In re Thompson
| Decision Date | 23 May 2018 |
| Docket Number | Case No. 18-60017 |
| Court | U.S. Bankruptcy Court — Western District of Virginia |
| Parties | In re: ERIC KEIP THOMPSON, Debtors. |
Before the Court is Eric Keip Thompson's objection to proof of claim 1-1. ECF Doc. No. 16. Mr. Thompson objects to the claim as secured because, according to Mr. Thompson, the secured creditor did not perfect is lien. The objection boils down to whether the creditor perfected an electronic lien on the vehicle prior to the bankruptcy petition.
Mr. Thompson filed a voluntary chapter 13 petition on January 8, 2018. See Pet., ECF Doc. No. 1. He filed a minimum filing. Eight days after filing his petition, he filed his schedules. On his Schedule E/F: Creditors Who Have Unsecured Claims, Mr. Thompson scheduled OneMain Financial ("OneMain") as an unsecured creditor with a total claim of $5,125 for a "Personal Loan." See Sch. E/F, ECF Doc. No. 9. Mr. Thompson notes that the account was opened in August 2016 and was "last active" November 1, 2017. Id.
Not long after he filed his schedules, on January 29, 2018, OneMain filed proof of claim number 1-1. OneMain's proof of claim asserts a claim amount of $4,771.23 based on "Money Loaned." The proof of claim also asserts that the claim is secured by a lien on a 2008 Nissan Altima. In support of the basis for perfection, OneMain attached two items to the proof of claim. First, OneMain provided a Disclosure Statement, Note and Security Agreement signed by Mr. Thompson and a representative of OneMain. Second, OneMain attached a one page summary entitled "Lien and Title Information" from a company called DealerTrack Collateral Management Services (the "DealerTrack Summary"). The DealerTrack Summary contains a "Financed Date" of August 30, 2016, and a "Perfected Date" of September 28, 2016. In the subsection, "Vehicle and Titling Information," the DealerTrack Summary notes an "Issuance Date" of August 30, 2016, and a "Received Date" of September 28, 2016. This subsection also notes "ELECTRONIC" next to the "ELT/Paper" prompt.
Shortly thereafter, on February 15, 2018, Mr. Thompson objected to One Main's claim 1-1. See Obj., ECF Doc. No. 16. Mr. Thompson argues that the claim should be treated as an unsecured claim, because "[t]he security interest of the claim was not properly perfected prior to the filing date of the petition." The basis of this argument is that a certificate of title for the vehicle evidencing the lien was issued on February 2, 2018, marked as "ORIGINAL." Mr. Thompson noticed a hearing on the objection to claim to be held March 22, 2018.
OneMain by counsel responded to the objection. See Resp., ECF Doc. No. 18. In its response, OneMain asserts that it properly perfected its lien by a notation on the vehicle's electronic certificate of title by providing the lien information to DealerTrack Collateral Management Services1 on September 28, 2016. Id. ¶ 14. OneMain attached to its response the DealerTrack Summary described above, which was attached to the proof of claim. See Ex. B, ECF Doc. No. 18-1. OneMain further pointed out that the Virginia Department of Motor Vehicles (the "DMV") permits a party to request a paper certificate to replace an electronic title upon request. See Resp. ¶ 15, ECF Doc. No. 18.
Mr. Thompson immediately replied to OneMain's response. See Reply, ECF Doc. No. 20. Mr. Thompson contends that OneMain's lien was not on the title at the time Mr. Thompson filed his bankruptcy and that the lien did not appear on the title (either on paper or electronically) untilthe issuance of the certificate of title on February 2, 2018, a date twenty-five days following the filing of the petition. Id. ¶¶ 2, 11. Mr. Thompson asserts that "[t]he lien must physically appear on the Certificate of Title, issued electronically or physically by the Virginia DMV." Id. ¶ 3. Mr. Thompson argues that the first time the lien appeared on the title to the vehicle was at the issuance of the paper title postpetition. Id. ¶¶ 2, 11. Even if OneMain did in fact submit its information for an electronic lien to DealerTrack, Mr. Thompson argues that OneMain has no proof that DealerTrack ever submitted the information to the DMV. Id. ¶ 11. Without such proof, Mr. Thompson argues the security interest was not properly perfected as to the vehicle.2 Id. ¶¶ 12, 15. Mr. Thompson did not point to an actual paper title which failed to show the lien, or provide any evidence supporting the assertion that prior to February 2, 2018, the title failed to disclose the lien, other than the fact that the title which shows the lien is labeled "ORIGINAL" and is dated February 2, 2018. The crux of Mr. Thompson's argument is that OneMain has presented no proof that Virginia DMV was aware of OneMain's interest in the vehicle prior to the filing of his bankruptcy petition. Id.
The Court held the noticed hearing on March 22, 2018. Counsel for Mr. Thompson and counsel for OneMain appeared and presented argument. See ECF Doc. No. 23. Counsel for OneMain informed the Court that he had obtained a paper file from the DMV which he wanted to review and potentially present to the Court. Accordingly, the Court continued the hearing to April 9, 2018, for a final hearing. On April 6, 2018, counsel for OneMain filed a supplemental response based on the DMV's paper file. The additional exhibit provided in the supplemental response wasan "Application for Supplemental and Transfer Liens of Replacement and Substitute Titles." See ECF Doc. No. 24-1. The application was date stamped indicating that the DMV received it on September 2, 2016. Id. The application was signed by the debtor and appears to request a transfer of a lien to OneMain on the 2008 Nissan. Id. The paper file discloses that the DMV received the paper application for a lien prior to the date DealerTrack allegedly sent the electronic request for a lien.
Counsel for Mr. Thompson and counsel for OneMain appeared and presented further argument at the continued hearing held on April 9, 2018. The parties both agreed that there was a security agreement and that OneMain followed the procedure to provide information to DealerTrack as required by the DMV's procedures to perfect its lien. Mr. Thompson, however, disputed whether DealerTrack timely provided, if at all, the information to the DMV to perfect the lien prior to the filing of the petition. Thus, the disagreement continued as to whether OneMain perfected its lien before or after Mr. Thompson filed his bankruptcy petition. The Court took the matter under advisement.
"A claim or interest, proof of which is filed under section 501 of this title, is deemed allowed, unless a party in interest . . . objects." 11 U.S.C. § 502(a). That is, once a proof of claim is filed, the underlying claim is deemed allowed. If a party in interest objects, the Court must then determine the amount and validity of the claim. Id. § 502(b).
The Fourth Circuit has constructed a burden-shifting framework for determining the validity of proofs of claim. See generally In re Harford Sands Inc., 372 F.3d 637 (4th Cir. 2004). When a claimant properly files a proof of claim, it is prima facie evidence of the claim's validity and the amount the debtor owes. In re Falwell, 434 B.R. 779, 783 (Bankr. W.D. Va. 2009); Fed. R. Bankr. P. 3001(c), (f). If a claimant files a prima facie valid proof of claim, "[t]he burden . . . shifts to the debtor to object to the claim" and to "introduce evidence to rebut the claim's presumptive validity." Harford Sands, 372 F.3d at 640 (internal citations omitted). Any evidence the debtor offers in rebuttal must negate at least one fact necessary to the claim's legal sufficiency, "must be sufficient to demonstrate the existence of a true dispute and must have probative force equal to the contents of the claim." Falwell, 434 B.R. at 784 (emphasis in original).
OneMain filed a presumptively valid proof of claim, evidencing an allowed secured claim. Mr. Thompson filed an objection to claim which called into question the validity of the secured nature of OneMain's claim. OneMain filed a response challenging the objection and provided additional evidence to aid the Court in determining whether the objection should be sustained. The Court has considered the evidence and now turns to the Virginia Code to determine whether OneMain holds a perfected security interest in Mr. Thompson's motor vehicle.
The Virginia Code addresses both the noticing and the perfection of security interests in motor vehicles in title 46.2 ("Motor Vehicles"), chapter 6 ("Titling and Registration of Motor Vehicles"). The resolution of the matter before the Court hinges heavily upon the text of the titling provisions.
Certificates of title are the vehicle for noticing liens on motor vehicles and accordingly "contain a statement of the owner's title and of all liens or encumbrances on the motor vehicle." Va. Code § 46.2-604. "A certificate of title, when issued by the [DMV] showing a security interest, shall be adequate notice to the Commonwealth, creditors, and purchasers that a security interest in the motor vehicle exists . . . ." Id. § 46.2-638. This Court has previously recognized the titling statute's emphasis on noticing:
This court previously interpreted Virginia law and held that the primary function of noting liens on certificates of title is to put third parties on inquiry notice. In re Wuerzberger, 271 B.R. 778, 783-84 (Bankr. W.D. Va. 2002) (). Liens noted on certificates of title are...
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