Reinbold v. Wells Fargo Bank, N.A. (In re Alvarado)
| Decision Date | 10 September 2014 |
| Docket Number | Adversary No. 14–8019.,Bankruptcy No. 13–81267. |
| Citation | 517 B.R. 880 |
| Parties | In re Juan C. Palet ALVARADO, Debtor. Jeana K. Reinbold, as Chapter 7 Trustee for the Estate of Juan C. Palet Al varado, Plaintiff, v. Wells Fargo Bank, N.A. d/b/a Wells Fargo Dealer Services, Inc., Defendant. |
| Court | U.S. Bankruptcy Court — Central District of Illinois |
OPINION TEXT STARTS HERE
Jeana K. Reinbold, Springfield, IL, pro se.
Kenneth B. Drost, Drost, Gilbert, Andrew & Apicella, LLC, Palatine, IL, for Defendant.
This matter is before the Court on cross motions for summary judgment filed by the Plaintiff, Jeana K. Reinbold (TRUSTEE), as Chapter 7 Trustee for the estate of the Debtor, Juan C. Palet Alvarado (DEBTOR), and Wells Fargo Bank, N.A. d/b/a Wells Fargo Dealer Services, Inc. (WELLS FARGO), as Defendant, on the TRUSTEE'S complaint to avoid the lien claimed by WELLS FARGO under section 544 of the Bankruptcy Code and to recover payments made by the DEBTOR within ninety days of the filing of the petition under section 547. The issue before the Court is whether WELLS FARGO has a perfected security interest in the DEBTOR'S vehicle even though the lienholder is identified on the certificate of title by its former corporate name.
The basic facts are not controverted. On July 6, 2008, while residing in California, the DEBTOR executed a retail installment contract with Own a Car of Fresno, for the purchase of a 2007 Toyota FJ Cruiser. The contract granted Own a Car a security interest in the vehicle as collateral for the indebtedness created by the retail installment contract. Own a Car immediately assigned the contract to Wachovia Dealer Services, Inc. The lien was properly perfected under California law via notation in the records of the California Secretary of State.
In April, 2010, after relocating to Illinois, the DEBTOR sought to have the vehicle retitled in Illinois, by application submitted to the Illinois Secretary of State. Between the time that the lien was created and perfected in California in 2008 and the DEBTOR'S application for issuance of an Illinois title in April, 2010, Wachovia Corporation and its subsidiaries, including Wachovia Dealer Services, Inc., were acquired by Wells Fargo & Company by merger. The merger was approved by the Federal Reserve Board in October, 2008, and was effectively completed by December 31, 2008. The merger did not affect the separate corporate status of Wachovia Dealer Services, Inc., and the corporation continued to operate with that same corporate name even after the merger.
On December 1, 2009, Wachovia Dealer Services, Inc.'s board of directors approved an amendment to the Articles of Incorporation changing its corporate name to Wells Fargo Dealer Services, Inc., effective as of March 20, 2010. The following year, Wells Fargo Dealer Services, Inc., merged with and into Wells Fargo Bank, N.A., effective as of July 1, 2011.
On the application for Illinois title, the DEBTOR listed the lienholder as Wachovia Dealer Services, Inc., with its California address, causing the Illinois Secretary of State to send a letter addressed to Wachovia Dealer Services, Inc., advising it of the application and requesting the vehicle title. The letter, providing blank spaces for “lienholder name” and “lienholder address,” states that “unless otherwise specified in the spaces below, the lienholder information will be recorded on the certificate of title as it appears in the addressee area of this letter.” The addressee is identified as Wachovia Dealer Services, POB 997517, Sacramento, CA 95899. There is no dispute that this mailing address continued to be effective for Wells Fargo Dealer Services, Inc., after the corporation changed its name from Wachovia Dealer Services, Inc.
The corporation's employee holding the title Operations Processor, requested the title transfer documentation from the California Department of Motor Vehicles. Since California utilizes a paperless system of vehicle titling, Wells Fargo Dealer Services, Inc., even though it held a perfected lien, was not in possession of a certificate of title. The California DMV first issued a paper title, with the lienholder shown as Wachovia Dealer Services, when it received the Operations Processor's request. The Operations Processor determined that it was not necessary to provide the lienholder's current corporate name to the Illinois Secretary of State, so she forwarded the California certificate of title and returned the letter leaving the space for “lienholder name” blank. Accordingly, the Illinois certificate of title was issued on May 26, 2010, identifying the lienholder as Wachovia Dealer Services, PO Box 997517, Sacramento, CA 95899–7517.
Prior to the name change from Wachovia Dealer Services, Inc., to Wells Fargo Dealer Services, Inc., the corporation's vice president—collateral manager, pursuant to an established policy, notified the relevant state agencies of the impending change. She sent duplicate letters dated February 5, 2010, to the Illinois Secretary of State and the Vehicle Services Department advising of the name change to Wells Fargo Dealer Services, Inc., effective April 1, 2010, while retaining the same mailing address. In her declaration, she declares that a state employee advised her that no further documentation was needed to effect the lienholder name change, but that a letter would have to be submitted when a release of lien was processed affirming the then current name of the lienholder.
The DEBTOR filed a Chapter 7 petition on June 24, 2013, scheduling the vehicle as an asset of his bankruptcy estate. The original schedules reflected a value of $9,000 and a balance due WELLS FARGO of $8,998, on its secured claim. The DEBTOR later amended Schedule B, reflecting an increased value of $15,275. The TRUSTEE filed a motion to compel turnover of the vehicle, which was granted by the Court. The TRUSTEE, with the consent of WELLS FARGO, sold the vehicle for $9,700, netting proceeds of $8,642, after payment of the auctioneer's commission and expenses. The TRUSTEE continues to hold those funds. The payoff balance to WELLS FARGO is represented to be approximately $6,000.
The TRUSTEE filed this complaint against WELLS FARGO to avoid its claimed lien under section 544 and to recover payments totaling $1,786.32, which were made by the DEBTOR in the ninety-day period preceding the filing of the bankruptcy petition. The TRUSTEE asserts that WELLS FARGO'S security interest in the vehicle was not properly perfected under the Illinois Vehicle Code because the certificate of title reflects Wachovia Dealer Services, Inc., as the lienholder. Both the TRUSTEE and WELLS FARGO moved for summary judgment. WELLS FARGO, maintaining that it followed proper procedures, contends that despite its former name on the title, its lien continues to be perfected.
Under Federal Rule of Civil Procedure 56(c), made applicable to adversary proceedings in bankruptcy by Federal Rule of Bankruptcy Procedure 7056, summary judgment is proper if the pleadings, depositions, answers to interrogatories, and admissions on file, together with any affidavits, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 339, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In deciding a motion for summary judgment, the court may not make credibility determinations, weigh the evidence, or choose from among different reasonable inferences that might be drawn from the evidence. Paz v. Wauconda Healthcare & Rehabilitation Centre, LLC, 464 F.3d 659, 664 (7th Cir.2006). The court must construe the evidence and all inferences that can reasonably be drawn therefrom in the light most favorable to the nonmoving party. In re Chambers, 348 F.3d 650, 654 (7th Cir.2003). Only disputes over facts that might affect the outcome under governing law will preclude the entry of summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Issues of nonmaterial fact will not prevent summary judgment. In re 1031 Tax Group, LLC, 439 B.R. 47 (Bankr.S.D.N.Y.2010). When parties file cross motions for summary judgment, the court must consider each motion separately, drawing all inferences in favor of each non-moving party in turn. Rhino Linings USA, Inc. v. Harriman, 658 F.Supp.2d 892, 896 (S.D.Ind.2009).
Upon commencement of a bankruptcy case, a trustee acquires the status of a hypothetical judicial lien creditor and may avoid any lien or encumbrance on the debtor's property that such creditor could avoid under state law. 11 U.S.C. § 544(a). While federal law empowers the trustee with avoidance rights, the issues of perfection and priority are determined by applicable state law. Matter of Wheaton Oaks Office Partners Ltd. Partnership, 27 F.3d 1234, 1244 (7th Cir.1994). Under Illinois law, an unperfected security interest in a vehicle is subordinate to the rights of a lien creditor and subject to avoidance by the trustee. In re Church, 206 B.R. 180, 183 (Bankr.S.D.Ill.1997)(citing United States v. Rotherham, 836 F.2d 359, 365–65 (7th Cir.1988)).1
Section 3–202 of the Illinois Vehicle Code, 625 ILCS 5/3–202, which governs the perfection of security interests in motor vehicles provides, in pertinent part:
(b) A security interest is perfected by the delivery to the Secretary of State of the existing certificate of title, if any, an application for a certificate of title containing the name and address of the lienholder and the required fee. The security interest is perfected as of the time of its creation if the delivery to the Secretary of State is completed within 30 days after the creation of the security interest or receipt by the new lienholder of the existing certificate of title from a prior lienholder or licensed dealer, otherwise as of the time of the delivery.
(c) If a vehicle is subject to a security interest...
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