Question:        Are the preference provisions of section 1800 of the Code of Civil Procedure regarding a general assignment for the benefit of creditors preempted by federal bankruptcy law?

Answer:        No, according to the Fourth District Court of Appeal in Credit Managers Assoc. of California v. Countrywide Home Loans Inc., 06 C.D.O.S. 10209 (Nov. 1, 2006).

In this case, an assignee of a general assignment to creditors brought an action to recover certain payments to other creditors as preferences under CCP § 1800,  which generally allows the assignee to recover transfers to other creditors made within 90 days before the assignment.  The court declined to follow the lead of the Ninth Circuit in Sherwood Partners, Inc. v. Lycos, Inc., (9th Cir. 2005) 395 F.3D 1198, which held that bankruptcy law preempted state laws (including § 1800) that implicate equitable distribution.  Instead, the court followed the Second District’s recent decision in Haberbush v. Charles & Dorothy Cummins Family Limited Partnership (2006) 139 Cal.App.4th 1630, which reached the opposite conclusion.

Based on its reading of section 1800 and federal law, the court concluded that Congress did not intend to "occupy the field" when it enacted the federal preference statute and that the goals and policies of section 1800 did not "stand as an obstacle" to federal law.

Authored by:

Robert Stumpf

(415) 774-3288

rstumpf@sheppardmullin.com