In re Mattheiss

• Decision Date: 20 October 1997
• Docket Number: Bankruptcy No. 97-70642-CMS-13,Adversary No. 97-70088.
• Citation: 214 BR 20
• Parties: In re Lisa Marie MATTHEISS, Debtor. Lisa Marie MATTHEISS, Plaintiff, v. TITLE LOAN EXPRESS, and C. David Cottingham, as Chapter 13 Trustee, Defendants.
• Court: U.S. Bankruptcy Court — Northern District of Alabama

214 B.R. 20 (1997)

In re Lisa Marie MATTHEISS, Debtor Lisa Marie MATTHEISS, Plaintiff, v. TITLE LOAN EXPRESS, and C. David Cottingham, as Chapter 13 Trustee, Defendants.

Bankruptcy No. 97-70642-CMS-13, Adversary No. 97-70088.

United States Bankruptcy Court, N.D. Alabama, Western Division.

October 20, 1997.

COPYRIGHT MATERIAL OMITTED

W. Cameron Parsons, Tuscaloosa, AL, for Debtor/Plaintiff.

Jeffrey L. Ingram, John Martin Galese, Birmingham, AL, for Creditor/Defendant.

C. David Cottingham, Tuscaloosa, AL, for Chapter 13 Standing Trustee.

W. McCollum Holcomb, Birmingham, AL, for Trustee.

MEMORANDUM OF DECISION

C. MICHAEL STILSON, Bankruptcy Judge.

This matter came before the court on debtor Lisa Marie Mattheiss' complaint for turnover of the title documents to her automobile filed against creditor Title Loan Express (TLE) and for avoidance of the lien Title Loan claimed on her vehicle; and on Chapter 13 Trustee C. David Cottingham's Cross-Claim and Counterclaim seeking to void the lien for the benefit of creditors. The court has studied the facts as stipulated by the parties and the records of the transactions. The court finds that Mattheiss "title loan" transaction is governed by Article 9 of the Uniform Commercial Code and the Uniform Certificate of Title and Antitheft Act as well as the Alabama Pawnshop Act; that Mattheiss' rights in the vehicle became property of the bankruptcy estate when she filed her petition March 5, 1997; that TLE failed to perfect its security interest in Mattheiss' car before the 90-day preference period prior to bankruptcy; and, therefore, the Chapter 13 trustee may avoid the transfer of the security interest under 11 U.S.C. § 547(b). However, transfer was voluntary and pursuant to 11 U.S.C. § 522(g), cannot be avoided by the debtor under § 522(f). Therefore, TLE's claim is only secured by the certificate of title in its possession and Mattheiss is not entitled to an order that TLE turn over the certificate of title with its lien shown paid in full. To the extent of this Memorandum, judgment is to be entered in FAVOR of the Plaintiff Lisa Marie Mattheiss; and in FAVOR of the trustee on his Cross-claim and Counterclaim; and AGAINST defendant Title Loan Express of Northport, Alabama and AGAINST the debtor plaintiff on the Section 522(f) issue.

FINDINGS OF FACT

The critical facts in this case involve the timetable of debtor Lisa Marie Mattheiss' pawn transaction with Title Loan Express of Northport, Ala., and her subsequent bankruptcy filing. These facts are not in dispute and are recorded in a stipulation reached by the parties at an April 25, 1997 hearing. The dispute concerns the application of Alabama state and federal bankruptcy law to these facts. The stipulated facts are as follows:

Mattheiss entered into a "PAWN TICKET CONTRACT AND DISCLOSURE/RECEIPT" with the pawnbroker December 19, 1996. The form contract identified Mattheiss as the "pledgor" and identified the "Pledged Goods:" as "(The following described motor vehicle and the certificate of title as issued by the Motor Vehicle Department.)" Lower in the document, the 1992 Mercury Sable was listed under "Item(s) Pledged". Under the terms of this contract, she granted "a possessory security interest in the items pledged to secure repayment".

The debtor delivered physical possession of the certificate of title to her 1992 Mercury Sable to Title Loan Express ("TLE") at that time and received $1,400.00 in loan proceeds. However, she retained possession of the car itself. Mattheiss' schedules valued the car at $7,725.00. TLE claimed a lien for $2,100.00. (Proof of Claim No. 1)

The pawn contract provides for a "maturity date" of February 17, 1997, with a finance charge (called a "Monthly Pawn Charge Rate") of 25 percent per month beginning after the first 30 days of the loan. That added $350.00 to Mattheiss $1400.00 indebtedness for the second 30 days, at an annualized "Pawn Charge" percentage rate of 275%.

The contract also stated (Debtor's Exhibit 1) that:

This is a pawn transaction. You are not obligated to repay any amount, but if you do not pay the total, you will lose your ownership rights to the items being pledged. (We have a possessory security interest in the item(s) pledged to secure repayment.) This pawn transaction has a grace period of 30 calendar days following the maturity date of the transaction. In the event the last day of the grace period falls on a day in which the pawnbroker is not open for business, the grace period shall be extended through the first day following upon which the pawnbroker is open for business. The pawnbroker shall not sell the pledged goods during the grace period. Payment must be made on time. Pledged goods may be redeemed by the pledgor or seller within the grace period by the payment of any unpaid amount due at maturity and additional charges not to exceed 25% of the principal. If you do not redeem the pledged goods before the expiration of the grace period and we do not agree to re-pawn the transaction, the pledged goods become the property of the pawnbroker. . . . (emphasis added)

The contract also states:

The following information applies only to pawn transactions involving motor vehicles (sic) certificate of title:

Failure to make your payment as described in this document can result in the loss of your motor vehicle.

The pawnbroker has the right upon default to take possession of the motor vehicle. In taking possession, the pawnbroker or his agent may proceed without judicial process if this can be done without breach of the peace or may proceed by action.

Mattheiss had made no payments by the February 17, 1997 maturity date and TLE repossessed the car March 4, 1997 before the 30-day grace or redemption period had run. February 28, 1997, the parties agreed TLE applied to the Alabama Department of Motor Vehicles for a title showing it as lienholder on this automobile.

March 5, 1997, the debtor filed this Chapter 13 case (BK 97-70642) and this lawsuit seeking turnover of the car (AP 97-70088). After the suit was filed, TLE voluntarily returned the car to Mattheiss on March 14, 1997, but not the certificate of title documents. On March 19, 1997, the 30-day grace period under the terms of the pawn ticket agreement expired.

April 15, 1997, TLE filed an objection to confirmation of Mattheiss' proposed Chapter 13 plan. (BK Doc. 3) The plan proposed to treat the pawnbroker as an unsecured creditor to be paid pro-rata with other unsecured creditors. The objection stated:

. . . That plan improperly treats Title Loan Express as a creditor and retains an automobile in the estate that is the sole property of Title Loan Express. In the alternative, Title Loan Express as a properly secured creditor, is entitled to entry of an order granting it a fixed payment at an appropriate rate of interest. . . .

Additionally on April 15, 1997, TLE filed a MOTION TO DECLARE PROPERTY NOT PROPERTY OF THE ESTATE. (BK Doc. 4) Essentially, the motion claimed alternative reliefs: (1) that despite Mattheiss' bankruptcy filing March 5, 1997, ownership of the vehicle vested in the pawnbroker when the grace period ran out March 19, 1997 by operation of Ala.Code § 5-19A-6, a section of the 1992 Alabama Pawnshop Act; or (2) that its filing of its application to be listed as a lienholder on the vehicle's certificate of title on February 28, 1997 had "perfected" its interest in the car.

Decision on Mattheiss' confirmation, and on TLE's objection to confirmation and motion to have the car declared not property of the estate have been continued pending resolution of the similar and/or identical issues raised in this adversary proceeding.

In the suit, the debtor initially requested turnover of the vehicle and "if Title Loan Express does not have a properly perfected lien upon the title to said vehicle, that the title be returned to Debtor." (AP Doc. 1)

Mattheiss amended her complaint March 28, 1997 to state that since TLE's action to perfect a security interest in the car had fallen within the 90-day preference period of the March 5, 1997 bankruptcy, any claimed lien should be voided and that TLE be required to return the title documents to the debtor with "all liens marked `paid in full'". If TLE refused to do so, the debtor asked the court to order the Alabama Department of Revenue to issue a new title to Mattheiss "free and clear of all liens." (AP Doc. 6)

In an answer filed April 15, 1997, TLE denied it perfected its security interest in the car within the 90-day preference period of 11 U.S.C. § 547. (AP Doc. 8)

On April 24, 1997, Mattheiss moved to join Chapter 13 Standing Trustee C. David Cottingham, Esq., as an "indispensable" defendant in the proceeding. (AP Doc. 9) (This court granted that motion to add Cottingham as a defendant on May 8, 1997. (AP Doc. 11)).

On April 25, 1997, the parties appeared for hearing on this case and submitted the facts stipulated above for the court's consideration. The court then set a briefing schedule for Mattheiss, TLE and the trustee.

July 11, 1997, the trustee filed his ANSWER, CROSS-CLAIM AND COUNTERCLAIM, (AP Doc. 16). In his cross-claim and counterclaim on behalf of the Mattheiss' bankruptcy estate and her unsecured creditors, the trustee contended that since TLE's filing of its title application on February 28, 1997 was outside the 20-day "relation-back" period allowed by Ala.Code § 32-8-61 (1975), the perfection attempt fell within the 90-day period prior to bankruptcy and the claimed security interest could be avoided. Cottingham asked the court for an order "declaring void the security interest granted by Debtor Lisa Marie Mattheiss to Defendant Title Loan Express."

Mattheiss (AP Doc. 14), TLE (AP Doc. 15), and the trustee (AP Doc. 17) had all filed their initial briefs by July 11, 1997. On July 21, 1997, TLE filed a reply brief primarily responding to the trustee's cross- and counterclaims; and brief. Mattheiss filed her REPLY BRIEF OF PLAINTI...