• Perfection of Liens in Railroad Cars, Locomotives and Other Rolling Stock
  • May 6, 2008 | Author: Jason A. Strain
  • Law Firm: Baker, Donelson, Bearman, Caldwell & Berkowitz, PC - Memphis Office
  • Businesses that finance the purchase of railroad cars, locomotives, other rolling stock and accessories used on such equipment (such as superstructures and racks) (collectively, Rolling Stock), as well as business owners purchasing such assets, need to understand the law regarding the perfection of liens in such equipment. Lenders will, of course, want to make sure that their liens and security interests in such financed equipment are superior to the rights of a bankruptcy trustee or other lien creditor. Purchasers should also want to make sure that assets they intend to purchase are free and clear of encumbrances, so that they are not surprised to find creditors lurking after a closing.

    Most liens and security interests in personal property are created and perfected pursuant to state law, particularly Revised Article 9 of the Uniform Commercial Code (RA9). However, for certain types of property, such as Rolling Stock, RA9 provides that United States law governs the perfection of liens and security interests.

    Federal law provides that mortgages, security agreements, leases, equipment trust agreements conditional sales agreements, and other similar instruments related to Rolling Stock should be filed with the Department of Transportation's Surface Transportation Board (STB). Any assignment, amendment, release or other such related document should also be filed with the STB.

    Once such a filing is made with the STB, it constitutes notice against all other parties and such a lien is deemed perfected in all jurisdictions. Documents filed with the STB do not need to be filed at the state or local level to constitute notice and to perfect a lien. Similarly, UCC-1 financing statements filed at the state or local level do not constitute notice or perfect a lien in such equipment. As such, lenders and purchasers need to make sure that they search the records of the STB before purchasing or financing Rolling Stock. Lenders and purchasers may also want to check state UCC records to make sure that no liens exist against relevant books or records, or other equipment or collateral tangentially related to Rolling Stock.

    The following requirements apply to any original document submitted for recordation with the STB: (a) it must be in writing, executed by the parties, and acknowledged in a form acceptable in the state where executed (or as prescribed by the STB); (b) it must be accompanied by at least one fully-executed and acknowledged or verified counterpart (or a certified true copy of same); (c) it must be accompanied by the nominal fee set forth in 49 CFR 1002.2(f)(83); (d) it must be accompanied by a letter of transmittal requesting the recordation, which must include (i) the type of agreement, (ii) whether it is a primary document (such as a mortgage, lease, etc.) or secondary document (such as an assignment, amendment, or release; and, if a secondary document, a reference to the primary document to which it relates), (iii) a request for cross-indexing (if an assignment), (iv) a description of the equipment covered by the document, (v) the parties to the agreement, (vi) the party to whom the original should be returned, (vii) the amount of the enclosed fee, (viii) a short 1 or 2 sentence summary of the type of document and a very brief description of the equipment and identifying numbers, (ix) the signature of an executive officer of one of the parties, or their attorney, and (x) if the document secures afteracquired property, it must contain certain provided language. Documents to be recorded must be submitted by mail addressed to the Secretary of the STB, in an envelope marked "Documents for Recordation."