In re Saxe
| Decision Date | 22 March 2013 |
| Docket Number | No. 12–13807–7.,12–13807–7. |
| Citation | 491 B.R. 244 |
| Parties | In re Raymond Robert SAXE, Jr., and Yvonne Marie Saxe, Debtors. |
| Court | U.S. Bankruptcy Court — Western District of Wisconsin |
OPINION TEXT STARTS HERE
Peter E. Grosskopf, Eau Claire, WI, for Debtor.
Robert and Yvonne Saxe (the “Debtors”) moved pursuant to 11 U.S.C. § 522(f) to avoid the lien of the United States Department of Agriculture, Farm Service Agency (“FSA”), in certain tangible farm personal property and equipment. FSA asserts that the lien on one piece of equipment—a skidsteer—is not avoidable because it is a purchase-money security interest. The parties filed briefs and relevant documents supporting their respective positions.
After considering the arguments presented, the motion is DENIED with respect to the skidsteer. This Memorandum Decision constitutes this Court's findings of facts and conclusions of law in accordance with Rule 7052 of the Federal Rules of Bankruptcy Procedure (“Bankruptcy Rules”).
The federal district courts have “original and exclusive jurisdiction” of all cases under title 11 (“Bankruptcy Code” or “Code”) and “original but not exclusive jurisdiction” of all civil proceedings that arise under the Bankruptcy Code, or that arise in or are related to cases under the Code. 28 U.S.C. § 1334(a)-(b) (2012). The district courts may, however, refer such cases to the bankruptcy judges for their district. 28 U.S.C. § 157(a) (2012). In the Western District of Wisconsin, the district court has made such a reference. See Western District of Wisconsin Administrative Order 161 (July 12, 1984).
Pursuant to the reference, this Court “may hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11 ... and may enter appropriate orders and judgments, subject to review under section 158 of this title.” 28 U.S.C. § 157(b)(1) (2012). A motion to avoid a lien arises in a case under title 11, and proceedings to determine the validity, extent, or priority of liens are core proceedings. 28 U.S.C. § 157(b)(2)(K) (2012); In re Quade, 482 B.R. 217, 221 (Bankr.N.D.Ill.2012); In re Rosol, 114 B.R. 560, 562 (Bankr.N.D.Ill.1989).
Accordingly, this Court has both the jurisdiction and the authority to enter final judgment in this matter.
Debtors signed a Promissory Note (“2004 Note”) dated September 20, 2004, in favor of FSA. To secure the 2004 Note, the Debtors executed a Security Agreement (“2004 Security Agreement”). The 2004 Security Agreement granted a security interest in “farm and other equipment” including “1 skidsteer to be purchased.” The security interest was perfected by the filing of a Uniform Commercial Code Financing Statement (“Financing Statement”) on September 9, 2004. On or about September 24, 2004, the Debtors purchased the skidsteer. The Debtors admit the funds used to purchase the skidsteer were borrowed from FSA as part of the funds loaned under the 2004 Note.
On September 27, 2006, the Debtors executed and delivered a new note to FSA (“2006 Note”). An Addendum to the 2006 Note modifying the payment terms appears on the signature page to the 2006 Note. The 2006 Note states it is a “Rescheduling” and that there are “Deferred payments.” The 2006 Note changed the payment schedule and extended the term of the FSA loan from seven to ten years. No additional funds were advanced under the 2006 Note. FSA retained the 2004 Note and the 2004 Security Agreement. A UCC Continuation Statement was filed on March 13, 2009.
A security agreement dated January 1, 2010 (“2010 Security Agreement”), was also executed by the Debtors and delivered to FSA granting a security interest in, among other assets, “all farm and other equipment.”
On June 29, 2012, the Debtors filed a Chapter 7 petition. The Debtors' Schedule D listed FSA as a creditor holding a claim in the amount $160,000. The Debtors elected to claim the Wisconsin “tools of the trade” exemptions under Wis. Stat. § 815.18(3)(b)(1) and applied this exemption against the skidsteer and other equipment.
The Debtors assert the skidsteer and four other pieces of equipment are encumbered by nonpossessory, nonpurchase-money liens held by FSA. They argue these items could otherwise be exempted under state law and have moved to avoid FSA's liens pursuant to § 522(f) of the Bankruptcy Code. Of the property sought to be exempted, the only item relevant to the motion is the skidsteer. 1
FSA objects to the motion with respect to the skidsteer. It asserts it holds a purchase-money security interest (“PMSI”) in the item, and that therefore the lien cannot be avoided under § 522(f).
The Debtors dispute the purchase-money status of the FSA lien on the skidsteer and argue it is avoidable. Their theories can be summarized as follows: (1) the lien is not purchase-money because there was no separate security agreement or UCC financing statement relating to the skidsteer, and neither the security agreements nor the UCC filings state the interest is purchase-money; (2) even if the lien was originally purchase-money, the 2006 Note effected a novation that destroyed the purchase-money character of the interest; and finally, (3) if the interest is purchase-money, then the payments that were made on the debt should be applied first to the PMSI in the skidsteer, thus satisfying the lien.
FSA argues that the lien is not avoidable by virtue of its PMSI. It argues that the Debtors concede the skidsteer was purchased with funds from the FSA loan. Additionally, FSA points to language contained in the 2004 Security Agreement that the skidsteer was “to be purchased,” the invoice and receipt for the skidsteer, and the supervised bank account documentation as further confirmation of the purchase-money nature of its security interest. The 2006 Note was, according to FSA, simply a rescheduling of payments and did not satisfy the 2004 Note. FSA argues that since it gave a single loan secured by multiple items of collateral, it is not possible to determine how much of any payment was applied to which item.
Section 522(f) of the Code allows a debtor to avoid the fixing of a lien to the extent the lien impairs an exemption to which the debtor would be entitled under 11 U.S.C. § 522(b), provided the lien is a nonpossessory, nonpurchase-money security interest in tools of the trade. The Debtors' motion therefore presents three questions: first, whether the security interest was a purchase-money interest when first granted; second, whether the execution and delivery of the 2006 Note constituted a novation that destroyed the purchase-money character of the security interest; and finally, assuming the PMSI continued, whether the payments made by the Debtors must be applied first against the price of the skidsteer, thus satisfying any purchase-money security interest.
“Purchase-money security interest” is not defined in the Bankruptcy Code. However, the Uniform Commercial Code provides guidance as to the meaning of the phrase. Section 409.103, Wis. Stat., contains the following definitions:
(1)(a) “Purchase-money collateral” means goods or software that secures a purchase-money obligation incurred with respect to that collateral.
(b) “Purchase-money obligation” means an obligation of an obligor incurred as all or part of the price of the collateral or for value given to enable the debtor to acquire rights in or the use of the collateral if the value is in fact so used.
(2) A security interest in goods is a purchase-money security interest:
(a) To the extent that the goods are purchase-money collateral with respect to that security interest;
The Debtors acknowledge that a portion of the money disbursed in connection with the 2004 Note was used to purchase the skidsteer, and the 2004 Security Agreement confirms the skidsteer was “to be purchased.” The 2004 Note is a purchase-money obligation within the meaning of Wis. Stat. § 409.103(1)(b) because the loan included the entire price of the skidsteer and loan funds were used “to enable the debtor to acquire rights in” the skidsteer. Likewise, the skidsteer is purchase-money collateral under Wis. Stat. § 409.103(1)(a) because it secured a purchase-moneyobligation. Therefore, the security interest granted to FSA in 2004 was a PMSI.
The argument that the absence of a “specific or unique security agreement” or UCC filing regarding the skidsteer prevented the creation of a PMSI is unpersuasive. The purchase-money nature of the security interest described in a security agreement need not be explicitly stated, nor must the UCC financing statement filed to perfect the interest explicitly state that it is a PMSI. The UCC governs the creation and the perfection of security interests. Wis. Stat. § 409.101, et seq. Perfection occurs through the process of filing financing statements. Wis. Stat. § 409.301, et seq. The UCC also specifies the contents of a financing statement, and controls how security interests in different types of collateral are created and perfected. It contains no requirements that the purchase-money character of a security interest be specifically described in the security agreement or the financing statement. Wis. Stat. § 409.324 governing the priority of purchase-money security interests merely states that “a perfected PMSI ... has priority ... when the debtor receives possession of the collateral or within twenty days thereafter.”
The Debtors' claim that there is no PMSI because FSA did not create a separate security agreement or file a separate financing statement evidencing only the purchase-money goods is unconvincing. The UCC is clear that obligations can be secured simultaneously by purchase-money and nonpurchase-money collateral without disturbing the purchase-money character of the security interest. SeeUCC § 9–103(f). Indeed, the Official...
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