Opinion
Case No. 19-55651 Adv. Pro. No. 20-02001
08-31-2020
IN RE: Leah Dawn STEVENS, Debtor. Christal L. Caudill, Trustee, Plaintiff, v. Reynoldsburg Mobile Home Sales, Inc., et al., Defendants.
Christal Caudill, Powell, OH, for Plaintiff. Howard B Hershman, Holland, OH, for Defendant.
Christal Caudill, Powell, OH, for Plaintiff.
Howard B Hershman, Holland, OH, for Defendant.
OPINION AND ORDER GRANTING IN PART PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT (DOC. #26)
C. Kathryn Preston, United States Bankruptcy Judge
This cause came on for consideration of the Motion for Summary Judgment by Plaintiff (Doc. #26) (the "Motion"), filed by Christal L. Caudill, Chapter 7 Trustee ("Plaintiff") and the Response of Reynoldsburg Mobile Home Sales, Inc. to Motion for Summary Judgment filed by Plaintiff (Doc. #32) (the "Response"), filed by Reynoldsburg Mobile Home Sales, Inc. ("Defendant"). The Motion seeks summary judgment on Count I of Plaintiff's complaint (Doc. #1) (the "Complaint") seeking to avoid and preserve for the benefit of the estate Defendant's lien on a 2019 Mojave Mobile Home. For the reasons set forth below, the Court finds that the Motion should be granted in part.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and Amended General Order 05-02 entered by the United States District Court for the Southern District of Ohio, referring all bankruptcy matters to this Court. Venue in this Court is proper pursuant to 28 U.S.C. §§ 1408 and 1409. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(F).
I. Factual and Procedural Background
The facts pertinent to the resolution of this matter are without dispute and can be summarized as follows:
Leah Dawn Stevens ("Debtor") filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code on August 31, 2019. Plaintiff is the duly appointed and acting Chapter 7 trustee. Debtor owns a 2019 Mojave Mobile Home (the "Mobile Home"), which is property of the bankruptcy estate. Debtor entered into a purchase contract (the "Purchase Contract") with Defendant on April 2, 2019, to purchase the Mobile Home. At some point, Debtor granted a security interest (the "Lien") in the Mobile Home to Defendant, but the date is not in the record. Debtor took possession of the Mobile Home on May 30, 2019. On July 9, 2019, the certificate of title to the Mobile Home was issued in the name of Debtor and the Lien was noted on it.
The Purchase Contract does not include any promise to pay in the nature of a promissory note or any security agreement.
On January 8, 2020, Plaintiff timely filed the Complaint to avoid the Lien as a preferential transfer under § 547 and preserve the avoided Lien for the benefit the bankruptcy estate pursuant to 11 U.S.C. § 551. The Motion contends that there are no issues of material fact and that Plaintiff is entitled to judgment as a matter of law.
II. Standard of Review
Rule 56 of the Federal Rules of Civil Procedure provides that the Court "shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A party seeking summary judgment must illustrate that the facts are not genuinely disputed by pointing to "particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations ..., admissions, interrogatory answers, or other materials[.]" Fed. R. Civ. P. 56(c)(1). The party seeking summary judgment bears the initial burden of "informing the ... court of the basis for its motion, and identifying those portions of the [record] which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). See also Fed. R. Civ. P. 56(c)(3).
Rule 56 of the Federal Rules of Civil Procedure is made applicable to adversary proceedings by Rule 7056 of the Federal Rules of Bankruptcy Procedure.
If the movant satisfies this burden, the nonmoving party may not rest on its pleading, but similarly must, by citation to particular parts of the record, demonstrate that a fact or facts are subject to dispute. Fed. R. Civ. P. 56(c)(1). The mere allegation of a factual dispute is not sufficient to defeat a motion for summary judgment; to prevail, the non-moving party must show that there exists some genuine issue of material fact. See Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 247–48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). "The Judge's function is not ... to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Hirsch v. CSX Transp., Inc., 656 F.3d 359, 362 (6th Cir. 2011) (quoting Anderson , 477 U.S. at 249, 106 S.Ct. 2505 ). "When determining whether the evidence is sufficient, the trial court should not weigh the evidence, evaluate the credibility of witnesses, or substitute its judgment for that of the jury." J. C. Wyckoff & Assocs., Inc. v. Standard Fire Ins. Co., 936 F.2d 1474, 1487 n.19 (6th Cir. 1991) (citation omitted). Rather, the Court must deem as true the nonmovant's evidence and must view all justifiable inferences in a light most favorable to the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ; Anderson , 477 U.S. at 255, 106 S.Ct. 2505.
The Sixth Circuit Court of Appeals has articulated the following analysis to undertake when evaluating a motion for summary judgment:
[T]he moving [party] may discharge its burden by pointing out to the ... court
... that there is an absence of evidence to support the nonmoving party's case. The nonmoving party cannot rest on its pleadings, but must identify specific facts supported by affidavits, or by depositions, answers to interrogatories, and admissions on file that show there is a genuine issue for trial. Although we must draw all inferences in favor of the nonmoving party, it must present significant and probative evidence in support of its complaint. The mere existence of a scintilla of evidence in support of the [nonmoving party's] position will be insufficient; there must be evidence on which the jury could reasonably find for the [nonmoving party].
Hall v. Tollett, 128 F.3d 418, 422 (6th Cir. 1997) (internal citations and quotation marks omitted). A material fact is one whose resolution will affect the determination of the underlying action. Tenn. Dep't of Mental Health & Mental Retardation v. Paul B., 88 F.3d 1466, 1472 (6th Cir. 1996). An issue is genuine if a rational trier of fact could find in favor of either party on the issue. Schaffer v. A.O. Smith Harvestore Prods., Inc., 74 F.3d 722, 727 (6th Cir. 1996) (citation omitted). But determinations of credibility, weight to be given the evidence, and inferences to be drawn from the facts remain the province of the jury. Anderson, 477 U.S. at 255, 106 S.Ct. 2505.
Nonetheless, the Court is not required to "speculate on which portion of the record the nonmoving party relies, nor is it obligated to wade through and search the entire record for some specific facts that might support the nonmoving party's claim." InterRoyal Corp. v. Sponseller, 889 F.2d 108, 111 (6th Cir. 1989).
In determining whether each party has met its burden, the court must keep in mind that "[o]ne of the principal purposes of the summary judgment rule is to isolate and dispose of factually unsupported claims or defenses ...." Celotex, 477 U.S. at 323–24, 106 S.Ct. 2548. If otherwise appropriate, summary judgment may also be entered for a nonmoving party. K.E. Resources, LTD. v. BMO Fin. Inc. (In re Century Offshore Mgmt. Corp.), 119 F.3d 409, 412 (6th Cir. 1997) ; see also Celotex, 477 U.S. at 326, 106 S.Ct. 2548 ("[D]istrict courts are widely acknowledged to possess the power to enter summary judgments sua sponte, so long as the losing party was on notice that she had to come forward with all of her evidence."). See also Fed. R Civ. P. 56(f).
III. Analysis
A. Avoidability of the Lien under 11 U.S.C. § 547
Section 547(b) of the Bankruptcy Code provides:
Except as provided in subsections (c) and (i) of this section, the trustee may avoid any transfer of an interest of the debtor in property— (1) to or for the benefit of a creditor; (2) for or on account of an antecedent debt owed by the debtor before such transfer was made; (3) made while the debtor was insolvent; (4) made— (A) on or within 90 days before the date of the filing of the petition; or (B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and (5) that enables such creditor to receive more than such creditor would receive if
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.
11 U.S.C. § 547(b). The trustee bears the burden of proving avoidability of a transfer under § 547(b). 11 U.S.C. § 547(g).
For purposes of § 547(b), whether there has been a transfer of a property interest of a debtor is a matter of both federal and state law. "The existence of a property interest of the debtor is determined by state law." Field v. Lebanon Citizens Nat'l Bank (In re Knee), 254 B.R. 710, 712 (Bankr. S.D. Ohio 2000) (citing Barnhill v. Johnson, 503 U.S. 393, 397–98, 112 S.Ct. 1386, 118 L.Ed.2d 39 (1992) ). However, " ‘[w]hat constitutes a transfer and when it is complete’ is a matter of federal law." Barnhill, 503 U.S. at 397–98, 112 S.Ct. 1386 (quoting McKenzie v. Irving Trust Co., 323 U.S. 365, 369–370, 65 S.Ct. 405, 89 L.Ed. 305 (1945) ). Pursuant to 11 U.S.C. § 101(54), a "transfer" includes the creation of a lien. 11 U.S.C. § 101(54). See also Knee, 254 B.R. at 712 ("Federal courts have consistently held that the grant of a security interest in a motor vehicle constitutes a § 547(b) transfer."). Thus, the Court must determine if, in fact, a security interest was granted to Defendant under Ohio law, and, if so, when the security interest was deemed to have been transferred to Defendant pursuant to federal law.
Under Ohio law, after a security agreement is executed by a debtor, the security interest is created once value has been given and the debtor has rights in the collateral. See Ohio Rev. Code § 1309.203. Value has been given if the seller agrees to sell a product to the purchaser pursuant to a retail installment contract. See Ohio Rev. Code § 1301.204 (defining value to include "any consideration sufficient to support a simple contract"); see also Luper v. Valueland Auto Sales, Inc. (In re Haggerty), 562 B.R. 692, 697 (Bankr. S.D. Ohio 2016) (holding that "Defendant gave value by agreeing to sell the [v]ehicle to [the debtor] pursuant to [a retail installment contract].") (citation omitted). Furthermore, a person acquires rights in a vehicle at the time of possession of it. See Valueland, 562 B.R. at 697 (citation omitted); see also Ohio Rev. Code § 1302.42 ("[T]itle passes to the buyer at the time and place at which the seller completes performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document of title is to be delivered at a different time or place[.]"). In the instant case, the Purchase Contract does not contain a security agreement, and provides that "[i]f the Buyer does not complete this purchase as a cash transaction, Buyer knows before or at the time of delivery of the unit purchased, Buyer will enter into a retail installment contract and sign a security agreement or other agreement as may be required to finance Buyer's purchase." Neither Plaintiff nor Defendant provided the Court with a copy of a retail installment contract or a security agreement executed by Debtor. Notwithstanding, Defendant admits that Debtor granted a security interest in the Mobile Home to Defendant, and that Debtor took possession of the Mobile Home on May 30, 2019. Thus, there was a transfer of a property interest of Debtor – in the form of creation of the Lien on the Mobile Home — to Defendant (the "Transfer"). In addition, Defendant admits that the Transfer was to or for its benefit as a creditor of Debtor. Accordingly, the Court finds as a matter of law that Plaintiff has satisfied the first element of § 547(b)(1).
Elements two (2) through four (4) of § 547(b) depend on the timing of the transfer in question. Pursuant to 11 U.S.C. § 547(e)(2), a transfer is deemed to have been made:
(A) at the time such transfer takes effect between the transferor and the transferee, if such transfer is perfected at, or within 30 days after, such time, except as provided in subsection (c)(3)(B);
(B) at the time such transfer is perfected, if such transfer is perfected after such 30 days; or
(C) immediately before the date of the filing of the petition, if such transfer is not perfected at the later of—
(i) the commencement of the case; or
(ii) 30 days after such transfer takes effect between the transferor and the transferee.
11 U.S.C. § 547(e)(2). A security interest in a motor vehicle is perfected under Ohio law once the lienholder's interest is noted on the certificate of title. Ohio Rev. Code § 4505.13.
On July 9, 2019, the Lien in favor of Defendant was noted on the certificate of title for the Mobile Home, which was forty days after Debtor took possession of the Mobile Home. Thus, the Transfer is deemed to have occurred July 9, 2019, which is within the ninety-day period before the date of the filing of Debtor's voluntary petition. Furthermore, for purposes of avoiding a preference under 11 U.S.C. § 547, "the debtor is presumed to have been insolvent on and during the 90 days immediately preceding the date of the filing of the petition." 11 U.S.C. § 547(f). Defendant has not overcome this presumption. Accordingly, Plaintiff has satisfied the elements required by 11 U.S.C. § 547(b)(3) and (4).
The Court, however, is unable to determine whether the Transfer was for or on account of an antecedent debt that was owed by Debtor prior to the Transfer being made. The record contains no evidence of when the debt owed to Defendant was incurred. Debtor admits that she obtained a loan to purchase the Mobile Home, but Plaintiff failed to provide a copy of the retail installment contract, promissory note or other competent evidence to indicate when the debt was incurred. Therefore, Plaintiff has not met her burden of proving the second element of a preferential transfer pursuant to 11 U.S.C. § 547(b)(2) that the Transfer was on account of an antecedent debt.
With respect to the final prong of § 547(b), the Court is unable to determine whether the transfer enables Defendant to receive more than it would if the transfer had not been made and Defendant received payment on the related debt pursuant to the provisions of the Bankruptcy Code. Plaintiff failed to provide any evidence regarding the amount of scheduled debts in Debtor's bankruptcy case, whether she will be administering any other assets in Debtor's bankruptcy case, and whether unsecured creditors will receive any payment from the estate or how much. Accordingly, the Court finds that Plaintiff has not satisfied her burden of proving avoidability of the Transfer under § 547(b)(5).
B. Defenses under § 547(c)
The party "against whom recovery or avoidance is sought has the burden of proving the nonavoidability of a transfer under subsection (c)[.]" 11 U.S.C. § 547(g). In this case, Defendant has not specifically asserted any defense set forth in § 547(c). Rather, Defendant asserts that there was no period when its interest in the Mobile Home was not evidenced by either the certificate of origin or the certificate of title, and thus, Defendant was either the owner of the Mobile Home or a creditor with a perfected security interest in it. Defendant's argument focuses on how ownership interests in titled vehicles are governed by Ohio Rev. Code § 4505.04 , and cites In re Caddarette, 362 B.R. 829 (Bankr. N.D. Ohio 2006) for support.
Ohio Revised Code § 4505.04 provides in part as follows:
(A) No person acquiring a motor vehicle from its owner, whether the owner is a manufacturer, importer, dealer, or any other person, shall acquire any right, title, claim, or interest in or to the motor vehicle until there is issued to the person a certificate of title to the motor vehicle, or there is delivered to the person a manufacturer's or importer's certificate for it, or a certificate of title to it is assigned as authorized by section 4505.032 of the Revised Code ; and no waiver or estoppel operates in favor of such person against a person having possession of the certificate of title to, or manufacturer's or importer's certificate for, the motor vehicle, for a valuable consideration.
(B) Subject to division (C) of this section, no court shall recognize the right, title, claim, or interest of any person in or to any motor vehicle sold or disposed of, or mortgaged or encumbered, unless evidenced:
(1) By a certificate of title, an assignment of a certificate of title made under section 4505.032 of the Revised Code, a manufacturer's or importer's certificate, or a certified receipt of title cancellation to an exported motor vehicle issued in accordance with sections 4505.01 to 4505.21 of the Revised Code ;
(2) By admission in the pleadings or stipulation of the parties;
(3) In an action by a secured party to enforce a security interest perfected under Chapter 1309. of the Revised Code in accordance with division (A) of section 4505.13 of the Revised Code, by an instrument showing a valid security interest.
The Caddarette case involved a request by a Chapter 7 trustee for turnover of a vehicle that was titled in the name of one of the debtors. The vehicle had been purchased by the debtors' minor son with an inheritance and he was the sole user of the vehicle, while one of the debtors held title. The debtors argued that the vehicle was not property of the bankruptcy estate because it was held in trust for the benefit of their son. The Chapter 7 trustee argued that the vehicle was the exclusive property of the debtor title holder and was subject to turnover and liquidation for the benefit of creditors. The Caddarette court explained that the plain language of Ohio Rev. Code § 4505.04 mandates that all interests in a motor vehicle be disclosed in the title and made no distinction between legal and equitable interests. Caddarette, 362 B.R. at 833–34.
The decision in Caddarette is unpersuasive and Defendant's reliance on it misplaced. The Caddarette court ultimately had to decide whether the vehicle at issue was property of the estate, and in so doing, held that Ohio Rev. Code § 4505.04 compels that the name as set forth on a vehicle's certificate of title controls when making a determination as to property of the estate under 11 U.S.C. § 541. In the instant case, the issue before the Court is not whether the Mobile Home is property of the bankruptcy estate under 11 U.S.C. § 541, but instead, whether a preferential transfer occurred under 11 U.S.C. § 547(b). Debtor's ownership interest is noted on the certificate of title and is not in dispute. Defendant's argument that it was identified as the owner of the Mobile Home on the certificate of origin, and then became a creditor with a perfected security interest once the certificate of title was issued with a notation of Defendant's lien, is not a defense to the avoidance of a lien under 11 U.S.C. § 547(b). The initial determinative fact for the Court in concluding whether a lien is avoidable under 11 U.S.C. § 547(b) is whether there was a transfer of an interest of Debtor in property and when it occurred, not whether there is evidence of Defendant's interest in the Mobile Home. As stated previously, Debtor granted a security interest, the Lien, in the Mobile Home to Defendant, and it constitutes a transfer of an interest of Debtor in property under 11 U.S.C. § 547(b). Accordingly, the Court finds that Defendant has provided no evidence as to why the Transfer cannot be avoided under 11 U.S.C. § 547(b).
Contrary to the holding in Caddarette, this Court determined that a debtor whose name is set forth on a certificate of title for a vehicle may hold the title in trust for the benefit of another person that is not otherwise identified on the certificate of title, and the creation of such "an express trust ... is not prohibited by the plain language of Ohio Rev. Code § 4505.04." Drown v. Hill (In re Phillips), 437 B.R. 836, 843 (Bankr. S.D. Ohio 2010). As such, the vehicle at issue in Phillips was determined not to he property of the bankruptcy estate. Phillips, 437 B.R. at 843–44.
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IV. Conclusion
For the reasons set forth above, the Court finds that Plaintiff is entitled to judgment as a matter of law with respect to the elements contained in 11 U.S.C. § 547(b)(1), (3) and (4) and Defendant has failed to demonstrate a defense under 11 U.S.C. § 547(c). Accordingly, it is
ORDERED that the Motion for Summary Judgment by Plaintiff (Doc. #26) is hereby GRANTED with respect to the elements of preference avoidance set forth in 11 U.S.C. § 547(b)(1), (3) and (4) and DENIED without prejudice to Plaintiff seeking a determination as to the elements set forth in 11 U.S.C. § 547(b)(2) and (5). In the event Plaintiff fails to file a motion for summary judgment with respect to the remaining elements of avoidability contained in 11 U.S.C. § 547(b)(2) and (5) within 30 days from the date of entry of this order, the Court will schedule another pre-trial conference.