In re CLARK CONTRACTING SERVICES Inc.

• Decision Date: 14 April 2010
• Docket Number: Bankruptcy No. 08-50046-LMC.,Adversary No. 05045-LMC.,Civil Action No. SA-09-CV-726-FB.
• Citation: 438 B.R. 913
• Parties: In re CLARK CONTRACTING SERVICES, INC., Debtor, Wells Fargo Equipment Finance, Appellant, v. Jose C. Rodriguez, Chapter 7 Trustee for Clark Contracting Services, Inc., Appellee.
• Court: U.S. District Court — Western District of Texas

438 B.R. 913

In re CLARK CONTRACTING SERVICES, INC., Debtor,Wells Fargo Equipment Finance, Appellant,

v.Jose C. Rodriguez, Chapter 7 Trustee for Clark Contracting Services, Inc., Appellee.

Bankruptcy No. 08-50046-LMC.

Adversary No. 05045-LMC.

Civil Action No. SA-09-CV-726-FB.

United States District Court, W.D. Texas,San Antonio Division.

April 14, 2010.

Marshall L. Armstrong, Robert L. Barrows, Warren, Drugan & Barrows, P.C., San Antonio, TX, for Appellant.

Dean William Greer, Law Offices of Dean W. Greer, San Antonio, TX, for Appellee.

ORDER REVERSING ORDER OF THE BANKRUPTCY JUDGE DATED NOVEMBER 28, 2008

FRED BIERY, District Judge.

This is an appeal from a judgment of the United States Bankruptcy Court for the Western District of Texas, San Antonio Division. As set forth in its Order of November 28, 2008, the Bankruptcy Court granted Clark Contracting Services, Inc.'s motion for partial summary judgment and denied Wells Fargo Equipment Finance's motion for partial summary judgment. This Court has jurisdiction of this appeal pursuant to 28 U.S.C. § 158. After careful consideration, the Court is of the opinion that the Order of the Bankruptcy Judge dated November 28, 2008, granting appellee's motion for partial summary judgment and denying appellant's motion for partial summary judgment, should be reversed with instructions that the Bankruptcy Court grant appellant's motion for partial summary judgment.

STANDARD OF REVIEW

Bankruptcy rule 8013 sets forth the standard of review for orders issued by the bankruptcy courts. Rule 8013 provides:

On appeal the district court or bankruptcy appellate panel may affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree or remand with instructions for further proceedings. Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses.

Fed. R. Bankr.P. 8013. A district court reviews legal conclusions de novo. In re Foster Mortgage Corp., 68 F.3d 914, 917 (5th Cir.1995). A finding of fact premised on an improper legal standard or on a proper legal standard improperly applied “loses the insulation of the clearly erroneous rule.” In re Missionary Baptist Found., of Am., 818 F.2d 1135, 1142 (5th Cir.1987) (citation omitted).

BACKGROUND

In November of 2008, the Bankruptcy Court found that Wells Fargo Equipment Finance (“Wells Fargo”), a purchaser of a secured loan made by CIT Group/Equipment Financing Inc. (“CIT”) to Clark Contracting Services, Inc. (“Clark”) for the purchase of six equipment trucks, did not have a perfected security interest in those trucks because CIT failed to apply with the county assessor/collector to have the certificates of titles for the trucks reissued to reflect Wells Fargo as the lienholder. The result of the decision is that Wells Fargo was relegated to the status of an unsecured creditor in the bankruptcy proceedings of Clark. In making its November 28, 2008 ruling, the Bankruptcy Court interpreted the Texas Certificate of Title Act (“TCOTA”) provisions regarding re-titling upon assignment of a lien as mandatory.

The opinion of the Bankruptcy Court was “viewed as an anomaly and has been widely criticized.” In re Scott, 427 B.R. 123, 138 (Bankr.S.D.Ind.2010) (citing Red Flag: Texas Court Requires Assignees of Vehicle Contracts to Get Lien Noted on New Certificates of Title, CLARK'S SECURED TRANSACTIONS (Feb. 2009); Alvin C. Harrell, Case Note, Clark Contracting Services, Inc. v. Wells Fargo Does an Assignee of a CT Lien Entry Become Unperfected, 62 CONSUMER FIN. L.Q. REP. 274 (2008)). After the Clark Contracting decision, a bankrupt debtor in Arkansas challenged that state's laws regarding re-titling upon assignment of a motor vehicle lien. In re Johnson, 407 B.R. 364, 365 (Bankr.E.D.Ark.2009). The Arkansas Bankruptcy Court assigned to hear the case recognized that the Arkansas certificate of title statute used similar working to that of the Texas statute, but rejected the Clark Contracting decision. Id. at 367, 369. The Arkansas Bankruptcy Court instead came to the conclusion that assignee lienholders in Arkansas do not need to re-title to enjoy the perfected status of their assignors. Id. at 369. Another bankruptcy court in Arkansas adopted the reasoning and analysis of In re Johnson when concluding that, while the assignee of a motor vehicle loan did not have its name appear on certificate of title, it nonetheless had perfected a security interest in the vehicle by virtue of having the name of its assignor reflected on the certificate of title as the lienholder. In re Gaines, 414 B.R. 494, 497 (Bankr.E.D.Ark.2009). “[M]ost courts,” the In re Gaines decision pointed out, “recognize that the assignment of a lien does not create a ‘new’ lien” and, therefore, any re-titling of the lien is permissive under the Arkansas statute which had similar working to that of Texas. Id. A Bankruptcy Court in Indiana reached the same result on March 11th of this year. In re Scott, 427 B.R. 123, 137-38.

Here in Texas, lawmakers acted quickly to overturn the Clark Contracting decision. In June of 2009, the Texas Legislature amended the TCOTA to clarify that re-titling upon assignment of a lien is permissive such that its assignees or assignors can re-title upon assignment if they choose to do so, but the TCOTA does not require re-titling in order to continue perfection. Senate Bill 1592, S.B. 1592, 81st Leg., Reg. Sess. (Tex. 2009). Relying in part on the amendment to the TCOTA, Wells Fargo argues in this appeal that re-titling upon reassignment is permissive. Clark recognizes the certificate of title statute has been amended, but argues the Clark Contracting decision should nonetheless be upheld.

DISCUSSION

In construing the TCOTA statute and its subsequent amendment, the Court must consider several factors. As set forth by the Texas Supreme Court:

Our objective when construing a statute is to determine and give effect to the Legislature's intent. To ascertain that intent, we look first to the statute's plain language. We must view the statute's terms in context, and give them full effect. Under the Code Construction Act, we may look to the statute's legislative history in gleaning the Legislature's intent. We also bear in mind the circumstances under which the statute was enacted, and the consequences of any particular construction.

Phillips v. Beaber, 995 S.W.2d 655, 658 (Tex.1999) (citations omitted). The Court further must “presume that the Legislature acted with knowledge of the common law and court decisions.” Id. In determining and giving effect to the intent of the Legislature, this Court must conclude that the Clark Contracting decision is contrary to the Texas certificate of title law, the general rules of the UCC, and public policy.

With regard to the plain language of the S.B. 1592 amendment, the goal of the drafters of the TCOTA legislation was to amend the assignment provisions in the TCOTA to clearly reflect the intent of the Legislature to make re-titling upon assignment permissive. The amendment, which is found at Section 6 of Acts 2009, 81st Leg., ch. 814, provides:

This Act is intended to clarify that under existing law, an assignment of a recorded security interest may be recorded on the title, but does not have to be recorded on the title to retain the validity, perfection, and priority of the security interest securing the obligation assigned to the assignee.

Tex. S.B. 1592 § 6 (amending Tex. Transp. Code Ann. § 501.114 (Vernon 2007)). The purpose of the amendment was thus, not to make a change in the law, but to clarify what has been the law since the statute was enacted in 1995. In other words, in order to manifest legislative intent, language was added to the amendment to express the nature of the legislation as a clarification of existing law. See id.

The desired effect of section 6 is, therefore, to protect the perfected lien status of assignee lienholders who took assignment prior to the effective date of the legislation and did not re-title. Without such language, the amended TCOTA statute may only operate prospectively to assignments made after the June 19, 2009, effective date of S.B. 1592, continuing to leave pre-effective date assignee lienholders, such as Wells Fargo, un-perfected until they made an application to the State to reflect their status as lienholders on certificates of title. While Texas law traditionally cautioned against giving retroactive effect to amended statutes, recent case law suggests that amendments to statutes which reflect the Legislature's intent to clarify, rather than change, existing law may be applied by the Courts to claims which accrue prior to the effectiveness of the amendment, as if the law at the time of the accrual of the claim was the statute as amended. As the Texas Supreme Court explained:

[W]hen the Legislature does not acquiesce in the court's construction [of a statute], when instead it immediately makes clear that the proper construction adopted by the agency charged with enforcing the statute, judicial adherence to the decision in the name of stare decisis may actually disserve the interests of ‘efficiency, fairness and legitimacy’ that support the doctrine. It is hardly fair or efficient to give effect to a judicial construction of a statute for a brief period of time when the Legislature has reinstated for future cases the same rule that had been followed before the court's decision. The doctrine of stare decisis does not justify inequity and confusion in such a narrow gap of time.

Southwestern Bell Tel. Co. v. Mitchell, 276 S.W.3d 443, 447-48 (2009). A similar result was reached in the bankruptcy context. In re Adams, 307 B.R. 549, 557 (Bankr.N.D.Tex.2004) (“The legislative history of the amendment supports the proposition that the changes to the cure provision were meant to...