Opinion
Case No. 18-33750 Adv. No. 19-3011
01-07-2020
In re: WILLIE CARL WIGGINS, Debtors ERIN C. RENNEKER, Plaintiff v. DAY AIR CREDIT UNION, INC., Defendant
Copies to: Erin C. Renneker (Counsel for the Plaintiff) Stephen D. Miles (Counsel for the Defendant)
Chapter 7
Decision Denying Trustee's Motion for Summary Judgment
This decision addresses whether a lien noted on a motor vehicle title, properly perfected as to a loan, secures a subsequent loan between by the same lender and borrower. The subsequent loan paid off the first loan, without the release of the original lien notation or the entering of a new lien notation on the vehicle title. In such circumstances, does the lender remain perfected by the original lien notation? The first loan lacked a cross-collateralization or future advance clause, but the second loan had such a provision and additionally listed the vehicle as security.
This court has jurisdiction pursuant to 28 U.S.C. § 1334 and the Standing Order of Reference 05-02 (S.D. Ohio). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (K), and (O) and the court has constitutional authority to enter final judgment in this contested matter.
Findings of Fact
The debtor, Willie Carl Wiggins ("Wiggins"), filed a Chapter 7 bankruptcy petition on December 12, 2018 and scheduled ownership of a 2012 Dodge Ram Quad Cab 1500 pickup truck (the "Vehicle") with a lien held by Day Air Credit Union ("Day Air") (doc. 1). The Chapter 7 trustee, Erin C. Renneker (the "Trustee"), filed a complaint against Day Air, alleging that Day Air failed to renew its lien upon the refinancing of a secured automobile loan with the debtor, and that the Trustee can therefore avoid the unperfected lien under her strong-arm powers as a hypothetical judicial lien creditor under § 544(a)(1) of the Bankruptcy Code and require Day Air to return the vehicle, or the value of the vehicle, to the bankruptcy estate. 11 U.S.C. § 550. Day Air argues that the lien, perfected at the time the first loan was executed, remains perfected and cannot be avoided.
The facts are undisputed. Wiggins purchased the Vehicle on December 7, 2016 for $26,670.45. To finance this purchase, Wiggins executed a Retail Installment Contract and Security Agreement (the "Agreement" - doc. 16-1) under which he was the buyer and Evans Arena Chrysler Dodge was the seller. The seller took a security agreement in the Vehicle and the Agreement provided an assignment of the seller's rights to Day Air. The lien on the Vehicle was noted on the certificate of title on December 20, 2016. doc. 16-2. The parties do not dispute the lien on the title for this loan was properly perfected. The parties agree that the Agreement did not contain any future advance clause or cross-collateralization clause that would provide other loans between Day Air and Wiggins were also secured by the Vehicle.
On June 6, 2018 Wiggins refinanced the loan and borrowed $25,844.11 from Day Air (the "Consumer Lending Plan" - doc. 16-3). Those loan proceeds were used to pay the full balance on the first loan. Specifically, in the section titled "Amounts Paid to Others on Your Behalf," it states that $25,808.11 would be used to pay off the Agreement. The Consumer Lending Plan also lists the Vehicle as security under a section titled "Security Information." At that time, Day Air did not record any new lien on the vehicle title nor did it take any steps to remove the lien on the certificate of title. The Consumer Lending Plan contains the following provision: "Security: You are giving a security interest in your shares and deposits in the credit union, as well as the collateral described below. Collateral for other loans with us will also secure this loan, except for your home and household goods." The Consumer Lending Plan has an additional section addressing cross-collateralization that states: " Cross-Collateralization : All other collateral you have pledged for any other loan with us (except your home and household goods) will also secure this plan."
The Consumer Lending Plan also included a pre-paid $36 finance charge.
Summary Judgment Standard
Federal Rule of Civil Procedure 56(a), made applicable to adversary proceedings through Federal Rule of Bankruptcy Procedure 7056, sets forth the standard to address the parties' filings. It states, in part, that a court must grant summary judgment to the moving party if the movant shows that there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law. In order to prevail, the movant, if bearing the burden of persuasion at trial, must establish all elements of its claim. Celotex Corp. v. Catrett, 477 U.S. 317, 331 (1986). All inferences drawn from the underlying facts must be viewed in a light most favorable to the party opposing the motion. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587-88 (1986)
Analysis
Section 544(a)(1) of the Bankruptcy Code allows a trustee, as a hypothetical judicial lien creditor, to avoid a security interest in a motor vehicle if it is unperfected as of the petition date. Drown v. ESB (In re Farley), 387 B.R. 751, 754 (Bankr. S.D. Ohio 2008). The Trustee is deemed perfected as of the petition date. Drown v. Perfect (In re Giaimo), 440 B.R. 761 765 (B.A.P. 6th Cir. 2010). The lien is required to be listed upon the certificate of title of the vehicle. Ohio Rev. Code § 4505.13(B). A financing statement is not applicable to the perfection of a motor vehicle governed by Chapter 4505 of the Ohio Revised Code. Ohio Rev. Code § 1309.311(A)(2). Moreover, the duration and renewal of motor vehicle liens is governed by the Certificate of Motor Vehicle Title Law, Chapter 4505 of the Ohio Revised Code.
The Trustee concedes that Ohio law generally allows cross-collateralization clauses in a security agreement. Ohio Rev. Code § 1309.204. The Trustee also concedes that Day Air is permitted to cross-collateralize to secure multiple obligations incurred by the same borrower. See In re House, Case No. 06-33629, ECF No. 59 (Bankr. S.D. Ohio May 22, 2008) (Humphrey, J.) (a cross-collateralization clause is a permitted contractual provision for a consumer automobile loan under Ohio law); In re Comprehensive Review Tech., Inc., 138 B.R. 195 (Bankr. S.D. Ohio 1992). Absent an attempt to cross-collateralize real estate or household goods, this court has allowed such provisions in consumer transactions. See House and In re Albert, 04-34387, ECF No. 109 (Bankr. S.D. Ohio July 12, 2006) (Waldron, J.).
Nevertheless, the Trustee argues that the lien noted on the Vehicle title at the time of the making of the first loan does not secure the obligations under the Consumer Lending Plan when the obligations under the Agreement were re-paid by the Consumer Lending Plan. But at the time when the Consumer Lending Plan was executed, it was secured by any security interest in other loans Wiggins had with Day Air. The Consumer Lending Plan specifically mentioned the Vehicle as pledged collateral and therefore the debtor had notice that the perfected lien applied to the Consumer Lending Plan. In addition, the Consumer Lending Plan provides that it is secured by "[a]ll other collateral . . . for any other loan with [Day Air] . . . except your home and household goods." Consumer Lending Plan at 2. The Agreement, as a matter of contract and timing, could not have been paid until the parties entered into the Consumer Lending Plan. The Consumer Lending Plan, at the moment it was executed by the parties, therefore included the perfected security interest in the Vehicle from the Agreement pursuant to the cross-collateralization clause in the Consumer Lending Plan. Indeed, the cross-collateralization clause specifically references property "you have pledged." Therefore, the Consumer Lending Plan was secured by a perfected Security Interest in the Vehicle. The security interest in the Vehicle therefore is valid and remains perfected.
Upon payment of all obligations concerning a lien on a vehicle, the lienholder is required to note the discharge of the lien on the physical certificate of title. Ohio Rev. Code § 4505.13(B). This section also allows for an "automated title processing system."
Under § 544(a)(1), at least for mortgages, the issue is not notice or actual knowledge to the lien creditor, but whether the lien was properly executed. Harker v. PNC Mortgage Corp. (In re Oakes), 917 F.3d 523, 530-31 (6th Cir. 2019). In this instance, a hypothetical lien creditor would have proper notice, and the lien is properly executed. --------
This conclusion is not inconsistent with the decision cited by the Trustee, Viegelahn v. Randolph Brooks Fed. Credit Union (In re Guiles), 580 B.R. 466 (Bankr. W.D. Tex. 2017). In Guiles, the debtor entered into a loan for a purchase of a motor vehicle, which was subsequently perfected under Texas law. The court found that the future advance clause in the original loan secured the second loan. The Trustee argues that this case is distinguishable because the cross-collateralization clause was in the Consumer Lending Plan and not the original Agreement. But in Guiles, the court noted the cross-collateralization clause at issue covered both present and future indebtedness. Id. at 473. In this instance, the Vehicle with the perfected lien was part of the consideration for the loan, and that was not buried in boilerplate language. In addition, like the facts here, the Guiles court also found that the original loan could not have been repaid until the second loan was made and that at "every moment" the debtor's obligations were secured. Id. at 473.
The Trustee argues the reference to "all other [collateral]" in the cross-collateralization provision of the Consumer Lending Plan excludes the Vehicle because it is specifically listed as collateral for that second loan. This reasoning is a strained interpretation of the Consumer Lending Plan. The court finds this language suggests that the security interest applies to the Vehicle, as well as any other collateral that may be otherwise pledged to Day Air. The Consumer Lending Plan informed Wiggins that Day Air was treating the Vehicle as collateral for the new obligations because the Vehicle secured another loan with Day Air. Compare Wooding v. Cinfed Emps. Fed. Credit Union, 171 Ohio App.3d 665, 668 (Ohio Ct. App. 2007) (documents executed by borrower did not specifically provide vehicle would secure a credit card account and therefore there was no "meeting of the minds" as to cross-collateralization) with In re Zaochney, No. A11-00603-DMD, 2011 WL 6148727, at *4 (Bankr. D. Alaska Dec. 12, 2011) ("[T]he loan documents signed by the debtor plainly state that collateral pledged for one loan will secure other existing or future loans extended by the credit union."). See also Guiles, 580 B.R. at 471 (cross-collateralization provisions must be reasonably contemplated by the parties from the language in the contract); In re Howard, 312 B.R. 840, 843 (Bankr. W.D. Ky. 2004) (similar analysis applying Kentucky law). It was clear as a matter of contract what was intended between the parties in the Consumer Lending Plan. Wiggins would have had no reasonable expectation that Day Air was providing an unsecured signature loan for almost the exact amount of the unpaid balance of the Agreement.
Conclusion
For these reasons, the Chapter 7 Trustee's motion for summary judgment is denied. The court will enter a separate order consistent with this decision.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
/s/ _________
Guy R. Humphrey
United States Bankruptcy Judge Dated: January 7, 2020
Copies to: Erin C. Renneker (Counsel for the Plaintiff) Stephen D. Miles (Counsel for the Defendant)