Opinion
CASE NO. 99-15724-JKC-7A, ADVERSARY PROCEEDING NO. 00-215
December 2, 2000
Richard E. Boston, Counsel for Plaintiff.
John J. Petr, Counsel for Defendant.
Thomas G. Bradburn, Office of the Unites States Trustee, Counsel for Debtor.
FINDINGS AND CONCLUSIONS
This Adversary Proceeding comes before the Court on a Complaint for Turnover filed by Plaintiff, Richard E. Boston, Trustee ("Trustee") and Defendant Ford Motor Credit Company's ("FMCC") Counterclaim for Replevin. Per the Court's request, the parties have each filed Motions for Summary Judgment and rely on a Stipulation of Facts and Briefs previously filed with the Court. In addition, FMCC relies on the Affidavit of Sam Holaves, also previously filed with this Court. As set forth more fully below, the Court concludes that there are no genuine issues regarding any material fact and that the Trustee is entitled to judgment in his favor as a matter of law.
The parties initially submitted the issues in this proceeding to the Court by way of their Stipulation of Facts, supporting Briefs and the Affidavit of Sam Holaves. Given that there were no disputed facts, the Court then asked the parties to file a motion or motions for summary judgment. As indicated above, both the Trustee and FMCC moved for summary judgment. Neither party responded to the others' motion as required by Local Bankruptcy Rule 7056-1 (incorporating Rule 56.1 of the Local Rules for the Southern District of Indiana). Nevertheless, the Court issues the following Findings and Conclusions as if the motions have been fully briefed.
FINDINGS OF FACT
1. On or about November 11, 1999, Brad Lee Fisher and Heather Joan Fisher, the Debtors herein ("Debtors"), executed and delivered to Fred First Inc. an Indiana Simple Interest Vehicle Retail Installment Contract ("Contract") to finance the purchase of a 1997 Ford Explorer, Vehicle Identification Number 1FMDU34E9VUC08001 (the "Motor Vehicle").
2. The Contract was assigned for value to FMCC.
3. Per the terms of the Contract, FMCC is the holder of a security interest in the Motor Vehicle.
4. On or about November 11, 1999, FMCC noted its security interest on the existing certificate of title for the Motor Vehicle at the time the Debtors purchased the vehicle.
5. On December 17, 1999, the Debtors filed their voluntary petition for relief under Chapter 7 of the United States Bankruptcy Code, 11 U.S.C. § 101, et seq. (the "Code").
6. On or about February 2, 2000, the Debtors applied with the Indiana Bureau of Motor Vehicles for a new certificate of title to the Motor Vehicle.
7. Following such application, FMCC's lien on the Motor Vehicle appeared on the Official Indiana Title Lien Record with respect to the subject Motor Vehicle.
8. By a Complaint dated April 20, 2000, the Trustee initiated this Adversary Proceeding Against FMCC, and alleged that FMCC should be required to turnover title to the Motor Vehicle to the Trustee. FMCC answered and counterclaimed for replevin.
9. Pursuant to this Court's Order dated July 31, 2000, the Trustee delivered possession of the Motor Vehicle to FMCC for sale at its "dealer only" auction, with the net proceeds from the auction to be held in escrow until judgment is entered by this Court with respect to the Trustee's Complaint and FMCC's Counterclaim.
CONCLUSIONS OF LAW
1. 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." Fed.R.Civ.Pro. Rule 56.
2. With a motion for summary judgment, the burden rests on the moving party to demonstrate "that there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). After the moving party demonstrates the absence of a genuine issue for trial, the responsibility shifts to the non-movant to "go beyond the pleadings" to cite evidence of a genuine factual dispute precluding summary judgment. Id. at 322-23.
3. If the non-movant does not come forward with evidence that would reasonably permit the finder of fact to find in its favor on a material question, then the court must enter summary judgment against it. Waldridge v. American Hoechst Corp., 24 F.3d 918, 920 (7th Cir. 1994) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-87 (1986)).
4. In substance, the Trustee has brought this avoidance action pursuant to Section 547(b) of the Code, see n. 2, infra, which provides in relevant part:
Except as provided in subsection (c) 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 is insolvent;
(4) made
(A) on or within 90 days before the date of the filing of the petition; or
(B) between 90 days and one year before the date of 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.
5. The Debtors granted FMCC a security interest in the Motor Vehicle on or about November 11, 1999; such security interest constitutes a "transfer" of property of the Debtors for purposes of Section 547(b). See 11 U.S.C. § 101(54).
6. FMCC contends that the "loan enabling exception," set forth in Code Section 547(c), provides an affirmative defense to the Trustee's preference action. That subsection provides in relevant part:
The trustee may not avoid under this section a transfer —
(3) that creates a security interest in property acquired by the debtor —
(A) to the extent such security interest secures new value that was —
(i) given at or after the signing of the security agreement that contains a description of such property as collateral;
(ii) given by or on behalf of the secured party under such agreement;
(iii) given to enable the debtor to acquire the property; and
(iv) in fact used by the debtor to acquire such property; and
(B) that is perfected on or before 20 days after the debtor receives possession of such property.
7. The Trustee bears the burden of proving the avoidability of the transfer under Section 547(b), while FMCC bears the burden of proving the nonavoidability of the transfer under Section 547(c). See 11 U.S.C. § 547(g).
8. A transfer of a security interest is "perfected" under Section 547(c)(3)(B) on the date that the secured party has completed the steps necessary under applicable state law to perfect its interest. Fidelity Financial Serv's v. Fink, 522 U.S. 211, 212-13 (1998).
9. Perfection turns on the definition provided by Section 547(e)(1)(B): "a transfer of . . . property other than real property is perfected when a creditor on a simple contract cannot acquire a judicial lien that is superior to the interest of the transferee." See id. at 214.
10. Under applicable Indiana law, a purchase money security interest in an automobile is not perfected until application for a new certificate of title is made with the Indiana Bureau of Motor Vehicles. See Sterling v. Capital Financial Serv's, Inc., 480 N.E.2d 605, 607 (Ind.Ct.App. 1985) (citing IND. CODE § 9-1-2-1 (now IND. CODE 9-17-2-1)); see also United Leaseshares, Inc. v. Citizens Bank Trust Co., 470 N.E.2d 1383, 1389-91 (Ind.Ct.App. 1984) ("A mere notation upon the title without registering with the Bureau of Motor Vehicles is insufficient to perfect a security interest.").
11. Because application for a new certificate of title was not made on or before twenty days after the Debtors took possession of the motor vehicle, FMCC has not satisfied the elements of the loan enabling exception set forth in Section 547(c)(3).
12. FMCC's security interest was not perfected at the commencement of the case or within the twenty-day period provided by the enabling loan exception and, thus, the transfer at issue in this proceeding is deemed to have occurred immediately before the Debtors filed their bankruptcy petition. See 11 U.S.C. § 547(e)(2)(C),
The Trustee asserts that the transfer at issue here occurred post-petition, i.e., on February 2, 1999, when the Debtors finally applied for a new certificate of title. See Plaintiff's Brief in Support of Complaint to Turnover Property of Estate at 3. Based on this assertion, the Trustee further maintains that this is "[a]dmittedly . . . not a preference avoidance action, since the transfer occurred post-petition . . . ." Id. at 3-4. Instead, the Trustee contends that Section 549 of the Code, dealing with post-petition transfers of the debtor's property, controls the result of this proceeding and that Section 547 applies only by analogy. Notwithstanding the Trustee's position, the Court has examined and ruled upon the issues presented herein pursuant to Section 547 of the Code because, as stated above, the transfer at issue is deemed to have occurred immediately prior to the filing of the Debtors' petition under Section 547(e)(2)(C). While the Court is reluctant to reform a party's argument, the evidence supports the Court's approach in this instance. FMCC will not be prejudiced given that its primary defense to the Trustee's action arises under Section 547 and, thus, it appears that FMCC also approached this action as if it were brought directly under Section 547.
13. Accordingly, the transfer at issue in this case was made within the 90-day preference period.
14. FMCC loaned the Debtors the funds needed to purchase the motor vehicle on or about November 11, 1999. Therefore, the transfer is deemed to have been made on or account of an antecedent debt.
15. Such transfer was made for the benefit of FMCC.
16. The Debtors are presumed to be insolvent on and during the ninety days immediately preceding the filing of their bankruptcy petition; FMCC has not rebutted that presumption. See 11 U.S.C. § 547(f).
17. The transfer enabled FMCC to receive more than it would receive if under a distribution under Chapter 7 of the Code.
18. This Court agrees with FMCC's assertions that "[o]ne of the main purposes of a bankruptcy proceeding is the collection and equitable distribution of a debtor's estate to his or her creditors." Brief in Support of FMCC's Defense that it is a Perfected Secured Creditor at 4. To that end, Code Section 547(b) favors a more equitable distribution by allowing the trustee to avoid transfers of the debtor's property deemed to be preferential. Given the legislative intent behind Section 547(b), FMCC's equitable argument that its security interest should not be avoided is unavailing.
19. Because the Trustee has established the necessary elements of a preferential transfer under Section 547(b) of the Code and FMCC has failed to meet the showing required by Section 547(c)(3), FMCC's security interest in the Motor Vehicle is hereby avoided.
20. The Court shall enter an Order consistent with the above Findings and Conclusions.