Opinion
Case No. 03-34819-JES, Adversary No. 04-2040.
November 12, 2004
DECISION
This dispute centers upon a security interest held by Educators Credit Union ("Educators") in a 2001 Pontiac automobile owned by the debtors. The issue is whether Educator's security interest in this vehicle was validly perfected.
The trustee takes the position that Educator's security interest was not validly perfected under the requirements of Wis. Stats. § 342.19(2) and is avoidable as a preference under 11 U.S.C. § 547(b)(2).
Wis. Stats. § 342.19 Perfection of security interests.
(1) Unless excepted by s. 342.02, a security interest in a vehicle of a type for which a certificate of title is required is not valid against creditors of the owner or subsequent transferees or secured parties of the vehicle unless perfected as provided in this chapter.
(2) Except as provided in sub.(2m), a security interest is perfected by the delivery to the department of the existing certificate of title, if any, an application for a certificate of title containing the name and address of the secured party, and the required fee. It is perfected as of the later of the time of its delivery or the time of the attachment of the security interest.
Educators disagrees and takes the position that its security interest was validly perfected, falling within the exception to a preference provided in § 547(e)(2).
Section 547(e)(2) provides that a transfer is made —
(A) at the time such transfer takes effect between the transferor and the transferee, if such transfer is perfected at, or within 10 days after, such time, except as provided in subsection (c)(3)(B);
(B) at the time such transfer is perfected, if such transfer is perfected after such 10 days; or
(C) immediately before the date of the filing of the petition, if such transfer is not perfected at the later of —
(i) the commencement of the case; or
(ii) 10 days after such transfer takes effect between the transferor and the transferee.
This is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A), (F), and (O).
STATEMENT OF FACTS
On September 23, 2003, the debtors refinanced with Educators their loan on their 2001 Pontiac automobile. On September 23, 2003, the prerequisite documents were executed to effect the refinancing, and on that same date, Educators mailed its check for the payoff balance of $14,429 to the previous lienholder, General Motors Acceptance Corp. ("GMAC").
GMAC received its check from Educators on September 26, 2003, which was deposited in GMAC's bank on September 29, 2003. This check was subsequently honored by Educators' bank on October 1, 2003. On October 1, 2003, GMAC mailed its lien release to Educators, which was received by Educators on October 3, 2003. On October 3, 2003, Educators mailed this lien release together with the other documents required for perfection under Wis. Stats. § 342.19(2) to the Wisconsin Department of Transportation ("Department"). These documents were received by the Department on October 7, 2003.
The parties have stipulated that all requirements for a preference under § 547(b) have been met. The only issue in this case is whether the exception to avoidance as a preference under 11 U.S.C. § 547(e)(2) exists. Sec. 547(e)(2) applies to refinanced loans and states that a security interest is timely perfected if it is perfected within 10 days after the transfer.
The trustee relies upon this court's decision in In re Moeri, 300 B.R. 326 (Bankr. E.D. Wis. 2003), which holds that, if the Department receives the necessary documents to perfect a security interest more than 10 days after transfer, it is not timely and is avoidable as a preferential transfer. The trustee argues that, under the facts of this case, Educators' security interest was not timely perfected.
Educators presents the following two arguments in support of its claim that its security interest was timely perfected, neither of which arguments was raised in Moeri:
1. The transfer occurred on October 1, 2003, when Educators' check was honored by its bank.
2. Alternatively, even if this court holds that the transfer occurred on September 23, 2003 when Educators made its payment to GMAC and a security interest was obtained by Educators from the debtors, delivery (and, thus, perfection) took place on October 3, 2003.
Wis. Stats. § 342.19(2) declares that perfection occurs as of the later of "delivery" or "time of attachment of the security interest." "Attachment of the security interest" occurred on September 23, 2003 when Educators acquired its security interest and paid off the debtors' loan balance to GMAC.
Wis. Stats. § 409.203, which defines attachment and enforceability of security interest, states in part:
(1) ATTACHMENT. A security interest attaches to collateral when it becomes enforceable against the debtor with respect to the collateral, unless an agreement expressly postpones the time of attachment.
(2) ENFORCEABILITY. . . . a security interest in enforceable against the debtor and 3rd parties with respect to the collateral only if:
(a) Value has been given;
(b) The debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party; and
(c) One of the following conditions is met:
1. The debtor has authenticated a security agreement that provides a description of the collateral. . . .
Accordingly, under either Educators's position (that delivery was on October 3, 2003 when the documents were mailed) or the trustee's position (that delivery was on October 7, 2003 when the documents were received), delivery, having occurred later than "attachment of the security interest," applies in this case.
Educators asserts that, under either of these scenarios, its security interest was timely perfected within 10 days after transfer and is within the exception to a preference pursuant to § 547(e)(2).
WHEN DID THE "TRANSFER" OCCUR WITHIN THE MEANING OF 11 U.S.C. § 547(e)(2) ?
Because the transaction between the debtor and Educators involved a refinanced loan, 11 U.S.C. § 547(e)(2) applies. If Educators' security interest was perfected within the 10-day period following the transfer, it was timely and withstands the trustee's challenge as a preference. See Moeri, 300 B.R. at 329.
Educators submits that its security interest was timely perfected because the transfer took place on October 1, 2003, when its check to GMAC was honored by Educators' bank. The time period from October 1, 2003 to October 7, 2003, when the documents were received by the Department, falls within the permissible perfection period.
Not so, according to the trustee. He contends that the "transfer" for purposes of § 547(e)(2) does not refer to the transfer of Educators' check to GMAC. Instead, the trustee states that the transfer for purposes of § 547(e)(2) occurred on September 23, 2003, when Educators acquired its security interest from the debtors and made payment to GMAC. If the trustee's contention is adopted, the time period between September 23, 2003 and October 7, 2003 would exceed the 10-day perfection period.
This court is persuaded that the trustee's position is sound. The facts in Barnhill v. Johnson, 503 U.S. 393, 118 L.Ed.2d 39, 112 S.Ct. 1386 (1992), relied upon by Educators, and the facts in the instant case are substantially different. Barnhill did not involve a security interest and did not address the issue of perfection of a security interest. Barnhill focused solely upon whether a debtor's check in payment of a bona fide unsecured debt delivered to the creditor was within the 90-day preference period. That is not the issue in the instant case. The issue here is whether the security interest obtained by Educators from the debtors in their Pontiac automobile was validly perfected.
This court concludes that the "transfer" in this case occurred on September 23, 2003.
WHEN DID "DELIVERY" TAKE PLACE WITHIN THE MEANING OF WIS. STATS. § 342.19(2) ?
In the alternative, Educators argues that, even if the "transfer" occurred on September 23, 2003, its security interest was still timely perfected. In making this assertion, Educators submits that "delivery" within the meaning of Wis. Stats. § 342.19(2) was accomplished when Educators mailed the required documents to the Department on October 3, 2003, and not when these documents were received by the Department on October 7, 2003. Under this approach, the time frame between the date of transfer (September 23, 2003) and the date of mailing (October 3, 2003) was 10 days and resulted in a timely perfection of Educators' security interest.
The trustee, on the other hand, claims that "delivery" occurred on October 7, 2003, when the documents were received by the Department, resulting in a tardy perfection.
A review of Wisconsin law fails to disclose any cases dealing with the interpretation of "delivery" within the meaning of Wis. Stats. § 342.19(2). There also is nothing in the legislative history of this statute which might otherwise shed some light on this issue.
Wis. Stats. § 342.20(2), which deals with the duties of a secured creditor in creating a security interest in a motor vehicle, states the following:
The secured party shall immediately cause the certificate application and the required fee to be mailed or delivered to the Department (underlining added for emphasis).
By comparison, Wis. Stats. § 342.19(2), while containing the term "delivery" does not include the term "mailing." The absence of any reference to mailing in Wis. Stats. § 342.19(2) provides some support for the trustee's position that delivery does not take place upon mailing.
Varda v. General Motors Corp., 242 Wis. 2d 756 (Wis.Ct.App. 2001), had occasion to interpret the meaning of "delivery" with respect to service of pleadings under Wis. Stats. § 801.14(2). The court in Varda concluded that delivery of pleadings was the appropriate method for service and occurred when the pleadings were handed to an attorney or party, transmitted by facsimile machine, or left at the office of the recipient with a clerk or other person in charge and otherwise if no person was available in a conspicuous place therein. This statute further specifically provides for service of pleadings either by delivery or by mailing. See Wis. Stats. § 801.14(2). While Wis. Stats. § 801.14(2) is like Wis. Stats. § 342.20(2) in this respect, it is unlike Wis. Stats. § 342.19(2), which only uses the term "delivery," and not mail. This is a further indication that the terms "delivery" and "mailing" have separate meanings. It is a well-known rule of legislative construction that a court must presume that "a legislature says in a statute what it means and means in a statute what it says there." Conn. Nat. Bank v. Germain, 503 U.S. 249, 253-54, 112 S.Ct. 1146, 117 L.Ed.2d 391 (1992). Therefore, in the instant case, if the Wisconsin legislature had intended that mailing would constitute a method of perfection in addition to delivery, for purposes of Wis. Stats. § 342.19(2), it could have so provided. However, it did not do so.
This court fully recognizes that the foregoing analysis is not conclusive with respect to the issue at hand. However, where, as in this case, there is a lack of controlling precedent from the Wisconsin state courts dealing with the meaning of "delivery" in Wis. Stats. § 342.19(2), it is appropriate to search elsewhere in other jurisdictions which have specifically addressed that issue. In re Jarvis, 242 B.R. 172, 176 (Bankr. S.D. Ill. 1999) (citingErie Ins. Group v. Sear Corp., 102 F.3d 889, 892 (7th Cir. 1996)). Jarvis, which involved an Illinois motor vehicle statute (not identical but similar to Wis. Stats. § 342.19(2)), concluded that the time of perfection is determined when the Department receives the application and not when the application was mailed to the Department. Accord In re Ross, 193 B.R. 902 (Bankr. W.D. Mo. 1996). In reaching this result, Jarvis stated that to hold otherwise would be "contrary to the legislative purpose . . . to provide certainty regarding the rights of lienholders and purchasers of motor vehicles." Jarvis, 242 B.R. at 178. The court agrees with that analysis.
Delivery for purposes of Wis. Stats. § 342.19(2) took place on October 7, 2003 upon receipt by the Department of the documents required for perfection.
CONCLUSION
Educators' security interest of the refinanced loan, having occurred more than 10 days after the transfer, does not fall within the exception to a preference under 11 U.S.C. § 547(e)(2) and was not timely perfected. Accordingly, Educators' security interest is a preferential transfer under 11 U.S.C. § 547(b) and is preserved for the benefit of the bankruptcy estate pursuant to 11 U.S.C. § 551.
This decision constitutes the court's findings of fact and conclusions of law pursuant to Fed.R.Bankr.P. 7052.
The trustee's motion for summary judgment is GRANTED. A separate order shall issue.