In re Taylor
| Decision Date | 20 June 2008 |
| Docket Number | BAP No. WW-07-1313-MkMoD.,Bankruptcy No. 05-49369-pbs.,Adv. No. 07-04025-pbs. |
| Citation | 390 B.R. 654 |
| Parties | In re David Douglas TAYLOR and Linda Sue Taylor, Debtors. USAA Federal Savings Bank, Appellant, v. Don Thacker, Chapter 7 Trustee, Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Lawrence G. Reinhold, Weinstein & Riley, P.S., Huntington Woods, MI, for David and Linda Taylor, Appellants.
Thomas W. Stilley, Portland, OR, for Don Thacker, Ch. 7 Trustee, Appellee.
Before MARKELL, MONTALI and DUNN, Bankruptcy, Judges.
The facts of this case are not in dispute, and they present a common pattern. On August 30, 2005, the debtors bought a 2005 Toyota Camry for $19,500, borrowing $18,020 of the purchase price from USAA Federal Savings Bank ("USAA"). They granted USAA a security interest in the car to secure their loan.
On September 15, 2005, to perfect its security interest, USAA filed an initial application for a certificate of title with the Idaho Department of Transportation. The application requested that the certificate of title, when issued, note USAA's security interest. Under Idaho law at the time, applications for certificates of title had to be accompanied by an affidavit that attested to an inspection confirming the car's Vehicle Identification Number ("VIN"). USAA did not provide such an affidavit.
USAA corrected its error on September 20, 2005, when it submitted a new application for title, this time with the required VIN inspection affidavit. Under applicable Idaho law, USAA's security interest became perfected on September 20.
On September 28, 2005, the debtors filed a chapter 71 bankruptcy petition. They continued to make their car payments to USAA.
On February 23, 2007, approximately seventeen months after debtors' bankruptcy filing, the debtors' trustee, Don Thacker, filed a preference action against USAA under § 547. On February 28, 2007, USAA answered, raising the enabling loan defense under § 547(c)(3).
On July 3, 2007, the trustee filed a motion for summary judgment. Based on the undisputed facts, he contended that perfection of the security interest in the car was preferential.
In defense, USAA invoked § 547(c)(3).2 USAA contended that although § 547(c)(3) gave it only 20 days to perfect its security interest, Idaho law at the time gave it an additional 20 days to complete the perfection requirements. IDAHO CODE ANN. § 49-510. Put another way, USAA claimed that because it had made its incomplete filing within § 547(c)(3)'s 20-day enabling loan period, and then satisfied Idaho's relation-back statute when it later submitted its completed VIN inspection affidavit, it should receive the benefit of § 547(c)(3)'s defense. But the bankruptcy court concluded that the enabling loan exception was not applicable because the Idaho grace period did not apply to federal preference law.
The bankruptcy court then turned to remedies. While the trustee could have simply avoided the security interest and taken the car from the debtors and sold it, neither he nor USAA wanted that outcome.
Citing § 550(a), the trustee sought a judgment for the value of USAA's security interest in the debtors' car as of the date of the debtors' bankruptcy filing. Although he might have elected to confine his recovery to the avoidance given him by § 547, that remedy would not have put the estate in the same position as it would have been in had the perfection not occurred. For the estate to benefit from a simple avoidance, the trustee would have had to take the car from the debtors (and there is no doubt that the car was property of the estate enabling him to do so),3 and sell it for whatever it would fetch without the security interest attached, and then distribute the proceeds to the debtors' creditors. But seventeen months had passed since the debtors filed bankruptcy. During that time, as noted, the debtors had continued making their monthly payments to USAA.4 Also during that time, the value of the car had declined, from $19,500 at filing to $14,240. Were avoidance the only remedy, the estate would not be in the same position as if the transfer had not occurred, as it would not have been able to recover the payments or the depreciation from USAA.5
USAA argued that the only remedy available was avoidance of its security interest, which would give the estate a lien-free car that the trustee could sell. It argued that the remedies provided by § 550—recovery of the property or a money judgment for its value—were either futile or precluded by § 550(a)'s language. Recovery was futile because it would have transferred the property right (the security interest) to the trustee without also transferring the contract rights governing its use. As USAA argued, a security interest without a debt is an empty, valueless concept. In addition, USAA also argued that a money judgment was unavailable. It contended that since § 550(a) states that a money judgment is available only "to the extent that a transfer is avoided," and since a simple money judgment would not also avoid its security interest as against the debtors, the language of § 550(a) precluded the court's entering a money judgment. The trustee responded that, for at least two reasons, simple avoidance would not restore the estate to the position it would have been in but for the preferential transfer. First, the value of the car had declined since the filing, so a sale of the car would have yielded less money to the estate. Second, because the debtors had continued to make payments to USAA in the period between their bankruptcy filing and the trustee's preference complaint, the monthly payments roughly compensated USAA for the loss in value.
The bankruptcy court agreed with the trustee. It stated, "If a lien were avoided, the debtor's obligation would become an unsecured debt, ... and the estate's only remedy would be to sell the vehicle...." Hr'g Tr. 18:1-4 (August 1, 2007). The court was also concerned that the debtors would lose the car even though they had made postpetition payments. The court stated further, Hr'g. Tr. 18:10-13 (August 1, 2007).
The court thus found that the trustee was entitled to judgment against USAA for the value of its security interest as of the time the debtors filed their case. "It granted summary judgment in favor of the trustee, and on August 10, 2007, it entered a simple money judgment against USAA in the amount of $18,020, plus interest.6 It also gave USAA, conditioned upon payment of the judgment, an allowed unsecured claim for the amount of the judgment. USAA filed a timely notice of appeal.
1. Does a state relation-back statute control for determining the date of perfection under § 547(c)(3)?
2. What form of recovery is the trustee entitled to when the preferential transfer of a security interest is avoided?
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334, 157(b)(2)(F). Given the judgment in favor of the trustee on all counts, the summary judgment is "a complete act of adjudication, that is, a full adjudication of the issues at bar, and clearly evidences the judge's intention that it be the court's final act in the matter" (internal quotation marks omitted). Brown v. Wilshire Credit Corp. (In re Brown), 484 F.3d 1116, 1120 (9th Cir.2007) (emphasis in original) (quoting Slimick v. Silva (In re Slimick), 928 F.2d 304, 307 (9th Cir.1990)). As such, it is a final order, and we have jurisdiction under 28 U.S.C. § 158.
"We review the bankruptcy court's conclusions of law and questions of statutory interpretation de novo, and factual findings for clear error." Village Nurseries v. Gould (In re Baldwin Builders), 232 B.R. 406, 410 (9th Cir. BAP 1999) (citations omitted). A factual finding is clearly erroneous if the appellate court, after reviewing the record, has a firm and definite conviction that a mistake has been made. Wall Street Plaza, LLC v. JSJF Corp. (In re JSJF Corp.), 344 B.R. 94, 99 (9th Cir. BAP 2006).
A. The Security Interest Perfection Was Preferential.
A transfer of any interest of a debtor in property is avoidable as a preference if it is made: (1) to or for the benefit of a creditor, (2) on account of an antecedent debt, (3) while the debtor is insolvent, (4) within 90 days of filing the bankruptcy petition,7 and (5) in such a way that it enables the creditor to receive more than if the transfer had not been made. 11 U.S.C. § 547(b)(1)-(5).
There is no question that USAA perfected its security interest 21 days after debtors granted it. Under § 547, as it existed at the time of the transaction, such perfection constituted a transfer of the entire security interest as of that day. 11 U.S.C. § 547(e)(2)(B). "Under the Code, a transfer of a security interest does not occur until after all of the ... steps [related to perfection] are completed, and the interest is perfected under state law." 4 NORTON BANKR.L. & PRAC. 3d § 66:11 (2008).
The other elements of a preference were also met. The transfer of the security interest was made to USAA, a creditor on an antecedent debt. An antecedent debt is a debt that arises before the transfer, and here the debtors' borrowing of $18,020 on August 30, 2005 qualifies as the antecedent debt to which the late act of perfection related. The perfection was complete eight days before the debtors' bankruptcy filing, thus bringing it within the 90-day preference period.8 Finally, if a debtor is insolvent, as were the debtors here, a secured creditor with valuable collateral will always fare better than if that creditor were wholly unsecured. A secured creditor receives...
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