Hopkins v. Frazier (In re Tews)

• Decision Date: 25 November 2013
• Docket Number: Bankruptcy No. 12–41300–JDP.,Adversary No. 13–08017–JDP.
• Citation: 502 B.R. 566
• Parties: In re Oney J. TEWS and Kirstyn M. Tews, Debtors. R. Sam Hopkins, Chapter 7 Trustee, Plaintiff, v. Joshua Frazier, Defendant.
• Court: U.S. Bankruptcy Court — District of Idaho

502 B.R. 566

In re Oney J. TEWS and Kirstyn M. Tews, Debtors.

R. Sam Hopkins, Chapter 7 Trustee, Plaintiff,

v.Joshua Frazier, Defendant.

Bankruptcy No. 12–41300–JDP.

Adversary No. 13–08017–JDP.

United States Bankruptcy Court,

D. Idaho.

Nov. 25, 2013.

James A. Spinner, Service & Spinner, Pocatello, ID, for Plaintiff R. Sam Hopkins, Chapter 7 Trustee.

Ryan E. Farnsworth, Avery Law, Idaho Falls, ID, for Defendant Joshua Frazier.

MEMORANDUM OF DECISION

JIM D. PAPPAS, Bankruptcy Judge.

Introduction

Plaintiff, chapter 7 ¹ trustee R. Sam Hopkins (“Trustee”), commenced this adversary proceeding against Defendant Joshua Frazier (“Frazier”) pursuant to §§ 549 and 550 to avoid the postpetition transfer of title to a 2007 Puma Travel Trailer (the “Trailer”) from Debtors Oney and Kirstyn Tews (“Debtors”) to Frazier. Dkt. No. 1. Frazier filed an answer ² to the complaint, and the Court scheduled a trial. Dkt. Nos. 9;11. On the date set for trial, in lieu of presenting evidence and testimony, the parties filed stipulated facts and exhibits. Dkt. Nos. 23–25. As agreed, the parties then filed briefs. Dkt. No. 28; 29. Having taken the issues under advisement, and having now reviewed the record, the parties' submissions and their arguments, this Memorandum constitutes the Court's findings of fact and conclusions of law. Rule 7052.

Facts and Arguments

I. Stipulated Facts.³

On June 15, 2012, Debtors and Frazier signed a hand-written bill of sale evidencing Debtors' sale of the Trailer to Frazier, who took possession of the Trailer that same day. Dkt. No. 25, Exh. C. Frazier had apparently paid $10,500 to Debtors to purchase the Trailer.⁴

On September 12, 2012, Debtors filed a chapter 7 petition. Id. at Exh. A. On that date, Debtors were still listed as the owners of the Trailer on the certificate of title issued by the State of Idaho. Id. at Exh. B. On September 26, 2013, Debtors mailed the title certificate to Frazier after obtaining, on September 19, a release of the lien noted on the title from a lender. Frazier did not know Debtors had filed for bankruptcy at the time he received the title certificate. He submitted the title certificate to the State of Utah, and on December 31, 2012, a new title certificate was issued for the Trailer listing Frazier as the owner. Id. at Exh. B. at 1.

Frazier alleges he made repairs to the Trailer after taking possession of it. The parties agreed that Frazier could itemize these repairs in an affidavit accompanied by supporting documentation to be filed by November 1, 2013. See Dkt. No. 23 at 2. Frazier filed no such affidavit.

II. Arguments.

Trustee contends that, despite the sale date, because Debtors were still listed as the owners on the Trailer's title certificate on the date of the bankruptcy filing, the Trailer became property of the bankruptcy estate. Therefore, Trustee argues, he may avoid Debtors' later transfer of the title of the Trailer to Frazier under § 549(a), and the Trailer may be recovered under § 550(a).

Frazier offers two defenses to Trustee's claim in his pretrial brief. Dkt. No. 22. He argues that the equitable defense of recoupment should apply to this postpetition transaction.⁵ In addition, Frazier argues that because there was a lien on the Trailer at the time of Debtors' bankruptcy petition, which purportedly exceeded the value of the Trailer, Trustee should not be able to recover the postpetition transfer, or the Trailer's value, under § 550.

Analysis and Disposition

I. Applicable Substantive Law.

A. Property of the Bankruptcy Estate

When a debtor files a bankruptcy petition, a bankruptcy estate is created, composed of “all legal or equitable interests of the debtor in property as of the commencement of the case.” § 541(a); United States v. Whiting Pools, Inc., 462 U.S. 198, 204, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983). The scope of the bankruptcy estate is broad, encompassing both tangible and intangible interests of the debtor. Gugino v. Knezevich (In re Pegram), 395 B.R. 692, 695 (Bankr.D.Idaho 2008). Property interests of the bankruptcy estate are determined by reference to state law. Butner v. United States, 440 U.S. 48, 54, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979).

Title 49 of the Idaho Code ⁶ governs ownership interests in motor vehicles. Specifically, Idaho Code § 49–503 instructs that “no person acquiring a vehicle from the owner, whether the owner is a dealer or otherwise, shall acquire any right, title, claim or interest in the vehicle until he has issued to him a certificate of title to that vehicle [.]” As this Court has observed, Idaho Code § 49–503 is “strictly construed by the courts to promote the underlying legislative policy that vehicle ownership be determined exclusively by reference to the name on the certificate of title.” In re Pegram, 395 B.R. at 695 (citing Hopkins v. Brasseaux (In re Saunders), 08.1 IBCR 16, 17, 2008 WL 538443 (Bankr.D.Idaho 2008)). Therefore, in Idaho, “[a] buyer ... bears the burden of acquiring a certificate of title in his name to protect his interest in the vehicle.” In re Woods, 386 B.R. 758, 762 (Bankr.D.Idaho 2008).

B. Postpetition Transactions and Liability of the Transferee

As the Court recently explained,

Section 549(a) provides that “a trustee may ‘avoid a transfer of property of the estate—(1) that occurs after the commencement of the case; and ... (2) ... (B) that is not authorized under this title or by the court.’ ” Aalfs v. Wirum (In re Straightline Inv., Inc.), 525 F.3d 870, 877 (9th Cir.2008) (quoting §§ 549(a)(1), (2)(B)). Rule 6001 instructs that “[a]ny entity asserting the validity of a transfer under § 549 ... shall have the burden of proof.” See Hopkins v. Suntrust Mort., Inc. (In re Ellis), 441 B.R. 656 (Bankr.D.Idaho 2010); Hopkins v. Lojek (In re Scheu), 356 B.R. 751 (Bankr.D.Idaho 2006). Therefore, in a § 549 avoidance action, the trustee bears the burden of proving that a postpetition transfer of estate property occurred, but the burden of proof as to the validity of the postpetition transfer is on the transferee. See 10 Collier on Bankruptcy ¶ 6001.01[2] (Alan N. Resnick & Henry J. Sommer eds. 16th ed.) (noting that the transferee has the burden of proof per Rule 6001 only “on the issue of the validity of the transfer and not on any other [element of § 549].”).

Rainsdon v. Davisco Foods Int'l, Inc. (In re Azevedo), 497 B.R. 590, 595 (Bankr.D.Idaho 2013). The primary purpose of § 549 is to allow a trustee to avoid specific postpetition transfers regardless of whether the transfers deplete the estate. In re Straightline Inv., Inc., 525 F.3d at 878–79 (stating “plaintiff's failure to demonstrate a measurable depletion of the estate is not enough to allow a transfer to stand when it is otherwise avoidable under § 549”); see also 5 Collier on Bankruptcy ¶ 549.02 (Alan N. Resnick & Henry J. Sommer eds., 16th ed.). In turn, § 550(a) provides that “to the extent that a transfer is avoided under section ... 549 ..., the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from ... the initial transferee of such transfer....”

C. Recoupment

In the § 549 context, the Court also recently addressed the equitable defense of recoupment:

Recoupment is an equitable doctrine that involves the “netting out of debt arising from a single transaction.” In re Straightline Inv., Inc., 525 F.3d at 882 (quoting Oregon v. Harmon (In re Harmon), 188 B.R. 421, 424 (9th Cir. BAP 1995)). It is a “judicially developed doctrine” that is “in the nature of a defense arising out of some feature of the transaction upon which the plaintiff's action is grounded.” In re Club Wholesale Concepts, Inc., 94 IBCR 213,216 (Bankr.D.Idaho 1994) (quoting United States v. Dalm, 494 U.S. 596, 605, 110 S.Ct. 1361, 108 L.Ed.2d 548 (1990)). Stated another way, recoupment “ ‘is the setting up of a demand arising from the same transaction as the plaintiff's claim or cause of action, strictly for the purpose of abatement or reduction of such claim.’ ” Newbery Corp. v. Fireman's Fund Ins. Co., 95 F.3d 1392, 1399 (9th Cir.1996) (quoting Collier on Bankruptcy ¶ 553.02) (emphasis in original).

In re Azevedo, 497 B.R. at 595–96.

II. Application of Law to Facts.

The parties stipulated that the Idaho certificate of title for the Trailer was in Debtors' name at the time they filed their bankruptcy petition on September 12, 2012. As the Court stated in In re Pegram, in applying Idaho law, ownership of a vehicle is to be “determined exclusively by reference to the name on the certificate of title.” 395 B.R. at 695. Because Debtors were the listed owners, under § 541(a), the Trailer became property of Debtors' bankruptcy estate on that date.

In the words of Idaho Code § 49–503, no “right, title, claim or interest in or to the [Trailer]” passed to Frazier “until he has issued to him a certificate of title to that vehicle.” Therefore, even though he purportedly purchased the Trailer from Debtors for $10,500 prior to the bankruptcy case filing, until Frazier had a certificate of title issued listing him as the owner, he had no enforceable rights to the Trailer. In other words, that Frazier paid Debtors the funds and took possession of the Trailer in June 2012 is of no consequence, because, as a matter of law, the transfer was not effective until the new title certificate was issued. See In re Woods, 386 B.R. at 762. Because Frazier does not contend that the transfer of the title to the Trailer was authorized by the Court or the Code, Trustee has satisfied his burden to prove that an avoidable postpetition transfer of estate property occurred.

In response, Frazier argues he is protected by the equitable defense of recoupment. Recoupment is the “netting out of debt arising from a single transaction.” In re Straightline Inv., Inc., 525 F.3d at 882. It is properly invoked when mutual claims arise on each side of a specific transaction. See Aetna U.S. Healthcare, Inc v. Madigan (In re...