Opinion
BANKRUPTCY NO.: 1-02-02897, ADVERSARY NO.: 1-03-00027A
August 22, 2003
OPINION
Drafted with the assistance of John Kelly, Law Clerk, and Wendy E. Morris, Law Clerk.
The Trustee filed a Complaint based on 11 U.S.C. § 547 of the Bankruptcy Code ("Code") against Defendants, Robert and Kenneth Casey, seeking the avoidance of a transfer of Debtor's property within the ninety (90) day preference period. Before me are Cross Motions for Summary Judgment. Rule 56 of the Federal Rules of Civil Procedure, as adopted under Rule 7056 of the Federal Rules of Bankruptcy Procedure, precludes me from granting either motion if a genuine issue of material fact exists. See Fed.R.Civ.Pro. 56; Fed.R.Bankr.Pro. 7056. After reviewing the parties' filed documents, it is evident that they do not dispute the facts which give rise to the complaint.
The Debtor purchased certain heavy equipment from the Defendants by an agreement and note dated April 20, 1999. After Debtor defaulted on the note, Defendants filed a complaint in a chancery court located in the state of Tennessee. Defendants also obtained a writ of attachment on May 22, 2001 entitling them to possession of the equipment in Debtor's possession. A Tennessee sheriff levied the attachment the next day and removed all the movable assets. Defendants obtained a final judgment against Debtor on April 10, 2002. On May 28, 2002, the instant bankruptcy petition was filed.
The sheriff's return indicates that two pieces of equipment could not be physically moved. The pieces that were removed are in the possession of the Defendants.
The Trustee contends that the judgment obtained by the Defendants on April 10, 2002, constitutes a transfer of Debtor's property that can be avoided under Section 547. Although the Defendants admit that their judgment was obtained within the preference period, they argue that they "are secured by more than just their judgment" because their writ of attachment was obtained prior to the date on which the preference period would have commenced.
The question of law before me now is determining whether the transfer of Debtor's property occurred on the date of the attachment or the date of the judgment.
Among Defendants' cited cases, they rely on Metcalf Bros. Co. v. Barker, 187 U.S. 165 (1902) to advance their position. InMetcalf, the Supreme Court interpreted the following provision of the Bankruptcy Act of 1898:
Section 67f. That all levies, judgments, attachments, or other liens, obtained through legal proceedings against a person who is insolvent, at any time within four months [pre-petition] shall be deemed null and void . . . and the property affected by the levy, judgment, [or] attachment . . . shall pass to the trustee as a part of the estate of the bankrupt. . . .
187 U.S. at 173-74 (citing 30 Stat. at L. 565, chap. 541, U.S. Comp. Stat. 1901, p. 3418).
In the context of a pre-judgment attachment in a state court, the Court held that "a judgment or decree in enforcement of an otherwise valid pre-existing lien is not the judgment denounced by the statute, which is plainly conferred to judgment creating liens." 187 U.S. at 174.Metcalf is of little value here because it interprets a statute much different from Section 547 of the current Code. Furthermore, the fact that Metcalf would allow the avoidance of a levy "obtained" within four months does not answer the question before the Court which is, at what point under Tennessee law is a levy "perfected" for the purposes of Section 547.
One of the cases the Trustee relies upon is Snell v. Allen, wherein the Tennessee Supreme Court held that "the levy of an attachment does not divest the property of the debtor, it merely creates a specific lien upon the property attached." 31 Tenn. (1 Swan) 208 (1851). The Trustee cites Snell for the proposition that the date of the instant judgment, clearly within the preference period, is the only other point when Debtor's property may have been "transferred". Snell was cited for this proposition by at least one Tennessee Bankruptcy Court in In re Elrod. See In re Elrod, 42 B.R. 468 (Bankr. E.D. Tenn. 1984) (Despite noting that attachment alone does not divest legal title to property based on Snell, the court held that debtor was divested of his property interest when his divorce decree judicially created an express trust in the property for his former wife and child). Although the legal position stated in Snell still reflects Tennessee's current stance, this Court believes that it stops short of resolving the present issue.
For the purposes of this proceeding, a transfer is perfected under Section 547 "when a [Trustee] on a simple contract cannot acquire a judicial lien that is superior to the interest of the [Defendants]." 11 U.S.C. § 547(e)(1)(B). Since the creation and validity of property interests are determined by state law, a review of applicable Tennessee law is necessary. See Butner v. United States, 440 U.S. 48, 55 (1979). Although many of the applicable Tennessee Supreme Court case law concerning writs of attachment and property interests appear to be antiquated, the legal analysis, contained therein, still provides a clear understanding of Tennessee's position on the matter.
Unlike a writ of execution which is issued after a judgment has been entered, a writ of attachment is an ancillary attachment statutory designed "to fasten upon the property of the defendant [in order] to secure payment of the judgment the plaintiff expects to recover. . . ."Michie Tennessee Jurisprudence, Attachment and Garnishment, § 104 (Matthew Bender Co. 2002) (emphasis added). An attachment lien, by way of a writ of attachment, arises once the sheriff actually levies on the property in question. See Keep Fresh Filter, Inc. v. Reguli, 888 S.W.2d 437, 444 n. 3 (citing Sharp v. Hunter, 47 Tenn. (7 Cold.) 389, 394 (1870)). Despite the fact that a debtor has not been divested of his legal interests in the property upon attachment, the fact remains that the attaching creditor holds an equitable lien against the property.See generally Snell, 31 Tenn. (1 Swan) at 208; Sharp v. Hunter, 47 Tenn. (7 Cold.) 389 (1870). Tennessee's Supreme Court held inSpunt v. Brumby that a lien rising out of a writ of attachment relates back to the date of the levy of the attachment once the final judgment is entered. 518 S.W.2d 345, 347 (Tenn. 1974).
Applying the above referenced case law, I find that Defendants' lien arose not when the writ of attachment was issued, as the Defendants argue, but on the date when the sheriff actually levied on the property — May 23, 2001. This date is well before the commencement of the ninety day (90) preference period under Section 547. Although the Debtor had not been divested of its legal interest when the levy occurred, the final judgment entered on April 10, 2002, which divested Debtor of his interest in the property, relates back to the date of the levy of the attachment. Therefore, Debtor's legal interest in the property was transferred, for the purposes of Section 547, on May 23, 2001, and not during the ninety (90) day preference period.
Defendants' Motion for Summary Judgment is granted and Plaintiff's Motion for Summary Judgment is denied. The Complaint is hereby dismissed.
An Order will follow.
ORDER
For those reasons indicated in the Opinion filed this date, IT IS HEREBY ORDERED that Defendants' Motion for Summary Judgment is granted and Plaintiff's Motion for Summary Judgment is denied.
Judgment is therefore entered in favor of the Defendants, Robert Casey and Kenneth Casey, and against the Plaintiff, Charles A. Bierbach, Trustee.