Summary
noting that bankruptcy law does not qualify as "generally applicable law"
Summary of this case from In re Millivision, Inc.Opinion
Case No. BR-06-01311-PHX-CGC, Adversary No. 06-00637.
October 27, 2006
Trudy A. Nowak, Anderson Nowak, PLC, Phoenix, Arizona, Attorneys for Chapter 7 Trustee.
Steven M. Cox, Waterfall Economidis Caldwell et al, Tucson, Arizona, Attorneys for GMAC.
G. Terris Porter, The Porter Law Offices, Show Low, Arizona, Attorneys for Debtors.
Robert and Kimberly Moore, Show Low, Arizona, Debtors.
Lawrence J. Warfield, Scottsdale, Arizona, Chapter 7 Trustee Office of the U.S. Trustee, Phoenix, Arizona.
UNDER ADVISEMENT DECISION RE: MOTION FOR SUMMARY JUDGMENT AND MOTION TO COMPEL TURNOVER AND APPROVE SALE OF PROPERTY FREE AND CLEAR OF ALL LIENS
I. Introduction
The issue presented is whether the Trustee can avoid the post-petition perfection of a lien on an automobile under 11 U.S.C. section 549 or section 544(a).
The facts are not disputed. Ten days prior to bankruptcy, Debtors purchased a car with funds advanced by General Motors Acceptance Corporation ("GMAC"). Twenty-nine days later, the lien was noted on the Title and Registration Application on file and endorsed by the Motor Vehicle Department-Winslow in an effort to perfect under Arizona Revised Statute ("A.R.S") section 28-2132. The Trustee sued GMAC to avoid the lien as an unauthorized post-petition transfer under 11 U.S.C. section 549 and 544(a). GMAC argues that its perfection was timely because (1) it occurred within the thirty day window of Section 547(c)(3)(B) and (1) because the perfection of the lien was not a "transfer" within the meaning of Section 549.
The Trustee also asserted claims under other sections of the Code; however, due to the resolution of this issue, it will be unnecessary to address those other claims.
Section 549(a) allows avoidance of post-petition transfers that are not authorized by the Court or by other provisions of the Code. In delayed perfection cases, such as this one, the usual safe harbor is Section 546(b), which excepts from Section 549's reach perfections that, under other generally applicable law, may relate back to the date value was originally given. Usually, "other generally applicable law" means the particular state's version of the Uniform Commercial Code or its motor vehicle lien statutes.
II. Transfer
GMAC argues that the perfection of its lien is not a transfer under the Ninth Circuit cases of In re Shamblin, 890 F.2d 123 (9th Cir. 1989) and In re Schwartz, 954 F.2d 569 (9th Cir. 1991). Neither case is helpful to the GMAC's cause. Shamblin held that a tax sale conducted under Illinois law was not a transfer within the meaning of Section 549. That holding has no relevance to the question of whether the post-petition perfection of a motor vehicle lien is a transfer, which, under the broad definition of Section 101(54), it clearly is. Indeed, Section 101(54) has been amended since Shamblin to remove any ambiguity regarding whether the creation of a lien is a transfer. Schwartz dealt with Section 549 only to extent necessary to determine whether violations of the automatic stay are void rather than voidable. The Court stated in Schwartz:
The law in this circuit is that violations of the automatic stay are void and that section 549 applies to transfers of property which are not voided by the stay.
That quotation applies precisely to this case. Section 362(b)(24) excepts from the stay those transfers that are not avoidable under Section 549, thereby requiring an analysis of whether a particular transfer fits within an exemption. If it does not fit under an exemption, the transfer is void under Schwartz. III. The Safe Harbor
Thus, the question presented is whether this perfection fits within the safe harbor.
The perfection does not fit within the safe harbor of Section 546(b) if the applicable law is A.R.S. section 28-2133(B), as it provides only a ten day relation back period and here twenty-nine days passed. Therefore, GMAC's lien can survive only if the longer thirty day period of Section 547(c)(3)(B) applies. It does not. That subsection clearly applies only to preference cases and the Trustee is not seeking relief under that section.
However, a closely related code provision is Section 326(e)(2), which provides an exception to the automatic stay for "any act to perfect . . . an interest in property . . . to the extent that such act is accomplished within the period provided under section 547(e)(2)(A) of this title." This provision, unlike Section 362(e), is not, on its face, limited to preference actions under Section 547; to wit, it does not contain the limiting language "for the purposes of this section." Is Section 362(e)(2), therefore, "generally applicable law" that, by incorporating the newly expanded thirty day time period of revised Section 547(e)(2)(A), can save GMAC's lien under Section 546(b)? While this is an intriguing argument, it is neither logical nor supported by the reported decisions.
A case on all fours is In re Millivision, Inc., 331 B.R. 515 (Bkrtcy. D. Mass 2005). There, a lender extended non purchase money credit immediately pre-petition and perfected a few days post-petition. The issue presented was whether Section 362(e)(2)(b) was "generally applicable law" that provided a relation back safe harbor under Section 546(b) to avoidance under Sections 544 and 549. The court answered "no" because Section 362(e)(2)(B)'s applicability is limited to bankruptcy cases, not to commercial relationships generally, citing In re Microfab, Inc., 105 B.R. 152 (Bankr. D. Mass 1989) and In re Planned Protective Services, Inc., 130 B.R. 94 (Bankr. C.D. Cal. 1991). While GMAC is certainly correct that federal law may qualify as "generally applicable," it has provided no support for the notion that bankruptcy law may so qualify.
While this case involves purchase money credit, the difference is immaterial. It was important in Millivision because if the loan had been purchase money, it would have provided a defense against a preference claim, though not against a strong arm claim under Section 544(a).
The Court has located no cases on point at the circuit level.
IV. The Remedy
The question that remains is what is the Trustee's remedy under these circumstances? Under Schwartz, the transfer is void; therefore, there is no transfer left to avoid under Section 549(a). Section 544(a)(2) gives the Trustee the powers of a hypothetical lien creditor as of the date of the petition, which under applicable Arizona law, would trump GMAC's unperfected security interest. Under Section 544(a), the focus is on the pre-petition grant of the security interest, rather than the post-petition perfection of the security interest. However, GMAC argues that, because the title was not issued until after the petition, Debtor had no property to transfer when the grant was made and therefore Section 544(a) does not apply. This is not the law.
At the time of the loan, Debtor obtained possession and use of the vehicle; in UCC terms, Debtor clearly had "rights in the collateral." Title 28 clearly distinguishes between "ownership" and "title." "`[O]wnership' exists independent of a certificate of title. Indeed, even a certificate of title is merely prima facie evidence of ownership." Reinke v. Alliance Towing, 207 Ariz. 542, 88 P.3d 1154 (App. 2004); Wallace Imports, Inc. v. Howe, 138 Ariz. 217, 224, 673 P.2d 961, 968 (App. 1983) (citing Pacific Finance Corp. v. Gherna, 36 Ariz. 509, 287 P. 304 (1930)). While title is determinative of rights between the possessor and a third party, it is not necessary to give the possessor all other indicia of ownership. Indeed, taking GMAC's claim to its logical conclusion would make its financing documents illusory, as they not only recognize but require that the person granting the security interest is the owner of the vehicle.
V. Conclusion
Thus, the Trustee's appropriate remedy is avoidance under Section 544(a) as a hypothetical lien creditor asserting a superior claim to the vehicle over that of the unperfected security interest of GMAC. The Trustee's motion to compel turnover is also granted with respect to the proceeds from the sale of the automobile by GMAC. Since the vehicle has been sold by GMAC, the Trustee's additional requests for an order approving the Trustee's sale of the vehicle and an order directing the Arizona Motor Vehicle Department to issue a new certificate of title in the Trustee's name are moot.
Counsel for trustee is to submit a form of order.
So ordered.