Lange v. Wells Fargo Equip. Fin., Inc. (In re Negus-Sons, Inc.)

• Decision Date: 02 April 2012
• Docket Number: CASE NO. A11-8081-TJM,CASE NO. BK09-82518-TJM
• Parties: IN THE MATTER OF: NEGUS-SONS, INC., Debtor(s). RICK D. LANGE, Chapter 7 Trustee, Plaintiff, v. WELLS FARGO EQUIPMENT FINANCE, INC., and UNITED STATES TREASURY, INTERNAL REVENUE SERVICE, Defendants.
• Court: U.S. Bankruptcy Court — District of Nebraska

IN THE MATTER OF: NEGUS-SONS, INC., Debtor(s).
RICK D. LANGE, Chapter 7 Trustee, Plaintiff,
v.
WELLS FARGO EQUIPMENT FINANCE,
INC., and UNITED STATES TREASURY,
INTERNAL REVENUE SERVICE, Defendants.

CASE NO. BK09-82518-TJM
CASE NO. A11-8081-TJM

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF NEBRASKA

DATED: April 2, 2012

CHAPTER 7
ORDER

This matter is before the court on the joint motion for partial summary judgment by the plaintiff trustee and the defendant Internal Revenue Service (Fil. No. 24) and resistance by Wells Fargo Equipment Finance, Inc. ("WFEFI") (Fil. No. 33). Brian S. Kruse represents the Chapter 7 trustee, Mark C. Milton represents the United States, and David J. Skalka represents WFEFI. Evidence and briefs were filed and, pursuant to the court's authority under Nebraska Rule of Bankruptcy Procedure 7056-1, the motion was taken under advisement without oral arguments.

The motion is granted.

The debtor owned a vehicle described as a "mechanic's truck." WFEFI claims a purchase money security interest in the truck, as well as an equitable lien arising from the debtor's alleged fraud in failing to note WFEFI's lien on the certificate of title and in representing on its Nebraska title application that no liens existed. The IRS claims a right to the truck arising from a priority claim and/or a tax lien for unpaid taxes. The truck was sold, and the competing liens have attached to the proceeds, which are in the possession of the Chapter 7 trustee. The trustee filed this adversary proceeding to avoid WFEFI's lien and to determine the priority of the remaining interests in the proceeds. The trustee and the IRS have now moved for summary judgment on the issue of WFEFI's lien, requesting an order determining that WFEFI has no lien or claim to the truck or its proceeds because WFEFI's lien was not noted on the vehicle's certificate of title as required by Nebraska law.

The debtor, Negus-Sons, Inc., was a company in the construction business, primarily involved in performing earth-moving work for commercial construction projects. The company's work required the use of large construction equipment, such as bulldozers, scrapers, backhoes, and front

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loaders (both rubber-tired and track). Maintenance and repairs to this equipment often had to be performed at job sites, so Negus-Sons purchased the mechanic's truck at issue here essentially as a repair shop on wheels in order to service the equipment. It was a heavy-duty truck, with storage to carry tools and parts, and a crane attachment to lift equipment and provide the mechanics with access to otherwise unreachable areas where repairs were needed.

The truck was a customized vehicle, purchased from Service Trucks International ("STI") in Sioux Center, Iowa. Negus-Sons selected and paid for a 2008 Kenworth T-300 truck chassis from a Sioux Falls, S.D., dealer, at a cost of $55,366, and STI mounted a 14' service body and a 21' crane with an 11,000-pound lift capacity to the chassis for $60,220.46. To assemble the truck, STI attached the service body and crane to the chassis, hooked up the wiring for all of the electrical components of the service body and crane, and added a power take-off and hydraulic fluid pump to the chassis' transmission.¹

Negus-Sons ordered the truck on August 1, 2007, and took delivery on or about September 24, 2007. The total cost for the truck, after STI's discounts and rebates and including the chassis, which was purchased separately, was $115,586.46. Negus-Sons traded in a Ford F650 service truck, receiving a credit of $15,586.46, which left a purchase price of $100,000.

WFEFI and Negus-Sons executed a revolving loan agreement on September 11, 2007, to establish a $4,000,000 line of credit secured by 425 pieces of Negus-Sons' equipment, vehicles, and other personal property. The collateral listed in the schedule attached to the loan agreement included the Ford F650 service truck² and a Bobcat welder. It did not list the Kenworth truck, the service body, or the crane. WFEFI filed a U.C.C. financing statement with the Nebraska Secretary of State on October 1, 2007.

When the mechanics' truck was delivered, Negus-Sons issued checks to the Kenworth dealer for the price of the chassis and to STI for the balance due for the service body and crane and their installation. Negus-Sons then asked WFEFI to wire $100,000 of the line of credit to its bank account to cover those checks. In support of its request, Negus-Sons provided WFEFI with a copy of the STI statement with handwritten notations to show that the $60,220.46 cost of the service body and crane, less the $15,586.46 value of the collateral truck traded in, plus the $55,366.00 cost of the Kenworth chassis equaled the $100,000 requested. WFEFI wired the funds on October 3, 2007. It prepared a letter memorializing the amendment of the revolving loan agreement by adding three pieces of collateral, including the Kenworth truck. Negus-Sons accepted and agreed to the amendment on

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October 3, 2007. It is unclear why the amendment lists the value of the Kenworth as $55,366.00, the price of the chassis, rather than the price of the completed vehicle. WFEFI filed an amended U.C.C. financing statement on May 15, 2008, to add collateral, including the Kenworth and "all attachments, replacements, substitutions, additions and accessions thereof, plus the proceeds of all the foregoing."

Negus-Sons applied for a certificate of title for the truck. In the section of the application requesting lien information, the Negus-Sons employee wrote "none." The State of Nebraska issued a certificate of title for the truck to Negus-Sons on November 19, 2007.³ The title certificate did not list WFEFI as a lienholder.

The IRS filed a tax lien on Negus-Sons' assets in July 2009, securing approximately $586,000 of a $799,216.37 claim for unpaid taxes, interest, and penalties.

Negus-Sons filed a Chapter 11 bankruptcy petition on September 23, 2009. The debtor eventually ceased operations and the case was converted to Chapter 7 at the request of the United States Trustee. WFEFI obtained relief from the automatic stay, repossessed the truck, and sold it at public auction with the consent of the bankruptcy trustee and the IRS. The bankruptcy trustee is holding the net proceeds of $75,000.

Summary judgment is appropriate only if the record, when viewed in the light most favorable to the non-moving party, shows there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. Fed. R. Civ. P. 56(c) (made applicable to adversary proceedings in bankruptcy by Fed. R. Bankr. P. 7056); see, e.g., Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986). On a motion for summary judgment, "facts must be viewed in the light most favorable to the nonmoving party only if there is a 'genuine' dispute as to those facts." Ricci v. DeStefano, 557 U.S. 557, 129 S. Ct. 2658, 2677 (2009) (quoting Scott v. Harris, 550 U.S. 372, 380 (2007)). "Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial." Id. (quoting Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)). "Although the burden of demonstrating the absence of any genuine issue of material fact rests on the movant, a nonmovant may not rest upon mere denials or allegations, but must instead set forth specific facts sufficient to raise a genuine issue for trial." Wingate v. Gage Cnty. Sch. Dist., No. 34, 528 F.3d 1074, 1078-79 (8th Cir. 2008). See also Celotex Corp., 477 U.S. at 324 (where the nonmoving party "will bear the burden of proof at trial on a dispositive issue," the nonmoving party bears the burden of production under Rule 56 to "designate specific facts showing that there is a genuine issue for trial").

The following facts are uncontroverted or established by the evidence:

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1. Rick D. Lange is the duly appointed and qualified Chapter 7 bankruptcy trustee for the bankruptcy case of Negus-Sons, Inc., which the debtor filed as a Chapter 11 case on September 23, 2009, and which was converted to a Chapter 7 case on February 18, 2010.

2. This action concerns the following property and the net proceeds (as defined in the Stipulation filed at BK09-82518, Filing No. 175) derived from the sale thereof:

2008 Kenworth Model T300, Series T30, Diesel Truck, VIN# 2NKMHN7X18M223381, equipped with STI 14' service body, Tiger 1061...