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In re Dorton

August 8, 2006

IN RE PHILIP WAYNE DORTON, DEBTOR,
KEVIN R. MCCARTHY, TRUSTEE, PLAINTIFF/APPELLANT,
v.
BMW BANK OF NORTH AMERICA, DEFENDANT/APPELLEE.



The opinion of the court was delivered by: Gladys Kessler United States District Judge

MEMORANDUM OPINION

Appellant Kevin R. McCarthy, the Chapter 7 trustee ("Trustee"), appeals a judgment from the United States Bankruptcy Court for the District of Columbia dismissing his adversary proceeding. The Bankruptcy Court held that the security interest in a 2000 BMW 328i of Appellee BMW Bank of North America ("BMW") was not avoidable under 11 U.S.C. § 547 and entered judgment consistent with its decision on June 21, 2005.

This matter is before the Court on the Trustee's appeal of the Bankruptcy Court's judgment, [#2]. Upon consideration of the parties' briefs and the entire record herein, and for the reasons stated below, the Bankruptcy Court's judgment is affirmed.

I. BACKGROUND*fn1

On October 13, 2003, the Debtor, Philip Wayne Dorton ("the Debtor"), purchased and took possession of a 2000 BMW 328i ("the Car"). The Debtor granted a security interest in the Car to the dealer via a contract, which the dealer then assigned to BMW. On December 24, 2003, the District of Columbia Department of Motor Vehicles ("DMV") issued a certificate of title for the Car, noting BMW's security interest. BMW did not file a financing statement with the District of Columbia.

On January 30, 2004, less than 90 days after BMW's lien was noted on the certificate of title, the Debtor petitioned for relief under Chapter 7 of the Bankruptcy Code, listing the Car as the bankruptcy estate's only asset.*fn2

The Trustee moved for summary judgment in the Bankruptcy Court seeking to avoid BMW's security interest as a preference, pursuant to 11 U.S.C. § 547(b), and ancillary relief. The Bankruptcy Court denied the Trustee's motion and dismissed the adversary proceeding, holding that BMW perfected its security interest under the common law from the time the Debtor took possession of the Car until issuance of the certificate and continuously perfected said interest pursuant to D.C. Code § 50-1202 thereafter. The Bankruptcy Court thus concluded that the Trustee could not avoid BMW's security interest in the Car.

II. STANDARD OF REVIEW

Under 28 U.S.C. § 158, this Court has jurisdiction to hear appeals concerning "judgments, orders, and decrees" made by the Bankruptcy Court. 28 U.S.C. § 158; see In re St. Charles Pres. Investors. Ltd., 112 B.R. 469, 471 n.2 (D.D.C. 1990) (citing In re Jersey City Med. Ctr., 817 F.2d 1055, 1059 (3d Cir. 1987)).

This Court must review matters of law de novo and may reverse the Bankruptcy Court's factual findings only if they are clearly erroneous. See In re St. Charles Pres. Investors. Ltd., 112 B.R. at 471 n.2 (citing In re Jersey City Med. Ctr., 817 F.2d at 1059). "On appeal from a bankruptcy court, a district court may affirm, modify, or reverse a bankruptcy court's judgment, or remand with instructions for further proceedings." In re WPG, Inc., 282 B.R. 66, 68 (D.D.C. 2002) (citing Fed. R. Bankr. P. 8013).

III. ANALYSIS

A. Overview

This case presents a matter of first impression -- namely, whether in the District of Columbia, a consumer-purchased car may be subject to a perfected security interest prior to DMV's issuance of a certificate of title noting the security interest.

Appellant's Br. at 2-3.

Judge Teel answered this question in the affirmative. He held that BMW's security interest was continuously perfected, within the meaning of that term under 11 U.S.C. § 547(e)(1)(B), from the moment the debtor obtained possession of the car, first under the common law rule of first in time, first in right, and then, upon issuance of the certificate of title for the car, under D.C. Code § 50-1202 by reason of the security interest being noted on the certificate prior to its issuance. 327 B.R. at 16. Judge Teel further held that because no preference existed in this case, the Trustee could not avoid BMW's lien on the Car.

In this appeal, as in the proceedings below, the Trustee argues that BMW could not and did not perfect its security interest in the Car until DMV issued the certificate of title noting said interest on December 24, 2003. The Trustee disputes the Bankruptcy Court's holding that the common law rule of first in time, first in right applies prior to the issuance of the certificate of title. The Trustee argues that since the Debtor petitioned for bankruptcy relief less than 90 days after BMW's lien was noted on the certificate of title, the Trustee is entitled to avoid BMW's lien pursuant to the preference period set forth in 11 U.S.C. § 547. For the reasons stated below, the Court rejects the Trustee's argument and affirms Judge Teel's ruling.

B. BMW Continuously Perfected Its Security Interest in the Car from the Time the Debtor Took Possession Until After the Certificate of Title Issued

The Trustee "disputes the Bankruptcy Court's decision solely on the question of whether, in the District of Columbia, a consumer-purchased car may be subject to a perfected security interest prior to the issuance of a certificate of title noting the security interest." Appellant's Br. at 2-3.

Whether BMW took the required steps to perfect its security interest is governed by state law. Fidelity Fin. Servs., Inc. v. Fink, 522 U.S. 211, 213 n.1 (1998).*fn3 Under District of Columbia law, "it is axiomatic that a prior lien gives a prior legal right ('first in time, first in right'), except where statute varies the common law rule." District of Columbia v. Franklin Inv. Co., 404 A.2d 536, 540 (D.C. 1979) (citations omitted); District of Columbia v. ...


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