Crews v. TD Bank, N.A. (In re Crews)

• Decision Date: 12 January 2012
• Docket Number: Adversary No. 3:11–ap–809–JAF.,Bankruptcy No. 3:09–bk–8641–JAF.
• Citation: 477 B.R. 835,23 Fla. L. Weekly Fed. B 411
• Parties: In re Kelvin R. CREWS and Louann D. Crews, Debtors. Kelvin R. Crews and Louann D. Crews, Debtors–in–Possession, Plaintiffs, v. TD Bank, N.A., f/k/a Mercantile Bank, Defendant.
• Court: U.S. Bankruptcy Court — Middle District of Florida

477 B.R. 835

23 Fla. L. Weekly Fed. B 411

In re Kelvin R. CREWS and Louann D. Crews, Debtors.Kelvin R. Crews and Louann D. Crews, Debtors–in–Possession, Plaintiffs,

v.TD Bank, N.A., f/k/a Mercantile Bank, Defendant.

Bankruptcy No. 3:09–bk–8641–JAF.

Adversary No. 3:11–ap–809–JAF.

United States Bankruptcy Court,

M.D. Florida,

Jacksonville Division.

Jan. 12, 2012.

Albert H. Mickler, Jacksonville, FL, for Plaintiffs.

Guy W. Norris, Lake City, FL, for Defendant.

ORDER DENYING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT AND ENTERING SUMMARY JUDGMENT IN FAVOR OF DEFENDANT

JERRY A. FUNK, Bankruptcy Judge.

This proceeding is before the Court on Plaintiffs' Motion for Summary Judgment (Doc. 6) and Defendant's response in opposition thereto (Doc. 13). For the reasons stated herein, Plaintiffs' Motion for Summary Judgment will be denied. Furthermore, the Court will enter summary judgment in favor of Defendant, sua sponte.

I. BACKGROUND

In a previous adversary proceeding, Mercantile Bank v. Crews, Adv. No. 3:10–ap–0031–JAF, this Court, after a trial on the merits, entered Findings of Fact and Conclusions of Law, wherein it determined Defendant acquired an equitable lien on $350,000.00 in building loss insurance proceeds related to a fire loss that occurred on June 8, 2009. Attached as an exhibit to Plaintiffs' Motion for Summary Judgment is a copy of the Court's Findings of Facts and Conclusions of Law, entered on September 12, 2011 in Mercantile Bank v. Crews, Adv. No. 3:10–ap–0031–JAF, supra (Doc. 6 at 39–66).

In their papers, both parties maintain there are no factual disputes related to the instant adversary proceeding (Doc. 6 at 1–6; Doc. 13 at 5–13). Additionally, both parties rely on, and cite to, the facts as stated in the Court's Findings of Facts and Conclusions of Law ( see, e.g., Doc. 6 at 1; Doc. 13 at 5); therefore, the Court will fully incorporate the Findings of Facts and Conclusions of Law herein by reference (Doc. 6 at 39–66). For the sake of clarity, however, the Court will recite the following pertinent undisputed facts: Defendant is the mortgagee of certain real property which secures various loans made by Defendant to Plaintiffs (Doc. 6 at 40–42). The building destroyed by the June 8, 2009 fire, supra, was an improvement on the mortgaged real estate (Doc. 6 at 40). Pursuant to the loan documents, the building itself constituted collateral for the loans made to Plaintiffs ( id.). The mortgages and other loan documents were duly recorded in the public records of the county in which the property is located, Baker County (Doc. 13 at 2).

The recorded mortgages and other loan documents obligated Plaintiffs to insure the subject building against fire loss, and to designate Defendant as the mortgagee or loss-payee with a right to any insurance proceeds derived therefrom (Doc. 6 at 41). Plaintiffs insured the building against fire loss; however, they did not name Defendant as a mortgagee or loss-payee on the policy of insurance (Doc. 6 at 42). Additionally, Plaintiffs did not inform Defendant about the loss of its collateral ( id.). Shortly after the fire, Plaintiffs requested from the insurer, and were provided, a $50,000.00 advance payment (Doc. 6 at 43).

Upon learning of the fire loss, Defendant made demand upon Plaintiffs for payment of any building loss insurance proceeds ( id.). Additionally, Defendant requested from both Plaintiffs and the insurer that it be named as a mortgagee and loss-payee on the subject insurance policy in accordance with the recorded mortgages and other loan documents ( id.). Plaintiffs, for their part, vehemently opposed Defendant being named as a mortgagee or loss-payee on the insurance policy; however, after conducting a title search on the subject real property, the insurance company recognized Defendant's right to be named as a mortgagee on the policy (Doc. 6 at 43–46). Ultimately, Plaintiffs acquiesced and signed a sworn statement in proof-of-loss, wherein they acknowledged Defendant's mortgage interest in the subject building and Defendant's right to any insurance proceeds related to its loss (Doc. 6 at 46).

After receipt of the sworn statement of loss, supra, the insurance provider issued a check for $300,000.00 ( id.). Defendant was named on the check as an additional payee ( id.). The check constituted the remaining balance of $350,000.00 in building loss insurance proceeds due on the policy for the fire loss ( id.).¹ Approximately one week after receiving the subject check, Plaintiffs filed the instant Chapter 11 bankruptcy petition ( see Doc. 6 at 46). Despite demand by Defendant for turnover of the $300,000.00 insurance proceeds check, Plaintiffs never delivered it to Defendant (Doc. 6 at 46–48). The check remains in the possession of Plaintiffs in their capacity as Chapter 11 Trustees.

II. SUMMARY JUDGMENT STANDARD

Pursuant to Rule 56 of the Federal Rules of Civil Procedure, as incorporated by Rule 7056 of the Federal Rules of Bankruptcy Procedure, a court shall grant “summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The movant bears the burden of proving that there is no dispute as to any material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323–25, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In deciding a motion for summary judgment, all factual inferences must be viewed in the light most favorable to the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587–88, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

III. DISCUSSION

The parties maintain, and the Court finds, there are no genuine issues of material fact present in the instant dispute; therefore, the Court must determine whether Plaintiffs are entitled to summary judgment as a matter of law. Fed.R.Civ.P. 56; Fed. R. Bankr.P. 7056. The Court finds they are not.

By way of the instant adversary proceeding, Plaintiffs seek to avoid Defendant's equitable lien in the $350,000.00 in insurance proceeds pursuant to their “strong-arm” powers as Chapter 11 Debtors–in–Possession/Trustees under 11 U.S.C. § 544 (Doc. 1, Complaint). Such powers permit a trustee in bankruptcy to avoid certain transactions as a hypothetical judgment lien creditor or bona fide purchaser for value, without notice. 11 U.S.C. § 544.

In the Motion for Summary Judgment, Plaintiffs argue, inter alia, that Defendant's equitable lien is avoidable pursuant to the provisions of 11 U.S.C. § 544 because Defendant did not perfect its interest in the subject building loss insurance proceeds by filing a UCC–1 financing statement in conformity with Article 9 of the Uniform Commercial Code (the “UCC”), as adopted by the Florida Statutes (Fla. Stat. § 679. 1011, et seq.) (Doc. 6 at 6–15). Plaintiffs maintain, as a consequence, a hypothetical judgment lien creditor or bona fide purchaser would have no notice of Defendant's equitable lien on the insurance proceeds. For the reasons stated herein, the Court is not persuaded.

There is no dispute that Defendant recorded its security interest in the subject real estate, including any improvements thereon, in the public records of Baker County in conformity with Fla. Stat. § 695.01, et seq. Plaintiffs nevertheless argue that they are entitled to avoid the subject equitable lien in the fire insurance proceeds because any automatic perfection in the insurance proceeds that stemmed from the destruction of the collateral would have lapsed after 21 days in accordance with Fla. Stat. § 679.3151(4) since Defendant did not file a UCC–1 financing statement (Doc. 6 at 13–15).

One faulty premise of Plaintiffs' argument lies in the fact that the subject secured collateral was not personal property subject to perfection by the filing of a UCC–1 financing statement, but was an improvement to real estate subject to perfection under the State's recording statutes (Fla. Stat. § 695.01, et seq.). Specifically, Florida's enactment of UCC § 9–104 provides, in pertinent part, that “[t]his chapter [Article 9 of the UCC] does not apply ... [e]xcept to the extent that provision is made for fixtures in [UCC § 9–313], to the creation or transfer of an interest in or lien on real estate....” Fla. Stat. § 679.104(10).

In re Royal West Properties, Inc., 441 B.R. 158 (Bankr.S.D.Fla.2010), the primary case relied on by Plaintiffs in support of their position in this regard, is inapposite as it did not involve insurance proceeds that stemmed from the destruction of real property. In that case, the debtor executed “collateral assignments” of mortgage receivables to secure notes it made to certain investors in relation to various loans. Id. at 161. The collateral assignments secured repayment of the investor notes, and were not absolute assignments transferring ownership of the mortgages to the investors. Id. at 162. The distinction here is important because, as the court noted, in order for the investors to have a valid enforceable security interest in the collateral assignments ( i.e., personal property), the investors had to either perfect their security interests under the applicable provisions of Florida's Uniform Commercial Code or have actual possession of the notes. Id. Since the collateral assignments were not an interest in the underlying realty itself, the court stated: “[r]ecording the [collateral] Assignments in accordance with the real estate recording statutes was not sufficient [to perfect the investors' interests].” Id.

The underlying collateral in In re Royal West Properties, Inc. was personal property subject to perfection by the filing of a UCC–1 financing statement. Here, the underlying security interest is in real estate. “[F]iling a UCC–1 financing statement does not perfect an interest in real property.” Id. at 169.

Additionally, in In re Royal West Properties, Inc., the court found title in the underlying real estate completely re-vested in the debtor via the doctrine of...