Tower Credit, Inc. v. SchottTower Credit, Inc. v. Schott
RULING ON APPEAL FROM THE UNITED STATES BANKRUPTCY COURT FOR THE MIDDLE DISTRICT OF LOUISIANA JUDGE DOUGLASS D. DODD
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 title
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. -,
H. 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.)
On October 28, 2014, the Trustee filed the complaint (“Complaint”), beginning an adversary proceeding as defined in Federal Rule of Bankruptcy Procedure 7001,
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),
The Opposition counters Appellant’s every point. Thus, the Appellee defends its reliance on In re Dunn and In re Kaufman and quotes extensively from the Bankruptcy Court’s oral decision “agreeing] with the reasoning of those [and similarly inclined] courts.” (Doc. 10 at 6-7.) As before, it too attacks Conner, Coppie, and Riddervold for “misapplying] ... § 547(e)(1)(B) in arguing when a transfer occurs.” (Id. at 8.) Instead, because.'^ 547(e)(3) applies here[, ... t]he [D]ebtor must earn the wages before they may be taken from him,” (Id.), a position also endorsed by the Honorable James J. Brady of this district, Schott v. First Pay Credit, Inc., No. 13-cv-257-JJB,
III. DISCUSSION
A. Jurisdiction and Standard of Review
This Court’s subject-matter jurisdiction is based upon 28 U.S.C. § 1334. 28 U.S.C. § 1334. The Bankruptcy Court’s “factual findings are reviewed for clear error; its legal conclusions and mixed questions of fact and law, de novo.” AT&T Universal Card Servs. v. Mercer (In re Mercer),
B. Relevant Law
One section — § 547(b) — controls this appeal. (Doc 3 at 4; Doc. 10 at 4.) Per this oft-litigated section, subject to certain in-apposite exceptions, a trustee may recover the value of “an interest of the debtor in property” if he or she shows that interest was transferred (1) “to or for the benefit of a creditor,” (2) for or on account of an antecedent debt owed by the debtor before such transfer was made,” (3) while the “debtor was insolvent,” (4) “on or within 90 days before the date of the filing of the petition” or “between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider,” and (5) enabled “such creditor to receive more than such creditor would receive” if “the case were a case under [CJhapter 7,” “the transfer had not been made,” and “such creditor received payment of such debt to the extent provided by” the Code. 11 U.S.C. § 547(b); Union Bank v. Wolas,
For purposes of applying this element, this Court looks to the relevant denotations stated in the Code. Section 101 defines a transfer as “each mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or departing with ... property ... or an interest in property.” 11 U.S.C. § 101(54)(D); see also, e.g,, In re Tony an Constr. Co.,
From these sections and in this jurisprudence, a guiding principle can be found: though state law delimits the concepts of property and interests of property central to the Code’s administration, federal bankruptcy law alone defines what constitutes a transfer and when it is complete. Barnhill v. Johnson,
C. Application
Applying the foregoing precedent, and having reviewed the Bankruptcy Court’s legal conclusions de novo, this Court concurs with its analysis and reaches the same decision: even though the Order granted Tower a perfected interest on January 19, 2012, (Doc. 3 at 6), a “transfer” of property only occurred only once the Debtor earned his garnished wages, and because that transfer took place ninety days or less before the Petition Date, § 547’s temporal prong was fully met. True, under Louisiana law, a garnishment seizure takes effect “upon service on the garnishee of the petition, citation, interrogatories, and a notice of seizure.” La. Code Civ. Proc. art. 2411. True, “[i]n a garnishment of wages the seizure includes both accrued and future earnings.” Assocs. Fin. Servs., Inc. v. McClendon,
Quite simply, regardless of when perfection occurs under state law,
This result makes perfect sense, for to decide differently, as more than one of the courts so convinced has observed, would impermissibly accord a state law governing perfection preeminence over the Code’s unequivocal mandate. In re Johnson,
Although Appellant points to three cases which support its position, (Doc. 3 at 10-11), not one withstands diligent scrutiny. Riddervold did hold that no transfer occurred during the preference period because a garnishment order’s execution created a continuing lien which acted as a novation of the debtor’s rights in his own wages.
IV. CONCLUSION
Interpreted naturally, § 547 in toto leaves no doubt about the fact that the garnishments collected by Tower beginning on August 19, 2012, occurred ninety-days prior to the Petition Date. In light of § 547(e)(3), the Order’s perfection cannot be deemed dispositive, for until the wages were earned, the Debtor had acquired no right to collect a penny or a dollar. Accordingly, the Bankruptcy Court’s ruling and subsequent judgment, holding that the garnishment payments made from August 19, 2012, through November 17, 2012, are preferential payments pursuant to § 547(b) and are avoidable because the transfers took place within ninety days of the -Debtor’s bankruptcy filing, is hereby AFFIRMED.
Notes
. The specific provisions of the Bankruptcy Code, set forth in 11 U.S.C. §§ 101-1532 in-elusive, are referred to in this ruling as "section or "§ unless otherwise noted.
. For this reason, no oral argument is necessary.
, In this opinion, a specific case number will be included in any citation to a court document unless that document has been filed in the Present Action’s docket, i.e. 15-cv-00578-JWD-EWD
. Interestingly, the Debtor’s current monthly income was listed as $3,072 on another page of this fourth filing. (Compare Doc. 4 at 1, with Doc. 4 at 2, No. 3:12-bk-11686.)
.In this opinion, any and all reference to "Rule” or "Rules” is to the Federal Rules of Bankruptcy Procedure unless otherwise noted.
. Indeed, the very fact that the Appellant fails to distinguish between distinct legal acts— perfection and transfer — severely weakness its argument's cogency.