Liebzeit v. FVTS Acquisition Co. (In re Wolverine Fire Apparatus Co. of Sherwood Michigan)

Decision Date31 January 2012
Docket NumberAdversary No. 11–2080.,Bankruptcy No. 09–32985.
Citation465 B.R. 808,56 Bankr.Ct.Dec. 19
PartiesIn re WOLVERINE FIRE APPARATUS CO. OF SHERWOOD MICHIGAN, Debtor.Larry Liebzeit, Trustee, Plaintiff, v. FVTS Acquisition Company, Inc., Defendant.
CourtU.S. Bankruptcy Court — Eastern District of Wisconsin

OPINION TEXT STARTS HERE

Michael F. Dubis, Waterford, WI, for Plaintiff.

Steven J. Cerasoli, McCarty Law, LLP, Appleton, WI, for Defendant.

MEMORANDUM DECISION ON MOTIONS FOR SUMMARY JUDGMENT

MARGARET DEE McGARITY, Bankruptcy Judge.

The plaintiff, Larry Liebzeit, Chapter 7 Trustee, filed an adversary proceeding under 11 U.S.C. §§ 362 and 544 seeking a determination that the defendant, FVTS Acquisition Company, Inc., formerly known as Fox Valley Truck,1 willfully violated the automatic stay and the resultant postpetition transfer of the debtor's asset is avoidable. Both the plaintiff and the defendant moved for summary judgment. This is a core proceeding under 28 U.S.C. § 157(b)(2)(E), and the Court has jurisdiction under 28 U.S.C. § 1334. The following constitutes the Court's findings of facts and conclusions of law pursuant to Fed. R. Bankr.P. 7052. For the reasons stated below, the plaintiff's motion is granted, in part, and the defendant's motion is denied.

BACKGROUND

Unless specifically noted, the following facts are not in dispute. The debtor, Wolverine Fire Apparatus Co. of Sherwood Michigan, operated a custom apparatus manufacturing facility, which included the construction of fire trucks and other utility vehicles. FVTS was a General Motors dealer authorized to sell and service a line of GMC trucks. On October 14, 2008, Wolverine and FVTS signed a motor vehicle purchase contract for the sale of a new 2008 GMC truck, a medium duty unit consisting of a cab, drive train, and chassis upon which other equipment could be mounted. The contract provided for a sale price of $49,500, that Wolverine would take delivery on December 15, 2008, and that full payment would be due thirty days thereafter. The contract further provided, in part, that [n]o oral representations are binding unless written on this form,” and the written document “is the entire agreement between [Wolverine] and [FVTS], and supersedes any prior agreements and representations, regarding the transactions described above. No modification or waiver of this agreement is enforceable against either party unless agreed to in writing by that party.” (Motor Vehicle Purchase Contract, October 14, 2008). The deal was not contingent upon financing and the contract for sale did not include any provisions governing when title to the truck would pass to the purchaser.

Delivery of the vehicle was delayed.2 Sometime in January 2009, Wolverine informed FVTS that it would not be able to pay for the truck. According to FVTS, it was then that the contract was abandoned and the parties agreed, orally, that Wolverine would take possession of the truck as a “demonstrator.” 3 The trustee claims the contract was never abandoned, but was instead orally amended. Based upon the parties' oral agreement—and despite the lack of any other written agreement—the truck was delivered to Wolverine in February 2009.

Wolverine constructed a fire truck on the chassis and eventually moved the completed truck to First Choice Truck in Phoenix, Arizona. FVTS did not file a UCC–1 Financing Statement with respect to any contract. It also did not apply to the Wisconsin Department of Transportation for a certificate of title showing any buyer as the owner and did not effectuate a new buyer manufacturer's warranty. Instead, FVTS retained the physical title to the truck and maintained the vehicle on its inventory list, subject to the security interest of GMAC. The truck also remained listed on the General Motors' database of dealers' inventory and was listed on the Commercial Truck Trader, a database of vehicles available for sale. At the request of FVTS, Wolverine kept the former advised of the location of the truck. At no time did FVTS ever send Wolverine a bill, invoice or statement showing an amount due for the sale of the truck, and the truck was never listed on FVTS's accounts receivable.

Wolverine filed a chapter 11 petition on September 8, 2009, and the case was subsequently converted to chapter 7 on March 12, 2010. In the summer of 2010 FVTS, then operating as Fox Valley Truck, was notified that its dealership was being terminated in the wake of the General Motors bankruptcy, and it was required to liquidate its entire inventory of GMC trucks by October 31, 2010. With knowledge of the bankruptcy filing, two employees of FVTS retrieved the truck from Phoenix and transported it to its business in Appleton, Wisconsin. Prior to transport, they removed the water tank—with the consent of Shane Williams, Wolverine's President—and left it at First Choice Truck. FVTS eventually sold the truck to a sister corporation, Valley Truck Leasing, for $50,000.00. At no time during the pendency of the bankruptcy case did FVTS seek relief from the automatic stay. Additionally, the truck was not shown on the debtor's schedules and FVTS was not listed as being among its creditors.

ARGUMENTS
Arguments of the Chapter 7 Trustee

The trustee argues the debtor acquired ownership and title to the truck upon its delivery pursuant to Wis. Stat. § 402.401(2), and the truck is properly part of the bankruptcy estate. The truck was delivered to the debtor pursuant to an altered sales contract between the debtor and FVTS. Because FVTS did not perfect a security interest in the truck via a UCC filing statement and merely kept the certificate of title, it retained, at most, an unperfected security interest in the truck following its delivery to the debtor. See Wis. Stat. §§ 402.401, 409.203. Accordingly, FVTS's postpetition retrieval of the truck was done in willful violation of the automatic stay and the value of the truck is therefore recoverable by the trustee pursuant to 11 U.S.C. § 362(k)(1). Alternatively, FVTS's retrieval of the truck was an unauthorized postpetition transfer of the debtor's property and is therefore avoidable by the trustee pursuant to 11 U.S.C. § 549(a). Likewise, due to FVTS's failure to retain a security interest in the truck following its delivery to the debtor, the trustee is entitled to recover its value pursuant to 11 U.S.C. §§ 544(a)(1)-(2) and 550(a).

The trustee further argues that even if FVTS's contention that it was a bailor and the debtor was acting as a consignment agent in order to facilitate a sale of the truck, the truck would still be part of the bankruptcy estate. FVTS's arrangement with the debtor was predicated upon the ultimate sale of the vehicle. As the debtor added value to the truck through its upfitting, and held it for eventual sale, the debtor's alleged consignment agreement subjected the truck to the claims of the debtor's creditors such that the truck is part of the estate even if ownership did not transfer to the debtor. See Wis. Stat. § 402.326(1)-(2) (“Goods held on approval are not subject to the claims of the buyer's creditors until acceptance; goods held on sale or return are subject to such claims while in the buyer's possession.”); In re Corvette Collection of Boston, Inc., 294 B.R. 409 (Bankr.S.D.Fla.2003) (consigned vehicles subject to claims of debtor's creditors). FVTS took no steps to identify its alleged continuing ownership of the truck or affirm that the arrangement was only a “sale on approval” and not subject to the claims of the debtor's creditors. See Houghton Wood Prods., Inc. v. Badger Wood Prods., Inc., 196 Wis.2d 457, 538 N.W.2d 621 (Ct.App.1995) (presumption of goods delivered for sale to others runs against the arrangement being a sale on approval).

According to the trustee, regardless of whether ownership of the truck passed to the debtor with its delivery or whether the vehicle was held by the debtor for sale or return to FVTS, the debtor acquired an interest in the truck, whether legal or equitable, sufficient to make the truck property of the estate pursuant to 11 U.S.C. § 541.

Arguments of FVTS

FVTS argues the contract for sale had been abandoned by the time the debtor obtained possession of the truck as a demonstrator. The contract provided that the debtor was to have taken delivery by December 15, 2008, and was not required to pay for it until thirty days later. Delivery was canceled prior to the December 15 date and the debtor informed FVTS that it would not be able to pay for the truck. At that point, FVTS regarded the contract as a dead letter and resumed its efforts to sell the truck to someone else. The parties also reached a new agreement by which the truck was loaned to the debtor as a demonstrator. A “demonstrator” is a vehicle in a dealer's inventory that is loaned to a prospective customer for it to try out. Under such an agreement, the prospective customer takes possession of the vehicle, but ownership remains with the dealership.

Contrary to the trustee's contention that the written sale contract was orally amended to provide for a later delivery date and conversion into a demonstrator model, the contract itself precluded oral amendments. Additionally, Wisconsin case law has not developed clear guidelines as to the determination of ownership. For instance, in Knutson v. Mueller, 68 Wis.2d 199, 228 N.W.2d 342 (1975), the supreme court held that strict compliance with the Vehicle Title and Anti–Theft Law, Wis. Stat. § 342.16, governed the issue of ownership, and found that the transfer of a certificate of title was the defining event, something that did not happen in this case. On the other hand, FVTS acknowledges that in the case of National Exchange Bank of Fond du Lac v. Mann, 81 Wis.2d 352, 260 N.W.2d 716 (1978), the supreme court determined that even though a new title had not been issued, ownership of the car had passed to the buyer when he took possession, by way of Wis. Stat. § 402.401(2).

The supreme court recognized the divergent statu...

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