Weinman v. Alt. Revenue Sys., Inc. (In re Stevens)

552 B.R. 773

In re: Kwanza B. Stevens and Mindy M. Stevens, Debtors.

Jeffrey A. Weinman, Trustee, Plaintiff

v.Alternative Revenue Systems, Inc., Defendant.

Case No. 15–11776 HRT

Adversary No. 15–01340

United States Bankruptcy Court, D. Colorado.

Signed May 23, 2016

Kenneth J. Buechler, Jonathan Dickey, Denver, CO, for Plaintiff.

Jonathan A. Hagn, Denver, CO, for Defendant.

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT

Howard R. Tallman, Judge, United States Bankruptcy Court

This case comes before the Court on the Motion for Summary Judgment filed by Defendant Alternative Revenue Systems, Inc. (“ARS”), on September 24, 2015 (docket # 6), the Response thereto filed by Jeffrey A. Weinman, Chapter 7 Trustee (“Trustee”) (docket # 7), as well as the Cross Motion for Summary Judgment filed by Trustee on October 7, 2015 (docket # 8), the Response and Reply in Support filed by ARS (dockets # 10 and # 11), and the Reply in Support filed by Trustee (docket # 12). The Court has reviewed the pleadings and the record and is now ready to rule.

I. Background

Debtors filed their petition under Chapter 7 of the Bankruptcy Code on February 26, 2015, and received their discharge on June 1, 2015. Trustee filed a complaint against ARS on August 26, 2015, alleging claims for avoidance, preservation, turnover, and disallowance under 11 U.S.C. §§ 547, 551, 542, 543, and 502.¹ Prior to the bankruptcy filing, ARS obtained a judgment against Debtor Mindy Stevens in Denver County Court, and served a writ of continuing garnishment on her employer on or about October 18, 2014. Trustee alleges the wage garnishments ARS received between November 30, 2014, and January 12, 2015 (in the 90 days prior to the petition date), in the total amount of $1,294.16, are avoidable transfers under § 547(b). ARS argues the relevant transfer took place on the date the writ of garnishment was served, before the 90–day preference period, rather than with each paycheck garnished. In their motions for summary judgment, both parties generally agreed the facts were not in dispute, but now ARS, in its Response/Reply (dockets # 10 and # 11), argues, for the first time, a factual dispute as to the date the wages were earned versus the date they were paid.

II. Discussion

Summary judgment is appropriate when the materials submitted to the court demonstrate that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Kaiser–Francis Oil Co. v. Producer's Gas Co., 870 F.2d 563, 565 (10th Cir.1989) ; National Dev. Servs., Inc. v. Denbleyker (In re Denbleyker), 251 B.R. 891, 894 (Bankr.D.Colo.2000). See also Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). What facts are material depends upon the substantive law applied. Kaiser–Francis Oil Co. v. Producer's Gas Co., 870 F.2d at 565. Disputes about immaterial facts will not preclude summary judgment. Id.

To prove a claim under § 547(b), the Trustee must prove all of the following elements:

(1) the debtor transferred an interest in property,

(2) to or for the benefit of a creditor,

(3) for or on account of an antecedent debt owed by the debtor before such transfer was made,

(4) made while the debtor was insolvent,

(5) made on or within 90 days before the date of the filing of the petition, or within one year of the filing of the petition if such creditor is an insider, and

(6) that enables such creditor to receive more than the creditor would receive in a case under Chapter 7 of the Bankruptcy Code.

In re M & L Business Mach. Co., Inc. , 155 B.R. 531, 534 (Bankr.D.Colo.1993).

In the answer to the Trustee's complaint, ARS admitted elements (1) through (4) but denied elements (5) and (6). Thus, only elements (5) and (6) are in dispute.

A. Was the transfer made on or within 90 days before the date of filing the petition?

The parties disagree as to when the relevant transfer in this case was made. ARS bases its three-page motion for summary judgment on two cases: Hopkins v. Suntrust Mortgage, Inc. (In re Ellis), 441 B.R. 656 (Bankr.D.Idaho 2010), and Straight v. First Interstate Bank (In re Straight), 207 B.R. 217 (10th Cir. BAP 1997). In Ellis, the Idaho bankruptcy court observed the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”) modified the definition of “transfer” in Section 101(54)² by replacing the word “every” in that definition with “each,” and supplementing the definition to include “the creation of a lien.” The Ellis court concluded the modification was intended to give “expression to a widely held understanding ... [that] a transfer includes the creation of a lien.” Id. at 661–62.

ARS also notes that in Straight, the court held payments made during the preference period, pursuant to a garnishment or attachment obtained prior to the preference period, were transfers, “but they were not avoidable as preferences because they did not enable the creditors to receive more than they would have without them if the debtor were liquidated in chapter 7. The earlier garnishments or attachments were the transfers accomplishing that for the creditors.” In re Straight, 207 B.R. at 226 (citations omitted). Therefore, in its motion for summary judgment, ARS contends the relevant transfer occurred in this case upon the creation of the garnishment lien, more than 90 days pre-petition. ARS agrees the garnishments made with each paycheck within the 90 days pre-petition are transfers, but argues they are not avoidable transfers under the reasoning of the Straight decision.

In his cross-motion for summary judgment, Trustee cites several wage garnishment cases holding an avoidable preference occurs each time a creditor garnishes a paycheck within the 90 days pre-petition, regardless of when the garnishment writ was served. The Trustee also relies on the language of § 547(e), which provides: “[f]or purposes of this section, a transfer is not made until the debtor has acquired rights in the property transferred.” Thus, the Trustee argues, a transfer (for purposes of § 547 )³ is not made until the debtor has acquired rights in the property transferred, which does not occur until wages are earned. In support, Trustee cites Local Loan Co. v. Hunt, 292 U.S. 234, 54 S.Ct. 695, 78 L.Ed. 1230 (1934) ; In re White, 258 B.R. 129 (Bankr.D.N.J.2001) ; In re Chavez, 257 B.R. 341 (Bankr.D.N.M.2001) ; and In re Castleton, 84 B.R. 743 (Bankr.D.Colo.1988).

At the outset, the Court notes that In re Ellis, cited by ARS, is not a wage garnishment case. Ellis involved the debtors' voluntary creation of a post-petition lien by refinancing their mortgage. The Ellis court had to determine whether that act was a transfer under § 549, and, in examining the language of both § 101(54) and § 549, found it was an avoidable transfer. Based on Ellis, ARS argues the “definitional expansion” of transfer to specifically include a lien “renders unnecessary a resort to state law for a determination as to whether and when a garnishment comprises a transfer for purposes of § 547.”

The Court finds Ellis to be unpersuasive, however, because the Trustee is not resorting to state law to determine whether and when the garnishment comprises a transfer. Both the Trustee and ARS agree that “whether a transfer has occurred is a matter of federal law.” Barnhill v. Johnson, 503 U.S. 393, 398, 112 S.Ct. 1386, 118 L.Ed.2d 39 (1992). The Trustee argues the Bankruptcy Code itself defines when a transfer relevant to § 547 occurs, in § 547(e) : once the debtor has acquired rights in the property transferred. The fact that § 101(54) now specifically includes the creation of a lien as a transfer does not mean that the plain language of § 547(e) no longer applies.

The Trustee agrees with ARS that service of the garnishment, outside the preference period, was a transfer as defined in § 101(54), but because that transfer occurred outside of the 90–day preference period, the Trustee argues § 547(b) is inapplicable to that transfer. The Trustee contends further transfers were made under § 547(b) each time Debtor's wages were garnished and paid to ARS within the preference period.

The Court observes that the dispute between the parties illustrates some ambiguity in the post-BAPCPA definition of “transfer” under § 101(54), especially when compared to the language of § 547(e). Because the service of the garnishment, in this case, was outside the 90–day pre-petition period, the Court need not decide whether the parties are correct when they both assume the service of the garnishment itself was a transfer as defined in § 101(54). In that section, a “transfer” is defined, in part, as “the creation of a lien.” ARS cites Colo. Rev. Stat. § 13–54.5–102 for the proposition that a continuing wage garnishment creates a lien. That section provides, in part:

§ 13–54.5–102. Continuing garnishment—creation of lien

(1) In addition to garnishment proceedings otherwise available under the laws of this state in any case in which a money judgment is obtained in a court of competent jurisdiction, the judgment creditor or its assignees shall be entitled, on notice to the judgment debtor required by section 13–54.5–105, to apply to the clerk of such court for garnishment against any garnishee. To the extent that the earnings are not exempt from garnishment, such garnishment shall be a lien and continuing levy upon the earnings due or to become due from the garnishee to the judgment debtor.

(Emphasis added).

Under the language of the Colorado statute, service of the garnishment creates a lien under state law. Nevertheless, service of a continuing garnishment, in and of itself, creates no lien for purposes of § 101(54). Service of the garnishment creates an inchoate lien⁴ in future earnings that does not ripen until the earnings come into existence. See Local Loan Co. v. Hunt, 292 U.S. at 243, 54 S.Ct. 695 (“The earning power of an individual is the power to...