679 F.2d 821 (11th Cir. 1982), 81-7736, Flournoy v. City Finance of Columbus, Inc.

Docket Nº:81-7736.
Citation:679 F.2d 821
Party Name:Joe M. FLOURNOY, Plaintiff-Appellant, v. CITY FINANCE OF COLUMBUS, INC., Defendant-Appellee.
Case Date:June 14, 1982
Court:United States Courts of Appeals, Court of Appeals for the Eleventh Circuit

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679 F.2d 821 (11th Cir. 1982)

Joe M. FLOURNOY, Plaintiff-Appellant,



No. 81-7736.

United States Court of Appeals, Eleventh Circuit

June 14, 1982

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Araguel, Sanders & Carter, Charles C. Carter, Columbus, Ga., for plaintiff-appellant.

William L. Slaughter, Columbus, Ga., for defendant-appellee.

Appeal from the United States District Court for the Middle District of Georgia.

Before GODBOLD, Chief Judge, MERRITT [*] and HENDERSON, Circuit Judges.

HENDERSON, Circuit Judge:

The sole question on this appeal is whether a secured creditor who repossesses a debtor's automobile without legal process, as permitted by Georgia Code § 109A-9-503 (Rev.1979), is a "custodian" within the meaning of the Bankruptcy Act of 1978, 11 U.S.C. § 101(10)(C), so as to require delivery of possession to the trustee in bankruptcy in accordance with 11 U.S.C. § 543(b). The bankruptcy court held that the secured creditor is not a custodian, and the district court agreed with that conclusion. We affirm.

The facts are stipulated. City Finance of Columbus, Inc. (City Finance), a creditor of Argentina Williams Lewis, perfected its security interest in a 1970 Pontiac Grand Prix, securing an indebtedness of $1,575.00. Lewis defaulted on the note, and City Finance took possession of the automobile through the "self-help" mechanism of the security agreement. 1 Before execution was completed in compliance with Georgia Code § 109A-9-504(3), the Lewises filed a petition under Chapter 13 of the Bankruptcy Act of 1978, thereby invoking the automatic stay provision of 11 U.S.C. § 362(a) to prevent the sale of the collateral. The trustee filed a complaint for possession of the automobile. Both the trustee and City Finance then filed motions for summary judgment. The grant of summary judgment in favor of City Finance prompted this appeal.

The trustee relies only on the "custodian" status of City Finance as defined in 11 U.S.C. § 101(10)(C) in urging the turnover of the property pursuant to the provisions

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of 11 U.S.C. § 543(b). 2 Subpart (C) defines a custodian as a

trustee, receiver, or agent under applicable law, or under a contract, that is appointed or authorized to take charge of property of the debtor for the purpose of enforcing a lien against such property, or for the purpose of general administration of such property for the benefit of the debtor's creditors.

He reasons that City Finance took possession of the property for the purpose of enforcing a lien, as authorized by the security agreement and, hence, is an agent under applicable law because of the fiduciary obligations which govern the sale of the collateral. See Georgia Code §§ 68-417a(b), 96-1007, 109A-9-504 to 9-507 (Rev.1979).

Under former sections 2(a)(21), 69(d) and 70(a)(8) of the Bankruptcy Act of 1898, as amended, 3 summary jurisdiction to order the turnover of property to the bankruptcy trustee was not available where the third party held that property under a bona fide adverse claim of right. E.g., May v. Henderson, 268 U.S. 111, 45 S.Ct. 456, 69 L.Ed. 870 (1925); Gorenz v. State of Illinois Department of Agriculture, 653 F.2d 1179 (7th Cir. 1981); Burnham v. Todd, 139 F.2d 338 (5th Cir. 1943); see Phelps v. United States, 421 U.S. 330, 95 S.Ct. 1728, 44 L.Ed.2d 201 (1975). Section 2(a)(21), for example, governed property in the possession of "receivers or trustees appointed in proceedings not under this title, assignees for the benefit of creditors, and agents authorized to take possession of or to liquidate a person's property." Bankruptcy Act of 1898, c. 541, § 2(a)(21), 30 Stat. 544, as added by Chandler Act of 1938, c. 575, § 1, 52 Stat. 840 (formerly codified at 11 U.S.C. § 11(a)(21)). This provision was intended to give bankruptcy courts the power to regulate equity receiverships, and assignments and agency relationships for purposes of liquidation. H.R.Rep.No.1409, 75th Cong., 1st Sess. 20 (1937); S.Rep.No.1916, 75th Cong.3d Sess. 12 (1938). It extended to court officers appointed in certain state insolvency proceedings, e.g., In re Park Beach Hotel Corp., 96 F.2d 886 (7th Cir.), cert. denied, 305 U.S. 638, 59 S.Ct. 105, 83 L.Ed. 411 (1938), and to agents within the bankrupt's control, In re American Southern Publishing Co., 426 F.2d 160 (5th Cir.), cert. denied, 400 U.S. 903, 91 S.Ct. 141, 27 L.Ed.2d 140 (1970); Kyle v. Stewart, 360 F.2d 753 (5th Cir. 1966); Lunsford v. Haynie, 175 F.2d 603 (5th Cir. 1949); Shor v. McGregor, 108 F.2d 421 (5th Cir. 1939); see Mueller v. Nugent, 184 U.S. 1, 22 S.Ct. 269, 46 L.Ed. 405 (1902).

In In re American Southern Publishing Co., we held that summary jurisdiction could not be exercised where the property was not in the hands of "one who acknowledges that he holds it subject to the bankrupt's demand." 426 F.2d at 164. There we followed the Second Circuit, where Judge Learned Hand had written "that for the (summary) jurisdiction to attach, the bailee (agent) must be unconditionally subject to the bankrupt's orders." Buss v. Long Island Storage Warehouse Co., 64 F.2d 338, 340 (2d Cir. 1933). Section 1 of the Restatement (Second) of Agency defines agency as "the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to

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his control, and consent by the other so to act." (Emphasis added.) Despite arguably more general language in Georgia Code § 4-101, the Georgia courts have adopted this definition, including the element of control. Smith v. Merck, 206 Ga. 361, 57 S.E.2d 326 (1950); Washington National Insurance Co. v. Mayor, 196 Ga. 126, 26 S.E.2d 359 (1943); Hampton v. McCord, 141 Ga.App. 97, 232 S.E.2d 582 (1977). The fiduciary duties imposed by Georgia Code §§ 68-417a(b), 96-1007, and 109A-9-504 to 9-507 are described by section 6 of the Restatement as a power, "an ability on the part of a person to produce a change in a given legal relation by doing or not doing a given act." Section 14H provides that "(o) ne who holds a power created in the form of an agency authority, but given for the benefit of the power holder or of a third person, is not an agent of the one creating the power." The "self-help" mechanism permitted by Georgia Code § 109A-9-503 was clearly intended for the benefit of City Finance to enable it to protect its security interest. See Official Comment to U.C.C. § 9-503. It does not create an agency relationship. See generally Franco v. Stein Steel & Supply Co., 227 Ga. 92, 179 S.E.2d 88 (1970), cert. denied, 402 U.S. 973, 91 S.Ct. 1661, 29 L.Ed.2d 137 (1971).

Whatever fiduciary obligations an executing creditor may have to the debtor under applicable state law, he is not an agent of the debtor as that term is used by the cases construing the 1938 Act. The legislative history of section 101(10) establishes that this definitional section does not change substantive...

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