07-3256 - Wachovia Dealer Services, et al. v. Edward Jones, et al.

U.S. Tenth Circuit Court of Appeals
(April 10, 2008)

Briefs

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Case Summary (prepared at Washburn Law)

Nature of the Case

The Appellants, Wachovia Dealer Services and Wells Fargo Financial, Inc., appeal from several Orders of the United States Bankruptcy Court for the District of Kansas confirming the Chapter 13 Plan and denying Appellant's Objection to Confirmation and Motion for Reconsideration. This appeal combines five separate claims against five individual debtors that raise identical issues stemming from similar rulings made by the Bankruptcy Court.

Issue Statements

The Appellants raise two issues on appeal. First, did the Bankruptcy Court err in interpreting § 506 to exclude claims on motor vehicles purchased within 910 days prior to the bankruptcy filing ("910 car claims") from allowed secured claims and concluding that the only means to secure a claim is provided for in § 506, thus resulting in the Appellants' purchase money security interest in the debtors' vehicles being unsecured and not entitled to equal treatment under § 1325(a)? Second, did the Bankruptcy Court err in holding "910 car claims" are not allowed secured claims and therefore are not entitled to be paid post-petition interest?

Creditors/Appellants' Position

This is a case of first impression before the Tenth Circuit Court of Appeals and involves interpretation of the Bankruptcy Abuse Prevention and Consumer Protection Act. The Bankruptcy Court misconstrued the "hanging paragraph" of 11 U.S.C. § 1325(a) and its effect. The "hanging paragraph" was not put in place to remove 910 car claims, acquired for personal use, from being an allowed secured claim and state law, not bankruptcy law, controls whether a purchase money security interest is secured or not.

Furthermore, the plain language of the "hanging paragraph" supports Appellants' position that 910 car claims remain allowed secured claims, just not applicable to the bifurcation provisions in § 506. However, the Appellants seem to change their earlier position by stating in their Reply Brief that the statutory language "is anything but clear and unambiguous." Thus, the legislative history surrounding the drafting of the "hanging paragraph" becomes important. The purpose of the "hanging paragraph was not to remove secured status from 910 car claims, but to prevent these claims from going through the process of partial "stripdown" or "cramdown" based upon the value of the vehicle, thus leaving a portion of the creditor's claim unsecured.

The Appellants are also seeking post-petition interest for their 910 car claims. They believe the appropriate interest rate is that which was provided for in Till v. SCS Credit Corp.

Debtors/Appellees' Position

The Bankruptcy Court did not err in interpreting § 506 to exclude the Appellants' 910 car claims from being allowed secured claims. The United States Supreme Court has held that § 506 is a definitional section and determines if and to what extend a creditor holds an allowed secured claim. Furthermore, the Appellants filed for protection under Chapter 13, which is part of the Bankruptcy Code and not governed by state law. Under the Code, there is a difference between a "secured claim" and an "allowed secured claim" pursuant to § 506. Even so, when state law is in direct conflict with the Code, then the Code will trump.

The Appellees agree with the Appellants that the language of a statute, when plain and unambiguous, must be given effect. However, the Appellants are wrong in their interpretation of the plain statutory language and the legislative history supports the Appellees' notion that Congress intended for 910 car claims not to be allowed secured claims.

In addition, the Bankruptcy Court did not err in denying Appellants' request for post-petition interest because § 1325 is discretionary, not mandatory. The Chapter 13 Plan between the Appellants and the debtors did not include post-petition interest, in which the Appellants objected to. However, a Chapter 13 Plan may be confirmed over the objection of creditor if it is executed in good-faith and equitable in its terms and in the instant case, it was.