In re McAlmont

• Decision Date: 28 March 2008
• Docket Number: Bankruptcy No. 06-54122.,Adversary No. 07-2181.
• Citation: 385 B.R. 191
• Parties: In re George L. McALMONT, Debtor. Frederick M. Luper, Chapter 7 Trustee, Plaintiff, v. Guardian Finance Company, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

385 B.R. 191

In re George L. McALMONT, Debtor.

Frederick M. Luper, Chapter 7 Trustee, Plaintiff, v. Guardian Finance Company, Defendant.

Bankruptcy No. 06-54122.

Adversary No. 07-2181.

United States Bankruptcy Court, S.D. Ohio, Eastern Division, at Columbus.

March 28, 2008.

Kenneth M. Richards, Columbus, OH, for Plaintiff.

Brett R. Sheraw, Fisher Skrobot & Sheraw, LLC, Columbus, OH, for Defendant.

Donald E. Wood, Whitehall, OH, for Debtor.

MEMORANDUM OPINION ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

JOHN E. HOFFMAN, JR., Bankruptcy Judge.

I. Introduction

This adversary proceeding is before the Court on: (i) the motion for summary judgment (Doc. 11) ("Motion") filed by the Chapter 7 trustee, Frederick M. Luper ("Trustee"); (ii) the response to the Motion (Doc. 12) ("Response") filed by Guardian Finance Company ("Guardian"); and (iii) the reply brief in support of the Motion (Doc. 13) ("Reply") filed by the Trustee.

By his complaint ("Complaint") (Doc. 1), the Trustee seeks to avoid Guardian's security interest in a motorcycle owned by the Chapter 7 debtor, George L. McAlmont ("Debtor"). Initially, the Trustee asserted that: (i) the notation of Guardian's security interest on the motorcycle's certificate of title constitutes a preferential transfer under § 547 of the Bankruptcy Code (Complaint, Count I); and (ii) Guardian's security interest is avoidable under § 544 (Complaint, Count II). By the Motion however, the Trustee seeks summary judgment on Count II only.¹

For the reasons explained below, the Court concludes that Guardian's security interest is not subject to avoidance under § 544. Accordingly, the Court denies the Motion and grants judgment in favor of Guardian on Count II of the Complaint.

II. Jurisdiction

The Court has jurisdiction to determine this adversary proceeding pursuant to 28 U.S.C. §§ 157 and 1334 and the general order of reference entered in this district. This is a core proceeding. See 28 U.S.C. § 157(b)(2)(A), (K) and (O).

III. Factual and Procedural Background

The relevant facts are few and undisputed. Based on the parties' factual stipulations (Doc. 10), the Court finds as follows: On June 2, 2006, the Debtor purchased a 1998 Suzuki motorcycle from Ackers Inc., d/b/a ASK ("ASK"), under the terms and conditions of a retail installment contract ("Contract"). On the same day, the Debtor took possession of the motorcycle, and ASK assigned the Contract to Guardian, who is the current holder of the Contract. On July 1, 2006, a notation of Guardian's security interest was made on the Ohio certificate of title to the motorcycle.

On August 8, 2006 ("Petition Date"), the Debtor filed a petition for relief under Chapter 7 of the Bankruptcy Code. On May 18, 2007, the Trustee filed the Complaint.

IV. Arguments of the Parties

The Trustee relies on § 1309.324(A) of the Ohio Revised Code, under which a purchase-money security interest in goods other than inventory or livestock has priority over a conflicting security interest if the purchase-money security interest was perfected when the debtor received possession of the collateral or within 20 days thereafter. He argues that because the notation of Guardian's security, interest was placed on the certificate of title on the 29th day after the Debtor took possession of the motorcycle — outside the 20-day period referenced in § 1309.324(A) — Guardian's security interest was not perfected under Ohio law. Thus, the Trustee maintains that he may avoid the security interest under § 544.

In response, Guardian argues that § 1309.324(A) does not govern the perfection of a security interest in a motor vehicle. According to Guardian, perfection of a security interest in a motor vehicle is governed by Ohio's certificate of motor vehicle title law, under which any security agreement covering a security interest in a motor vehicle is valid against subsequent lienholders and creditors of a debtor if a valid notation of the agreement has been made on the certificate of title. Because a notation of its security interest was placed on the certificate of title, Guardian maintains that its interest was properly perfected and is not subject to avoidance by the Trustee.

V. Legal Analysis

A. Summary Judgment Standard

Under Fed.R.Civ.P. 56(c), made applicable in this adversary proceeding by Fed. R. Bankr.P. 7056, summary judgment is appropriate where "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Novak v. MetroHealth Med. Ctr., 503 F.3d 572, 577 (6th Cir.2007). In reviewing a motion for summary judgment, the Court views the evidence, all facts, and any inferences drawn therefrom in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Novak, 503 F.3d at 577; Skowronek v. Am. S.S. Co., 505 F.3d 482, 484 (6th Cir.2007) (the court "must draw all reasonable inferences in favor of the nonmoving party").

"`[A]s to materiality, the substantive law will identify which facts are material. Only disputes over facts that might affect the outcome of the suit under governing law will properly preclude the entry of summary judgment. Factual disputes that are irrelevant or unnecessary will not be counted.'" Niecko v. Emro Mktg. Co., 973 F.2d 1296, 1304 (6th Cir. 1992) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). "Entry of summary judgment is appropriate `against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.'" Novak, 503 F.3d at 577 (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)); see also Ransier v. Standard Fed. Bank (In re Collins), 292 B.R. 842, 845 (Bankr. S.D.Ohio 2003).

Here, the parties agree, and the Court finds, that no genuine issue of material fact exists. Summary judgment, therefore, is appropriate.

B. Guardian's Security Interest was Perfected Under Ohio Law.

The Trustee rests his § 544 cause of action entirely on the following premise: Guardian's security interest in the motorcycle "was not perfected under Ohio law[,]" Motion at 3, because the security interest "was not perfected within 20 days after Debtor took possession of the motorcycle." Id. This premise, however, is incorrect.

State law governs the means by which Guardian's security interest became perfected. See, e.g., Brock v. Branch Banking & Trust Co. (In re Johnson), 380 B.R. 455, 460 (6th Cir. BAP 2007) (holding that state law governs perfection of security interest in motor vehicle). See also Johnson v. Smith (In re Johnson), 501 F.3d 1163, 1175 (10th Cir.2007) (holding in context of security interest in a motor vehicle that "[s]tate law governs whether a property interest has been perfected"); Rieser v. Randolph County Bank (In re Masters), 137 B.R. 254, 259 (Bankr. S.D.Ohio 1992) (same). An Ohio statutory provision entitled "Law governing perfection and priority of security interests in goods covered by a certificate of title"² states in pertinent part 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 from the time the goods become covered by the certificate of title until the goods cease to be covered by the certificate of title.

Ohio Rev.Code Ann. § 1309.303(C) (West 2008). The certificate of title to the Debtor's motorcycle is an Ohio certificate of title. Ohio law, therefore, governs perfection, the effect of perfection or nonperfection, and the priority of Guardian's security interest in the motorcycle. Under Ohio law, the filing of a financing statement does not result in the perfection of a security interest in goods — such as the Debtor's motorcycle — that are subject to Ohio's certificate of title statute. See Ohio Rev. Code Ann. § 1309.311(A). Instead, compliance with the requirements of Ohio's certificate of title statute "is equivalent to the filing of a financing statement[,]" and a security interest in a motor vehicle may be perfected only by complying with those requirements. Ohio Rev.Code Ann. § 1309.311(B). As explained below, Guardian complied with the requirements of Ohio's certificate of title statute.

Ohio's Certificate of Motor Vehicle Title Law is codified at Ohio Revised Code § 4505.01 through § 4505.99 ("Title Law").³ Consistent with § 1309.311(A), the Title Law provides that Chapter 1309 does not permit or require the filing of a security interest in a motor vehicle (except while the vehicle is held as inventory for sale by a dealer). Ohio Rev.Code Ann. § 4505.13(A)(1). Section 4505.13(B) governs the perfection of a security interest in a motor vehicle. See Rhiel v. Wells Fargo Fin. Acceptance (In re Fields), 351 B.R. 887, 890 (Bankr.S.D.Ohio 2006). Section 4505.13(B) provides, in pertinent part, as follows:

Subject to division (A) of this section, any security agreement covering a security interest in a motor vehicle, if a notation of the agreement has been made by a clerk of a court of common pleas on the face of the certificate of title or the clerk has entered a notation of the agreement into the automated title processing system and a physical certificate of title for the motor vehicle has not been issued, is valid as against the creditors of the debtor, whether armed with process or not, and against subsequent purchasers, secured parties, and other lienholders or claimants....

Ohio Rev.Code Ann. § 4505.13(B) (emphasis

added).⁴ The parties have stipulated that a notation of Guardian's lien was made on July 1, 2006, which was prior to the...