In re Wuerzberger

• Decision Date: 03 January 2002
• Docket Number: Adversary No. 5-01-00026A.,Bankruptcy No. 5-01-00232.
• Parties: In re James Ralph WUERZBERGER, Debtor. John G. Leake, Trustee, Plaintiff, v. Oakwood Acceptance Corporation, Defendant.
• Court: United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Western District of Virginia

271 B.R. 778

In re James Ralph WUERZBERGER, Debtor.

John G. Leake, Trustee, Plaintiff, v. Oakwood Acceptance Corporation, Defendant.

Bankruptcy No. 5-01-00232.

Adversary No. 5-01-00026A.

United States Bankruptcy Court, W.D. Virginia, Harrisonburg Division.

January 3, 2002.

J. Forester Taylor, Staunton, VA, for debtor.

John G. Leake, Harrisonburg, VA, trustee.

Dale Davenport, Harrisonburg, VA, for trustee.

Thomas Domonoske, Harrisonburg, VA, special counsel for trustee.

Boyce Brannock, Staunton, VA, Peter Partee, Richmond, VA, Richard Maxwell Charlottesville, VA, for Oakwood Acceptance Corporation.

DECISION AND ORDER

ROSS W. KRUMM, Bankruptcy Judge.

Before the court is a motion for summary judgment to determine the lien interest in a mobile home of a party who admittedly assigned all of its interest in a lien to a securitization trust, but who also claims to have retained some modicum of legal title through the retention of the contractual right to service the loan and by the party's name remaining noted as a lienholder on the certificate of title.

BACKGROUND

Affiliates of Oakwood Acceptance Corporation (hereinafter Oakwood) make and sell mobile and manufactured homes. Financing is offered to the qualified buyers of the mobile homes. Such buyers sign a retail installment contract and grant a security interest in the mobile home. The affiliates assign the retail installment contracts and liens to Oakwood. The retail installment contracts are secured by noting a lien on the certificate of title of the mobile home in favor of Oakwood. Oakwood then assigns these contracts through a special purpose subsidiary to a securitization trust known as Oakwood Acceptance Corporation REMIC Trust 1994-1 Asset-Backed REMIC Trustee Certificates (hereinafter Trust), which in turn issues asset-backed securities to the public. Oakwood remains listed as the lienholder on the certificates of title after the assignment to the Trust and continues to act as the servicer of the contracts.¹ At no time are the certificates of title amended to list either the securitization trust or its trustee as the lienholder.

On February 14, 2001, the above-styled debtor filed a voluntary petition under Chapter 7 of Title 11 of the United States Code. The debtor scheduled a debt owed to Oakwood in the amount of $19,215.02. The debt was listed as being secured by an Oakwood mobile home. On April 9, 2001, John G. Leake (hereinafter Trustee) commenced this adversary proceeding to determine the validity of Oakwood's lien. The Trustee alleged that Oakwood assigned its interest in the retail installment contract and lien to a securitization trust and asserted that Oakwood's interest in the lien is challengeable in bankruptcy by using the statutory strong arms powers granted a trustee in bankruptcy by 11 U.S.C. § 544 of the Bankruptcy Code.

On May 9, 2001, Oakwood filed a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) and (b)(7),² claiming that the Trustee's complaint failed to state a claim upon which relief can be granted and that the Trustee failed to join a necessary party. With respect to Rule 12(b)(6), Oakwood admitted that it transferred all of its interest in the retail installment contract to the Trust and retained only the contractual right to service the retail installment contract on behalf of the Trust. As to Rule 12(b)(7), Oakwood, argued that the Trust was the real party in interest in the lien avoidance action since it is the holder of the lien on the debtor's mobile home.

The Trustee responded that the adversary proceeding was commenced only to determine Oakwood's interest in the lien, not any other party's interest. The Trustee further argued that allegations in Oakwood's motion to dismiss touched on the ultimate issue involved in the adversary proceeding. Specifically, the Trustee alleged that since Oakwood admitted that it transferred "all of its interest" and that the Trust was that actual holder of the lien, then Oakwood has no interest in the lien. Mot. to Dismiss ¶ 2 cited in Opp'n to Oakwood Acceptance Corporation's Mot. to Dismiss ¶¶ 3-6. After a hearing on the matter, the court denied the motion to dismiss, holding that a claim was stated and that the Trust was not a necessary party to this action since only Oakwood's interest in the lien was being adjudicated.

On June 13, 2001, the Trustee filed a motion for summary judgment and a hearing on the motion was held on August 23, 2001. The only relief the trustee requested is a determination that Oakwood does not have a lien interest in the mobile home. According to the Trustee, since Oakwood admittedly assigned all of its interest in the lien, the court can determine as a matter of law that Oakwood has no lien interest in the mobile home at issue in this case.

In response to the motion for summary judgment, solely by way of memorandum and by oral argument, Oakwood qualified its early position that it transferred "all of its interest" to mean that it assigned only the beneficial ownership interest in the retail installment contract and the lien, but that it retained the legal ownership. The Trust, according to Oakwood, is the current beneficial owner of the contract and lien, and Oakwood is the legal owner, i.e., Oakwood retained a legal interest in the debtor's mobile home. In support of this position, Oakwood points out that it still remains noted as the holder of the lien on the certificate of title. Oakwood also argues that its contractual right to service the contract is indicative of its legal interest in the lien. Oakwood relies on these two positions to survive the summary judgment motion.

Oakwood also argues that the division of legal and equitable interest is contemplated and condoned by 11 U.S.C. § 541(d). Section 541 of the Bankruptcy Code states:

(d) Property in which the debtor holds, as of the commencement of the case, only legal title and not an equitable interest, such as a mortgage secured by real property, or an interest in such a mortgage, sold by the debtor but as to which the debtor retains legal title to service or supervise the servicing of such mortgage or interest, becomes property of the estate under subsection (a)(1) or (2) of this section only to the extent of the debtor's legal title to such property, but not to the extent of any equitable interest in such property that the debtor does not hold.

Oakwood contends that § 541(d) expressly acknowledges the typical secondary mortgage market transaction wherein the seller transfers the equitable ownership interest in the mortgage, but retains the legal title to the mortgage for servicing purposes even though the transfer of the mortgage is not recorded under state recordation statutes. Since Oakwood executed and delivered an assignment of the contract and lien, but it did not "record" the transfer of the lien to the Trust by amending the certificate of title, Oakwood's argument is that the assignment to the Trust is analogous to a typical secondary mortgage market transaction.

The parties do not dispute that Oakwood may have held a perfected security interest in the mobile home prior to the assignment, nor do they dispute that Oakwood assigned the security interest to the Trust. The question for decision is what effect did the assignment of the security interest by Oakwood to the Trust have on Oakwood's status as a lien creditor when bankruptcy arrived and the trustee as a hypothetical lien creditor attacked Oakwood's priority using 11 U.S.C. § 544.³

ANALYSIS

Federal Rule of Civil Procedure 56(c) provides the following standard for determining a motion for summary judgment: "The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c).⁴ See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The motion must be considered in the light most favorable to the nonmoving party. Brewster of Lynchburg, Inc. v. Dial Corp., 33 F.3d 355, 361 (4th Cir.1994).

In this case, the Trustee is the moving party who must make an initial showing that he is entitled to judgment. Also, because he bears the burden of persuasion at trial the trustee must sustain this burden in his motion as well as demonstrating the absence of a genuine dispute. Celotex, 477 U.S. at 331-32, 106 S.Ct. 2548. In short, the trustee must show he would be entitled to a directed verdict at trial. See United States v. One 107.9 Acre Parcel of Land Located in Warren Township, Bradford County, Pa., 898 F.2d 396, 398 (3d Cir.1990). Once the movant makes a properly supported motion, the burden shifts to the nonmovant to demonstrate the existence of a genuine dispute. As stated in Rule 56(e), the "adverse party may not rest upon the mere allegations or denials of the adverse party's pleadings, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial."

When analyzed in this framework it is clear that in the pleadings Oakwood admits it transferred its interest in the security agreement (the security interest) to the Trust. The Trustee's position is simply, "you cannot have a security interest if you have transferred it to the Trust." The conclusion reached by the Trustee is that on the petition date Oakwood had no interest, much less lien status, and the strong arm power of 11 U.S.C. § 544 gives the Trustee a priority lien claim. Furthermore, it is well-settled that a lien creditor enjoys priority over a party holding an unperfected security interest, and especially over a party who holds no legal interest. See Va.Code § 8.9A-317.⁵ A lien creditor includes a trustee in bankruptcy. See In re Johnson, 179 B.R. 800 (Bankr.E.D.Va.1995); In re Yale Mining...