In re Curry, 05-8083.

• Decision Date: 10 August 2006
• Docket Number: No. 05-8083.,05-8083.
• Parties: In re Laquita CURRY, Debtor. Tidewater Finance Company, Appellant, v. Laquita Curry, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Sixth Circuit

Page 596

347 B.R. 596

In re Laquita CURRY, Debtor Tidewater Finance Company, Appellant, v. Laquita Curry, Appellee.

No. 05-8083.

United States Bankruptcy Appellate Panel for the Sixth Circuit.

Argued: May 3, 2006.

Decided and Filed: August 10, 2006.

ARGUED: James R. Sheeran, Chesapeake, Virginia, for Appellant. Jeffrey R. McQuiston, Skelton, McQuiston, Gournaris & Henry, Dayton, Ohio, for Appellee. ON BRIEF: James R. Sheeran, Chesapeake, Virginia, for Appellant. Jeffrey R. McQuiston, Skelton, McQuiston, Gournaris & Henry, Dayton, Ohio, Scott G. Stout, Dayton, Ohio, for Appellee.

Before: GREGG, PARSONS, and WHIPPLE, Bankruptcy Appellate Panel Judges.

OPINION

GREGG, Bankruptcy Judge.

Tidewater Finance Company ("Tidewater") appeals the bankruptcy court's order denying its motion to terminate the automatic stay to sell a repossessed motor vehicle and overruling its objection to confirmation of the chapter 13 plan proposed by Laquita Curry ("Debtor") based on the plan's "cram down" treatment of its claim secured by the vehicle. The bankruptcy court rejected Tidewater's argument that its prepetition repossession of the Debtor's vehicle changed the parties' respective property rights, thereby prohibiting modification and "cram down" of Tidewater's secured claim. For the reasons that follow, the bankruptcy court's order is AFFIRMED.

I. ISSUE ON APPEAL

Must a chapter 13 debtor whose vehicle has been repossessed prepetition pay a secured creditor the full redemption value otherwise required by state law to adequately protect the secured creditor's interest and regain possession of the vehicle?

II. JURISDICTION AND STANDARD OF REVIEW

The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide this appeal. The United States District Court for the Southern District of Ohio has authorized appeals to this Panel and a final order of the bankruptcy court may be appealed as of right pursuant to 28 U.S.C. § 158(a)(1). For purposes of appeal, a final order "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S.Ct. 1494, 1497, 103 L.Ed.2d 879 (1989) (citations omitted). The bankruptcy court's order denying relief from the automatic stay is a final, appealable order. Nat'l City Bank v. Elliott (In re Elliott), 214 B.R. 148, 149 (6th Cir. BAP 1997). The order confirming the Debtor's chapter 13 plan over Tidewater's objection is also a final order for purposes of appeal. See Schory & Sons, Inc. v. Francis (In re Francis), 273 B.R. 87, 89 (6th Cir. BAP 2002); First Union Mortgage Corp. v. Eubanks (In re Eubanks), 219 B.R. 468, 469 (6th Cir. BAP 1998).

Because the parties to this appeal have stipulated to the facts underlying this dispute, the appeal presents only legal questions. A bankruptcy court's conclusions of law are reviewed de novo. Adell v. John Richards Homes Bldg. Co. (In re John Richards Homes Bldg. Co.), 439 F.3d 248, 254 (6th Cir.2006); In re Downs, 103 F.3d 472, 476-77 (6th Cir.1996). "De novo review means that the appellate court determines the law independently of the trial court's determination." Treinish v. Norwest Bank Minn., N.A. (In re Periandri), 266 B.R. 651, 653 (6th Cir. BAP 2001).

III. FACTS

The underlying facts are undisputed. On January 6, 2004, the Debtor purchased a 2000 Saturn SL from Jeff Wyler Chevrolet, Inc. in Batavia, Ohio pursuant to the terms of a Retail Installment Contract and Security Agreement ("Contract") that obligated her to pay $10,888.20 with annual interest of 21.95% in 60 monthly installments. The vehicle was the collateral that secured the Debtor's obligation under the Contract. The Contract was subsequently assigned to Tidewater and its security interest was duly perfected.

After the Debtor defaulted on her required monthly payments, Tidewater lawfully repossessed the vehicle on May 25, 2005. The Debtor then filed her chapter 13 petition and plan and demanded that Tidewater return the vehicle to her possession. As of the petition date, June 17, 2005, Tidewater had not obtained a Certificate of Title to the vehicle or disposed of the vehicle. The accelerated balance owed pursuant to the Contract as of the filing of the chapter 13 petition was $10,718.83, which included $10,008.88 in principal, $300.95 in accrued interest, $9.00 in late fees, and $400.00 in repossession fees.

The Debtor did not reinstate the Contract or redeem the vehicle under Ohio law in her plan. Rather, the Debtor proposed a "cram down."¹ The plan valued the vehicle and Tidewater's secured claim at $6,700 and proposed to pay that amount with interest at 7.3%. The remainder of the balance owed under the Contract was treated as an unsecured claim to be paid a 9% distribution without interest. As of the petition date, the NADA² retail value of the vehicle was $7,875 and the trade in value was $6,200.

Tidewater filed a Motion to Terminate the Automatic Stay ("Motion") and objected to confirmation of the Debtor's chapter 13 plan ("Objection"). Both the Motion and the Objection were based on Tidewater's argument that its prepetition repossession of the Debtor's vehicle changed the parties' property rights in the vehicle. Tidewater asserted that its secured claim was not subject to modification and "cram down." The bankruptcy court rejected Tidewater's arguments, overruled its Objection, and denied its Motion. This timely appeal followed.

IV. DISCUSSION

Pursuant to Article 9 of the Uniform Commercial Code ("UCC") as enacted by Ohio, Tidewater lawfully repossessed the Debtor's vehicle when she defaulted on her obligations under the Contract. See Ohio Rev.Code Ann. § 1309.609. The Debtor then had the option of redeeming the vehicle by tendering fulfillment of all obligations owed under the Contract, including fees and repossession costs. See Ohio Rev.Code Ann. § 1309.623. While Tidewater concedes that under Ohio law the Debtor retained an interest in the vehicle after repossession, it argues that the competing interests of the Debtor and Tidewater in the vehicle were fixed by Ohio law at the time of repossession. Tidewater further argues that the United States Supreme Court's holding in Butner v. United States, 440 U.S. 48, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979), requires that its rights be treated in bankruptcy uniformly with the treatment that its rights would receive under Ohio UCC law. Tidewater frames its appeal as follows: "[T]his case is not an ownership dispute — it is a uniform treatment and adequate protection controversy." (Appellant Br. at 8.) According to Tidewater, its possessory interest in the vehicle is equal to the state law redemption value of $10,718.83, the full amount owed to it. Tidewater contends, therefore, that to adequately protect its interest and regain possession of the vehicle, the Debtor's sole option is to exercise her state law right of redemption. According to Tidewater, the Debtor has no ability to "cram down" its claim through chapter 13.

Contrary to Tidewater's assertions, Butner does not dictate the result Tidewater seeks. The bankruptcy estate that is created upon the filing of a petition consists of all legal and equitable interest in property held by the debtor at the time of filing, wherever that property is located and by whomever it is held. 11 U.S.C. § 541(a).³ When disputes over whether property is included in the estate arise, the bankruptcy court will determine the status and nature of the debtor's ownership or interest in the disputed property under applicable non-bankruptcy law, often state law, as of the time the bankruptcy petition was filed. Butner, 440 U.S. at 54-55, 99 S.Ct. 914. If a debtor has an interest in the property under non-bankruptcy law, the court must then determine whether the interest is included in the estate utilizing federal bankruptcy law. Id.; United States v. Whiting Pools, Inc., 462 U.S. 198, 205, 103 S.Ct. 2309, 2313, 76 L.Ed.2d 515 (1983).

In Butner, the Supreme Court considered whether a security interest in real property, including rents and profits, should be governed by state or federal law. Although the Court recognized that Congress' constitutional authority to establish "`uniform Laws on the subject of Bankruptcies throughout the United States' would clearly encompass a federal statute defining the mortgagee's interest in the rents and profits earned by property in a bankrupt estate," it found that Congress had not exercised its power to fashion such a rule. Butner, 440 U.S. at 54, 99 S.Ct. 914. The Court then explained that, generally, "[p]roperty interests are created and defined by state law" and that "[u]nless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding." Id. at 55, 99 S.Ct. 914. The Court further explained that "[u]niform treatment of property interests by both state and federal courts within a State serves to reduce uncertainty, to discourage forum shopping, and to prevent a party from receiving `a windfall merely by reason of the happenstance of bankruptcy.'" Id. (citation omitted).

Tidewater argues that if the Debtor bifurcates its claim and "crams down" its interest in the vehicle to anything less than the full amount due under the Contract, the Debtor will have obtained non-uniform treatment of her interest. However, Butner requires that when an actual conflict exists between state laws and bankruptcy laws enacted by Congress, the state laws are suspended. Id. at 54 n. 9, 99 S.Ct. 914 (citations omitted.) In this instance, the Ohio UCC redemption provision conflicts with the Bankruptcy Code, and Tidewater's argument that Ohio law governs fails.

The Bankruptcy Code requires any entity in "possession, custody, or control, during the case, of property that the trustee may use, sell, or lease under section 363" to deliver such property...