Lewis, In re

• Decision Date: 25 March 1998
• Docket Number: No. 97-6175,97-6175
• Parties: , Bankr. L. Rep. P 77,671, 35 UCC Rep.Serv.2d 740, 11 Fla. L. Weekly Fed. C 1154 In Re: Elgin LEWIS and Onetha Lewis, Debtors. CHARLES R. HALL MOTORS, INC., d.b.a. C. Hall Motors, Plaintiff-Appellee, v. Elgin LEWIS, Onetha Lewis, Defendants-Appellants. Non-Argument Calendar.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1280

137 F.3d 1280

32 Bankr.Ct.Dec. 488, Bankr. L. Rep. P 77,671,

35 UCC Rep.Serv.2d 740,

11 Fla. L. Weekly Fed. C 1154

In Re: Elgin LEWIS and Onetha Lewis, Debtors.

CHARLES R. HALL MOTORS, INC., d.b.a. C. Hall Motors, Plaintiff-Appellee, v. Elgin LEWIS, Onetha Lewis, Defendants-Appellants.

No. 97-6175

Non-Argument Calendar.

United States Court of Appeals, Eleventh Circuit.

March 25, 1998.

Virgil M. Smith, Gadsden, AL, for Defendants-Appellants.

Walden M. Buttram, Buttram & Davis, L.L.C., Gadsden AL, for Plaintiff-Appellee.

Appeal from the United States District Court for the Northern District of Alabama.

Before HATCHETT, Chief Judge, and COX and CARNES, Circuit Judges.

HATCHETT, Chief Judge:

Appellants-debtors Elgin and Onetha Lewis (the Lewises) appeal the district court's reversal of the bankruptcy court's entry of judgment in their favor following a non-jury trial in their adversary proceeding against appellee-creditor Charles R. Hall Motors, Inc. (Hall Motors). Addressing an issue of first impression concerning Alabama debtors' and secured creditors' rights in personal property repossessed prior to the filing of a bankruptcy petition, we affirm.

I. BACKGROUND

In August 1992, Elgin Lewis purchased a used automobile from Hall Motors. Elgin Lewis agreed to make weekly installment payments and granted to Hall Motors, as collateral, a security interest in the automobile. In October 1992, Elgin Lewis breached the purchase agreement through his nonpayment. Soon thereafter, Elgin Lewis and his spouse, Onetha Lewis, filed a joint petition in the United States Bankruptcy Court for the Northern District of Alabama, seeking relief under Chapter 13. For reasons unrelated to this appeal, the bankruptcy court dismissed their case on March 28, 1993.

On June 2, 1993, upon receiving notice of the Chapter 13 dismissal, Hall Motors repossessed the automobile. ¹ Two days later, the Lewises filed a second joint petition for Chapter 13 relief and listed the automobile in their schedule of assets. Also, in their proposed Chapter 13 plan filed with their petition and schedules, the Lewises offered to pay to Hall Motors sixty-two cents on the dollar for the automobile's outstanding secured balance. ²

After Hall Motors refused to return the automobile, the Lewises initiated the instant adversary proceeding. They sought, among other relief, turnover of the automobile under 11 U.S.C. § 542(a). ³ After conducting a non-jury trial, the bankruptcy court found in favor of the Lewises, reasoning that under Alabama law, Elgin Lewis had both title and a right of redemption in the repossessed automobile. The bankruptcy court concluded that the automobile was "property of the estate" and ordered Hall Motors to return it to the Lewises. ⁴

Hall Motors appealed the judgment to the United States District Court for the Northern District of Alabama. See Charles R. Hall Motors, Inc. v. Lewis (In re Lewis ), 211 B.R. 970 (N.D.Ala.1997). The district court reversed, holding that under Alabama law, Elgin Lewis had only a right of redemption in the repossessed automobile, which prevented the automobile from being property of the estate. 211 B.R. at 974-75.

II. ISSUE

In this appeal, we address whether the district court erred in reversing the bankruptcy court's judgment requiring Hall Motors to return the automobile that it had repossessed prior to the commencement of the Lewises' second Chapter 13 case.

III. CONTENTIONS

The Lewises contend that the repossessed automobile should have been returned because it was "property of the estate." They argue that under Alabama law, particularly the state's version of the Uniform Commercial Code, Elgin Lewis retained legal title or an equivalent ownership interest in the repossessed automobile, in addition to a statutory right of redemption.

Hall Motors, on the other hand, points to Alabama's law of conversion and argues that Elgin Lewis lost both title and possession when Hall Motors exercised its contractual right of repossession on June 2, 1993. Hall Motors further maintains that it had no duty to return the automobile because the proposed Chapter 13 plan failed to tender the total outstanding secured balance plus expenses. As a result, Hall Motors contends, Elgin Lewis's statutory right of redemption did not render the automobile "property of the estate."

IV. DISCUSSION

Where, as here, the parties contest only issues of law, we review the district court's and bankruptcy court's conclusions de novo. Levine v. Weissing (In re Levine), 134 F.3d 1046, 1049 (11th Cir.1998). Under the Bankruptcy Code, the court may generally order a third party to turn property in its possession over to the debtor's estate if three primary requirements are met. See 11 U.S.C.A. §§ 362(d)(1), 363(b)(1), 363(e), 542(a) (West 1993). First, such property must be "property of the estate." See 11 U.S.C.A. §§ 363(b)(1), 541, 542(a). Second, at the moment the debtor filed a petition, the debtor must have had a right to use, sell or lease the property. See 11 U.S.C.A. §§ 301, 302, 323(a), 541(a), 542(a). Finally, upon request, the court must ensure that the third party's interest in the property is adequately protected. See 11 U.S.C.A. §§ 323(a), 362(d)(1), 363(e), 542(a); Capital Factors Inc. v. Empire for Him, Inc., 1 F.3d 1156, 1160 (11th Cir.1993).

Our first concern, therefore, is whether the repossessed automobile was "property of the estate" on June 4, 1993, the date that the Lewises commenced their second Chapter 13 case. "Property of the estate" is defined broadly to include "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C.A. § 541(a)(1); cf. United States v. Whiting Pools, Inc., 462 U.S. 198, 204, 103 S.Ct. 2309, 2313, 76 L.Ed.2d 515 (1983) (observing in a Chapter 11 case that "Congress intended a broad range of property to be included in the estate" because "reorganization ... would have small chance of success ... if property essential to running the business were excluded from the estate"). Readily apparent from the face of the statute, whether a debtor's interest constitutes "property of the estate" is a federal question. Southtrust Bank of Alabama v. Thomas (In re Thomas), 883 F.2d 991, 995 (11th Cir.1989), cert. denied, 497 U.S. 1007, 110 S.Ct. 3245, 111 L.Ed.2d 756 (1990). As the bankruptcy and district courts correctly stated, however, "the nature and existence of the [debtor's] right to property is determined by looking at state law." Thomas, 883 F.2d at 995.

The parties vigorously contest the nature and existence of Elgin Lewis's ownership interest in the automobile after Hall Motors repossessed it. Their dispute is not an isolated one. At least in the Northern District of Alabama, the bankruptcy and district courts are apparently split on this issue. See Charles R. Hall Motors, Inc. v. Lewis (In re Lewis ), 211 B.R. 970, 974 (N.D.Ala.E.Div.1997) (holding that under Alabama law, a secured creditor has "both legal title to and right of possession" in a automobile that it repossessed upon the debtor's default). But see Turner v. DeKalb Bank (In re Turner), 209 B.R. 558, 564-68 (Bankr.N.D.Ala.E.Div.1997) (holding that "the Uniform Commercial Code as adopted by the State of Alabama replaced the common law by providing the creditor with a right to possession only"); Mattheiss v. Title Loan Express (In re Mattheiss), 214 B.R. 20, 31-32 (Bankr.N.D.Ala.W.Div.1997) (following Turner ). ⁵

We find no indication, however, that Alabama's state courts are similarly split. In the context of the closely-related law of conversion, the Alabama Supreme Court has repeatedly stated that a plaintiff must have both title to and a right of possession in the allegedly converted property to maintain a claim. See, e.g., Huntsville Golf Development, Inc. v. Ratcliff, Inc., 646 So.2d 1334, 1336 (Ala.1994) (plaintiff may prove conversion if he or she can show "that the defendant destroyed or exercised dominion over property which, at the time of the destruction or exercise of dominion, the plaintiff had a general or specific title and of which the plaintiff was entitled to immediate possession"); Roberson v. Ammons, 477 So.2d 957, 962 (Ala.1985) ("Legal title with immediate right of possession by the plaintiffs to the converted property at the time of conversion is a necessary element of the conversion action."). The court of civil appeals, in turn, has stressed that "[u]pon a debtor's default, title and right of possession pass to the creditor." American Nat'l Bank & Trust Co. of Mobile v. Robertson, 384 So.2d 1122, 1123 (Ala.Civ.App.1980) (reversing trial court's denial of secured creditor's motion for directed verdict on debtor's van-conversion claim); Pierce v. Ford Motor Credit Co., 373 So.2d 1113, 1115 (Ala.Civ.App.) (affirming trial court's denial of debtor's motion for new trial following entry of directed verdict in favor of secured creditor on debtor's truck-conversion claim), writ denied sub nom., Ex parte Pierce, 373 So.2d 1115 (Ala.1979). In a diversity conversion case, the former Fifth Circuit echoed verbatim these common-law principles. See Thompson v. Ford Motor Credit Co., 550 F.2d 256, 258 (5th Cir.1977) (reversing jury verdict in favor of debtor on her automobile-conversion claim because "[u]pon default title and the right to possession pass to the [secured] creditor" under Alabama law).

Most of these opinions purport to reconcile their outcomes with Alabama's version of Article 9 of the Uniform Commercial Code (U.C.C.), which governs "any transaction (regardless of its form) which is intended to create a security interest in personal property." Ala.Code § 7-9-102(a) (1993); see Thompson, 550 F.2d at 258 & n. 1; Robertson, 384 So.2d at 1123-24; Pierce, 373 So.2d at 1115. Being unable to locate any authority to the contrary, we find significant the state courts' continued reliance on the common law of conversion after the Alabama legislature...