Opinion
Case No. 02-18523, Adversary Case No. 03-1225.
April 21, 2004
MEMORANDUM OF DECISION ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
The Plaintiff, chapter 7 trustee Harold Jarnicki ("Trustee"), commenced this adversary proceeding pursuant to 11 U.S.C. § 547(b) to avoid the transfer of a security interest held by Defendant Origin Financial, LLC ("Origin"). Presently before the Court is a summary judgment motion ("Motion") (Doc. 23) filed by the Trustee. Because Origin has not sustained its burden of proof on the "enabling loan" defense under 11 U.S.C. § 547(c)(3), the Motion will be GRANTED.
The Debtor, Frances E. Musser, executed a Retail Installment Contract and Security Agreement ("Contract") to finance and purchase a manufactured home on September 23, 2001. Origin, assignee under the Contract, mailed a title application to the Warren County Clerk of Courts on October 8, 2002, to perfect its security interest. The application was delivered to the Warren County Clerk of Courts on October 15, 2002. A certificate of title noting Origin as the lienholder was issued on November 1, 2002.
As discussed below, see infra note 2, the date set forth on the Contract appears to be incorrect. It appears as though the actual date was September 23, 2002. Nonetheless, the undisputed fact before the Court is that the Contract was executed on September 23, 2001.
The Trustee bears the burden of proof under § 547(b). See 11 U.S.C. § 547(g). Origin does not contend that the Trustee failed to satisfy his burden. Instead, Origin argues that it possesses an affirmative defense under § 547(c)(3). Origin bears the burden of proving the same. See § 547(g).
Section 547(c)(3), commonly referred to as the "enabling loan" defense, provides:
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 a 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 such 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[.]
The Trustee does not dispute the applicability of § 547(c)(3)(A). The issue before the Court is whether Origin has sustained its burden of proof under § 547(c)(3)(B).
To begin with, Origin has failed to sustain its burden of proof because there is no evidence in the record of the date on which the Debtor took possession of the manufactured home. See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) ("[T]he plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial."). Instead, Origin builds its argument upon the assumption that the Debtor took possession on September 23, 2002, presumably the date on which the Contract was executed. This is problematic is two respects. First, as noted above, the Contract was not dated September 23, 2002, but September 23, 2001, and Origin failed to tender any proof to the contrary. Second, even if Origin had established that the date of possession was September 23, 2002, it would still not satisfy Origin's burden of proof.
As noted above, although the Contract bears the date of September 23, 2001, it is likely that it was actually executed on September 23, 2002. The Contract reflects that the Debtor was to begin payments on the loan on November 1, 2002. Moreover, Origin's predecessor-in-interest, Superior Homes, Inc., did not obtain its own certificate of title until September 23, 2002.
Origin argues that its lien was properly perfected within twenty days of September 23, 2002, because: (1) its title application was delivered to the Warren County Clerk of Courts on October 15, 2002; and (2) October 15, 2002, was the twentieth day after September 23, 2002, as calculated by F.R.Bankr.P. 9006(a). Courts are divided on the issue of whether the twenty-day period in § 547(c)(3)(B) is computed pursuant to Rule 9006(a) (i.e. excluding weekend days and holidays that otherwise would have served as the final day). Compare Roost v. General Motors Acceptance Corp. (In re Boyer), 212 B.R. 975 (Bankr. D. Ore. 1997) (Rule 9006(a) applicable), and Whittaker v. Bancohio Nat'l Bank (In re Lamons), 121 B.R. 748 (Bankr. S.D. Ohio 1990) (Sellers, J.) (Rule 9006(a) applicable), with Barnes v. General Motors Acceptance Corp. (In re Ross), 193 B.R. 902 (Bankr. W.D. Mo. 1996) (Rule 9006(a) inapplicable). However, it is unnecessary for the Court to decide this issue because, under Ohio law, liens on manufactured homes are not perfected at the time a title application is received by the common pleas court.
In support of its argument to the contrary, Origin relies upon Ohio Rev. Code § 1309.303(B), which provides in relevant part:
Goods become covered by a certificate of title when a valid application for the certificate of title and the applicable fee are delivered to the appropriate authority.
Based upon this statute, Origin argues that its lien was perfected on October 15, 2002, when its title application and fee was delivered to the Warren County Clerk of Courts. The Court disagrees. The fact that goods are "covered by a certificate of title" under Ohio Rev. Code § 1309.303(B) does not necessarily mean that a lien on the goods is perfected, as required by 11 U.S.C. § 547(c)(3)(B).
Origin overlooks Ohio Rev. Code § 1309.303(C), which provides in relevant part:
The local law of the jurisdiction under whose certificate of title the goods are covered governs perfection[.]
The Official Comment to revised UCC § 9-303, the uniform statute from which Ohio Rev. Code § 1309.303 was adopted, provides: "Normally, under the law of the relevant jurisdiction, the perfection step would consist of compliance with that jurisdiction's certificate-of-title statute[.]"
In Ohio, the statute governing perfection of a lien on a manufactured home (i.e. certificate of title statute) is Ohio Rev. Code § 4505.13(B). Prior to Ohio's enactment of revised UCC Article 9, effective July 1, 2001, Ohio Rev. Code § 4505.13(B) provided that the exclusive means by which to perfect a security interest in a manufactured home was notation of the lien on the certificate of title. See In re Reaster, 242 B.R. 423, 425 (Bankr. S.D. Ohio 1999) (Calhoun, J.). However, revised UCC Article 9 "contemplates that perfection of a security interest in goods covered by a certificate of title occurs upon receipt by appropriate State officials of a properly tendered application for a certificate of title[.]" Revised UCC § 9-311, Legislative Note. Therefore, the drafters of revised Article 9 advised state legislatures to amend their certificate of title statutes accordingly. See Revised UCC § 9-311, Legislative Note ("States whose certificate-of-title statutes provide for perfection at a different time . . . should amend the statutes accordingly.").
Interestingly, by its response (Doc. 24) to the Motion, Origin admits that "Ohio Revised Code § 4505.13 sets for[th] the exclusive method for perfecting a security interest in a Manufactured Home." See Doc. 24 at 3.
Sure enough, the Ohio legislature did amend Ohio Rev. Code § 4505.13 at the same time that it adopted revised Article 9, although not to the extent that the drafters of revised Article 9 recommended. A creditor with a lien on a manufactured home is now perfected under Ohio law
if a notation of the agreement has been made by a clerk of a court of common pleas on the face of the certificate of title or the clerk has entered a notation of the agreement into the automated title processing system and a physical certificate of title for the motor vehicle has not been issued.
Ohio Rev. Code § 4505.13(B) (emphasis added). Therefore, although Origin's lien was not noted on a certificate of title by October 15, 2002, its lien still could have been perfected on that date if "the clerk ha[d] entered a notation of the [security] agreement into the automated title processing system." Because the record is void of proof on this issue, Origin has failed to prove that its lien was perfected on October 15, 2002, even assuming that the Debtor took possession of the manufactured home on September 23, 2002.
Because Origin failed to sustain its burden of proof under § 547(c)(3), the Motion will be GRANTED. A judgment to this effect will be entered separately.