In re Johnson
| Decision Date | 29 June 2009 |
| Docket Number | No. 4:06-bk-14408M.,4:06-bk-14408M. |
| Citation | 407 B.R. 364 |
| Parties | In re David Earl JOHNSON and Susan Kay Johnson, Debtors. |
| Court | U.S. Bankruptcy Court — Eastern District of Arkansas |
John Alexander Flynn, Flynn Law Firm, Cabot, AR, for Debtors.
Richard L. Cox, Richard Cox, P.A., Hot Springs, AR, Thomas S. Streetman, Streetman & Meeks, PLLC, Crossett, AR, for Trustee.
On October 2, 2006, David and Susan Johnson (Debtors) filed a voluntary petition for relief under the provisions of Chapter 13 of the United States Bankruptcy Code. On August 4, 2008, the case was converted to Chapter 7 and Richard L. Cox was appointed the Chapter 7 Trustee. On September 18, 2008, Roswell Properties, LLC, Ltd. (Roswell) filed a motion for relief from the stay and abandonment. Roswell claims to have, by assignment, a perfected security interest in a recreational vehicle which is alleged to be property of the estate. The motion alleges that the unpaid balance of the note is $65,115.15, that the Debtors are in default under the terms of the note, and that there is no equity in the vehicle. On September 18, 2008, the Trustee filed an objection to the motion for relief from the automatic stay on the grounds that Roswell did not hold a perfected lien in the vehicle in compliance with Arkansas law.
A hearing was conducted on April 8, 2009, after which the matter was taken under advisement. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(G), and the Court has jurisdiction to enter a final judgment in this case.
The facts are not in dispute. The Debtors purchased a 2003 Ford recreational vehicle with a loan of $74,491.81 from Key Bank (Key Bank) in Brooklyn, Ohio. The Debtors still have possession of the vehicle. The Debtors executed a combination consumer note and security agreement which granted a lien to Key Bank. Key Bank properly perfected its lien in the vehicle by causing the existence of the lien to be placed on the face of the Arkansas title which was issued September 27, 2003. Thereafter, apparently the note and security agreement were assigned to Leham Brothers Bank, FSB, which subsequently assigned the interest to Cadlerock Joint Venture, LP, which subsequently assigned the interest to Roswell. The note is now apparently in the possession of Roswell, although the title still bears the notice of Key Bank's lien.1 Roswell's name does not appear on the title. The evidence is undisputed that if the lien is valid, no equity exists in the vehicle.
The Trustee argues that an assignee of a lien in a vehicle must be noted on the vehicle's certificate of title in compliance with Arkansas Code Annotated § 27-14-908 in order to be perfected.
Roswell argues that pursuant to Arkansas Code Annotated § 4-9-310(c), Roswell is perfected because a perfected security interest in a vehicle remains perfected when it is assigned.
Article 9 of the Uniform Commercial Code (UCC), adopted by the General Assembly with few changes, governs "Secured Transactions" involving personal property or fixtures. Arkansas Code Annotated § 27-14-101 et seq., also known as the Uniform Motor Vehicle Administration, Certificate of Title, and Antitheft Act (The Certificate of Title Act), governs the perfection of security interest in vehicles required to be registered. See Ark.Code Ann. §§ 4-9-303(c) (Repl.2008).
A basic rule of statutory construction is that provisions should be reconciled to make them consistent and harmonious. Weiss v. Maples, 369 Ark. 282, 285, 253 S.W.3d 907, 911 (Ark.2007). Specifically the Arkansas Supreme Court has stated:
When construing a statute we compare it with other statutes on the same general subject matter and if possible reconcile them. Sargent v. Cole, 269 Ark. 121, 598 S.W.2d 749 (1980). All acts passed upon the same subject matter should be construed together and made to stand if capable of being reconciled. Vandiver v. Washington County, 274 Ark. 561, 628 S.W.2d 1 (1982).
HMO Arkansas, Inc. v. Dunn, 310 Ark. 762, 765, 840 S.W.2d 804, 806 (1992).
Arkansas Code Annotated § 27-14-801 specifically provides that no lien or encumbrance is valid "until the requirements of this sub-chapter have been met." Therefore, it is essential to thoroughly analyze subchapter 8, entitled "Liens and Encumbrances." A lien in a vehicle is properly perfected when the lien is placed on the face of the certificate of title.2 Ark.Code Ann. § 27-14-806. Arkansas Code Annotated § 27-14-807 provides that "[t]he methods provided in this subchapter of giving constructive notice of a lien or encumbrance upon a registered vehicle shall be exclusive...."
Ark.Code Ann. § 27-14-908 provides as follows:
(a) Any person holding a lien or encumbrance upon a vehicle, other than a lien dependent solely upon possession, may assign his or her title or interest in or to the vehicle to a person other than the owner without the consent of the owner, and without affecting the interest of the owner or the registration of the vehicle, but in such event, he or she shall give to the owner a written notice of assignment.
(b) The Office of Motor Vehicle, upon receiving a certificate of title assigned by the holder of a lien or encumbrance shown thereon and giving the name and address of the assignee, shall issue a new certificate of title as upon an original application. (Emphasis added.)
Arkansas Code Annotated § 27-14-805 addresses the issuance of a new certificate of title and provides:
(a) The filing and issuance of a new certificate of title as provided in this chapter shall constitute constructive notice of all liens and encumbrances against the vehicle described therein to creditors of the owner, subsequent purchasers, and encumbrancers, except those liens as may be authorized by law dependent upon possession.
(b)(1) In the event the documents referred to in § 27-14-802 are received and filed in the Office of Motor Vehicle within thirty (30) days after the date the documents were executed, the lien is deemed to have been perfected on the date of the execution of the documents.
Arkansas Code Annotated § 4-9-310(c) provides that a properly perfected security interests that is assigned to a third party will remain perfected against the creditors and transferees of the original debtor.3 Official Comment No. 4 to 9-310(c) provides:
Subsection (c) concerns assignment of a perfected security interest or agricultural lien. It provides that no filing is necessary in connection with an assignment by a secured party to an assignee in order to maintain perfection as against creditors and transferees from the original debtor....
Similarly, subsection (c) applies to the assignment of a security interest perfected by compliance with a statute, regulation, or treaty under section 9-311(b), such as a certificate-of-title statute. Unless the statute expressly provides to the contrary, the security interest will remain perfected against creditors of and transferees from the original debtor, even if the assignee takes no action to cause the certificate of title to reflect the assignment or to cause its name to appear on the certificate of title. (Emphasis added.)
Commentary No. 12 of the Permanent Editorial Board of the UCC to the former Section 9-302 [now 9-310(c)] states:
... strict and literal construction of a certificate of title statute should be avoided if it produces a result that unnecessarily conflicts with the Uniform Commercial Code.
...
Those certificate of title statutes that do not specifically require, as a condition of perfection, that an assignee have the certificate of title endorsed or reissued to name itself as a lien holder, but instead contain phrases: ... "upon receiving a certificate," ... may be construed ... as being merely permissive on this issue and as not requiring further action in order to continue perfection.
Furthermore, Arkansas Code Annotated § 4-9-311 provides:
Except as otherwise provided in subsection (d) and § 4-9-316(d) and (e), duration and renewal of perfection of a security interest perfected by compliance with the requirements prescribed by a statute, regulation, or treaty described in subsection (a) [] are governed by the statute regulation, or treaty. In all other respects, the security interest is subject to this chapter. (Emphasis added.)
Roswell cites to a host of cases from other jurisdictions that conclude that assignees are not required under the various state laws to cause a new title to be issued showing the name of the assignee as the lien holder.4 None of the other state statutes contain identical language as that found in Arkansas' Certificate of Title Act. A Texas court found an assignment must be noted on the certificate of title in order for perfection to continue and while the Texas Certificate of Title Act uses different wording than that found in Arkansas Code Annotated § 27-14-908, it is similar. See Clark Contracting Services, Inc. v. Wells Fargo (In re Clark Contracting Services, Inc.), 399 B.R. 789 (Bankr.W.D.Tex. 2008). The Clark case has been criticized and is currently on appeal. See Barkley & Barbara Clark, Texas Court Requires Assignees of Vehicle Contracts to get Liens Noted on New Certificate of Title, A.S. Pratt & Sons: Clark's Secured Transactions Monthly 1, (Feb.2009). Research has not uncovered any cases construing the Arkansas statute which was originally passed in 1949.
Arkansas Code Annotated § 27-14-801 states that perfection of a lien in a vehicle is dictated by subchapter 8. Furthermore, Arkansas Code Annotated § 27-14-807 states that subchapter 8's requirements for perfection of a lien in a vehicle are exclusive. Arkansas Code Annotated §§ 27-14-705 & 27-14-713 requires that all liens are to be notated on the title.
An assignment does not create a new lien, but rather an assignee simply steps into...
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