Opinion
No. 98-6-6900 ESD.
December 13, 1999
MEMORANDUM
THIS MATTER came before the Court on the Motion of Case Credit Corporation for Order Compelling Abandonment of Personal Property ("Motion"). At issue is whether Case Credit Corporation ("Case Credit") holds valid perfected security interests in four trucks owned by the Debtor and used to transport fresh produce cross-country. The Court finds that one of the four security interests is avoidable under 11 U.S.C. § 544, but the remaining three security interests were validly perfected.
FACTS AND DISCUSSION
The parties have stipulated to sufficient facts to resolve the Motion. The Debtor purchased four International Tractors (the "Trucks") from Beltway International Trucks, Inc. ("Beltway"). The Debtor used the Trucks for cross-country hauling of fresh produce. Beltway assigned all of its rights in the Trucks to Case Credit.
The Trucks are identified as follows: 1)1998 International 9300, Serial Number 2HSFBAER9WC041 141, Account Number 01620444)0003 ("First Truck"); 2)1998 International 9400, Serial Number 2HSFHAER4WCO39134, Account Number 0162043-00003 ("Second Truck"); 3)1998 International 9300, Serial Number 2HSFBAE~WC038538, Account Number 01660434)0003 ("Third Truck"); and 4)1998 International 9300, Serial number 2H5F13AER4WC039734, Account Number 0166046-00003 ("Fourth Truck").
The Debtor filed for protection under Chapter 11 of the Bankruptcy Code on December 2, 1998. On March 15, 1999, the case was converted to a case under Chapter 7, and Zvi Guttman was appointed as the Chapter 7 Trustee.
The Debtor registered and titled the Trucks in the State of Oklahoma. A Certificate of Origin and an Oklahoma Lien Entry Form were delivered to the Oklahoma Tax Commission (or an authorized Motor License Agent) and Case Credit's Liens were noted on the Oklahoma titles for the First Truck, the Second Truck, the Third Truck, and the Fourth Truck, in accordance with Oklahoma law. The parties agree that Case Credit's security interests in the Trucks are valid, perfected security interests under Oklahoma law. The Lien Entry Form showing Case Credit's security interest in the First Truck was recorded on December 17, 1998, more than two weeks after the date the Debtor filed for bankruptcy. The security interests in the Second Truck, the Third Truck, and the Fourth Truck were perfected under Oklahoma law prior to the date the Debtor filed for bankruptcy.
The approximate current value for each of the Trucks is $79,000. The Debtor is in default on the accounts for each of the Trucks. As of January 1998, the Debtor owed Case Credit substantially more on each of the Trucks than the estimated current value for each of the Trucks.
Perfection of Security Interests
While the Trustee concedes that Case Credit holds valid perfected security interests under Oklahoma law for the Second Truck, the Third Truck, and the Fourth Truck, he asserts that the security interests were not validly perfected under applicable Maryland statutes; and, therefore, can be avoided pursuant to the trustee's avoidance powers contained in 11 U.S.C. § 544(a)(1). The relevant Maryland code sections are § 13-101.1, § 13-102(5), § 13-201(b)(6), and § 13-202(a). Md. Code Ann., Transp. §§ 13-101.1, 13-102(5), 13-201(b)(6) and 13-202(a) (1957). They provide:
Except as provided in § 13-102 of this subtitle, the owner of each vehicle that is in this State and for which the Administration has not issued a certificate of title shall apply to the Administration for a certificate of title of the vehicle.
Md. Code Ann., Transp. § 13-101.1(1957).
A certificate of title is not required for:
(5) A vehicle regularly engaged in the interstate transportation of people or property and for which a currently effective certificate of title has been issued in another state. Md. Code Ann., Transp. § 13-102(5) (1957).
Application of subtitle — This subtitle does not apply to or affect:
(6) Any vehicle for which a certificate of title is not required under this title.
Md. Code Ann., Transp. § 13-201(b)(6) (1957)
Security interest not valid unless perfected. — Unless excepted by § 13-201 of this subtitle, a security interest in a vehicle is not valid against any creditor of the owner or any subsequent transferee or secured party unless the security interest is perfected as provided in this subtitle. Md. Code Ann., Transp. § 13-202(a) (1957).
The Trucks are excepted from the perfection requirements under the Maryland Code.
First, § 13-102(5) excepts vehicles regularly used in interstate transport of people or property from having to acquire a certificate of title from the Administration in Maryland The Trustee agrees that the Trucks are used to transport fresh produce cross-country. It is also undisputed that the Trucks were titled in Oklahoma. Thus, under § 13-102, the Trucks need not be titled in Maryland Second, vehicles for which a certificate of title is not required are excepted from the application of the Maryland Code covering security interests in vehicles. Md. Code Ann., Transp. § 13-201(b)(6) (1957). Because the Trucks are not vehicles for which a certificate of title is required in Maryland, they are excepted from the application of the statutory requirements for perfection of security interests in vehicles in the state of Maryland Md. Code Ann., Transp. § 13-202(a) (1957) ( "Unless excepted by § 13-201 of this subtitle . . .") (emphasis added); see also, Orix Credit Alliance, Inc. v. Heard Family Trucking, 177 B.R. 68, 72 (S.D. Miss. 1994), aff'd, 41 F.3d 1027 (5th Cir. 1995) (determining that vehicle at issue fell within the exceptions to the Mississippi perfection provisions). Finally, § 13-202(a) contemplates that security interests which are excepted from the Maryland perfection requirements are nonetheless valid, provided they are valid perfected security interests in another jurisdiction. The parties have stipulated that Case Credit's security interests in the Trucks are valid perfected security interests under Oklahoma law. It follows that the security interests are valid under Maryland law per § 13-202(a).
The Trustee's objection stems from the fact that the Debtor's principal place of business is in the state of Maryland, and the Trucks were purchased in Maryland from a seller who is also located in Maryland, yet the Trucks are titled and registered in Oklahoma. He relies on Mottaz v. Brown (In re Brown), 18 B.R. 956 (Bankr. S.D. Ill. 1982), an Illinois bankruptcy case construing an Illinois statute with exceptions nearly identical to the exceptions contained in the Maryland Code. In In re Brown, the bankruptcy court held that a lien on a vehicle used in interstate transportation that was titled in New Jersey and owned by a resident of Illinois was not properly perfected under Illinois law. Like Maryland Code provision § 13-lO2, the Illinois statute contains certain exceptions from its certificate of title requirements. Among the exceptions are the following: 1) vehicles owned by non-residents; and 2) vehicles regularly engaged in interstate transportation of persons or property. The Illinois bankruptcy court reasoned that the purpose of the exceptions is to allow nonresidents to register vehicles in Illinois if such vehicles are engaged in interstate commerce, but that the statute was not intended to exempt vehicles engaged in interstate commerce from having an Illinois title. See id at 958. It concluded that the debtor's residence determines which state's perfection requirements apply. See id. This reasoning is flawed. First, the Court combines two separate exception provisions and turns them into one compound provision. The statute contains a separate exception for non-residents and one for vehicles used in interstate commerce. Combining the two exception provisions effectively nullifies the exception for vehicles engaged in interstate commerce, for under the Illinois bankruptcy court's construction of the statute, only non-resident vehicles that are also engaged in interstate commerce would be exempt.
Second, the Illinois bankruptcy court focuses on registration requirements in conjunction with the title requirements under applicable Illinois statutes. Focusing on the registration requirements fails to take into account the plain language of the perfection requirements. The Maryland perfection requirements except vehicles for which no certificate of title is required. No further inquiry is necessary. Thus, in this case, because the vehicles at issue are excepted from the Maryland perfection statutes and the security interests were properly perfected in accordance with applicable Oklahoma law, the trustee is unable to avoid the liens on grounds that they were not perfected in accordance with Maryland law.
Moreover, registration requirements are imposed on the owner of a vehicle and serve to generate revenues for the state. Perfection requirements serve a different purpose: to put other creditors on notice of that creditor's security interest. To allow the trustee to avoid a security interest because of the owner's failure to comply with the Maryland registration requirements would place an unwarranted burden on the creditor. See Hoffman v. Associates Commercial Corp. (In re Durette), 228 B.R. 70, 74 (Bankr.D.Conn. 1998) (noting that owner's failure to comply with registration requirements does not unperfect a creditor's otherwise validly perfected lien); Meeks v. Mercedes-Benz Corp. (In re Stinnett), 1999 WL 1068215 (Bankr.N.D.Ark. 1999). If the Debtor failed to comply with the Maryland registration requirements, the state of Maryland can decide whether it should proceed against the Debtor for its violation of the registration requirements. See Md. Code Ann., Transp. § 13-402(h)(4)(i) (1957).
Finally, the In re Brown holding concludes that the "residence of the party should control the perfection requirements." Brown, 18 B.R. at 958. In this case, the Debtor is a resident of Maryland In applying the Maryland Code section governing perfection of security interests in vehicles, the Court finds that the vehicle at issue is excepted from the Maryland perfection requirements because it is a vehicle for which a certificate of title is not required. Md. Code Ann., Transp. § 13-202(a), 13-201(b)(6) (1957). The trustee cannot use his avoidance powers to undo security interests that are validly perfected under Oklahoma law.
The other cases the Trustee relies upon are distinguishable. In In re Westfall, 227 B.R. 734 (Bankr.W.D. Mo. 1998), a debtor from Missouri purchased a vehicle in Texas and titled the vehicle in Oklahoma. The bankruptcy court applied applicable Missouri law and found that the lien had not been perfected. Unlike the exceptions in the Maryland Code sections applicable here, the Missouri statutes cited do not contain similar exceptions to application of its perfection requirements. In Goldstein v. Aleet Leasing Associates II (In re Spangler), 56 B.R. 990 (D. Md. 1986), the district court noted that the Maryland Code contains exceptions to the requirement for the issuance of a certificate of title by the Maryland Vehicle Administration, but found that none of the exceptions applied.
The court applied only the Missouri vehicle perfection statues; it distinguished cases that looked to the state's version of Uniform Commercial Code to resolve the perfection inquiry. In re Westfall, 227 B.R. 734, 738-739 (Bankr. W.D. Mo. 1998).
After finding that the owner was a resident of Maryland, and therefore, not excepted from the Maryland perfection requirements contained in § 13-102, the Spangler court determined that the debtor, as owner, was required to obtain a title from the state of Maryland Goldstein v. Aleet Leasing Associates II (In re Spangler), 56 B.R. 990 (D. Md. 1986). The court then discussed the possible application of the Uniform Commercial Code ("UCC") provisions concerning security interests, cautioning that an expansive reading of the UCC provisions would be unwise if the effect would be to nullify the Maryland Transportation Code requirements, and remanded the case to the bankruptcy court for a determination of whether the security interest at issue was validly perfected, noting that "[w]here two statutes deal with the same subject matter, as here, they must be construed together if they are not inconsistent with one another." Id. at 999 (quoting Smelser v. Criterion Insurance Co., 293 Md. 384, 389, 444 A.2d 1024 (1982)).
Still other cases reach the conclusion that the trustee cannot avoid this type of lien by reading the perfection requirements contained in the Uniform Commercial Code, as adopted by state statutes, in conjunction with the state's vehicle perfection requirements. See, e.g., Uhle v. Parts and Trucks (In re Paige), 679 F.2d 601 (6th Cir. 1982); Meeks v. Mercedes-Benz Corp. (In re Stinnett), 1999 WL 1068215 (Bankr.W.D.Ark. 1999) (applying the Arkansas version of the Uniform Commercial Code to conclude that the trustee could not avoid a lien on a truck that was validly perfected in Oklahoma). This Court finds that the Maryland vehicle perfection requirements are sufficient alone to resolve this issue, and, therefore, it need not attempt to reconcile or apply the Uniform Commercial Code provisions as adopted in Maryland in order to determine whether the trustee can avoid the liens at issue here.
11 U.S.C. § 544(a)(1) provides:
(a) The trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or of any other creditor, the rights and powers of, or may avoid any transfer of property of the debtor or any obligation incurred by the debtor that is voidable by —
(1) a creditor that extends credit to the debtor at the time of the commencement of the case, and that obtains, at such time and with respect to such credit, a judicial lien on all property on which a creditor on a simple contract could have obtained such a judicial lien, whether or not such a creditor exists.
Section 544(a)(1) gives trustees the power to avoid certain transfers. Among those powers is the power to stand in the shoes of a hypothetical creditor as of the date of the filing of the petition in bankruptcy, holding a judicial lien on the property of the debtor. 11 U.S.C. § 544(a)(1). In this case, the Lien Entry Form for the First Truck was not recorded until after the Debtor filed its petition for bankruptcy. Case Credit's security interest as of the date the petition was filed was unperfected. Standing in the shoes of a hypothetical creditor holding a judicial lien against the First Truck, the Trustee holds a security interest that is superior to that of Case Credit's unperfected lien. See GAF Linden Employees Federal Credit Union v. Robertson (In re Robertson), 232 B.R. 846, 849 (Bankr.D.Md. 1999) (creditor's failure to perfect its security interest in vehicle in accordance with the perfection requirements contained in the Maryland Code resulted in an unperfected lien on the date the bankruptcy was filed). Thus, using § 544(a)(1), the Trustee can avoid the obligation incurred by the debtor represented by the post-petition perfection of Case Credit's security interest. Case Credit's claim against the First Truck will be treated as unsecured. See McRoberts v. Transouth Fin. (In re Bell), 194 B.R. 192, 198 (Bankr.S.D.Ill. 1996) (Chapter 13 cases involving avoidance of unperfected security interests in vehicles; creditors whose liens were avoided were paid as unsecured creditors under the Chapter 13 plans).
CONCLUSION
Case Credit holds valid perfected security interests in the Second Truck, the Third Truck, and the Fourth Truck. Case Credit falls into the exception from Maryland perfection requirements contained in the Maryland Code for vehicles used regularly for the transport. of property interstate that are properly titled in another state Case Credit's security interest in the First Truck is avoidable pursuant to 11 U.S.C. § 544.
This opinion constitutes the Court's findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052. An appropriate order will be entered.
ORDER GRANTING IN PART AND DENYING IN PART THE MOTION OF CASE CREDIT CORPORATION FOR ORDER COMPELLING ABANDONMENT OF PERSONAL PROPERTY
IN ACCORDANCE with the Memorandum filed herewith,
IT IS HEREBY ORDERED, that, having found Case Credit's security interests in the Second Truck, the Third Truck, and the Fourth Truck, as more particularly described in the Memorandum, are valid, perfected security interests, the Trustee shall abandon the Second Truck, the Third Truck, and the Fourth Truck.
ORDERED FURTHER, that the lien on the First Truck, as described in the memorandum is avoided, and Case Credit's claim in the First Truck will be treated as an unsecured claim against the bankruptcy estate.