In Re: Shelton Harrison Chevrolet, Inc., Debtor. George W. Stevenson, Trustee for Shelton Harrison Chevrolet, Inc. v. Leisure Guide of America, Inc., D/B/A Leisure Vans

Citations: 202 F.3d 834; 2000 U.S. App. LEXIS 1161Docket: 98-6537

Court: Court of Appeals for the Sixth Circuit; January 30, 2000; Federal Appellate Court

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The case involves Shelton Harrison Chevrolet, Inc. and its bankruptcy trustee, George W. Stevenson, appealing a decision regarding whether a Manufacturer's Statement of Origin (MSO) delivered after payment constitutes "new value" under the "contemporaneous exchange" exception in bankruptcy law (11 U.S.C. § 547). Shelton, an automobile dealer, purchased six customized vans from Leisure Guide of America, Inc., paying with checks that initially bounced but were later honored. The MSOs were provided after the checks cleared.

Shelton filed for Chapter 11 bankruptcy shortly after the checks were honored, with the case later converted to Chapter 7. The trustee sought to recover the payments as preferential transfers, arguing that the MSOs did not qualify as new value because they were delivered over a week after payment. The bankruptcy court ruled in favor of Leisure Vans, stating that the MSOs represented a contemporaneous exchange for new value, which the district court upheld, citing Tennessee law requiring an MSO for vehicle registration.

However, the appellate court reversed the lower courts' rulings, determining that the MSOs did not qualify as new value in this context, thus undermining Leisure Vans' defense under the contemporaneous exchange exception.

Summary: The review of the grant of summary judgment is conducted de novo, as established in In re Larbar Corp. Summary judgment is warranted when there is no genuine issue of material fact, and the moving party is entitled to judgment as a matter of law, per Fed. R. Civ. P. 56(c) and Fed. R. Bankr. P. 7056(c). The district court incorrectly applied the clear error standard when reviewing the bankruptcy court's determination that Manufacturer's Statements of Origin (MSOs) qualified as "new value." Section 547 of the Bankruptcy Code allows trustees to avoid preferential transfers, specifically transfers that diminish the debtor's estate and favor one creditor over others when the debtor is insolvent and the transfer occurs within 90 days of the bankruptcy filing. The objective is to ensure equitable distribution of the debtor's assets. Section 547(c)(1) provides an exception for transfers intended as contemporaneous exchanges for new value, which must meet three criteria: mutual intent for contemporaneity, actual contemporaneity, and the exchange must involve new value. The creditor has the burden to prove these elements. The exception aims to encourage creditors to continue business with struggling debtors, recognizing that such payments do not harm other creditors since they are offset by new value received. The district court, relying on Tennessee law regarding vehicle titling, concluded that MSOs represent "new value" because they are essential for obtaining a vehicle title, rendering the vehicles nearly worthless without them.

The trustee contends that Shelton's receipt of Manufacturer's Statement of Origin (MSOs) from Leisure Vans did not qualify as "new value" since Shelton could sell and transfer legal title to the converted vans upon receipt, enabling it to realize the full value of the vehicles without the MSOs. This position is supported by Tennessee law, which states that legal title passes to Shelton upon delivery, allowing for transfer to a buyer even without a title certificate or MSO, distinguishing legal title from supporting documentation. Leisure Vans argues that the vans would be practically worthless without the MSOs, as buyers would need documentation for legal driving; however, this assertion is deemed flawed, as Leisure Vans could not legally withhold the MSOs post-delivery if Shelton sold the vans. A ruling that MSOs represent "new value" would deter creditors from engaging with troubled debtors and allow undue leverage by creditors retaining title documents. 

Leisure Vans cites other circuit cases to support its argument that title-related documents can constitute new value; however, these precedents are misinterpreted. The Fourth Circuit case, Barefoot, noted the lack of contemporaneity and did not decide on the MSOs' classification as new value, while the Ninth Circuit case, Grand Chevrolet, suggested that title documents could be new value but lacked supporting authority and contradicted Tennessee law. Ultimately, the court concludes that Leisure Vans did not establish a genuine issue regarding whether the MSOs were new value under the contemporaneous exchange exception, affirming that Shelton received full value upon delivery and the MSOs did not enhance that value. The district court's affirmation of the bankruptcy court's summary judgment in favor of Leisure Vans is reversed, with the case remanded for further proceedings. A dissenting opinion expresses concerns about the implications of Tennessee's registration laws and supports the district court's view that the MSOs did represent new value.