In re Jones

• Decision Date: 12 January 2016
• Docket Number: Case No. 15–81028–WRS
• Parties: In re Sherricka L. Jones, Debtor
• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Middle District of Alabama

544 B.R. 692

In re Sherricka L. Jones, Debtor

Case No. 15–81028–WRS

United States Bankruptcy Court, M.D. Alabama.

Signed January 12, 2016

Paul D. Esco, Attorney at Law, LLC, Montgomery, AL, for Debtor.

MEMORANDUM DECISION

William R. Sawyer, United States Bankruptcy Judge

This case is before the Court on the objection to confirmation filed by TitleMax of Alabama, Inc. (Doc. 16). TitleMax objects to the proposal of Debtor Sherricka L. Jones to modify a pawn transaction involving the certificate of title for a vehicle. The issue has been fully briefed. (Docs.16, 44, 45). For the reasons set forth below, the objection to confirmation is SUSTAINED.

I. FACTS & PROCEDURAL HISTORY

Sherricka L. Jones ("Jones") entered a pawn transaction with TitleMax of Alabama, Inc. ("TitleMax") on June 10, 2015. (Doc. 16). Jones borrowed $4,000 from TitleMax in exchange for the certificate of title to a 2007 Dodge Charger. Pursuant to the pawn contract, she had until July 10, 2015 to redeem the certificate of title by paying TitleMax $4,399.60 or to renew the pawn contract by simply paying the pawn charge of $399.60. Jones retained possession of the vehicle and used the money from the pawn transaction to pay off a prior lien held by Tefco Payment Center. TitleMax was timely listed as a lienholder on the vehicle's certificate of title. Jones did not redeem the certificate of title or renew the pawn contract before it matured on July 10, 2015.

Jones filed Chapter 13 bankruptcy on July 31, 2015. (Doc. 1). In her Chapter 13 plan, Jones proposes to pay TitleMax $4,500 at 4.25% interest via monthly plan payments of $89.00. (Docs.15, 28). TitleMax objects, arguing that Jones did not propose the plan in good faith, and that the bankruptcy estate does not have a sufficient property interest in the vehicle to modify the pawn transaction and exercise a cramdown.¹ Jones retains possession of the vehicle, and TitleMax has filed a secured proof of claim in her case for $4,732.60.² (Claim 1).

II. LAW

The Court has jurisdiction pursuant to 28 U.S.C. §§ 157(a) and 1334(b), and the District Court's General Order of Reference dated April 25, 1985. This is a core proceeding under 28 U.S.C. § 157(b)(2)(L). This is a final order.

A. Property of the Estate

The issue is whether the bankruptcy estate has a sufficient property interest in the vehicle for Jones to modify the rights of TitleMax under the pawn transaction.

Property of a bankruptcy estate includes "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). "[W]hether a debtor's interest constitutes ‘property of the estate’ is a federal question[;] ... however, ‘the nature and existence of the debtor's right to property is determined by looking at state law.’ " Charles R. Hall Motors, Inc. v. Lewis (In re Lewis), 137 F.3d 1280, 1283 (11th Cir.1998) (quoting Southtrust Bank of Ala. v. Thomas (In re Thomas) , 883 F.2d 991, 995 (11th Cir.1989) ) (internal brackets omitted). Therefore, determination of this issue requires consideration of the interplay between the Bankruptcy Code, the Alabama Pawnshop Act, the Alabama Uniform Commercial Code ("UCC"), and the Alabama Uniform Certificate of Title and Antitheft Act ("AUCTAA").

B. Alabama Pawnshop Act

1. Scope of Pawn Transactions

The Alabama Pawnshop Act defines a "pawn transaction" as "[a]ny loan on the security of pledged goods or any purchase of pledged goods on condition that the pledged goods are left with the pawnbroker and may be redeemed or repurchased by the seller for a fixed price within a fixed period of time." ALA. CODE § 5–19A–2(3). "Pledged goods" are defined as "[t]angible personal property other than choses of action, securities, or printed evidences of indebtedness, which property is purchased by, deposited with, or otherwise actually delivered into the possession of, a pawnbroker in connection with a pawn transaction." ALA. CODE § 5–19A–2(6).

The Alabama Supreme Court has defined "tangible personal property" in § 5–19A–2(6) as "personal property, palpable, susceptible to the sense of touch, capable of ownership, and endowed with intrinsic value." Floyd v. Title Exchange & Pawn of Anniston, Inc., 620 So.2d 576, 578 (Ala.1993) (internal quotation marks omitted). To that end, a certificate of title to an automobile qualifies as "pledged goods" such that its offer as security is sufficient to create a transaction subject to the Alabama Pawnshop Act, even when the pledgor retains possession of the vehicle. Id. ; see also Blackmon v. Downey, 624 So.2d 1374, 1376 (Ala.1993) ("money-lending transactions involving the transfer of automobile certificates of title for the purpose of giving security are ‘pawn’ transactions").

2. Rights and Obligations of Pawnbrokers

A pawn transaction provides the pawnbroker "a lien on the pledged goods pawned for the money advanced and the pawnshop charge owed ... subject to the rights of other persons who have an ownership interest or prior liens in the pledged goods." ALA. CODE § 5–19A–10(a). Pawnbrokers are permitted to charge up to 25% per month of the principal amount advanced in the pawn transaction. ALA. CODE § 5–19A–7(a).

"A pledgor shall have no obligation to redeem pledged goods or make any payments on a pawn transaction. Pledged goods not redeemed within 30 days following the original fixed maturity date shall be forfeited to the pawnbroker and absolute right, title, and interest in and to the goods shall vest in the pawnbroker." ALA. CODE § 5–19A–6. The 30–day redemption period starts at the date the pawn contract matures, not at the date the vehicle is repossessed. Pattans Ventures, Inc. v. Williams, 959 So.2d 115, 122 (Ala.Civ.App.2006). A pawnbroker becomes legal owner of a pawned vehicle once the statutory redemption period expires; until then, the pawnbroker is merely a lienholder. State ex rel. Morgan v. Thompson, 791 So.2d 977, 978 (Ala.Civ.App.2001).

C. Alabama Uniform Commercial Code

1. Attachment

Article 9A of the UCC governs secured transactions. The UCC defines "security agreement" as "an agreement that creates or provides for a security interest." ALA. CODE § 7–9A–102(73). "Security interest" is defined as "an interest in personal property or fixtures which secures payment or performance of an obligation." ALA. CODE 7–1–201(35). "A security interest attaches to collateral when it becomes enforceable against the debtor with respect to the collateral[.]" ALA. CODE § 7–9A–203(a). A security interest becomes enforceable against the debtor with respect to the collateral when value has been given, the debtor has rights in the collateral, and the debtor has authenticated a security agreement that provides a description of the collateral. ALA. CODE § 7–9A–203(b)(1)–(3)(A).

2. Interplay Between UCC and Alabama Pawnshop Act

The term " ‘[s]ecurity interest’ does not include the special property interest of a buyer of goods on identification of those goods to a contract for sale under [ALA. CODE §] 7–2–401, but a buyer may also acquire a ‘security interest’ by complying with Article 9A ." ALA. CODE § 7–1–201(35) (emphasis added). "Title to goods cannot pass under a contract for sale prior to their identification to the contract, and unless otherwise explicitly agreed the buyer acquires by their identification a special property as limited by this title." ALA. CODE § 7–2–401(1) (parenthetical omitted). "The buyer obtains a special property and an insurable interest in goods by identification of existing goods as goods to which the contract refers.... In the absence of explicit agreement ‘identification’ occurs ... [w]hen the contract is made if it is for the sale of goods already existing and identified[.]" ALA. CODE § 7–2–501(1)(a). "Unless otherwise explicitly agreed where delivery is to be made without moving the goods ... [i]f the seller is to deliver a tangible document of title, title passes at the time when and the place where he delivers such document...." ALA. CODE § 7–2–401(3)(a) (emphasis added).

It is clear from the forgoing provisions that the Alabama Pawnshop Act and the UCC are not mutually exclusive. Instead, a pawn transaction may also qualify as a security agreement, and a pawnbroker may obtain both a pawnshop lien and a UCC security interest on the same pledged goods, or collateral, from the same transaction. Mattheiss v. Title Loan Express (In re Mattheiss), 214 B.R. 20, 29–30 (Bankr.N.D.Ala.1997) ; Harkness v. EZ Pawn Ala., Inc., 724 So.2d 32, 33 (Ala.Civ.App.1998). A pawnshop lien is a special property interest outlined by ALA. CODE § 7–2–401 and a pawnbroker obtains that interest under the UCC by identification of the pledged goods.³ However, the pawnbroker does not gain title upon his receipt of the certificate of title, as provided in the UCC, because the Alabama Pawnshop Act expressly provides that a pawnbroker cannot gain legal title to pledged goods until the redemption period has run. See ALA. CODE § 5–19A–6.

D. Alabama Uniform Certificate of Title and Antitheft Act

Attachment secures a creditor's rights against collateral with respect to the debtor, but not with respect to third parties (such as a bankruptcy trustee) unless the interest is also "perfected." "A security interest is ‘perfected’ when it is valid against third parties generally, subject only to specific statutory exceptions." ALA. CODE § 32–8–2(19). "A perfected security interest ... has priority over a conflicting unperfected security interest...." ALA. CODE § 7–9A–322(a)(2).

1. Perfection of a UCC Security Interest on a Motor Vehicle

For purposes of perfecting a UCC security interest, the UCC provides that "the local law of the jurisdiction under whose certificate of title the goods are covered governs perfection, the effect of perfection or nonperfection, and the priority of a security interest in goods covered by a certificate of title...." ALA. CODE § 7–9A–303(c). Under AUCTAA, and with certain exceptions inapplicable here, all vehicles with a model year of 1975...