In re Allied Sign Co., Inc.
| Decision Date | 26 January 2001 |
| Docket Number | Adversary No. 00-1096.,Bankruptcy No. 99-10488-MAM-7. |
| Citation | 280 B.R. 694 |
| Parties | In re ALLIED SIGN COMPANY, INC., Debtors. C. Michael Smith, Plaintiff, v. Karen Fendley, f/k/a Karen Peterson, Defendant. |
| Court | U.S. Bankruptcy Court — Southern District of Alabama |
C. Michael Smith, Mobile, Alabama, trustee.
A. Richard Maples, Jr., Mobile, Alabama, for defendant.
ORDER DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
This matter is before the Court on the motion of the Trustee, C. Michael Smith, for Summary Judgment and the motion of Defendant, Karen Peterson, for Summary Judgment in this adversary matter. The Court has jurisdiction to hear this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the Order of Reference of the District Court. This is a core proceeding pursuant to 28 U.S.C. § 157(b) and the Court has the authority to enter a final order. For the reasons indicated below, the Court is denying the motion of Plaintiff for summary judgment and granting the motion of defendant for summary judgment.1
On May 10, 1994, a computer component for a router was purchased from PC Net, Inc. Defendant issued a check for the computer component directly to PC Net in the amount of $3,062.34. The check indicated it was "For Allied Sign Co., Inc." On May 19, 1994, an Airtech Vacuum system from Airtech, Inc. was purchased and was also paid for directly by Defendant with a check in the amount of $2,260.00 that indicated it was "For Allied Sign Co., Inc." On May 26, 1994, Allied Sign purchased an AR Router and Premier 4.1 software from Sign Plex by issuing a check in the amount of $ 49,837.05 made payable to Sign Plex. On that same day, Defendant issued a check to Allied Sign in the amount of $58,000.00 which indicated it was "For Router."
On June 3, 1994, Defendant's father, Gordon Peterson, took out a loan from Minden Exchange Bank & Trust in the amount of $57,969.84 for the stated purpose of "purchasing equipment for business." The entire loan was due in a single payment of $59,184.82 on September 1, 1994. Defendant took out a loan on August 15, 1994, from Minden Exchange Bank & Trust in the amount of $65,523.32 and agreed to make payments of $1344.56 per month, a total of $96,808.32. Defendant's affidavit states that this was a refinancing of the loan originally taken out by her father.
On June 7, 1994, Defendant's husband and the sole owner of Allied Sign, T.A. Harding Fendley, executed a document titled "Lease Agreement" under which Allied Sign was to lease the Router, the Airtech vacuum system and the computer component in return for the payment to Defendant and her husband of $1,347.14 each month for 72 months. The payments total $96,994.08. Under the agreement the equipment was to remain at Allied Sign and Allied Sign was to provide property insurance covering the equipment. This "lease" document was signed only by Mr. Fendley. According to Defendant, the transaction was intended to be a lease and was structured as such to allow defendant and her husband to borrow money to purchase the equipment and to deduct the depreciation of the equipment on their tax returns. Defendants offered copies of documentation evidencing federal deductions taken by Defendant and her husband in the amount of $9,213 in 1994, $15,789 in 1995 and $11,276 in 1996 for a total of $36,278. The tax documents list the cost or basis of the property as $64,470.
On February 8, 1999 Allied Sign filed for relief pursuant to chapter 7 of the Bankruptcy Code. On April 27, 2000 the Trustee, C. Michael Smith, conducted a public sale of the Assets of Allied Sign including the router and all component parts. The highest offer for the router and all component parts was $20,000. Premier Capital Funding tendered a check in the amount of $20,000 to Defendant, Karen Fendley for the purchase of the router and router components.
The Trustee, C. Michael Smith, filed this adversary complaint to determine title to the router and router components. Both parties have filed motions for summary judgement. Rule 7056 states that the Court shall grant summary judgment to the moving party if "there is no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law." Fed.R.Bankr.P. 7056(c). The moving party bears the burden of proving that there is no issue of material fact. In Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986), the Supreme Court found that a judge's function is not to determine the truth of the matter asserted or weight of the evidence presented, but to determine whether or not the factual disputes raise genuine issues for trial. Anderson, at 249, 106 S.Ct. 2505. In making this determination, the facts are to be looked upon in the light most favorable to the nonmoving party. Id.; Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). All inferences are resolved in favor of the party defending against each motion. Stewart v. Booker T. Washington Ins., 232 F.3d 844 (11th Cir.2000); Stewart v. Happy Herman's Cheshire Bridge, Inc., 117 F.3d 1278, 1285 (11th Cir.1997).
The parties have each filed summary judgment motions so they will each be judged in turn on their merits as if the opposing motion constitutes a response. The Plaintiff's motion was filed first so it will be considered first; then Defendant's motion will be considered. In the end the Court must weigh which side produced the greater weight of evidence.
The issue presented is whether the transactions surrounding the router and router components constitute a true lease under which Karen Fendley maintains ownership of the property or whether Allied Sign owned the property and Fendley only maintained a security interest. There is a document purporting to be a "lease." However, we must "gather the intention of the parties from the entire instrument without regard to its form, or technical terms used therein." Commerce Union Bank v. John Deere Indus. Equipment Co., 387 So.2d 787 (Ala.1980) (citations omitted).
A "lease" intended as security is an agreement in which the ultimate intent is a sale. Sharer v. Creative Leasing, Inc., 612 So.2d 1191 (Ala.1993) (citing In re Atlanta Times, 259 F.Supp. 820, 827 (N.D.Ga.1966)). Ala.Code § 7-1-201(37) defines security interest:
(37) a. "Security interest" means an interest in personal property or fixtures which secures payment or performance of an obligation. The retention or reservation of title by a seller of goods notwithstanding shipment or delivery to the buyer (Section 7-2-401) is limited in effect to a reservation of a "security interest." ...
b. Whether a transaction creates a lease or security interest is determined by the facts of each case; however, a transaction creates a security interest if the consideration the lessee is to pay the lessor for the right to possession and use of the goods is an obligation for the term of the lease not subject to termination by the lessee, and 1. the original term of the lease is equal to or greater than the remaining economic life of the goods, or 2. the lessee is bound to renew the lease for the remaining economic life of the goods or is bound to become the owner of the goods, or 3. the lessee has an option to renew the lease for the remaining economic life of the goods for no additional consideration or nominal additional consideration upon compliance with the lease agreement, or 4. the lessee has an option to become the owner of the goods for no additional consideration or nominal additional consideration upon compliance with the lease agreement.
c. A transaction does not create a security interest merely because it provides that:
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