfer the perfected status of the assignor lienholder to its assignee. The implications of the bankruptcy court's decision to render Wells Fargo unperfected extended far beyond the parties to the Clark Contracting case to cast doubt upon the perfected status of other secured parties in Texas motor vehicles and other titled assets that did not customarily re-title upon assignment.

Fortunately, the Texas legislature was in session when the Clark Contracting decision became known to leasing and securitization participants and SB1592 was quickly drafted, debated, and passed. In the year since SB1592 was under consideration by the Texas legislature, copycat cases challenging statutes governing perfection in motor vehicles were heard in both Arkansas and Indiana. See In re Johnson, 2009 WL 1863219 (Bankr. E.D. Ark. 2009) and In re Scott, 2010 WL 933896 (Bankr. S.D. Ind. 2010). In each case, the conclusions reached by the Texas bankruptcy court were unequivocally rejected, resulting in judicial recognition of standard industry practice in those states and assuring assignee lienholders that their perfected status was not affected by opting not to re-title.