USAA Fed. Sav. Bank v. Hope

Citation: 589 B.R. 914Docket: CIVIL ACTION NO. 5:17-CV-352 (MTT)

Court: District Court, M.D. Georgia; July 6, 2018; Federal District Court

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USAA Federal Savings Bank appealed the Bankruptcy Court's decision, led by Judge Austin E. Carter, which granted summary judgment to the Trustee in a case involving the avoidance of a security deed transfer. The District Court, presided over by Judge Marc T. Treadwell, affirmed the Bankruptcy Court's ruling. The appeal was reviewed under the jurisdiction provided by 28 U.S.C. 158(a), and the District Court conducted a de novo review, meaning it did not defer to the Bankruptcy Court’s legal interpretations.

In the context of summary judgment, the movant must demonstrate that no genuine dispute exists regarding any material fact and that they are entitled to judgment as a matter of law, per Federal Rule of Civil Procedure 56(a). If the movant bears the burden of proof at trial, they must conclusively show they have met the elements of the claim. The non-movant can counter this by providing substantial evidence of a triable issue. A factual dispute is considered genuine if a reasonable jury could potentially side with the non-movant.

In determining the appropriateness of summary judgment, the court does not weigh evidence or decide on the truth but assesses whether a reasonable jury could find for the non-movant, drawing all reasonable inferences in their favor. The District Court must review all evidence in the record, including pleadings and affidavits, and can only grant summary judgment if it is clear that no material fact is genuinely disputed.

In 2016, Robert and Alice Brashear refinanced their mortgage on their property at 84 Brown Hill Road, Elko, Georgia, obtaining a loan of $264,964 from USAA to pay off their existing mortgage with CB&T. The Brashears executed a Security Instrument granting USAA a security deed, while USAA paid CB&T $250,005.73 on August 31, 2016. CB&T did not cancel its security deed until October 6, 2016, and USAA filed its security deed on October 17, 2016. The Brashears filed for Chapter 7 bankruptcy on January 13, 2017.

Following the bankruptcy filing, the Trustee initiated an adversary proceeding under 11 U.S.C. § 547(b) to avoid the transfer of the security deed to USAA, asserting that the transfer occurred on October 17, 2016, within 90 days of the bankruptcy petition. USAA did not dispute the timing of the transfer before the Bankruptcy Court. The Trustee sought summary judgment on the grounds that there were no genuine factual disputes regarding the avoidable transfer, while USAA claimed the transfer was a substantially contemporaneous exchange under 11 U.S.C. § 547(c)(1).

The Bankruptcy Court determined that the Trustee had established the criteria for an avoidable preference under § 547(b) and found no genuine issue regarding the contemporaneity of the transfer. Consequently, the court granted summary judgment to the Trustee. USAA subsequently appealed, challenging the timing of the transfer and reiterating its argument regarding the contemporaneous exchange. USAA contends that the Bankruptcy Court erred in concluding that the transfer fell within the 90-day preference period established by § 547(b).

11 U.S.C. § 547(e)(2) dictates that a transfer occurs at the time it takes effect between the transferor and transferee if perfected within 30 days; otherwise, it is deemed to occur when perfected. The Bankruptcy Court found that a transfer involving USAA occurred on October 17, 2016, when USAA filed a security deed, which was within 90 days of the Brashears' bankruptcy petition filed on January 13, 2017, making it an avoidable preference. The security deed was executed on August 26, 2016, but not filed until October 17, 2016, exceeding the 30-day perfection period. 

USAA contends the transfer should be dated October 6, 2016, when CB&T canceled its security deed, asserting that the Brashears intended to transfer full rights to USAA only after this cancellation. Under Georgia law, CB&T retained legal title until its security deed was canceled, and thus the transfer's intent could not be fulfilled until the debt to CB&T was settled. USAA argues that since CB&T's deed was canceled on October 6, 2016, the transfer was effective at that time, making it non-avoidable as it falls outside the 90-day preference period.

This argument hinges on the interpretation of the Security Instrument's terms, which must reflect the parties' intent regarding the effectiveness of the transfer. Under Georgia law, the court examines the document's explicit language, and in the absence of ambiguity, those terms govern. Ambiguity is characterized by uncertainty or multiple interpretations of the written instrument.

The Security Instrument clearly secures the repayment of the Loan and the Borrower's performance under the agreement to USAA, without any contingencies related to third-party actions. The Brashears convey their property at 84 Brown Hill Rd, Elko, Georgia, to MERS as a nominee for USAA. The contract does not require the extinguishment of third-party interests for USAA's rights to be effective. Refinancing agreements are designed to allow new lenders to secure their interests and pay off existing debts, meaning that the notion of not conveying interest until existing security is canceled is unsupported by law or fact. USAA acknowledged that the Brashears had an interest in the property when the Security Instrument was executed on August 26, 2016, effectively transferring that interest to USAA. USAA perfected its security interest on October 17, 2016, which the Bankruptcy Court determined occurred within the 90-day preference period under 547(e)(2)(B), affirming the Trustee's position. USAA's claim that the transfer was a substantially contemporaneous exchange was rejected by the Bankruptcy Court, which found no genuine dispute regarding that assertion. Generally, under 547(b), a transfer can be avoided if it meets specific criteria, but the "substantially contemporaneous exchange exception" under 547(c)(1) allows creditors to defend against avoidance if the transfer was intended as a contemporaneous exchange for new value.

A creditor seeking to invoke the contemporaneous exchange exception under 11 U.S.C. § 547(c)(1)(A) must demonstrate that the transfer was intended to be a contemporaneous exchange for new value given to the debtor and that it was, in fact, substantially contemporaneous. The Trustee has proven that the elements of § 547(b) are satisfied, granting entitlement to summary judgment unless USAA presents significant evidence of a triable issue regarding the contemporaneous exchange exception. Although it is accepted that the transfer was intended to be substantially contemporaneous, USAA failed to provide evidence that supports this claim, particularly regarding the 52-day delay in perfecting the security interest. Courts evaluate the reasonableness of the delay, its causes, and whether the creditor was negligent or dilatory. USAA's custodian testified that the delay was unintentional and not improperly motivated, but no evidence explaining the delay was provided. Additionally, USAA acknowledged that it is not typical for lenders to delay securing their interests, which undermines its position. Consequently, the Court concludes that USAA has not produced sufficient evidence to create a triable issue of fact regarding the contemporaneous exchange claim, affirming the Trustee's entitlement to judgment as a matter of law.

The Court affirms the Bankruptcy Court's summary judgment in favor of the Trustee, Walter W. Kelley, as of July 6, 2018. The bankruptcy case has since been converted to a Chapter 13 with Camille Hope as the new Trustee, but this change does not affect the Trustee's ability to pursue the adversary proceeding. The Chapter 13 debtor retains the avoiding powers under Section 547. 

Though the parties suggest that a clearly erroneous standard applies to some findings, the Eleventh Circuit precedent clarifies that summary judgment in bankruptcy is reviewed de novo. USAA's previous argument regarding the date of the transfer, tied to its equitable subrogation claim, was rejected by the Bankruptcy Court and is not raised in this appeal. The Court notes that USAA effectively waived the argument regarding the transfer date by not presenting it earlier and acknowledges its admission that the transfer occurred on October 17, 2016, within the preference period.

USAA contends that the date of transfer is a legal conclusion that should not be admitted; however, this argument is unpersuasive. The Court also clarifies that under Georgia law, a security interest is perfected when the security deed is filed, which in this case, means that the debtors had no rights to the property until CB&T canceled its security deed. During oral arguments, USAA retracted its prior assertion that the Brashears had no rights in the property, ultimately admitting they held some transferable rights despite lacking full ownership.

The Court acknowledges USAA's interpretation of the Security Instrument but suggests that the transfer may have become effective when USAA paid off the Brashears' debt on August 31, 2016. It clarifies that a security deed conveys legal title solely for security purposes and is automatically extinguished upon satisfaction of the secured obligation, allowing for record cancellation without reconveyance under O.C.G.A. 44-14-67. The Trustee did not contest this point, and the Court finds that the Security Instrument does not support USAA's interpretation. Contract interpretation is a legal question determined by the entire contract's context to reflect the parties' intent. The Security Instrument is governed by federal law and the law of the property's jurisdiction, with MERS acting as nominee for USAA. 

In responding to USAA's summary judgment, the Trustee emphasized that the sole issue was whether a 52-day delay constituted a substantially contemporaneous exchange under § 547(c)(1)(B). The Bankruptcy Court assumed USAA met its burden for the first element. Loll, a records custodian for Nationstar, claimed familiarity with procedures but lacked personal knowledge regarding the Brashears' refinancing, undermining his testimony about USAA's intent concerning the delay in perfecting the security interest. Although Loll's affidavit suggested the delay was not intentional, the Court recognized that USAA agreed the affidavit lacked depth about the delay's cause. The Bankruptcy Court found that USAA demonstrated the delay was not improper or intentional. USAA argued the Bankruptcy Court undervalued this determination, asserting the intentionality of the delay was crucial. However, the Bankruptcy Court clarified that the interpretation of "most important fact" from Hedrick includes both intentionality and negligence, emphasizing that both aspects should be weighed equally. USAA claimed, without evidence, that the delay was linked to CB&T's tardiness in canceling its security deed, yet failed to provide a rationale or proof of how this delay affected USAA's ability to perfect its security interest.