Max v. Northington (In re Northington)

• Decision Date: 11 December 2017
• Docket Number: No. 16-17467, No. 16-17468,16-17467
• Parties: IN RE: Jonathan NORTHINGTON, Debtor. Title Max, Plaintiff-Appellant, v. Jonathan Northington, Defendant- Appellee. In re: Gustavius A. Wilber, Debtor. Title Max, Plaintiff-Appellant, v. Gustavius A. Wilber, Defendant- Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

876 F.3d 1302

IN RE: Jonathan NORTHINGTON, Debtor.

Title Max, Plaintiff-Appellant,

v.Jonathan Northington, Defendant- Appellee.

In re: Gustavius A. Wilber, Debtor.

Title Max, Plaintiff-Appellant,

v.Gustavius A. Wilber, Defendant- Appellee.

No. 16-17467

No. 16-17468

United States Court of Appeals, Eleventh Circuit.

December 11, 2017

Stuart E. Walker, Jenny Martin Stansfield, Martin Snow, LLP, MACON, GA, for Plaintiff.

Brace W. Luquire, Pro Per.

Before WILSON and NEWSOM, Circuit Judges and MORENO,^* District Judge.

NEWSOM, Circuit Judge:

This case requires us to assess the interplay between the United States Bankruptcy Code and a Georgia statute that defines state-law property rights. For its part, the Code describes a bankruptcy estate as including "all legal or equitable interests of the debtor in property as of the commencement of the case," 11 U.S.C. § 541(a)(1), and goes on to provide, as relevant here, that a Chapter 13 plan can "modify the rights of holders of secured claims" on property in the estate, id . § 1322(b)(2). Meanwhile, Georgia's "pawn" law states that any "pledged"—i.e. , pawned—item that is not "redeemed" within a statutorily prescribed grace period "shall be automatically forfeited to the pawnbroker by operation of [law], and any ownership interest of the pledgor ... shall be automatically extinguished in the pledged item." Ga. Code Ann. § 44-14-403(b)(3).

So how do these provisions interact? Very briefly, here's the deal: The debtor in this case entered into a pawn transaction in which he pledged his car in exchange for a loan, defaulted on the loan by failing to repay it on time, and then, shortly before the expiration of the redemption period—during which he could pay off his debt (with interest) and thereby regain title to his car—filed a Chapter 13 bankruptcy petition. Even though the Bankruptcy Code extended the debtor's state-law grace period an additional 60 days, he still failed to redeem the car. All agree that because the debtor filed for bankruptcy before the grace period lapsed, the car and the associated right of redemption initially became part of the bankruptcy estate pursuant to Section 541(a)(1). But this case presents the following interesting question: Did the filing of the bankruptcy petition necessarily freeze those assets in the estate just as they were, such that at confirmation the pawnbroker remained a mere "holder[ ] of [a] secured claim" whose "rights" the bankruptcy court could "modify" under Section 1322(b)(2)—here, by extending the repayment schedule? Or instead, even after the petition's filing, did Georgia's pawn statute continue to operate in the background, so to speak, such that upon the expiration of the redemption period, the car was "automatically forfeited to the pawnbroker by operation of [law]" and thus ceased to be property of the estate, leaving no bankruptcy-based "claim" or "right" to be "modif[ied]"?

Mindful of the deference owed to state-law definitions and regulations of property rights—even in this heavily "federal" area of law—we hold that the Bankruptcy Code did not forestall the "automatic[ ]" operation of Georgia's pawn statute, that the car dropped out of the bankruptcy estate (and vested in the pawnbroker) when the prescribed redemption period lapsed, and, accordingly, that with respect to the car, Section 1322(b)(2) had no field of operation. Simply put, following the expiration of the grace period, the pawnbroker didn't have a mere "claim" on the debtor's car—it had the car itself.

I

On September 2, 2015, Gustavius Wilber and TitleMax entered into a pawn transaction under Georgia law, see Ga. Code Ann. § 44-14-403, in which Wilber exchanged the certificate of title on his 2006 Dodge Charger for a $4,400 cash advance.¹ Because pawn transactions are nonrecourse loans, Wilber had no firm obligation to repay the advance or to redeem the Charger; rather, if Wilber failed to pay off the loan with interest, TitleMax simply took the car. See Ga. Code Ann. § 44-14-403. Wilber's pawn transaction matured on October 2, 2015, by which point he had to repay his loan in order to regain title to his car.

Wilber failed to repay the loan by its maturity date. Georgia law, though, gives a defaulting debtor in a motor-vehicle pawn transaction a 30-day grace period during which he can redeem his car. See id . § 44-14-403(b)(1). Here, on October 30, just before his redemption period was set to expire on November 2, Wilber—still in possession of the Charger² —filed a petition for relief under Chapter 13 of the United States Bankruptcy Code. Wilber simultaneously filed his Chapter 13 plan, which listed TitleMax as a creditor holding a secured claim on the Charger. Pursuant to 11 U.S.C. § 108(b), the Bankruptcy Code extended Wilber's state-law grace period an additional 60 days from the date of his petition, giving him until December 29 to redeem the car.

The extended expiration date came and went with no redemption. On January 8, 2016, before the bankruptcy court held a confirmation hearing on Wilber's proposed plan, TitleMax filed a motion for relief from the Code's automatic-stay provision, 11 U.S.C. § 362(a), so that it could recover the Charger, which Wilber still had in his possession. In the motion, TitleMax contended that Wilber's bankruptcy estate no longer included the car because Wilber had failed to redeem it within the extended grace period.

The bankruptcy court conducted confirmation hearings on January 21 and February 2, and then on February 9—with TitleMax's motion for relief from the stay still pending—entered an order confirming Wilber's Chapter 13 plan. The confirmed plan treated TitleMax as a creditor on a $5,036 debt secured by a claim on the Charger, and provided for repayment of the pawn loan at a 5% interest rate in installments of $175 per month.

Following confirmation, the parties continued to litigate TitleMax's earlier-filed motion for relief from the automatic stay, and on April 29, 2016, the bankruptcy court entered a final order denying that motion. Rejecting TitleMax's arguments, the court held (1) that the Charger and the redemption right were property of Wilber's bankruptcy estate, and remained so even after the expiration of the Code-extended grace period, and accordingly (2) that TitleMax didn't own the car itself, but rather continued to hold only a secured "claim" on it, which gave rise to repayment "rights" that could be "modif[ied]" under Section 1322(b)(2). In re Wilber , 551 B.R. 542, 544–47 (Bankr. M.D. Ga. 2016). The bankruptcy court separately (and alternatively) concluded that under 11 U.S.C. § 1327(a) and "[t]he doctrine of res judicata," the order confirming Wilber's Chapter 13 plan precluded any relief for TitleMax, which the court said had "slept on its rights by not timely objecting" to confirmation. Id . at 547–48.

The district court affirmed the bankruptcy court's decision on the merits, without addressing the "res judicata" issue. In particular, the district court "agree[d] with the bankruptcy court's conclusion" that "because the vehicle [ was] part of the debtor['s] estate[ ] when the debtor[ ] filed [his] Chapter 13 petition[ ], Title Max held [a] secured claim[ ] in the vehicle[ ] that could be modified under 11 U.S.C. § 1322(b)(2)." Title Max v. Northington , 559 B.R. 542, 545 (M.D. Ga. 2016).

TitleMax timely appealed to this Court, challenging the district court's affirmance of the order denying its motion for relief from the automatic stay. TitleMax's appeal presents questions of law, which we review de novo . See In re Paschen , 296 F.3d 1203, 1205 (11th Cir. 2002) (internal citations omitted).

II

Before jumping into the merits, we must first address the bankruptcy court's alternative (but logically antecedent) holding that TitleMax's challenge is procedurally barred on "res judicata" grounds.

The bankruptcy court held that TitleMax "slept on its rights" by "fail [ing] to timely object to confirmation" of Wilber's proposed Chapter 13 plan. 551 B.R. at 548. Accordingly, the court held that its confirmation order was conclusive under 11 U.S.C. § 1327(a) —which generally binds a debtor and his creditors to the terms of a confirmed plan—and "[t]he doctrine of res judicata." 551 B.R. at 548.

In the particular circumstances of this case, we cannot agree that TitleMax impermissibly "slept on its rights" and thus forfeited its ability to raise the argument that it presents on appeal. The decision that the bankruptcy court cited for support, In re Young , 281 B.R. 74 (Bankr. S.D. Ala. 2001), provides a useful (and stark) contrast. As in this case, the debtors in Young failed to redeem property that they had pledged to a pawnbroker. And as in this case, the bankruptcy court held a hearing on the debtors' proposed Chapter 13 plan—which listed the pawnbroker as the creditor on the pawn debt—and later entered an order confirming the plan. The pawnbroker in Young , however, did absolutely nothing to preserve its argument that it had rightful title to the pawned property. It didn't "participate in the confirmation [hearing]," nor did it in any way contest the plan's consummation; rather, following confirmation, the pawnbroker simply set out, unilaterally, to sell the pawned property, prompting the debtors to file a motion to enforce the automatic stay. See id . at 76, 80.

Here, by contrast, even before the bankruptcy court held a confirmation hearing, and thus by definition before it entered any confirmation order, TitleMax filed a written motion in which it contended—just as it does here—that at the moment Wilber failed to redeem the Charger pursuant to Georgia's pawn statute, the car ceased to be property of the bankruptcy estate. TitleMax then appeared at the hearing, and later filed post-hearing briefs, to reiterate its position. When the bankruptcy court later denied its motion for relief from the automatic stay, thereby bringing the bankruptcy proceeding to a close, TitleMax appealed directly to the district court and...