Opinion
Case No. 09-12823.
9-8-2009
In Re: SEAN C. COBB CATHY SUE COBB, Chapter 13, Debtors.
Before the Court is a confirmation objection filed by Universal One Credit Union Inc. ("Universal"). See Doc. 39.
Universal holds a lien on Sean Cobb's 2009 Chevrolet Malibu. The Debtors' plan proposes a cramdown of Universal's claim. Universal argues that cramdown is prohibited by the "hanging paragraph." The Debtors contend that the hanging paragraph is inapplicable because Universal does not possess a purchase money security interest ("PMSI"). An evidentiary hearing was held on August 25, 2009.
APPLICABLE LAW
The hanging paragraph provides:
For purposes of paragraph (5), section 506 shall not apply to a claim described in that paragraph if the creditor has a purchase money security interest securing the debt that is the subject of the claim, the debt was incurred within the 910-day preceding the date of the filing of the petition, and the collateral for that debt consists of a motor vehicle (as defined in section 30102 of title 49) acquired for the personal use of the debtor, or if the collateral for that debt consists of any other thing of value, if the debt was incurred during the 1-year period preceding that filing.
11 U.S.C. § 1325(a). A creditor must hold a PMSI for the hanging paragraph to apply, whether the collateral is a "motor vehicle" or "any other thing of value." See In re Curtis, 345 B.R. 756, 760-61 (Bankr. D. Utah 2006); In re Quevedo, 345 B.R. 238 (Bankr. S.D. Cal. 2006).
This statutory text is commonly referenced as the "hanging paragraph" because it has no alphanumeric designation. It is located at the end of § 1325(a). No disrespect is intended by the use of the term. It simply facilitates discussion and subsequent research.
Under Ohio law, a lender holds a PMSI if the debt was "incurred . . . for value given to enable the debtor to acquire rights in or the use of the collateral if the value is in fact so used." Ohio Rev. Code § 1309.103(A)(2); see also Ohio Rev. Code § 1309.103(B)(1); Ohio Rev. Code § 1309.103(A)(1).
FACTS
Mr. Cobb purchased the Malibu from Plaza Chevrolet Cadillac, Inc. ("Plaza"). He took possession of the vehicle in early September of 2008. On the same date, Mr. Cobb executed a contract to finance the purchase through GMAC.
A few weeks later, Plaza telephoned Mr. Cobb to advise him of a "problem." Plaza informed Mr. Cobb that it had better financing for him through Universal. Plaza told Mr. Cobb that he needed to come in to sign a new contract. Mr. Cobb being unable to do so, Plaza sent a representative to his home on the evening of September 27, 2008. At that time, Mr. Cobb signed a contract to finance the purchase through Universal.
The Universal contract discloses the "Amount Paid To Others On Your Behalf." Apart from miscellaneous fees and charges, the balance of the loan proceeds was designated for Plaza. The Universal contract does not reference GMAC, as payee of loan proceeds or otherwise.
A title was issued September 30, 2008, noting GMAC as the first lienholder. A replacement title was issued on October 23, 2008, noting Universal as the first lienholder. The Debtors' schedules do not list GMAC as a creditor.
The information regarding the replacement title is found in the Online Vehicle/Watercraft Title Inquiry attached to Universal's objection. At the confirmation hearing, counsel for Universal did not move to admit the document into evidence. However, the Court independently verified the document on the State's website. See www.dps.state.oh.us/atps/. To clarify the record, the Court will take judicial notice of this information pursuant to Fed. R. Evid. 201. See Total Benefits Planning Agency, Inc. v. Anthem Blue Cross and Blue Shield, No. 1:05cv519, 2007 WL 2156657 (S.D. Ohio July 25, 2007) (courts may take judicial notice of public records and government documents from the internet); see also Dulaney v. United States, 472 F. Supp. 2d 1085, 1086 (S.D. Ill. 2006) (same).
ANALYSIS
According to the Debtors, the Universal loan did not "enable" Mr. Cobb "to acquire rights in or the use of" the Malibu because Mr. Cobb acquired possession of the vehicle nearly a month before execution of the Universal loan. Thus, the Debtors believe that purchase money status under § 1309.103 depends upon when a borrower acquires possession.
The Ohio legislature enacted § 1309.103 as part of its adoption of Revised Article 9 of the Uniform Commercial Code in 2001. Previously, Ohio law defined a PMSI under former Ohio Rev. Code § 1309.05. Like § 1309.103, a PMSI arose under § 1309.05 when a lender "gives value to enable the debtor to acquire rights in or the use of collateral if such value is in fact so used." The similarity between current § 1309.103 and former § 1309.05 is important because a decision with similar facts arose under former § 1309.05.
Hunter v. McHenry (In re McHenry), 71 B.R. 60 (Bankr. N.D. Ohio 1987) held that the financier of an automobile purchase obtained a PMSI even though the borrower took possession of the vehicle thirteen days before execution of the note and security agreement and disbursement of proceeds to the seller. According to McHenry, purchase money status under former § 1309.05 was not dependent upon the time of possession. Id. at 64. Instead, the issue is whether the loan permitted the borrower to acquire rights in the collateral. Id. A PMSI arises where "the transaction involved all three parties . . . and . .. the resulting circumstances were part of their effort to consummate a sale of the vehicle." Id.
The parties have not cited, and the Court is unaware of, any other decisions addressing this issue under Ohio law. However, it is instructive to note that at least one court has reached the same conclusion under Revised Article 9. See First Nat'l Bank v. Lubbock Feeders, L.P., 183 S.W.3d 875, 882-83 (Tex. App. 2006) (finding PMSI where borrower purchased cattle at auction before receiving proceeds of loan that was "closely allied" to the purchase).
Seeing no reason why it should not continue to apply McHenry, this Court concludes that Universal obtained a PMSI in the Malibu. The transaction involved a three-party effort to consummate a sale of the vehicle. Mr. Cobb desired to purchase the Malibu from Plaza. Mr. Cobb executed a note and security agreement in favor of Universal to finance the purchase. Universal disbursed the loan proceeds to Plaza. Under these circumstances, Universal obtained a PMSI regardless of the timing of possession.
CONCLUSION
Because Universal holds a PMSI, cramdown of its claim is prohibited by the hanging paragraph. Therefore, Universal's objection to confirmation (Doc. 39) is hereby SUSTAINED. The Debtors shall have twenty-five (25) days from the entry of this order to file an amended plan or the case will be dismissed upon the Trustee's certification of noncompliance. LBR 3015-3(e)(4).
IT IS SO ORDERED.