In re Cavalieri
| Decision Date | 15 June 1992 |
| Docket Number | Bankruptcy No. 91-12643S. |
| Parties | In re Leonard CAVALIERI, Debtor. |
| Court | United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania |
James J. Moran, District Council 33, Legal Service Plan, Philadelphia, Pa., for debtor.
Leo Doyle, Upper Darby, Pa., for CoreStates Bank, N.A.
Michael D. Sayles, Philadelphia, Pa., for Anthony D'Angelo.
Edward Sparkman, Philadelphia, Pa., Standing Chapter 13 Trustee.
Before this court is an unusual set of factual circumstances involving a post-petition sale of a motor vehicle by LEONARD CAVALIERI ("the Debtor"), purportedly free and clear of liens, which was made possible by the inadvertent, post-petition satisfaction of its security interest in the vehicle by the secured party. Two issues arise: (1) whether the transfer of the vehicle should be set aside, because of the Debtor's failure to provide notice required by 11 U.S.C. § 363(b) and Federal Rule of Bankruptcy Procedure ("F.R.B.P.") 2002(a)(2); and (2) whether the lien on the vehicle should be reinstated.
This court finds that the transfer of the vehicle must be set aside, because damage inflicted upon the Debtor's estate by the unauthorized transfer can be remedied only by the return of the vehicle to the estate. Secondly, we conclude that the lien was irrevocably eliminated under applicable state law, that the doctrine of unjust enrichment is inapplicable, and therefore that we cannot reinstate it pursuant to this court's general equitable powers.
On May 13, 1991, the Debtor filed a petition for relief under Chapter 13 of the Bankruptcy Code. A Plan of Reorganization was confirmed in this case on January 14, 1992.
In his Chapter 13 Statement, the Debtor listed a 1988 Mercedes Benz 190E, Vehicle Identification Number WDBDA29D1JF493717 ("the Mercedes"), as an item of his personal property, with a market value of $17,000.00. Also listed was a debt secured by the Mercedes which the Debtor owed in the amount of $16,000.00 to CoreStates Bank, as successor to First Pennsylvania Bank, N.A. ("CoreStates"). The Debtor therefore claimed only his $1,000.00 equity in the Mercedes as an exemption, pursuant to 11 U.S.C. § 522(d)(2).
On July 17, 1991, CoreStates filed a proof of claim, evidencing a security interest in the Mercedes in the amount of $18,237.75, including interest. On December 17, 1991, this court entered an Order approving a Stipulation between the Debtor and CoreStates, whereby the proof of claim amount was amended to $18,239.75. In addition, pre-petition arrearages were fixed at $646.39. Also, pursuant to the Stipulation, it was agreed that post-petition monthly payments would be paid by the Debtor to CoreStates outside of the Debtor's Chapter 13 Plan.
In order to facilitate the filing of the amended proof of claim, CoreStates removed the contract evidencing the sale of the Mercedes ("the Contract") and the Pennsylvania Certificate of Title of the Mercedes ("the Title") from its vault. Through the inadvertence of an unidentified employee, the Title and the Contract were sent to the CoreStates unit which releases encumbrances and returns satisfied contracts. As a result, by inadvertence, the Contract was marked "paid," the encumbrance was released, and the Contract and the Title were mailed to the Debtor.
Discovering its error, CoreStates attempted to salvage the situation by requesting that the Debtor enter into a stipulation to allow relief from the automatic stay in order to reinstate the encumbrance on the Title. CoreStates has alleged that the Debtor refused such a request. This was apparently because, on December 19, 1991, one week after receiving the Contract and Title and apparently prior to the attempts of CoreStates at a negotiated settlement, the Debtor, without informing CoreStates, transferred the Title to Anthony L. D'Angelo, Sr. ("D'Angelo"), an individual who has been a friend of the Debtor for over ten years and was a former partner in a business enterprise named Footprints, Inc., currently a debtor in a Chapter 7 case in this court, at Bankr. No. 91-16235F ("Footprints"). This transfer occurred without the filing of a motion in this court, and without notice to the Chapter 13 Standing Trustee, Edward Sparkman, Esquire ("the Trustee"), or to any other creditor or interested party.
In consideration for the transfer of the Mercedes, D'Angelo paid the Debtor, in cash, $6,500.00. In a "separate" transaction, the Debtor "bought" two vehicles from D'Angelo: a Maxima, for $2,500.00; and a 1987 Ford truck, for $3,500.00 ("the Vehicles"). Although the Debtor, the sole witness at the hearing on the Motions on April 28, 1992, initially stated that the sale of the Mercedes and his subsequent purchase of the Vehicles were separate transactions, he admitted, upon further questioning, that the transactions took this form because the titles for the Vehicles were encumbered at the time of the transfer of the Mercedes and therefore their transfer was delayed.
Shortly thereafter, on February 3, 1992, CoreStates filed a Motion to Reinstate First Lien in Favor of First Pennsylvania N.A. on 1988 Mercedes Benz V.I.D. No. WDBDA29D1JF493717 ("Motion I"), wherein CoreStates requested this court, pursuant to 11 U.S.C. §§ 105, 521, and 1303, to enter an Order directing the Debtor to "return the Contract and Title to CoreStates and execute or have executed the necessary documentation to reinstate the lien in favor of CoreStates on the Title."
A hearing on Motion I was scheduled on February 27, 1992. On the date of the hearing, the Debtor appeared without his counsel and dumbfounded CoreStates' counsel by advising him, for the first time, of his transfer of the Mercedes. CoreStates then requested that the hearing on Motion I be rescheduled on March 19, 1992.
On March 11, 1992, the Debtor filed an Answer to Motion I, alleging that his refusal to sign a stipulation to allow relief from the stay for reinstatement of CoreStates' lien was premised on his belief that the underlying loan had been satisfied by another party. The Debtor did not allege the identity of the alleged beneficent party.
On March 19, 1992, CoreStates filed an Amended Motion to Reinstate Lien ("Motion II"), and continued the hearing on Motion I until April 28, 1992, the date that a hearing was scheduled on Motion II. Though nearly identical to Motion I and requesting approximately the same relief, Motion II added factual averments regarding the Debtor's sale of the Mercedes.
At the hearing on April 28, 1992, the Debtor's Chapter 13 Statement was admitted into evidence. Also admitted were three pages of a publication which, though nearly illegible, appear to recite "book values" for the Mercedes as of July, 1991, December, 1991, and March, 1992, as follows:
(1) July, 1991: average trade-in $17,650.00
average retail 20,475.00
(2) December, 1991 average trade-in 16,575.00
average retail 19,450.00
(3) March, 1992 average trade-in 15,650.00
average retail 18,360.00
D'Angelo entered two exhibits into evidence. The first was a pamphlet from the Manheim Auto Auction which listed the auction prices for various automobile auctions of "exotic" vehicles held on January 9, 1992. For vehicles of the model and year of the Mercedes, four auction prices were listed: $9,800.00, $12,100.00, $12,900.00, and $15,100.00. The second was comprised of three documents supplied by Janet Earnhart, who indicated that she had been previously associated with Automotive System, Inc., apparently a vehicle-leasing business which had sold the Mercedes to the Debtor. In a statement dated April 27, 1992, Earnhart stated that the Mercedes had been involved in two accidents, the dates of which were not disclosed, which resulted in damage to the front grille and severe damage to its rear requiring "extensive body work which was, in my opinion, very poor. . . . with immediate chipping and peeling which affected the price adversely." However, the "price" at which the Debtor bought the Mercedes was not disclosed. Presumably, it exceeded the amount in excess of $16,000 borrowed by the Debtor from CoreStates to buy the Mercedes. Attached to Earnhart's statement was a receipt of December 3, 1990, for front grille work in the amount of $596.39; and an estimate, dated July 22, 1991, for installation of an AM/FM radio stereo and CD player ("the Radio") in the Mercedes for $2,767.51. The Radio estimate indicated that these items were needed when the Mercedes was sold to the Debtor. The testimony of the Debtor suggested that the body work occurred after the sale to the Debtor.
The sole witness at the hearing was the Debtor. The Debtor stated he purchased the Mercedes in 1989. As to the rear-end damage to the Mercedes, the Debtor stated that the entire rear section was "smashed" in an accident which occurred on or about December, 1990. Despite receiving an estimate from Mercedes Benz, the Debtor opted to have a "person downtown" service the Mercedes for $5,500.00, a repair price cheaper than that offered by Mercedes Benz. Three to four months after the repair, the Debtor testified that the paint began to "chip and peel," which necessitated a full body paint job. The Debtor stated that he had received an estimate of $6,000.00 for corrective work, although it is unclear whether this figure represented the price of a full body paint job.
The Debtor claimed that, prior to the transfer of the Mercedes to him, a passenger window had been broken in the course of the theft of the Radio. Although the window had been repaired by the Debtor, the Radio had not been replaced.
When asked why he transferred the Mercedes after the admittedly unexpected receipt of the Title and Contract, the Debtor stated that, in the course of operation...
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