Tower Credit, Inc. v. Schott

550 B.R. 299

Tower Credit, Inc., Appellant

v.Martin A. Schott, Appellee.

CIVIL ACTION No. 3:15-00578-JWD-RLB

United States District Court, M.D. Louisiana.

Signed March 24, 2016

Richard D. Bankston, Baton Rouge, LA, for Appellant.

Martin A. Schott, Baton Rouge, LA, for Appellee.

RULING ON APPEAL FROM THE UNITED STATES BANKRUPTCY COURT FOR THE MIDDLE DISTRICT OF LOUISIANA JUDGE DOUGLASS D. DODD

JUDGE JOHN W. deGRAVELLES, UNITED STATES DISTRICT COURT, MIDDLE DISTRICT OF LOUISIANA

I. INTRODUCTION

Before the Court is the Appeal from the United States Bankruptcy Court for the Middle District of Louisiana Judge Douglas D. Dodd (“Appeal”), as supported by the Appellant's Brief (“Brief”), tendered by Tower Credit, Inc. (“Appellant” or “Tower”). Countering this motion is the brief (“Opposition”) filed by Mr. Martin A. Schott (“Appellee” or “Trustee”), the trustee appointed to administer the estate automatically engendered by the filing of a voluntary petition for bankruptcy relief (“Petition”) pursuant to Chapter 7 of the United States Code's eleventh title¹ (“Bankruptcy Code” or “Code”) by Mr. Christon Jackson (“Jackson” or “Debtor”). In the Opposition and the Appeal (collectively, “Filings”), Appellant and Appellee (collectively, “Parties”) raise a single legal issue: whether the United States Bankruptcy Court for the Middle District of Louisiana (“Bankruptcy Court”) erred when it concluded that garnishments of the wages earned by the Debtor from August 19, 2012, through November 17, 2012, all of which were paid to Tower in accordance with an order of garnishment (“Order”) entered by a local court, were made within ninety days of November 17, 2012, the date on which the Debtor filed the Petition's filing (“Petition Date”), as required for these transferred sums to be recovered (or, in bankruptcy law's argot, “avoided”) by the Trustee as preferential transfers pursuant to § 547(b).

Focusing on the same subparagraph, the Parties sharply disagree over this language's rightful construction. In the Appellant's view, its entitlement to those wages was purportedly perfected when the Order was entered on March 30, 2009. Arithmetically, the gap between this date and the Petition Date exceeds ninety days, and no reasonable construction of § 547, as at least three cases conclude, supports the Trustee's recovery of this transferred property on the estate's behalf. Therefore, the Appellant argues that the Bankruptcy Court's legal error is manifest. In other words, pursuant to § 547(b), the garnishments paid within ninety days of the Petition Date should have remained Tower's own.

To the Trustee, on the other hand, this argument ignores the overwhelming weight of well-settled precedent. Citing several representative opinions, the Trustee argues that a sizable body of case law holds that no debtor possesses a property interest in his future wages for purposes of § 547(b) based on § 547(e)(3) and the Code's well-known and obvious purposes. Since these wages were earned and the garnishments were paid ninety days within the Petition Date, the latter constitute preferential transfers voidable under § 547. In accordance with the constitutionally supreme law that is the Code, moreover, the Order's perfection date cannot be relevant. The Bankruptcy Court agreed with the Trustee, and this appeal followed (“Present Action”).

Based on § 547's language, construed in light of the principles of interpretation applicable to this “expansive (and sometimes unruly) area of law,” RadLAX Gateway Hotel, LLC v. Amalgamated Bank , ––– U.S. ––––, 132 S.Ct. 2065, 2073, 182 L.Ed.2d 967 (2012), this Court, like the Bankruptcy Court, finds no merit in Appellant's position. For the Code's purposes, the Debtor's interest in the relevant property first materialized between August 19, 2012, and November 17, 2012, and the Order's technical date is immaterial to this temporal determination. Of course, as Appellant rightly asserts, the distinctive laws of the fifty states often create the property interests central to the Code's operation. Nonetheless, the Code and it alone is fully preeminent and entirely preemptive where its terms, analyzed “clearly and predictably using well established principles of statutory construction,” are crystal clear. Id. While the Appellant's handful of cases deduce differently, their flawed reasoning cannot overcome § 547's plain and unambiguous import. Accordingly, for these reasons, as more fully explained below,² this Court AFFIRMS the Bankruptcy Court.

II. BACKGROUND

A. Factual and Procedural History

On March 30, 2009, Tower, a Louisiana corporation formed on March 16, 1990 and based in Baton Rouge, obtained a money judgment in the Baton Rouge City Court against Jackson. (Doc. 3 at 5; Doc. 10 at 5.)

Attempting to collect, Tower sought and obtained the Order, which was served on Jackson's employer on January 19, 2012, and garnished the Debtor's wages until his debt was satisfied. (See, e.g. , Doc. 3 at 5; Doc. 10 at 5.) More than nine months later, on a Saturday, Jackson filed the Petition. (Doc. 1, No. 3:12-bk-11686; see also Doc. 10 at 5.) According to the Debtor's Schedule F, he still owed Tower approximately $4,775 on or about November 17, 2012. (Doc. 4 at 13, No. 3:12-bk-11686;³ cf. Doc. 1 at 2, No. 3:14-ap-01084.) Based on the Debtor's first Summary of Schedules, his assets totaled $3,125, and his average monthly income was no more than $2,853, his expenses of $2,695 leaving him with a net income of only $158.⁴ (Doc. 4 at 1, 4–6, No. 3:12-bk-11686.) Although he had no secured creditors, his unsecured debts totaled $18,287. (Id. ) As the Debtor later testified at a meeting of his creditors, initiated pursuant to § 341, and held on December 27, 2012, (See Docs. 6, 8, No. 3:12-bk-11686), he had seemingly paid Tower $2,034.81 within ninety days of the Petition Date, i.e. on or after August 19, 2012, (Doc. 1 at 2, No. 3:14-ap-01084). As such, on the Petition Date, Tower was both one of the Debtor's unsecured creditors and the recipient of payment for an antecedent debt on or before Sunday, August 19, 2012. (See, e.g. , Id. at 1–2.) The Appellee became the Trustee, charged with managing the Debtor's estate pursuant to § 701(a), on November 18, 2012. (Doc. 6, No. 3:12-bk-11686.) The Debtor submitted Amended Schedules on February 13, 2013, (Doc. 14, No. 3:12-bk-11686), and received a discharge of all non-exempt debt, to the extent authorized by § 727(b), on February 28, 2013, (Doc. 15, No. 3:12-bk-11686).

On October 28, 2014, the Trustee filed the complaint (“Complaint”), beginning an adversary proceeding as defined in Federal Rule of Bankruptcy Procedure 7001,⁵ from which the Present Action arises arises. (Doc. 39, No. 3:12-bk-11686; see also, e.g. , Doc. 1, No. 3:14-ap-01084.) In that pleading, the Trustee sought to void the garnishments collected by Tower as a preferential transfer pursuant to § 547(b) from August 19, 2012, through November 12, 2012, a period of ninety days prior to the Petition Date. (Doc. 1 at 2, No. 3:14-ap-01084; see also, e.g. , Doc. 3 at 5; Doc. 24 at 6–7, No. 3:14-ap-01084.) Initially, the Trustee sought the return of the sum—$2,034.81—provided by the Debtor during the creditors' December meeting and first requested via letters sent to Tower on March 19, 2013, and May 13, 2014. (Doc. 1 at 2, No. 3:14-ap-01084; see also, e.g. , Doc. 3 at 5; Doc. 24 at 6–7, No. 3:14-ap-01084.) Subsequently, Tower and the Appellee stipulated that the actual amount at issue was only $1,756.04. (Doc. 3 at 5; Doc. 10 at 5.) On April 22, 2015, Appellee filed a Motion for Summary Judgment, arguing no doubt could be raised about the application of § 547(b). (Doc. 18, No. 3:14-ap-01084.) Tower again objected, as it had “[m]ore than 90 days prior to the filing of ... Jackson's ... bankruptcy, ... perfected a state court garnishment of his wages by serving the garnishment petition upon his employer.” (Doc. 25 at 1, No. 3:14-ap-11686.) By its reckoning, this perfection—and therefore any “transfer”—took place on January 19, 2012, “the date the garnishment was served upon the employer.” (Id. at 2.)

On May 27, 2015, after a hearing, the Bankruptcy Court overruled Tower's objection and granted Appellee's dispositive motion. (Doc. 27, No. 3:14-ap-11686.) As permitted by § 158(a) of Title Twenty-Eight of the United States Code and in accordance with Rule 8002, Tower appealed the Bankruptcy Court's decision on August 28, 2015. (Docs. 1, 5, 10.) The Brief and Opposition arrived on September 9 and September 29, 2015, respectively. (Docs. 5, 10.)

B. Parties' Arguments

Echoing assertions made below, the Appellant now contends that the “transfer” of property which the Bankruptcy Court allowed the Trustee to avoid pursuant to § 547(b) took place on January 19, 2012, “the date the garnishment package was served upon the [Debtor's] employer, which pre dates the November 17, 2012, bankruptcy filing by more than 90 days.” (Doc. 3 at 6.) Appellant initially notes that “[a] transfer does include a garnishment lien under the broad definition found in” § 101(54) and thereupon insists that controlling state law demands its vindication, since “[u]nder Louisiana's statutory scheme the seizure of the non-exempt portion of the [D]ebtor's wages occurs on the date the employer is served with the garnishment documents and includes both accrued and future earnings.” (Id. ) The Appellant denies the relevance of three cases cited by the Trustee before the Bankruptcy Court—Morehead v. State Farm Mut. Auto. Ins. Co. (In re Morehead) , 249 F.3d 445 (6th Cir.2001) ; Chiasson v. First Tenn. Bank Nat'l Ass'n (In re Kaufman) , 187 B.R. 167 (Bankr.E.D.La.1995) ; and Malone v. Fidelity Nat'l Bank (In re Dunn) , 56 B.R. 275 (Bankr.M.D.La.1985), (Doc. 3 at 7–11)—and urges this Court to adopt the reasoning of three cases already rejected by the Bankruptcy Court: Askin Marine Co. v. Conner (In re Conner) , 733 F.2d 1560 (11th Cir.1984) ; In re Coppie , 728 F.2d 951 (7th Cir.1984) ; and ...