Cash America Pawn, LP v. Murph
| Decision Date | 29 May 1997 |
| Docket Number | Civil Action No. 6:96 CV 766. |
| Citation | 209 BR 419 |
| Parties | CASH AMERICA PAWN, L.P. D/B/A Cash America Pawn of Marshall # 1, v. David MURPH, et al. |
| Court | U.S. District Court — Eastern District of Texas |
John Frederick Bufe, Potter, Minton, Roberts, Davis & Jones, Tyler, TX, for plaintiff.
Rodney Stuart Scott, Longview, TX, for defendant.
MEMORANDUM AND ORDER ON APPEAL
This case is before the Court on appeal from a Judgment on Turnover Action entered by the Bankruptcy Court, Eastern Division of Texas, Tyler Division, on July 17, 1996, in an adversary proceeding in a Chapter 13 Bankruptcy, Case Number 95-60749 (). Appellant is Cash American Pawn, L.P. d/b/a/ Cash American Pawn of Marshall # 1 ("Cash America") and there is a cross appeal of the debtors, David and Phyllis Murph ("Debtors").
The parties have stipulated to the following facts: David and Phyllis Murph filed a petition for relief under Chapter 13 of the Bankruptcy Code on June 19, 1995 ("Petition Date"). Cash America loaned the Debtors money, and the Debtors provided security as follows: on ticket # 124158, a ladies diamond ring and wedding band; (the amount advanced was $150.00), on ticket # 124263, a man's gold ring; (the amount advanced was $300.00), on ticket # 124263, a VCR, an Uniden base scanner, and a Nintendo with 5 games; (the amount advanced was $160.00).
All of these loans had a maturity date of thirty days from the date of the original pawn with a sixty day grace period after that. The items pawned were the collateral. The Debtors did not redeem any of the collateral before the expiration of the applicable maturity dates or the applicable state law grace periods. Neither did the Debtors redeem any of the collateral within sixty days of the Petition Date and did not redeem the collateral as late as January 16, 1996.
On June 19, 1995, David and Phyllis Murph filed a petition for relief under Chapter 13 of the Bankruptcy Code. On September 28, 1995, the Debtors filed an Amended Schedule C — "Property Claimed as Exempt" in which they listed the collateral as exempt. They valued the collateral at a total worth of $925.00. No one objected to exemption of the collateral.
Cash America filed three proofs of claim: Proof of Claim 13 for $180.00 relating to pawn ticket # 124688; Proof of Claim 14 for $216.00, relating to pawn ticket # 124158; and Proof of Claim 15 for $390.50, relating to pawn ticket # 124263.
The loans are not cross-collateralized. The collateral remains in Cash America's possession.
Cash America asserts that the United States Bankruptcy Court erred as a matter of law when it ruled as follows:
1. The pawned property was property of the Debtors' estate.
2. A debtor's contractual right to redeem pawned property from a Texas pawn shop can be modified in a Chapter 13 proceeding where the debtor fails to timely redeem the pawned property within sixty (60) days after the filing of a Chapter 13 petition.
3. The automatic stay provided for in 11 U.S.C. § 362(a) of the Bankruptcy Code, is applicable to "pawn transactions" as defined in the Texas Civil Statutes, Article 5069-51.02(h).
On cross appeal, the Debtors assert that the bankruptcy court erred when it denied actual damages to the Debtors as a matter of law.
On appeal, a bankruptcy court's findings of fact are not to 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.Bank.P. 8013; In re Matter of Webb (Webb v. Reserve Life Ins. Co.), 954 F.2d 1102 (5th Cir.1992). Questions of law are subject to de novo review. In re T.B. Westex Foods, Inc. (T.B. Westex Foods, Inc. v. FDIC), 950 F.2d 1187, 1190 (5th Cir.1992).
ISSUE ONE: Did the bankruptcy court err as a matter of law in ruling that the pawned property was property of the Debtors' bankruptcy estate?
It is undisputed that Debtors had failed to redeem the pawned property within the initial thirty day redemption period and that the additional statutory sixty day redemption period was still in effect on the Petition Date. Neither did the Debtors, or the trustee, redeem the property at any time during the sixty day period, which expired during the pendency of the bankruptcy action. Under this set of facts, the Court must determine whether the pawned goods were part of the bankruptcy estate. Only property in which debtor has a legal or equitable interest can become "property of the estate." 11 U.S.C. § 541(a)(1).
Appellant, Cash America, argues that when the goods were "pawned," the Debtors gave their property in exchange for a contractual right to redeem the property by paying a fixed amount within a specified time. It asserts that it is this contractual right, rather than the property itself, that became property of the estate, and that since Debtors never exercised that right, the title to the property passed to the pawnbroker at the end of the statutory sixty day redemption period, regardless of the filing of the bankruptcy petition. Debtors argue that since Cash America, in its pleadings and stipulation, has asserted the status as a secured claimant, it is estopped from arguing that the pawned property was not part of the bankruptcy estate.
It is not disputed that the three transactions of Debtors with Cash America are governed by the Texas Pawnshop Act. Tex.Rev. Civ. Stat. art. 5069-51.16(a)(7) (Vernon Supp. 1996). It is also agreed that the initial maturity date, which occurred one month after each loan was made, had expired and that the sixty day grace period was in effect on the Petition Date. The effect of the grace period is disputed. The parties disagree as to the effect of the Texas Pawnshop Act's following language: "pledged goods not redeemed within sixty days following the originally fixed maturity date may thereafter, at the option of the pawnbroker, be forfeited and become property of the pawnbroker." Tex.Rev.Civ. Stat. art. 5069-51.13.
The bankruptcy court cited a regulation promulgated by the Consumer Credit Commissioner who was given authority by the Texas Legislature to "make regulations necessary for the enforcement of this Texas Pawnbroker Act and consistent with all its provisions." Tex.Rev.Civ. Stat. art. 5069-51.09(b) (Vernon 1987). The Consumer Credit Commissioner promulgated regulations dealing with the specific actions that must be taken by the pawnbroker when he exercises his option to take pledged goods as his property. He must make a notation of the action and the date of the action on the fourth part of the pawn ticket or in the electronic records of the loan. The regulation goes on to state that if the notation has not been made, the loan is considered open even if the grace period has expired. Tex. Admin. Code Ann. § 85.21(E).
The bankruptcy court found that this regulation definitively establishes the time of ownership transfer. It further held that since the grace period for each transaction expired after the Petition Date1, Cash America, having received notice of the bankruptcy filing, was foreclosed from taking the final action to gain ownership of the property because such action would be considered action to enforce a lien. 11 U.S.C. § 362(a)(5). The bankruptcy court distinguished the holdings in Dunlap v. Cash America Pawn, 158 B.R. 724 (M.D.Tenn.1993) and In re Jackson, 133 B.R. 541 (Bankr.W.D.Okla.1991). It applied the reasoning from United States v. Whiting Pools, Inc., 462 U.S. 198, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983) as well as the regulations issued by the Consumer Credit Commissioner, in reaching its ruling that the Debtors had shown by clear and convincing evidence that the collateral was part of the bankruptcy estate.
The Court agrees. Under the agreed facts, it is clear that Debtors still had a legal or equitable interest in the pawned property because the statutory redemption period had not expired on the Petition Date. Property in which the Debtors had a legal or equitable interest on the Petition Date become part of the estate. 11 U.S.C. § 541(a)(1).
ISSUE TWO: Did the bankruptcy court err, as a matter of law, in holding that a debtor's contractual right to redeem pawned property from a Texas pawn shop can be modified in a Chapter 13 proceeding where the debtor fails to timely redeem the pawned property within sixty (60) days after the filing of a Chapter 13 petition?
Appellant further argues that a Debtor's contractual right to redeem pawned property from a Texas pawn shop can not be modified in a Chapter 13 proceeding. Appellant cites In re Dunlap, 158 B.R. 724 (M.D.Tenn.1993) and In re Jackson, 133 B.R. 541 (Bankr. W.D.Okla.) to support this proposition. Cash America was likewise appellant in both cases. The Court notes that in Dunlap the statutory redemption periods for the various pawn transactions had expired prior to the filing of the bankruptcy petition. Tennessee law required the pawnbroker to mail a notice to the debtor that he had ten days within which to redeem his property, or it was forfeited. The pawnbroker fulfilled that statutory requirement. This was all done prior to the Petition Date. The court held the property was not in the bankruptcy estate because Debtors no longer had any legal or equitable interest in the pawned property under Tennessee law.
In In re Jackson, 133 B.R. 541 (Bankr. W.D.Okla.), the collateral of two pawn transactions were still subject to redemption on the Petition Date, as in the instant case. The collateral was held to be part of the bankruptcy estate. Cash America did not dispute this fact. The issue in Jackson was whether the plan submitted by Debtor sufficiently protected Cash America's rights as a creditor.
The Court finds that to answer the question of whether the bankruptcy court erred, as a matter of law, in holding that a debtor's contractual right to redeem pawned property from a...
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