In re Beasley, Bankruptcy No. 94-43096-2-13. Adv. No. 95-4081.

• Decision Date: 14 July 1995
• Docket Number: Bankruptcy No. 94-43096-2-13. Adv. No. 95-4081.
• Court: United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — Western District of Missouri
• Parties: In re Denise R. BEASLEY, Debtor. Richard V. FINK, Chapter 13 Trustee, Plaintiff, v. FIDELITY FINANCIAL SERVICES, INC., Defendant.

183 B.R. 857 (1995)

In re Denise R. BEASLEY, Debtor.

Richard V. FINK, Chapter 13 Trustee, Plaintiff, v. FIDELITY FINANCIAL SERVICES, INC., Defendant.

Bankruptcy No. 94-43096-2-13. Adv. No. 95-4081.

United States Bankruptcy Court, W.D. Missouri.

July 14, 1995.

Michael P. Gaughan, Dysart Taylor Penner Lay & Lewandowski, P.C., Kansas City, MO, for Fidelity Financial Services, Inc.

Maureen Scully, Liberty, MO, for trustee.

MEMORANDUM OPINION

FRANK W. KOGER, Chief Judge.

Debtor filed for relief under 11 U.S.C. Chapter 7 on November 18, 1994. At the § 341 meeting and from documentation and claims filed, the Chapter 7 Trustee determined that there was a problem with the alleged secured position of Fidelity Financial Services. For that reason the Trustee demanded that the debtor deliver possession of a 1994 Ford Probe which debtor had purchased and which debtor and Fidelity Financial Services thought was secured by a perfected lien in favor of said financial institution based on the monies advanced to debtor by said institution. Faced with the alternative of either turning the car over and letting the Trustee fight with Fidelity Financial Services or paying off the car in some fashion, debtor chose to convert to a Chapter 13. Debtor was then in effect a debtor in possession and the Chapter 13 Trustee engaged debtor's counsel to be his counsel to seek determination of the validity of Fidelity Financial's lien.

In this proceeding therefore, it would seem that debtor is basically somewhat of a stake holder and nothing more. If the Chapter 13 Trustee is successful and the lien is avoided, debtor by virtue of 11 U.S.C. § 1325(a)(4) has to pay the value of the vehicle (less exemption) into the Chapter 13 plan for the unsecured creditors. If, on the other hand, the lien of Fidelity Financial is determined to be impregnable, debtor has to pay Fidelity Financial the balance due on the lien, at least to the value of the collateral.

With this background then, the Court will recite the facts which are basically stipulated to by the parties. Debtor purchased the 1994 Probe on August 17, 1994, and delivered at that time to Fidelity Financial Services, Inc. her promissory note for $14,090.80 with interest at the rate of 20.85%. Debtor also delivered to Fidelity Financial a security agreement which has been introduced into evidence.

On September 7, 1994, or 21 days later, Fidelity mailed an application for Missouri Title and License to the Missouri Department of Revenue together with the requisite fee for the imposition of the lien on the face of the title. A copy of that application has also been submitted into evidence.

The so called "blue slip" which is the secured party's copy of the application was processed by the Department of Revenue and returned to Fidelity with a file date of September 23, 1994. However, a search of the records determined, and the parties have agreed, that the Department of Revenue received Fidelity's application for title and imposition of lien on September 12, 1994. Putting all the dates together what is obvious already to informed readers is that Fidelity filed the necessary paper work and same was received by the Department of Revenue 26 days after the date debtor signed the note and security agreement and delivered same to Fidelity. The date of the filing of the petition was 93 days after August 17, 1994, and therefore outside the magic preference period because, of course, there is no claim that Fidelity is an insider. Nevertheless, the date that Fidelity mailed the application to the Department of Revenue that would procure for it a secured position, the date that same was received by the Department of Revenue, the date that the "blue slip" was returned to Fidelity, were all within the magic 90 day preference period. Informed readers will also note, of course, that as of October 22 or October 24, 1994, whichever date one prefers, Congress had decreed that 11 U.S.C. § 547(c)(3) would allow a snap back of 20 days from the date of purchase to the date of perfection under the so called purchase money security interest exception to preference law. The State of Missouri, on the other hand, allows a secured party 30 days to perfect a purchase money security interest and provides that if a secured party does transmit the title application and lien imposition paper work to the Department of Revenue within 30 days of the purchase, the lien is valid as a purchase money security interest against all parties obtaining any interest within the time period between purchase and receipt of application. See Mo.Rev.Stat. § 301.600.2 (1994), which provides in relevant part:

A lien or encumbrance on a motor vehicle or trailer is perfected by the delivery to the director of revenue of the existing certificate of ownership, if any, an application for a certificate of ownership containing the name and address of the lienholder and the date of his security agreement, and the required certificate of ownership fee. It is perfected as of the time of its creation if the delivery of the aforesaid to the director of revenue is completed within thirty days thereafter, otherwise as of the time of the delivery.

Thus, we find the problem. Is it the bankruptcy law of 20 days that controls, or is it the state law of 30 days that controls?

There is a split in authority among the courts that have considered this exact issue. In In re Hamilton, 892 F.2d 1230, 1234-35 (5th Cir.1990), and in In re Loken, 175 B.R. 56, 61 (9th Cir. BAP 1994), the Fifth Circuit Court of Appeals and the Ninth Circuit Bankruptcy Appellate Panel concluded that state law grace, or relation-back, periods are inapplicable for purposes of determining whether a transfer is preferential under section 547. See also In re Walker, 161 B.R. 484, 501 (Bankr.D. Idaho 1993), aff'd, 178 B.R. 497 (D.Idaho 1994); In re Holloway, 132 B.R. 771, 773 (Bankr.N.D.Okla.1991); In re Holder, 94 B.R. 395, 398 (Bankr.M.D.N.C. 1988), aff'd, 94 B.R. 394 (M.D.N.C.1988), aff'd, 892 F.2d 29 (4th Cir.1989) (issue of applicability of state law relation-back period not appealed to the circuit court); In re Scoviac, 74 B.R. 635, 637-38 (Bankr.N.D.Fla. 1987); In re Murray, 27 B.R. 445, 451 (Bankr.M.D.Tenn.1983).

On the other hand, in In re Hesser, 984 F.2d 345, 348-49 (10th Cir.1993), and in In re Busenlehner, 918 F.2d 928, 930-31 (11th Cir. 1990), cert. denied, Moister v. General Motors Acceptance Corp., 500 U.S. 949, 111 S.Ct. 2251, 114 L.Ed.2d 492 (1991), the Tenth Circuit Court of Appeals and Eleventh Circuit Court of Appeals concluded that state law relation-back periods are applicable under a section 547 analysis. See also In re Power, 133 B.R. 242, 244 (Bankr.N.D.Okla. 1991); In re Burnette, 14 B.R. 795, 801 (Bankr.E.D.Tenn.1981).

This Court is persuaded that the reasoning of the appellate courts in Hamilton and Loken and other courts which have determined that state law relation-back periods are inapplicable when deciding whether a preferential transfer has occurred is correct. The court in Loken discussed the split in authority and opined:

Looking at the plain language of Section 547(e)(1), taken as a whole, we find that an ambiguity does not exist. The term "perfected" must be viewed in the context of the rest of the Section and with regard for the usual usage of that term. Section 547(e)(1) states that a transfer is perfected when a creditor "cannot" acquire a superior interest. This Section directs courts to determine when a judicial lienholder is not able to obtain a position superior to that of the transferee in question. See In re Lane, 980 F.2d 601, 605 (9th Cir.1992) (applying Section 547(e)(1)(A) — the definition of transfer is "unambiguous;" a transfer is perfected when a subsequent purchaser cannot acquire a superior interest.) If a judicial lienholder could still obtain superior rights, then the transfer has not been perfected such that the lien holder "cannot" obtain superior rights. Essentially, under Section 547(e)(1), the court must determine the moment in time when a judicial lien creditor is barred from obtaining superior rights. This is a natural reading of the complete Code Section. The courts that have reached a different conclusion have taken the word "perfected" out of the context of the remaining words of the statute. We hold that a creditor on a simple contract is barred from acquiring a judicial lien superior to the interest of the transferee when the transferee takes the last step required by state law to perfect its security interest. Until that last step is taken, other creditors could potentially obtain superior rights. Until this last step, it is not possible to say that other creditors "cannot" obtain superior rights.

This interpretation, that the term "perfected" refers to that single date, or moment in time, when the state perfection statute is satisfied, is also consistent with the general usage of the term. See In re Holloway, supra, 132 B.R. at 774 ("In the real world perfection is actually accomplished on a particular date by doing a particular act."). A perfect example is the Oregon statute at issue here. The Oregon statute requires that an application for notation of the interest on the certificate of title be sent to the DMV. The application must be accompanied by certain documentation. The application is marked when it is received by the DMV. The final act required by the Oregon statute is the submission of a completed application and supporting documentation. If everything is in order, "the security interest is perfected as of the date marked by the DMV on the application." O.R.S. § 803.097(3) (emphasis added). The last act required by Oregon law is the submission of a completed application and supporting documentation to the DMV. Once it is confirmed that this has been done properly, Oregon treats this last required act as the moment the security interest is perfected. This is simply how the term perfected is used in common

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