Opinion
C/A No. 3:04-0888-17, Bankruptcy No. 02-1840-W, Adversary No. 03-80158-JW.
December 15, 2004
ORDER
PROCEDURAL POSTURE AND ISSUES ON APPEAL
Pursuant to 28 U.S.C. § 158(a)(1) and Bankruptcy Rule 8001(a), Appellant/Defendant Dick Smith Nissan, Inc. initiated this appeal from the Bankruptcy Court's Order filed January 5, 2004. In its Order, the Court found Nissan liable to Robert F. Anderson, Trustee ("Trustee") and Franklin Roosevelt Joyner, Debtor ("Debtor") (collectively hereinafter "Appellees") for (1) violation of the automatic stay under 11 U.S.C. § 362(h) and 11 U.S.C. § 105, (2) turnover of the value of a 1997 BMW Z-3 Roadster pursuant to 11 U.S.C. § 542(a), and (3) avoidance of a lien pursuant to S.C. Code Ann. § 56-19-620 et seq. and 11 U.S.C. § 544.
Nissan has alleged thirteen distinct errors on appeal. However, the issues can be consolidated into four general inquiries, namely, whether the Bankruptcy Court erred in finding:
1. Debtor's estate had title to the BMW;
2. Trustee was entitled to turnover of the value of the BMW pursuant to 11 U.S.C. § 542(a);
3. Trustee was an individual within the meaning of 11 U.S.C. § 362(h); and
4. Nissan willfully violated the automatic stay entitling Trustee and Debtor to damages under 11 U.S.C. § 362(h) and/or § 105(a).
FACTUAL BACKGROUND
In early June, 2002, Debtor received a letter from Capital One Auto Finance, indicating that he had been pre-approved for a loan to purchase a new or used vehicle. The letter suggested that Debtor visit one of four dealerships identified on the reverse of the letter in order to take advantage of the offer. The offer was subject to various restrictions set forth in fine print at the bottom of the letter. Among those restrictions were a required minimum down payment of $1000.00 (in cash or with a trade or manufacturer's rebate) and a loan to value restriction. The letter also expressly stated that the offer would expire 45 days from the date of issuance.On June 27, 2002, Debtor visited Appellant's car dealership and, after selecting a 1997 BMW Z-3 Roadster ("BMW"), presented the Capital One letter to secure financing for the vehicle. On that day, Debtor executed a sale agreement or "Buyer's Order" to purchase the BMW.
The Buyer's Order reflects that Debtor would be trading a 1997 Ford Mustang for the BMW. The contract also set forth the price of the BMW, the trade allowance for the Mustang, and the difference owed, plus sales tax and licensing fees. At the bottom of the Buyer's Order appears the following language:
This contract is not binding upon Dealer unless accepted in writing by an officer or a sales manager or assistant sales manager of Dealer and until a retail installment contract for any deferred balance has been approved and funded by a third party financing source. (emphasis added)
SEE ADDITIONAL TERMS AND CONDITIONS ON OPPOSITE PAGE
Among the additional terms and restrictions listed on the reverse of the Buyer's Order is the following:
1. SPOT DELIVERY. Unless indicated otherwise in writing, Dealer hereby conditionally delivers the vehicle to Customer subject to approval and funding of a retail installment contract by a third-party financing source. Title shall remain in Dealer until funded.
Debtor then met with Appellant's finance manager, Bill McCartney, to finalize financing arrangements. After noting that the Mustang had over 111,000 miles registered on its odometer and that Debtor still owed almost $7000.00 on it, McCartney realized that Debtor would not be able to satisfy the program restrictions as set forth on the Capital One letter (specifically, the requirement that the buyer make a down payment of $1000.00 cash or trade). Since the Buyer's Order indicated that Debtor had paid nothing as a cash down payment, McCartney requested that Debtor sign an "Installment Sale Contract and Security Agreement," delivered the vehicle to Debtor, and then submitted the installment contract to WFS Financial for approval. The installment contract specifically gave Appellant a security interest in the BMW to secure the purchase price, but on the second page, notes that title is to remain in the dealer until the contract is funded.
Also on June 27, 2002, Appellant prepared an Affidavit and Notification of Sale of Motor Vehicle, which provides in pertinent part:
Personally appeared before me Dick Smith Nissan, Inc. 03-22519-19 3670 Fernandina Road Columbia, South Carolina 29210 who being duly sworn, deposes and says that on the 27th day of June 2002, he sold the following motor vehicle: Make BMW Model Z3 Year 97 Identification (Serial) No. 4USCH732XVLB84037 License No. ______ to Franklin R. Joyner 124 Pickwick Columbia Richland SC 29223.
Appellant also prepared an Application for Certificate of Title/Registration, which indicates that on June 27, 2002, Appellant sold the BMW to Debtor. Capital One was listed as the lienholder. Appellant took both the Affidavit of Sale and Application for Title to the South Carolina Department of Motor Vehicles ("DMV"), and the DMV ultimately issued a Title to Debtor.
Almost immediately after McCartney submitted Debtor's installment contract to WFS Financial, the lender declined to provide financing. Debtor was then requested to return to the dealership. McCartney explained to Debtor that WFS had declined to provide financing with the trade-in and returned the Mustang to Debtor. McCartney then suggested that Debtor execute a second installment contract that did not include the trade.
Debtor signed the second Installment Sale Contract and Security Agreement on June 29, 2002. As with the first installment contract, the second contract also gave Appellant a security interest in the vehicle while purporting to reserve title to Appellant. On that date, Debtor and Appellant also executed an agreement acknowledging that Debtor's application for credit had been denied and that Appellant agreed to let Debtor take immediate possession of the vehicle pending financing approval. The agreement further provides: Seller hereby retains a security interest in said vehicle and, upon receipt of the rejection or disapproval of Buyers said application for credit, shall have the right to take immediate possession of said vehicle same may be found.
McCartney submitted the second installment contract to Capital One for approval. However, because the contract reflected that Debtor did not make a down payment of $1000.00 in cash or equivalent, Capital One declined to provide financing. In its rejection letter, Capital One also noted that the approval period, as set forth on the letter initially sent to Debtor, had expired. McCartney then attempted to arrange financing through Fort Jackson Federal Credit Union, but the credit union also declined to provide financing.
At the hearing in Bankruptcy Court, Debtor testified that he had no knowledge that there was any problem with obtaining financing until August, 2002. Debtor indicated that, in August, he contacted Capital One to inquire about obtaining a payment book and was told that his application had been rejected. It appears that Debtor then submitted a pay stub dated August 30, 2003 to Appellant, to further support a credit application. During the approximate two month interim since Debtor received the vehicle, Debtor received a registration, obtained insurance, and received a tax notice. (The record is unclear as to whether Debtor actually paid taxes on the BMW.)
The record reflects that, sometime in September, Appellant requested that Debtor return the vehicle to the dealership. Debtor indicated that he would surrender the vehicle only if presented with a "court paper" demanding same. Thereafter, counsel for Appellant sent a letter of representation to Debtor on October 23, 2002, stating that Debtor owed Appellant $19,224 in principal and advising that "[u]nless you dispute the validity of this debt or any portion thereof within thirty (30) days after receipt of this notice, this debt will be assumed to be valid." The letter did not claim that Appellant owned the vehicle or request that Debtor return the vehicle to Appellant. Debtor denies ever having received the letter.
Appellant's counsel then filed a summons and complaint for claim and delivery, a motion for order for immediate seizure, and an affidavit executed by McCartney on October 29, 2002. On that same date, the court issued an order for immediate possession directing the Sheriff of Richland County to seize the BMW and deliver it to Appellant. Appellant's attorney then forwarded copies of the pleadings and the order to the Richland County Sheriff's department for service upon Debtor. The Sheriff's Department notified Appellant, and Appellant's agent retrieved the BMW on November 5, 2002.
Appellant filed a petition for bankruptcy on October 28, 2002, one day before Appellant initiated its action for claim and delivery. On December 10, 2002, counsel for Trustee contacted Appellant's attorney to advise of his representation of Trustee and demand surrender of the BMW. The following day, December 11, 2002, Trustee's counsel sent a letter to Appellant's attorney, asserting Trustee's interest in the BMW. Appellant's attorney apparently disagreed with Trustee's contention that title to the BMW had ever been transferred to Debtor and approximately two weeks later, and without further notice to Trustee, Appellant sold the vehicle to another customer for $17,975.00.
STANDARD OF REVIEW
Federal Rule of Bankruptcy Procedure 8013 provides that the Bankruptcy Court's findings of fact "shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses." Fed.R.Bankr.P. 8013; In re Varat Enters., Inc., 81 F.3d 1310, 1314 (4th Cir. 1996); In re Tudor Assocs., Ltd., II, 20 F.3d 115, 119 (4th Cir. 1994). Findings of fact are clearly erroneous "only when the reviewing court `is left with the definite and firm conviction that a mistake has been committed.'" In re Broyles, 55 F.3d 980, 983 (4th Cir. 1995) (citing Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 573-74 (1985) and U.S. v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948)).
"Where there are two permissible views of the evidence, the fact finder's choice between them cannot be clearly erroneous." Anderson, 470 U.S. at 574. Thus, a reviewing court will not reverse the bankruptcy court's findings of fact "simply because it is convinced that it would have decided the case differently." Id. at 573.
Conclusions of law are reviewable de novo. Dunes Hotel Assoc. v. Hyatt Corp., 245 B.R. 492 (D.S.C. 1992).
DISCUSSION
I. The Bankruptcy Court's findings of fact with regard to ownership of the BMW are not clearly erroneous.
Appellant claims that title to the BMW was never transferred from Appellant to Debtor, and thus, the BMW was not part of the bankruptcy estate. In support of this proposition, Appellant cites to the Buyer's Order executed by and between Appellant and Debtor. Pursuant to the Order, title in the vehicle was to remain in Appellant unless and until the purchase was fully funded by a third party. Appellant claims that this Order constitutes "the" contract between the parties, and that all other documents were incidental to the agreement.
Alternatively, Trustee contends that title had indeed been transferred to Debtor, notwithstanding that Debtor never paid any consideration for the vehicle. First, Trustee points to the two retail installment contracts and another written agreement between Debtor and Appellant, all of which indicate that Appellant would retain a security interest in the vehicle. Second, Trustee cites to the Affidavit and Notification of Sale of Motor Vehicle and Application of Certificate of Title/Registration, both of which were created by Appellant and designated Debtor as the titleholder. Third, Trustee notes that Debtor received a vehicle registration in his name, obtained insurance on the vehicle, and paid taxes. Fourth, Trustee calls attention to the letter dated October 23, 2002, in which Appellant's counsel advised Debtor that he owed Appellant $19,224.00 in principal and that Appellant was attempting to collect the debt. Nowhere in the letter did counsel indicate that Appellant retained ownership of the vehicle or ask that the vehicle be returned. Lastly, at the hearing below, Debtor testified that he owned the BMW.
Again, it is unclear whether Debtor actually paid the tax. The tax was apparently due on or before December 9, 2002, and the vehicle had already been repossessed by that time.
Trustee further points to S.C. Code Ann. § 56-19-320, which provides that "a certificate of title issued by the Department [of Motor Vehicles] is prima facie evidence of the facts appearing on it." Trustee also cites Code Section 36-1-201(37), which defines a security interest, in relevant part, as:
An interest in personal property or fixtures which secures payment or performance of an obligation. The retention or reservation of title by a seller of goods not withstanding shipment or delivery to the buyer (Section 36-2-401) is limited in effect to a reservation of a `security interest'.
Trustee also cites to the case of McCarthy v. Imported Cars of Maryland, Inc. (In re Johnson), 230 B.R. 466 (Bankr. Ct. D.D.C. 1999), which has substantially similar facts. In that case, an automobile dealer "spot delivered" a vehicle to a debtor who subsequently filed for bankruptcy. Citing the default provisions of Maryland's Uniform Commercial Code (which are identical to those contained within the pertinent provisions of the South Carolina Code), the court held that the dealer's retention of title reserved only a security interest.
Appellant centers a fair portion of its argument around the concept of "spot delivery," which Appellant claims is a standard practice in the industry. When a dealer "spot delivers" a vehicle, it conditionally provides immediate delivery of the vehicle to a prospective purchaser, on the expectation that the contract of sale will be fully funded by a third party.
Appellant argues that Johnson is distinguishable from the present case because, in Johnson, the parties did not specifically agree that title would remain in the dealer. In this case the Buyer's Order expressly reserved title to the dealer. Appellant contends that the Buyer's Order modified the default provisions of the UCC, cited above, so that the dealer's reservation of title was not limited to a security interest. Appellant further cites Code Section 36-2-401(2), which provides that "unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods, despite any reservation of a security interest. . . ." Appellant asserts that the Buyer's Order constitutes an explicit agreement to transfer title at a time following delivery of the vehicle.
The Bankruptcy Court found enough evidence to support a finding that title had been transferred to debtor. The grounds for the Bankruptcy Court's decision are several. First, the Court noted that, as a result of Appellant's actions, the application for certificate of title, vehicle registration, vehicle insurance, and the Richland County tax notice all showed Debtor as owner of the vehicle. "These documents provide indicia of ownership by Debtor for which Nissan did not sufficiently rebut. See S.C. CODE ANN. § 56-19-320 (Law. Co-op. 1991) ("A certificate of title issued by the Department is prima facie evidence of the facts appearing on it.")." Order at 7.
The Court also found the reasoning in Johnson persuasive. Specifically, the Court quoted the following excerpt from the Maryland U.C.C. (applied in Johnson), which is identical to its South Carolina counterpart:
The passage of title cannot occur before goods are identified to the contract, nor can the passage of title be delayed until after shipment or delivery of the goods to the buyer. After shipment or delivery, any retention of title by the seller results only in the reservation of a security interest. In between these extremes, the parties may freely specify the time at which title passes.Johnson, 230 B.R. at 468, quoting MD. CODE ANN., COMMERCIAL LAW § 2-401(1). In addition to evaluating the issue of title transfer, the Johnson court also recognized the dealer's ability to rescind its "spot delivery" agreement, but found that it had not done so in that case.
Similarly, in the present case, the Court was not convinced that Appellant rescinded the transaction prior to the time that Debtor filed for bankruptcy. "While there was evidence that prior to that [bankruptcy filing] date Nissan sent a letter to Debtor demanding payment, the letter does not seek return of the Vehicle but refers to Nissan as a creditor seeking collection of a debt. As such, the demand letter further reaffirms the intent of the parties concerning the sale of the Vehicle." Order at 10.
Lastly, in examining the various documents, the Court determined that the issue of title was ambiguous, at best. "The Buyer's Order states that Nissan is to retain title and makes no reference to the granting of a security interest. The Agreement states that Nissan maintains a security interest in the Vehicle, but does not mention title. Installment Sale Contracts #1 and #2 are identical in form and indicate that a security interest is to be granted, but the fine print on the second page of the Contracts references retention of title until payment is made in full" Id. at 11. Construing ambiguities against the drafter and taking all of the agreements together as one contract, the Court found that "Nissan's interest in the Vehicle was in the nature of a security interest." Id. at 12.
The Bankruptcy Court's finding is not "clearly erroneous" in light of the multiple documents of record and the law, all of which support the Court's conclusion. While Appellant makes a colorable argument, this Court is neither obligated nor permitted to undertake a de novo review of the evidence and make its own findings of fact. Rather, it is bound to uphold the Bankruptcy Court's ruling unless it is patently clear that the lower court made a mistake, which is not the case here.
II. Trustee is entitleed to turnover of the value of the BMW.
Debtor and Trustee sought turnover of the value of the BMW pursuant to Section 542(a), which provides:
Except as provided in subsection (c) or (d) of this section, an entity, other than a custodian, in possession, custody, or control, during the case, or property that the trustee may use, sell, or lease under section 363 of this title, or that the debtor may exempt under section 522 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.
Trustee argues that, inasmuch as the BMW constituted property that Trustee could have sold to benefit the estate, Section 542(a) provides that Trustee is entitled to turnover of the vehicle. See Jennings v. RR Cars and Trucks (In re Jennings), No. 01-02330, Adv. Pro. No. 01-80044, 2001 WL 1806980 (Bankr. D.S.C. Sept. 17, 2001) at *4 (creditors have a mandatory duty to return estate property); Johnson, 230 B.R. at 470 (trustee entitled to amount he could have realized upon sale of vehicle had it not been seized in violation of stay; dealer had not perfected security interest).
Appellant does not cite to Section 542(a) and performs no analysis of whether and under what circumstances turnover may be appropriate. Rather, Appellant dedicates this section of its brief to showing "[t]here was no evidence that the parties ever intended that Appellant would finance the purchase of the BMW or submit a title application reserving a security interest in Appellant." Appellant's Initial Brief at 14. This "argument" seems to explain why Appellant did not perfect its security interest in the vehicle, as opposed to showing why turnover of the car's value may be inappropriate under the circumstances.
In the Order of the Bankruptcy Court, the Court held that Appellant had an unperfected, unsecured, and avoidable lien.See Order at 12-13.
The Bankruptcy Court awarded turnover of the value of the BMW to Trustee after finding that the vehicle was property of the estate. Appellant has offered no defense to the turnover, and accordingly, the lower court's ruling will be upheld.
III. Trustee is an "individual" within the meaning of 11 U.S.C. § 362(h).
Appellant does not appeal the Bankruptcy Court's finding that Debtor has standing under Section 362(h). The lower court awarded Debtor his attorneys' fees and costs of $3,144.99 and lost wages of $288.00.
Appellant appeals the Bankruptcy Court's award of damages and attorneys' fees pursuant to Section 362(h), based upon Appellant's violation of the automatic stay in repossessing the BMW. Section 362(h) allows an "individual" harmed by a willful violation of the automatic stay to collect compensatory damages, including attorneys' fees and punitive damages.
The Bankruptcy Court awarded Trustee attorneys' fees of $12,907.50 pursuant to Section 105 and/or 362(h). In its Order, the Court noted that it had previously advised the parties to file affidavits regarding fees and costs, and had given them a deadline for filing objections to same. Appellant filed no objection to Trustee's affidavit.
Appellant notes that the Fourth Circuit has not specifically addressed the issue and cites a Ninth Circuit case standing for the proposition that, under the plain meaning of the statute, a trustee is ineligible to receive damages because the trustee is not an "individual" within the meaning of the act. See In re Pace, 67 F.2d 187 (9th Cir. 1995). Accord In re Bequette, 184 B.R. 327, 335 (Bankr. S.D. Ill. 1995).
Trustee responds that the Bankruptcy Court properly applied the Fourth Circuit's broad interpretation of "individual" as found in Budget Svcs. Co. v. Better Homes of Virginia; Inc., 804 F.2d 289 (4th Cir. 1986). There the Court held that a corporate debtor was an "individual" for purposes of Section 362(h), and the Bankruptcy Court in this case extrapolated that broad interpretation to determine that Trustee is also an "individual" for purposes of the statute. As the Bankruptcy Court indicated on page 16 of its Order, other courts have likewise awarded damages to trustees under Section 362(h). In re Johnson, supra; In re Medlin, 201 B.R. 188 B. Ct. E.D. Tenn. (1996); Martino v. First Nat'l Bank of Harvey (In re Garofalo's Finer Foods, Inc.), 186 B.R. 414 (N.D. Ill. 1995); In re Fugazy Exp., Inc., 124 B.R. 426 (S.D.N.Y. 1991).
As there is no Fourth Circuit precedent directly on point, and because the Fourth Circuit case upon which the lower court relies arguably supports its broader interpretation of the term "individual," this Court finds sufficient grounds upon which to uphold the Bankruptcy Court's ruling. Neither this Court nor the Bankruptcy Court are bound to adopt the Ninth Circuit rule, and there is sufficient authority in other jurisdictions to support the lower court's construction. IV. Appellant willfully violated the automatic stay, entitling Respondents to damages.
Appellant advances no substantive argument in support of the Bankruptcy Court's putative error in awarding damages to Trustee and Debtor based upon Appellant's willful violation of the automatic stay. Instead, Appellant states only that "if this Court determines that title to the BMW remained with Appellant pursuant to the terms of the contract, there is no basis for an award of damages under Section 362(h) or Section 105(a)." Appellant's Initial Brief at 15.
Respondents contend that the Bankruptcy Court properly noted the lack of any dispute over whether Appellant had notice of the bankruptcy when it repossessed the BMW, as the record reflects that Appellant's counsel received notice of the bankruptcy filing both from the Clerk of Court and from Trustee's attorney. Notwithstanding actual notice, Appellant subsequently re-sold the vehicle to another customer, stating that it "disagreed" with Trustee's assertion that the BMW was part of the bankruptcy estate.
In awarding damages to Respondents, the Bankruptcy Court opined that "[c]ontinued retention of collateral that was wrongly repossessed post-petition may constitute a willful violation of the automatic stay when the creditor has notice of the pending bankruptcy case. See, e.g., Bolen v. Mercedes Benz (In re Bolen), 295 B.R. 803, 808-09 (Bankr. D.S.C. 2002) (citing cases)." Order at 17. Based upon the undisputed evidence confirming that Appellant repossessed and disposed of the BMW after receiving notice of Trustee's claim to the property, as well as Appellant's failure to offer any substantive argument on appeal, this Court affirms the Bankruptcy Court's ruling in this regard.
The Court sees no reason to disturb the ruling of the Bankruptcy Court with regard to the matters on appeal, and accordingly, the lower court's order is AFFIRMED.
IT IS SO ORDERED.