Opinion
Bankruptcy No. 12-25546-CMB Adversary No. 13-2100-CMB
01-27-2014
In re: Kuzy's Drug Store, Inc., Debtor. Kuzy's Drug Store, Inc. by Pamela J. Wilson, Chapter 7 Trustee, Plaintiff, v. Alfred A. L'Altrelli, Defendant.
Donald R. Calaiaro, Esq., for Defendant Charles O. Zebley, Jr., Esq., for Plaintiff Pamela J. Wilson, Esq., Chapter 7 Trustee
Chapter 7
Appearances: Donald R. Calaiaro, Esq., for Defendant
Charles O. Zebley, Jr., Esq., for Plaintiff
Pamela J. Wilson, Esq., Chapter 7 Trustee
MEMORANDUM ORDER
The matter before the Court is the Complaint to Compel Turnover of Motor Vehicle ("Complaint") filed by Trustee, Pamela J. Wilson, seeking turnover of a 2008 Lincoln Navigator ("Vehicle") titled in the name of the Debtor, Kuzy's Drug Store, Inc., but purchased, maintained, and possessed by Defendant, Alfred A. L'Altrelli.
This Court has subject matter jurisdiction pursuant to 28 U.S.C. §§157 and 1334. This is a core matter pursuant to 28 U.S.C. § 157(b)(2)(E), and the Court will enter final judgment. However, if the United States District Court determines pursuant to the rationale set forth in Stern v. Marshall, 131 S.Ct. 2593 (2011), that this Court does not have the authority to enter final judgment, then the Memorandum Order entered shall constitute the Court's proposed findings of fact and conclusions of law and recommendation to the District Court.
In addition to possession of the vehicle, Plaintiff also seeks a judgment in the amount of $24,521.00 plus statutory interest. Upon motion of the Defendant, Plaintiff's portion of the Complaint seeking such damages was dismissed at trial.
11 U.S.C. §542(a) provides that "an entity, other than a custodian, in possession, custody, or control, during the case, of property that the trustee may use, sell, or lease under section 363 of this title . . . shall deliver to the trustee, and account for, such property or the value of such property, unless such property is of inconsequential value or benefit to the estate." Title 11 U.S.C. §363(b)(l) identifies the type of property subject to §542(a) as being "property of the estate." Accordingly, in order to succeed, the Plaintiff-Trustee must show by a preponderance of the evidence that the vehicle subject of this action is, in fact, property of the estate. Walsh v. Bosack (In re Bosack), 454 B.R. 625, 630 (Bankr.W.D.Pa. 2011).
In defining what constitutes "property of the estate" and thus, is subject to turnover pursuant to §542, 11 U.S.C. §541(a)(1) states that upon the "the commencement of a case under section 301, 302, or 303 of this title creates an estate. Such estate is comprised of all the following property, wherever located and by whomever held . . . all legal or equitable interests of the debtor in property as of the commencement of the case." However, this broad inclusion of property is limited under §541(d), which provides that:
[p]roperty in which the debtor holds, as of the commencement of the case, only legal title and not an equitable interest, such as a mortgage secured by real property, or an interest in such a mortgage, sold by the debtor but as to which the debtor retains legal title to service or supervise the servicing of such mortgage or interest, becomes property of the estate under subsection (a)(1) or (2) of this section only to the extent of the debtor's legal title to such property, but not to the extent of any equitable interest in such property that the debtor does not hold.Thus, '"the bankruptcy estate . . . obtains no greater ownership rights . . . than [the debtor] . . . would have . . . prior to the bankruptcy filing.'" In re John S. Stewart, 325 Fed.Appx. 82, 84 (3d Cir.2009)(citation omitted). Where the bankruptcy estate has been found to succeed to nothing more than bare legal title of property, courts within the Third Circuit have observed that a trustee's exercise of his §363 powers over said property is inappropriate as the property would be held for the benefit of the equitable owner and the estate would derive no benefit. In re John S. Stewart, 325 Fed.Appx. at 83; See also Coy v. Coy (In re Coy), 08-10697 BLS, 2011 WL 3667607 (Bankr.D.Del. August 22, 2011).
In evaluating whether a vehicle is property of an estate, the Court must determine the "nature and extent of the debtor's interest" in the vehicle. Zimmerman v. Potter (In re Potter's Landscape Nursery, Inc.), 44 B.R. 198, 200 (Bankr.E.D.Pa. 1984). Relative to this determination, it has been recognized that in Pennsylvania, a certificate of title to a vehicle may be indicia of ownership, but it is not conclusive evidence of such. Com. v. One 1970 Fiat Sedan, 6 Pa. D. & C.3d 607, 610 (Pa. Com. Pl. 1978); See also In re Potter's Landscape Nursery, Inc., 44 B.R. at 200; In re Summers' Estate, 424 Pa. 195, 198, 226 A.2d 197, 199 (1967). Thus, the certificate of title does not necessarily establish ownership. In re Potter's Landscape Nursery, Inc., 44 B.R. at 200. In addition to the certificate of title, courts have considered other factors in assessing ownership including whether the individual has been responsible for loan installment payments, insurance costs, and maintenance expenses; the tax treatment of the vehicle, and; possession and control. See Id.; Com. v. One 1970 Fiat Sedan, supra.
Upon consideration of the Complaint, The Defendant's Answer to Complaint to Compel Turnover of Motor Vehicle, the pre-trial statements filed by the parties, the arguments and evidence set forth at the hearing held November 20, 2013, as well as the cases cited above, the parties' post-trial briefs, and the entire record of this case, the Court finds as follows:
At trial, Plaintiff argued that under 11 U.S.C. §544, Plaintiffs position as a hypothetical lien crediton ___ notice would prime any interest held by the Defendant. As Plaintiff failed to properly raise this argument in the pleadings, the Court will not rule on this claim at this time. However, the Court notes that it has previously observed that a judgment creditor's right to stand in priority over an earlier unrecorded equitable interest is not absolute. See Aidtman v. Aultman (In re Aultman), 223 B.R. 481 (Bankr.W.D.Pa. 1998).
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1. Prior to trial, the parties stipulated that the Vehicle, although titled in the name of Debtor at the time of purchase and the commencement of the underlying bankruptcy case, was purchased by Defendant with his personal funds and was used by Defendant thereafter. At trial, Defendant's witnesses credibly testified that the sole reason for titling the Vehicle in Debtor's name was to secure insurance which would permit Defendant to immediately take possession of the Vehicle but shortly after the sale, Defendant obtained his own insurance for the Vehicle and made the payments. Further, it was undisputed that Debtor never exercised control over, or even used, the Vehicle and that Defendant was responsible for all repairs and maintenance to the Vehicle.
2. The stipulated facts and evidence and testimony presented at trial demonstrate that Defendant is the equitable owner of the Vehicle.
3. Even if the Certificate of Title created a rebuttable presumption of ownership by Debtor, Defendant has successfully shown that such presumption was overcome by the parties' treatment of the Vehicle as described above. See Com. v. One 1970 Fiat Sedan, 6 Pa. D. & C.3d 607, 610 (Pa. Com. Pl. 1978).
4. Accordingly, Plaintiff failed to prove by a preponderance of the evidence that the bankruptcy estate possesses an equitable interest in the Vehicle; the bankruptcy estate merely possesses bare legal title.
5. As the bankruptcy estate possesses bare legal title in the Vehicle, the Trustee's exercise of his §363 powers with respect to the Vehicle is inappropriate.
Based on the foregoing, it is hereby ORDERED, ADJUDGED, and DECREED, that the Complaint to Compel Turnover of Motor Vehicle is DENIED.
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Carlota M. Böhm
United States Bankruptcy Judge
CASE ADMINISTRATOR TO MAIL TO:
Office of the United States Trustee
Donald R. Calaiaro, Esq.,
Charles O. Zebley, Jr., Esq.,
Pamela J. Wilson, Esq.,Trustee