Trustee Dened Money Judgment for Value of Avoided Vehicle Liens

.')"). in these consolidated cases, the bankruptcy trustee ("trustee") appeals from a reason to deviate from the default rule of returning the transferred property itself, and the from preferential transfers made within ninety days of filing the bankruptcy petition. the estate) and concluded that in cases where the transfer is of a nonpossessory lien "recover" denotes that recovery is not mandatory. avoided security interest or lien, as here, � 551 ensures that a trustee avoiding a senior 2 � 547.2 to the bankruptcy code. before the transfer of the security interest here, the estate had a depreciating asset the bap noted that although the value of the security interest (the vehicle) may have benefit of the estate, and thus the court granted summary judgment to the trustee on the no. 09-1332 that the default rule is the return of the property itself, whereas a monetary recovery is a property transferred." (emphasis added); see terry v. meredith (in re meredith), 367 b.r. discussion remedial one, and thus even with non-possessory liens, some further action under � 550 is more unusual remedy to be used only in the court's discretion. section 550(a) indicates the bankruptcy estate, the court does not have discretion to order neither which was declining in value regardless of whether the debtor transferred the lien during other circuits who have considered the issue. usaa v. thacker (in re taylor), 599 f.3d 880, 890 (9th cir. 2010) ("a trustee, however, tennessee, (stephen g. masciocchi and rochelle n. rabeler, with him on the brief), for avoidance of the lien will not suffice to restore the estate to a pre-transfer situation, publish that was transferred here was the perfected security interest. the trustee makes a number rather, the bap recognized that although ordinarily lien avoidance and preservation unnecessary in light of � 551 under different circumstances. rather, the bankruptcy property or its value) and � 551 (automatic preservation of avoided transfer for benefit of m.d. ga. 1987). because avoidance and preservation of the lien was no longer a viable that the property itself be returned to the estate, the value of the property being an the honorable michael daly hawkins, senior circuit judge, united states trustee "steps into the shoes of the former lienholder, with the same rights in the court did not abuse its discretion by determining that the avoidance/preservation remedy was sufficient and declining to order a monetary recovery. "bankruptcy courts have consistently held that 11 u.s.c. � 550 is designed to required to put the estate back in its pre-transfer position. suzanne marie bremer, formerly known place the estate in exactly the same position it would have been in, but for the granting of another circumstance for awarding the value is when the value is readily with the general unsecured creditors, and, having obtained � 547 and � 551 relief, the bright line, reasoning that because � 551 automatically preserved an avoided lien for the preserved for the estate), the trustee succeeded to those rights, but no more and no less. not put the estate back to its pre-transfer position, and then some recovery under � 550 dismissed. the trustee then sought summary judgment on the remaining three claims. end our inquiry. we must also consider whether � 550 relief is available at all in the case the trustee argues that the bankruptcy court must award the estate some relief will be worth what they were at any relevant valuation date;" it only ensures that the lien and stepping into the lien priority of the avoided creditor under � 551. we affirm. 16 determine whether a monetary award might be more appropriate in other instances. bankruptcy court, in its discretion, will be able to consider the myriad of factors and decided award of value was appropriate). here, the trustee has presented no compelling factual circumstances other than those before us, but note that in future cases, the concerned about serious depreciation, the trustee could likely protect itself by selling the 13 leaving the consequences of lien avoidance to � 551 alone, and allowing a trustee the int'l, inc. (in re first software corp.), 107 b.r. 417, 423-24 (d. mass. 1989); gennrich monetary award of the value of the lien, the trustee acknowledges on appeal that under � to be resolved (and thereby minimizing the need to resort to � 550(a) for protection). 408 under �� 547/551 could be inadequate and a bankruptcy court could, in its discretion, eighth circuit reversed because the lower court had failed to recognize it could have 550 is not automatic and requires action by the trustee. see �� 551, 550(f); see also that recovery under � 550 was not mandatory but permissive. but the bap did not it would have to abandon the � 551 preserved lien if it obtained a monetary award for the 408 b.r. at 360 (citations omitted); see also morris v. kan. drywall supply co., inc. (in that � 550 gives the court discretion whether to award recovery, which type of recovery to recovery under � 550(a), whether it is a return of the property (in this case, the lien) or the order monetary recovery of the value of the property under � 550(a) instead. the bap simon e. rodriguez, trustee evidence on the property's market value or when conflicting evidence exists 6 purchased a vehicle with a loan, but the lender appellees did not perfect their liens within however, as the bap here reasoned, the code "does not guarantee that assets recovered 550(a). as we explain more fully below, we believe the bap has the better argument in any great delay in the recovery of collateral may result in diminution of its value. that, (e)(2)(b). thus, the trustee filed adversary actions against the lenders, seeking (1) appeal from the bankruptcy appellate panel for the tenth circuit benefit of the estate but only with respect to property of the estate." in the case of an provisions. in addition, the bap's position is the most consistent with the opinions of full. see, e.g., in re blackburn, 90 b.r. at 573; in re haberman, 516 f.3d at 1208-09. services americas llc, alternative only available by court order."); see also asarco llc v. americas mining seventeen months before seeking avoidance). 599 f.3d at 886-87. the ninth circuit will generally not have to seek recovery" under � 550) (emphasis added); in re taylor, interim. though not entirely clear, this notion seems to be at play in the ninth circuit's of avoidance is inadequate" and that in cases involving nonpossessory creditors, "trustees suggested, unlike a trustee who lacks access to the collateral because it has been bremer), 392 b.r. 873, 875 (bankr. d. colo. 2008). the bankruptcy court denied under � 550, either return of the property or a monetary award of the value of the considered a "transfer" within 90 days of the debtors' petition dates. see � 547(b)(3), position), permissive but only with respect to possessory property interests (the under � 551 and become property of the estate under � 541(a)(4), how could � 550(a) property. the bankruptcy court concluded that � 550 recovery is permissive rather than the bankruptcy court has discretion under section 550(a) to remedy a property) might be simply duplicative of what the trustee has already received through � the court must fix the transferee's liability under section 550(a). although circuit decision, halverson v. le sueur state bank (in re willaert), 944 f.2d 463 (8th bankruptcy petition and the court finding the transfer avoidable (the trustee there waited this skepticism appears based on scenarios not present in this case, such as if the debtor the estate to its pre-transfer position. the provision indicates the trustee may recover the would have happened even if the debtor had never transferred the security interest. see cir. 1991), in which the court held that once a transfer is avoided: pre-transfer position. id. at 360-61. 9 estate's pre-transfer position, but that there may be circumstances involving determinable and a monetary award would work a savings for the estate. collateralized property that the original lienholder enjoyed." 516 f.3d at 1210. thus, as 558, 563 (bankr. e. d. va. 2007) ("this language evinces a congressional preference inc., 127 b.r. at 877 (no abuse of discretion where factors cut both ways and court other grounds, mass. gen. laws ch. 109a � 3; in re vedaa, 49 b.r. 409, 411 (bankr. affirmed. interest, "the preservation of [the] lien interest for the benefit of the estate is sufficient to which it was written is quite distinguishable. there, the avoided interest was a defendant-appellee. 7 has the discretion to seek an alternative remedy under � 550 (`the trustee may recover . . (10th cir. 2008). the trustee alternatively argues that although the bap correctly identified a standard of review estate once again had a depreciating asset and an unsecured obligation to the lender. was sufficient. the bap noted that the lenders, as secured creditors, had contractual property or its value." rodriguez v. drive fin. servs. lp (in re trout), 392 b.r. 869, 871 previous position by simply avoiding the preferential lien and no further recovery will be 551, which provides: "any transfer avoided under section . . . 547 . . . is preserved for the defendants-appellees. first and third claims. this appeal therefore focuses on the availability of � 550(a) relief; id. at 464. 12 the lenders and trustee settled the claim for pre-petition payments, and it was preferential mortgage, but the real estate had already been sold and the mortgage fully preferential transfer by ordering either the property or its value returned to known as suzanne marie crow, contemplate the trustee would "recover the property transferred" or its value? . . . 550(d)--which permits only a single recovery--it cannot receive both and acknowledges drive financial services, l.p., we review the legal conclusions of the bankruptcy court and bap de novo, fowler gen. indus., inc.), 79 b.r. 124, 135 (bankr. d. mass. 1987), superseded by statute on before briscoe, chief judge, hawkins* re classic drywall, inc.), 127 b.r. 874, 877 (d. kan. 1991) (discussing same factors). instead. see 408 b.r. at 360. plaintiff-appellant, bap here noted, ordinarily in the case of an avoided lien, the estate will be returned to its 4 conceivably be reason to award value to compensate for the decline that occurred in the the depreciating asset and because the lien had been paid down in the interim, but that a trustee may recover "the property, or if the court so orders, the value of the united states court of appeals bankruptcy court did not abuse its discretion by concluding that the avoidance of the lien eliminates the strained application of these two sections of the bankruptcy code. . . . additional devaluation. in cases involving some inordinate delay, then there could ________________________________ v. 3 in re: james richard trout and declined, the bankruptcy code does not guarantee that assets recovered would be worth 5 trustee gained priority over any junior liens on the same collateral. 6 our conclusion that � 550 recovery is permissive rather than mandatory does not obtained a leg-up over unsecured creditors in the impending bankruptcy; when that lien rights against the vehicle, and that by avoiding the lien interest (which then became the bankruptcy court's interpretation, however, is unduly restrictive and restore the bankruptcy estate to its pre-transfer position). armstrong), 304 b.r. 432, 435 (10th cir. bap 2004). conversion or depreciation, courts will permit the recovery of value. in addition to these remedies, 11 u.s.c. � 550 (a) also provides: required. while � 551 does prevent junior lienholders from leap-frogging the estate in the 8 551 will be insufficient to compensate the estate and recovery under � 550(a) available was avoided and preserved for the benefit of the estate, that creditor had to take its place avoidability of statutory liens--is included in the class of statutes to which � 550(a) 17 599 f.3d at 890-91 (approvingly quoting the bap's decision in this case and agreeing certainly, depending on the passage of time, the collateral may have devalued, but that * wis. 1990); see also in re classic drywall, inc., 127 b.r. at 876. junior lien. see morris v. st. john nat'l bank (in re haberman), 516 f.3d 1207, 1210 mandatory, and that � 551 and � 550 are mutually exclusive provisions, with � 551 below, the bap here specifically recognized this factual scenario as a situation in which � filed the bankruptcy court and bap correctly noted that under � 551, the transferred daimlerchrysler financial we recognize that the time it takes to avoid the security interest could result in necessary, but there may be circumstances where that remedy will be insufficient and corp., 404 b.r. 150, 162-63 (bankr. s.d. tex. 2009); gen. indus., inc. v. shea (in re words, relief pursuant to the two provisions must be mutually exclusive.3 the facts of both cases are similar and straightforward. in each case, the debtors bros. v. young (in re young), 91 f.3d 1367, 1370 (10th cir. 1996), and we review suggested that a monetary award under � 550 was not an abuse of discretion because of the bankruptcy court reasoned: 30 days after the debtors received possession, resulting in their liens being perfected and physical property and not security interests. see first software corp. v. computer assoc. 408 b.r. at 359. the sixth circuit reached the same conclusion in in re burns, decision of the bankruptcy appellate panel ("bap") affirming the bankruptcy court's moreover, as other courts have also recognized, the language of � 550 (a) suggests we discuss further below, in situations in which avoidance of the lien and its preservation moreover, as the bap here june 23, 2010 "property" under the code, see �� 547(b), 541(a), and � 550 permits recovery of estate, � 550 must apply only in the context of possessory property interests; in other first, under � 547, the trustee may avoid "any transfer of an interest of the debtor in discretionary decisions for an abuse of discretion, see armstrong v. rushton (in re recovery remedies of � 550(a) only where possessory interest in property are avoided, lien because the collateral securing the lien has depreciated in value. we disagree. property's value. the trustee claims that � 551 is only a priority statute, rather than a the lenders did not contest the trustee's ability to avoid the lien and preserve it for the the time of the filing of the bankruptcy petition [was] not readily ascertainable" from the vehicle itself was never transferred.5 550(a) the "trustee may recover the property transferred [i.e. the lien] or the value of thus, as the bap and the bankruptcy court concluded, on these facts, nothing more was option in that case, the court awarded the value of the vehicle under � 550.4 the bankruptcy estate would have had an asset a higher position."), aff'd 516 f.3d 1207 (10th cir. 2008).6 5 correctly concluded that the language in � 550 is permissive rather than mandatory: if a specifically, whether in these circumstances, such relief is required (the trustee's simon e. rodriguez, trustee went on to identify other possible situations in which the court might properly award the 7 jennifer dagmar trout, fka b.r. at 361; see also 11 u.s.c. � 363.7 as suzanne marie buckley, formerly number of factors to consider in whether to award the recovery of property versus its 10 transfer is avoided under � 547, "the trustee may recover" the transferred property or its for the estate are sufficient to make the estate whole, the trustee may not need to seek _______________ the trustee was not entitled to a money judgment equal to the value of the as the cases discussed above recognize, there may be situations in which the (bap nos. 08-080-co and 08-081-co) property." once avoided, that transfer is automatically preserved for the estate under � [the lien]." if the lien, once avoided, has automatically been preserved for the estate had entered into a reaffirmation agreement and was making payments to the lender, or if the bankruptcy court compared the remedies available in � 550 (recovery of _______________ suzanne m. bremer, also known as choice of a � 550 remedy remains in the court's discretion. see in re classic drywall, at 427 (noting that "the trustee's remedy of recovery is necessary only when the remedy although in the complaint the trustee appears to seek both the lien and a unless otherwise noted, all section references are to 11 u.s.c. and "code" refers several bankruptcy code provisions work together to protect the bankruptcy estate jennifer dagmar sommer, value, it failed to then properly evaluate the circumstances of this case against those 551, and the court simply had no occasion to discuss whether relief under � 550 might be tousa, inc.), 422 b.r. 783 (bankr. s.d. fla. 2009) (citation omitted). the "property" `must' recover) or descriptive (the trustee `thereby' recovers)." 322 f.3d at 428; see also plaintiff-appellant, elisabeth a. shumaker applying to nonpossessory lien interests and � 550 applying only to possessory property david v. wadsworth, sender & wasserman, denver, colorado, for plaintiff-appellant. especially when the collateral securing the lien is gone or the lien itself has been paid in court so orders, the value of such property. appropriate in various other circumstances. when the record is devoid of (bankr. d. colo. 2008); rodriguez v. daimlerchrysler fin. servs americas, llc (in re occurred." see official comm. of unsecured creditors v. citicorp n. america, inc. (in re could be appropriate. see in re bremer, 408 b.r. 355, 358-360 (10th cir. bap 2009). court, though on a slightly different basis. the bap agreed with the bankruptcy court award, and that there could be circumstances in which � 551 would be inadequate to v. mont. sport, u.s.a., ltd. (in re int'l ski serv., inc.), 119 b.r. 654, 658 (bankr. w.d. may recover, for the benefit of the estate, the property transferred or, if the nonetheless, the bap concluded that, on the facts of this case, the bankruptcy and o'brien, circuit judges. of nonpossessory liens such as those involved in this case. the bankruptcy court drew a 547 and � 551. cited as an example tidwell v. chrysler credit corp. (in re blackburn), where a lien on v. applies, which would make little sense if � 550(a) applied only to possessory interests. although the trustee expresses doubt that it could protect itself in this manner, lien moves into that priority position and the estate is not trumped by the interest of a we note that the cases cited by the bap involving depreciation as a determination that, having successfully avoided a preferential vehicle lien under 11 satisfied. id. thus, there was no remaining lien to be "preserved" for the estate under � estate will be back in the same place as if the transfer had not occurred. 408 b.r. at 361. however, is a risk that any creditor would have, and the trustee should not be elevated to remedy. consider relief under � 550 and � 551 to be mutually exclusive and declined to hold that debtors. on the value of the transferred property, courts have ordered the property to court of appeals for the ninth circuit, sitting by designation. tenth circuit the preference period. rather, by virtue of the transferred security interest, a creditor lien was automatically "preserved for the benefit of the estate," whereas recovery under � "automatically" preserved for the estate. it makes no sense to say, in turn, under � n.d. 1985). factors. specifically, the trustee contends it should have been awarded the value of the repossessed the vehicle and sold it to a good faith purchaser. 90 b.r. 569, 573 (bankr. court had believed its hands were tied since the property and lien were gone, and the the bap identified several circumstances in which lien avoidance/preservation record. id. at 891-92. use of the word "may," rather than "shall" or "must" next to the word if the avoided transfer was the granting of a lien, the lien under � 551 is in re trout, 392 b.r. at 872-73; in re bremer, 392 b.r. at 875-76 facts and procedural history 11 note that this approach is also consistent with that taken by the eighth circuit in possessory/nonpossessory distinction between � 550 and � 551. a lien interest is in re haberman, 347 b.r. 411, 417 (10th cir. b.a.p. 2006) ("[t]here is always a risk that 3 tenth circuit property, or, if the court so orders, the value of the transferred property instead. as the the word "may" is generally used in the permissive or discretionary sense. in re willaert, which ordered � 550 recovery where the real estate securing an avoided united states court of appeals the lien. there is, under these circumstances, no need for the trustee to `recover' any possessory interests, but unnecessary on these facts (the view of the bap). transferred "property" or its value. in addition, � 545--which exclusively covers � 551, and (4) recovery of pre-petition payments made by the debtors to the lenders under physically transferred, if a trustee seeking to avoid a preferential security interest were u.s.c. � 547,1 collateral and holding the proceeds in escrow while waiting for the adversary proceeding the cases were consolidated on appeal, and the bap affirmed the bankruptcy � 550(a) provides the bankruptcy court with flexibility to fashion a remedy so as to return event a senior lien is avoided, this does not mean that � 551 does nothing remedial for the over the years, courts have decided that recovery of property or its value is relief under � 550 was completely unavailable in the case of nonpossessory lien interests. defendant-appellee. what they were at any relevant valuation date, only that the estate will be returned to its jack l. smith, holland & hart, and stephen p. hale, hale dewey & knight, memphis, 2 the circumstances presented here, this does not establish that it is required to do so; the under � 551 will be sufficient, there may be circumstances in which � 547 and � 551 will 14 of arguments and hypotheticals based on the declining value of the collateral, but the suhar v. burns (in re burns), 322 f.3d 421, 427-28 (6th cir. 2003). the courts also but a creditor had a secured priority interest in that asset. after avoidance of the lien, the 1 4 even if a bankruptcy court could, in its discretion, award the value of the lien in hawkins, senior circuit judge. avoided liens under � 550(a). the bankruptcy court and the bap held that the bankruptcy mortgage had been sold. 944 f.2d at 464. petition date under � 550(a), (3) preservation of the lien for the benefit of the estate under recovery under � 550, or, stated differently, relief under � 550 (to wit, return of the summary judgment on the trustee's second claim for relief and dismissed the claim. ________________________________ avoidance of the lien under � 547, (2) recovery of the value of the avoided lien as of the in arguing that � 550(a) relief is mandatory, the trustee also relies on an eighth contradicted by other code provisions. the code itself contains no explicit the debtor's pickup truck was avoided, but the dealer had, prior to the petition, value. as the bap explained: debtors. and an obligation to an unsecured creditor. after the transfer, the estate still had the asset interests. the bap concluded that � 551 is automatic and usually sufficient to restore the light of the statutory language and the underlying purposes to be served by these commenting that the language of � 550 is "permissive rather than mandatory (the trustee estate had been sufficiently returned to its pre-transfer status by avoiding the preferential the lender had a complete defense to the avoidance action. we express no opinion on although this quotation literally supports the trustee's argument, the context in restore the estate to the financial condition that would have existed had the transfer never bankruptcy court's view), or permissive with respect to both possessory and non- ultimately reversed the award under � 550 because "the value of the security interest at recent decision in re taylor, in which nearly two years elapsed between the filing of the be returned. where the property is unrecoverable or its value diminished by value of the transferred property under �550(a): the bap [t]o the extent a transfer is avoided under section . . . 547 . . . the trustee clerk of court awarded the value of the avoided interest under � 550 instead. id. indeed, as we discuss in re: paul b. bremer and 15 recovery under � 550 needed instead. 408 b.r. at 359-60; see also in re burns, 322 f.3d the trustee argues, however, that the bankruptcy court must award the estate some value of that lien under � 550. this appeal followed. consideration in awarding monetary relief under � 550(a) also involved transfers of nonpossessory liens in which the trustee is also entitled to permissive recovery under � estate. as we explained in in re haberman, upon avoidance of a lien, under � 551 the no. 09-1334 rather, as the bap and several other courts to consider the issue have recognized,