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Hill v. WFS Financial, Inc. (In Re O'Neill)
Citations: 370 B.R. 332; 2007 Bankr. LEXIS 3192; 2007 WL 1620507Docket: BAP No. CO-06-064. Bankruptcy No. 05-27079 ABC. Adversary No. 05-01739 ABC
Court: Bankruptcy Appellate Panel of the Tenth Circuit; June 6, 2007; Us Bankruptcy; United States Bankruptcy Court
The case involves a bankruptcy appeal concerning the retroactive perfection of a security interest in a motor vehicle under Colorado law. The bankruptcy court held that the Uniform Commercial Code (UCC) as adopted in Colorado allows for the relation back of a security interest's perfection to its filing date, thereby affecting the trustee's avoidance powers under 11 U.S.C. § 546(b)(1)(A). The court rejected the trustee's argument that the Colorado Certificate of Title Act (CCTA) lacks a relation back provision and is therefore not a 'generally applicable law.' However, the appellate court concluded that the CCTA indeed renders the UCC inapplicable to transactions involving titled vehicles, resulting in a reversal of the bankruptcy court's ruling. Jurisdiction for the appeal is established under 28 U.S.C. § 158(a)(1), as the bankruptcy court's decision constituted a final order on the merits. The standard of review for summary judgment is de novo, reaffirming that the appellate court applies the same legal standard as the bankruptcy court, particularly given that the case was presented on stipulated facts without material disputes. Key facts include that the debtors purchased a vehicle on July 2, 2005, granting a purchase money security interest to John Elway Olds Honda Hyundai North, which was subsequently assigned to WFS Financial, Inc. WFS filed the lien documents on July 11, 2005, but the bankruptcy petition was filed by the debtors on July 12, 2005. The lien was officially recorded in the DMV database on July 18, 2005, the same day the DMV issued the title reflecting the lien's filing date. The trustee initiated an adversary proceeding to avoid WFS's lien, claiming it was perfected post-petition and thus avoidable for the benefit of the bankruptcy estate. On March 3, 2006, the trustee and WFS filed cross-motions for summary judgment, accompanied by a Joint Statement of Stipulated Facts and Law. WFS contended that Colorado's UCC's relation back provision applies to automobile liens and that it perfected its interest before the bankruptcy petition by complying with the certificate of title statute. The bankruptcy court determined that for a security interest in a motor vehicle to be perfected, it must be entered in the DMV database, which occurred after the petition date. The court found that the CCTA lacks a 'relation back' provision, thus not qualifying under 11 U.S.C. 546(b)(1)(A) as a 'generally applicable law.' Instead, it applied Colo.Rev.Stat. 4-9-317(e), which gives priority to WFS based on the lien and title documents filed on July 11, 2005. Although WFS did not file a financing statement, the court regarded the DMV database entry as equivalent under Colo.Rev.Stat. 4-9-311(b). Consequently, the trustee's claim, arising on the bankruptcy petition filing date of July 12, 2005, was deemed subordinate to WFS's lien relating back to July 11. The trustee appealed, arguing that the bankruptcy court improperly relied on the UCC, citing the CCTA's express exclusion of UCC applicability to motor vehicle chattel mortgages. The trustee contended that without an express relation back provision in the CCTA, WFS's security interest was perfected as of July 18, 2005, making it subject to the trustee's avoiding powers. The appeal's central issue is whether the CCTA's exclusion of UCC provisions renders Colo.Rev.Stat. 4-9-317(e) inapplicable as 'generally applicable law' under 11 U.S.C. 546(b)(1). The court certified two questions to the Colorado Supreme Court regarding the intersection of the CCTA and Colorado UCC, but the court declined to answer, leaving the determination to the lower court regarding how these laws interact and affect the relation back issue. The CCTA outlines the process for a Colorado secured lender to perfect a security interest in a titled vehicle, requiring that a mortgage must be filed publicly to create a valid lien against third parties. The filing must be done with an authorized agent, such as the Boulder County Clerk and Recorder, who verifies the mortgage and certificate of title before recording. Priority among mortgages is determined by the order of filing. The date and time of filing are crucial, as the bankruptcy courts in Colorado have consistently ruled that a security interest is perfected only upon filing. No bankruptcy court has recognized a relation back provision under the CCTA. Additionally, the CCTA explicitly excludes the Colorado UCC from applying to vehicle transactions, as stated in section 42-6-120(1), except for specific provisions regarding inventory-held vehicles. The CCTA incorporates UCC definitions for certificate of title purposes, but overall, the CCTA governs the perfection of security interests in vehicles independently of the UCC, which is codified in Title 4 of the Colorado Statutes, with Article 9 of the UCC being applicable in limited circumstances. Colorado's 9-311 states that a financing statement is not required to perfect a security interest in property governed by Colorado's certificate of title law. Compliance with this statute serves as the sole means of perfection for certificated property. Section 4-9-317(e) allows a secured party to establish priority over intervening buyers or lien creditors if a financing statement is filed within 20 days after the debtor receives the collateral. However, the bankruptcy court's interpretation may not align with the statutes and UCC Official Commentary, which indicate potential confusion arising from differences between state title laws and the UCC. The Commentary notes that gaps between the certificate of title issuance and perfection could lead to transactions being classified as avoidable preferences under Bankruptcy Code Section 547. To address these issues, the Legislative Note urges state legislatures to revise their title laws to ensure that perfection occurs upon the receipt of a properly submitted application for a certificate of title. Colorado adopted revised Article 9 in 2001 and amended its title law in 2005 to state that notice becomes effective on the date recorded on the certificate. However, for filings before this amendment, the CCTA specifies that notice only takes effect upon the lien's entry into the Clerk's registry. The UCC drafters acknowledged that relation back provisions in titling laws could create inconsistencies with Article 9, complicating the application of its rules. Although the CCTA lacks an express relation back provision, it stipulates that vehicle liens have priority based on the order they are filed. If "filed" refers to the timing defined in 42-6-102(6), priority is determined by the entry in the electronic registry, not the receipt date in the Clerk's office. The absence of an express relation back provision in the CCTA poses challenges for secured creditors. Prior to August 2005, a purchase-money secured creditor in Colorado faced challenges in perfecting a vehicle security interest due to potential bankruptcy filings by borrowers. If a borrower filed for bankruptcy before the lien notice was transmitted to the registry, the perfection date would be after the bankruptcy petition date, risking avoidance of the lien. The Colorado Legislature did not address this issue by providing a relation back provision in the Colorado Consumer Title Act (CCTA) or by amending the relevant statute to apply Article 9 of the Uniform Commercial Code (UCC) to vehicle title disputes. Consequently, Colorado law dictates that Article 9 does not apply to perfection and priority issues involving titled vehicles, and a perfected security interest does not relate back to the submission date of the lien papers. The bankruptcy court's resolution regarding the relation back issue was deemed reasonable but could not be upheld due to the UCC-excluding language in 42-6-120(1). Unlike Arizona and Iowa, where the UCC governs motor vehicle lien perfection, Colorado does not provide such protections. Existing Colorado bankruptcy case law reflects a consensus that there is no relation back for vehicle liens under Colorado law. Specifically, in Baker I, the court ruled that the CCTA offered no relation back protection and that perfection occurs upon public filing of the lien, not upon delivery to the Clerk. The court dismissed the lender's claim regarding 42-6-130 as a relation back provision, stating it merely assigns priority based on the order of lien entries in the registry. On appeal, however, the district court contended that when interpreting 42-6-120(1), 121, and 130 together, a relation back effect could be inferred, positioning the CCTA as a "generally applicable law" under 11 U.S.C. 546(b)(1)(A). It argued that the timing of the mortgage paperwork delivery established priority, and once perfected, the lien would take precedence over subsequent third-party interests. The district court differentiated between the terms "filed" for liens and mortgages, asserting that the final act of perfection occurs when the lien notice is entered into the Central Registry, which then relates back to the mortgage and title paperwork delivery date. The definitions in 42-6-102 apply unless contextually overridden. 42-6-130 addresses the prioritization of vehicle liens, distinguishing between liens filed for record and those noted on a certificate of title, as well as those filed with an authorized agent. The electronic entry in the registry represents the former, while the latter's status remains ambiguous. The district court's interpretation suggesting that relation back can be inferred from the provisions is disputed; instead, it aligns with the Baker I court's conclusion that 42-6-130 prioritizes liens based on their registry filing order rather than their submission order to the Clerk. A separate bankruptcy judge in Colorado also ruled that vehicle title perfection does not relate back to the submission date of the liens, emphasizing that perfection occurs upon registry database entry. The conclusion highlights that whether Colorado vehicle lienholders receive protection from intervening bankruptcy filings rests with the state legislature and courts. Despite acknowledging the bankruptcy court's attempts to provide such protection and the district court's broad interpretation of the CCTA, it is determined that the plain meaning of 42-6-120(1) and the priority provision in 42-6-130 require reversing the bankruptcy court's decision. The directive is to grant the trustee's motion for summary judgment, deny the creditor's motion, and enter judgment for the trustee. The Court unanimously concluded that oral argument would not significantly aid in deciding the appeal, as neither party requested it. The case is submitted without oral argument, referencing relevant legal statutes and precedents. Colorado Revised Statutes (2005) are noted, including definitions of "mortgage" and "lien" as per the Uniform Commercial Code (UCC). An amendment from August 2005 to the Colorado Consumer Protection Act (CCTA) is mentioned but deemed inapplicable to this case. The document cites various legal cases, including Hepner v. AmeriCredit Financial Services, and highlights ongoing appeals and relevant statutory comments. The context of these cases and statutes is crucial for understanding the legal framework governing the appeal at hand.