Opinion
Case No. 8:18-bk-02607-RCT Adv. No. 8:18-ap-00595-RCT
10-26-2020
In re: Abdel Karim Shabanah, Debtor. Stephen L Meininger, Chapter 7 trustee, Plaintiff, v. Abedelilah Alami-Binani and Souzan Farah Nabi, Defendants.
Chapter 7 ORDER DENYING , WITHOUT PREJUDICE, PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT
Before the Court is the Motion for Partial Summary Judgment (Doc. 55) (the "Motion") filed by Plaintiff Stephen L. Meininger, Chapter 7 trustee (the "Trustee"), on Count I of his adversary complaint; the response to the Motion by Defendant Abedelilah Alami-Binani (Doc. 56) (the "Response"); and the reply by the Trustee (Doc. 57) (the "Reply"). At issue is whether the Trustee may avoid, as a preference, the judgment lien in favor of Defendant Alami-Binani (the "Defendant") obtained by levy upon a certain stock certificate once belonging to the Debtor. More specifically, the Court must decide whether perfection of Defendant's judgment lien occurred within the 90-day preference period provided in 11 U.S.C. § 547(b)(4)(A).
Doc. 4 (hereafter, the "Complaint").
The Trustee and Defendant Souzan Farah Nabi have settled their dispute, and Ms. Nabi has released any claim she may have once had to the stock at the center of this adversary proceeding (Case No. 8:18-bk-02607-RCT, Docs. 99 & 107). Thus, she is no longer a party to this proceeding.
The Court previously entered an order on the Trustee's motion for partial summary judgment on Count VIII of the Complaint, ruling, in relevant part, that the stock certificate in question was property of the estate, albeit "subject to the potentially avoidable judgment lien of [Defendant]." (Doc. 43).
For the reasons that follow, the Motion is denied.
Background
In 2012, Debtor and Defendant formed 1417 Soho Investment, Inc. ("1417 SOHO") to operate a Tampa convenience store. Debtor and Defendant each owned 50% of 1417 SOHO. Debtor was issued Share Certificate No. 1 to reflect his 50% interest (the "Stock Certificate").
Within a year, the relationship soured. Defendant sued Debtor and his then wife, alleging improprieties relative to the operation of 1417 SOHO. On October 24, 2017, after years of protracted litigation, including a four-day jury trial, Defendant obtained a final judgement against Debtor for $307,417.46 (the "Judgment").
Motion Ex. 1. Defendant timely filed a proof of claim in the chapter 7 case (Claim No. 11-1). The claim was filed as a secured claim for the full amount of the Judgment by virtue of the levy upon the Stock Certificate. Defendant also asserted certain unliquidated, unsecured claims.
On November 20, 2017, Defendant obtained a writ of execution to levy on the Stock Certificate. The following day, Defendant filed a Judgment Lien Certificate with the Florida Secretary of State.
Response Ex. 1.
On December 29, 2017, the Hillsborough County Sheriff (the "Sheriff"), acting on the writ of execution, took possession of the Stock Certificate. At the same time, a check for the Sheriff's fee was tendered.
Motion Ex. 2 (Aff. of Michael C. Addison sworn to Oct. 15, 2019) ¶ 11.
On January 2, 2018, a Notice of Sheriff's Levy was recorded in the official records of Hillsborough County. The check tendered for the Sheriff's fee cleared the same day.
Motion Ex. 3.
Reply Ex. 1.
Debtor filed his chapter 7 petition on March 31, 2018, and the Trustee was appointed to administer the bankruptcy estate. With consent of the parties, the Sheriff transferred possession of the Stock Certificate to the Trustee, pending resolution of this adversary proceeding.
Summary Judgment Standard
Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." The moving party bears the initial burden of showing the absence of a triable issue of fact and its entitlement to judgment as a matter of law. Thereafter, the burden shifts and the non-moving party must set forth specific facts to show that there is a genuine issue for trial. All inferences to be drawn from the facts must be viewed in the light most favorable to the non-movant.
Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (quoting Fed. R. Civ. P. 56(c) (1963) (later amended and relocated, in part, to Fed. R. Civ. P. 56(a))); see Fed. R. Civ. P. 56(a) (incorporated by Fed. R. Bankr. P. 7056).
Kernel Records Oy v. Mosley, 694 F.3d 1294, 1300-01 (11th Cir. 2012).
Discussion
The Trustee moves for partial summary judgment on Count I of the Complaint, in which he seeks to avoid, pursuant to 11 U.S.C. § 547(b), the levy on the Stock Certificate as a preference. "A preference is a 'transfer that enables a creditor to receive payment of a greater percentage of his claim against the debtor than he would have received if the transfer had not been made and he had participated in the distribution of the assets of the bankruptcy estate.' " As a threshold matter, the transfer at issue must be identified. Here, the challenged transfer is the perfection of the Defendant's Judgment lien against the Stock Certificate.
Barrett Dodge Chrysler Plymouth, Inc. v. Cranshaw (In re Issac Leaseco, Inc.), 389 F.3d 1205, 1209 (11th Cir. 2004) (quoting Union Bank v. Wolas, 502. U.S. 151, 160-61 (1991)).
Bank of America, N.A. v. Mukamai (In re Egidi), 571 F.3d 1156, 1160 (11th Cir. 2009).
Section 547(b) of the Bankruptcy Code provides:
[T]he 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—
It is the trustee's burden to establish all five elements of a preference claim.(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.
See In re Egidi, 571 F.3d at 1160 (citing Warsco v. Preferred Tech. Grp., 258 F.3d 557, 564 (7th Cir. 2001)).
The Trustee argues that undisputed facts establish that Defendant's levy on the Stock Certificate is an avoidable preference. The Trustee asserts that (1) Defendant is a Creditor of the Debtor by virtue of the Judgment, (2) the Judgment was obtained by Defendant 159 days before the filing of the petition and is therefore an antecedent debt, (3) Debtor was "hopelessly insolvent" under any appropriate test, (4) notice of the levy was recorded 89 days before the filing, and (5) because of the minimal assets available to the estate, the levy, if not avoided, will enable Defendant to receive more than he would if the levy had not been made.
The Trustee notes Debtor has had no income for over three years and Debtor's schedules reflect that his liabilities, not including certain unscheduled claims, exceed his assets by almost $300,000.
In the Complaint, the Trustee alleges that Defendant is an insider of the Debtor pursuant to 11 U.S.C. §§ 101(2) and (31)(E). Compl. ¶ 19. Thus far, the Trustee has not relied on any alleged insider status, which, if proven, would extend the preference period from 90 days to one year. § 547(b)(4)(B). But, in any event, Defendant has denied that allegation (Doc. 6).
Defendant does not dispute that the Trustee has established that he is a Creditor of the Debtor, the levy was on account of an antecedent debt, and the levy was made while Debtor was insolvent. Rather, Defendant maintains that the Trustee has not established the last two elements. Defendant argues that, under Fla. Stat. § 678.1121(1), the levy was complete when the Sheriff took possession of the Stock Certificate on December 29, 2017, 92 days before the bankruptcy was filed. Moreover, as a secured creditor, Defendant argues he would receive the full value of his collateral in a Chapter 7 liquidation.
On the issue of whether the levy, if not avoided, would enable Defendant to receive more in the chapter 7 case than he otherwise would had the transfer not been made, the Court agrees with the Trustee. Defendant's argument assumes that he is a secured creditor and, moreover, secured in the Stock Certificate by virtue of the levy. But if the levy is avoided, Defendant's secured status disappears. And rather than being paid in full on his claim, Defendant would be paid pro rata with other general unsecured creditors.
Reply ¶¶ 3 & 4.
But on the issue of whether the levy was made "on or within" the 90 days before the commencement of the bankruptcy, the Court agrees with the Defendant. And for that reason, summary judgment must be denied.
The Trustee's argument as to the relevant date of the challenged transfer evolves from the Motion to the Reply, but neither position is persuasive. In the Motion, the Trustee argues the levy was not completed, i.e. Defendant's judgment lien not perfected, until the recording of the Notice of Sheriff's Levy in the county records and, thus, the relevant date is January 2, 2018. In his reply, the Trustee instead argues, citing Fla. Stat. § 30.231, that the levy was not completed until the statutory fee to the Sheriff was paid, more specifically when the check cleared, which also happened on January 2, 2018. Under either argument, the Trustee asserts the relevant date is January 2, 2018, which was 89 days before Debtor filed the petition.
The Court calculates the number of days as 88, but the discrepancy is of no moment.
Defendant argues that the relevant date for purposes of the analysis is the day the Sheriff took possession of the Stock Certificate. Citing Fla. Stat. § 678.1121(1), Defendant argues that the levy was complete, and his judgment lien perfected, when the Sheriff actually seized the Stock Certificate on December 29, 2017, 92 days before Debtor filed the petition.
Defendant is correct. Fla. Stat. § 678.1121(1) "controls the method by which a creditor may reach a debtor's interest in corporate stock." Fla. Stat. § 678.1121(1) provides:
Cohen v. Roy (In re Cohen), No. 09-16860-BKC-PGH, Adv. No. 09-1430-PGH-A, 2009 WL 3675400, *4 (Bankr. S.D. Fla. Oct. 30, 2009); see Hastings v. Furr, 177 B.R. 723, 726-27 (S.D. Fla. 1995); Six v. Henderson (In re Six), 220 B.R. 479, 485 (Bankr. M.D. Fla. 1994).
The interest of a debtor in a certificated security may be reached by a creditor only by actual seizure of the security certificate by the officer making the attachment or levy, except as otherwise provided in subsection (4). However, a certificated security for which the certificate has been surrendered to the issuer may be reached by a creditor by legal process upon the issuer.The statute is clear. A levying creditor perfects its lien in a certificated security "only by actually seizing the certificate." As stated by another court, "[t]he statute addresses the unique nature of certificated securities by affording them special treatment different from other types of leviable property." Nothing more, and nothing less, than actual possession of the non-surrendered certificated security is required. Accordingly, the relevant date for purposes of § 547(b)(4)(A) of the Bankruptcy Code in this case is December 29, 2017, the day the Sheriff took possession of the Stock Certificate.
In re Cohen, 2009 WL 3675400, at *5; see Hastings, 177 B.R. at 727 ("Certificated securities must be actually seized to perfect a creditor's lien against a debtor's certificated securities."); In re Six, 220 B.R. at 485 ("The attachment is not valid until the security is actually seized, and the lien therefore, is perfected upon seizure of the stock by the sheriff.").
Hastings, 177 B.R. at 726-27 ("Only requiring actual seizure to perfect a lien under the statute supports the statute's purpose of protecting both creditors and transferee from wrongful transfer by the debtor."). The Hastings Court construed the predecessor statute to Fla. Stat. § 678.1121, which was substantial similar. See In re Cohen, 2009 WL 3675400, at *5 & n.1.
See Hastings, 177 B.R. at 726-27; see also In re Six, 220 B.R. at 485 ("Under Florida law, possession is required in order to perfect a security interest in certificated securities.").
The Trustee cites no authority for the proposition that a notice of sheriff's levy is required to perfect a creditor's lien in a certificated security, nor could the Court locate any such authority. And while Fla. Stat. § 30.231 does require a fee be paid to a sheriff for executing a levy, the statute applies broadly to all levies regardless of the type of property involved. Fla. Stat. § 678.1121(1), on the other hand, is specific and speaks directly to how a creditor reaches a debtor's interest in stock.
Interestingly, in describing when a levy is made for purposes of accessing the fee, Fla. Stat. § 30.231 is consistent with the language of Fla. Stat. § 678.1121(1) as it states that a levy is "considered made when any property . . . is seized" and "[s]eizure requires that the sheriff take actual possession, if practicable . . . ." Fla. Stat. § 30.231(1)(d)(2)(a).
See In re Cohen, 2009 WL 3675400, at *4-*5; Hastings, 177 B.R. at 726-27.
For these reasons, it is ORDERED that the Trustee's Motion for Partial Summary Judgment on Count I is DENIED, without prejudice.
See supra note 16. --------
ORDERED. Dated: October 26, 2020
/s/_________
Roberta A. Colton
United States Bankruptcy Judge Service of this Order other than by CM/ECF is not required. Local Rule 9013-3(b).