FILED 1 ORDERED PUBLISHED FEB 13 2017
2 SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. NV-16-1218-JuFY ) 6 STEVEN JOHN WHARTON and ) Bk. No. 2:14-bk-18455-ABL JOSEPHINA JESSIE WHARTON, ) 7 ) Debtors. ) 8 ______________________________) ) 9 STEVEN JOHN WHARTON; ) JOSEPHINA JESSIE WHARTON, ) 10 ) Appellants, ) 11 v. ) O P I N I O N ) 12 LENARD SCHWARTZER, Chapter 7 ) Trustee, ) 13 Appellee. ) ______________________________) 14 Submitted without oral argument 15 on January 19, 2017* 16 Filed - February 13, 2017 17 Appeal from the United States Bankruptcy Court for the District of Nevada 18 Honorable August B. Landis, Bankruptcy Judge, Presiding 19 _________________________ 20 Appearances: Appellants Steven John Warton & Josephina Jessie Wharton on brief pro se; Jason A. Imes on brief 21 for appellee, Lenard Schwartzer, chapter 7 trustee. 22 _________________________ 23 Before: JURY, FARIS, and YUN,** Bankruptcy Judges. 24 25 * By order entered on November 7, 2016, a motions panel 26 determined that this appeal was suitable for submission on the briefs and record without oral argument pursuant to Fed. R. 27 Bankr. P. 8019. ** 28 Hon. Scott H. Yun, United States Bankruptcy Judge for the Central District of California, sitting by designation. 1 JURY, Bankruptcy Judge: 2 3 Chapter 71 debtors, Steven John Wharton and Josephina 4 Jessie Wharton (collectively, Debtors), listed a 1965 Corvette 5 as a nonexempt asset in their initial schedules and showed that 6 Steven’s brother, Robert Wharton (Robert), held a nonpurchase 7 money security interest in the vehicle. However, Robert’s 8 security interest in the vehicle was not perfected under Nevada 9 law. Accordingly, the chapter 7 trustee, Lenard Schwartzer 10 (Trustee), sought turnover of the vehicle. 11 Debtors negotiated with Trustee to purchase the Corvette, 12 but these negotiations broke down over price and terms of 13 payment. Trustee filed a motion to compel turnover. Debtors 14 then amended their Schedules B and C to claim an exemption in 15 the full value of the Corvette, which was appraised at $23,000. 16 Trustee objected to the exemption in his reply brief to the 17 turnover motion, but never filed a formal objection to the 18 exemption. Debtors claimed that Trustee’s objection raised in 19 the reply was improper and thus no timely objection to their 20 exemption had been made. 21 After further briefing, the bankruptcy court decided the 22 matter on the basis of stipulated facts presented by the 23 parties. The court sustained Trustee’s objection to Debtors’ 24 claimed exemption in the Corvette under § 522(g)(1)(A), granted 25 26 1 Unless otherwise indicated, all chapter and section 27 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and “Rule” references are to the Federal Rules of Bankruptcy 28 Procedure.
-2- 1 Trustee’s motion for turnover, and entered an order consistent 2 with its ruling. Debtors appeal from that order. 3 For the reasons set forth below, we AFFIRM. 4 I. FACTS2 5 Debtors owned a 1965 Corvette. In July 2011, Steven 6 borrowed $80,000 from Robert. The loan was evidenced by a 7 promissory note signed by Steven and which stated, among other 8 things, that the note was partially secured by the Corvette. In 9 connection with the loan, Steven gave Robert the original title 10 certificate and keys to the vehicle but retained physical 11 possession. Throughout the relevant dates, Steven was listed as 12 the owner on the Corvette’s title certificate. 13 Debtors filed their chapter 7 petition on December 30, 14 2014. Trustee was appointed to administer their bankruptcy 15 estate. Debtors listed the Corvette in their initial schedules 16 as a nonexempt asset with a value of $63,800 and showed that 17 Robert held a nonpurchase money security interest on the 18 vehicle. 19 On March 26, 2015, Robert filed a proof of claim (POC) for 20 $45,000, showing $40,000 secured by the Corvette with the 21 remainder unsecured. 22 Trustee later determined that Robert had not perfected his 23 security interest in the Corvette prepetition under Nevada law 24 because his security interest neither appeared on the state- 25 2 26 Many of the facts are taken from the Stipulated Facts Re Motion to Compel Turnover. To the extent necessary, we take 27 judicial notice of the pleadings filed in the underlying bankruptcy case. Atwood v. Chase Manhattan Mortg. Co. 28 (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).
-3- 1 issued certificate of title nor was he listed as a lienholder. 2 Because the vehicle was in Steven’s name and had not been 3 claimed as exempt, Trustee demanded turnover of the Corvette for 4 the benefit of the estate and creditors. 5 Robert amended his POC to include a copy of the promissory 6 note and cancelled check for the initial loan to Steven. 7 However, he provided no documents that showed his security 8 interest in the Corvette was properly perfected under Nevada 9 law. 10 During negotiations with Trustee over the Corvette, Debtors 11 had the vehicle appraised by CarMax in Bakersfield, California. 12 CarMax provided an “appraisal offer” of $23,000, and Debtors 13 provided this offer to Trustee. Trustee agreed that Debtors 14 could pay the amount of the appraised value less the 20% 15 commission that it would cost him to sell the vehicle at 16 auction, resulting in a total price of $18,400, with payments 17 made over twelve months. The negotiations later broke down over 18 the price and terms of payment. 19 As a result, Trustee filed a motion to compel turnover of 20 the Corvette (Turnover Motion), asserting that the vehicle was 21 property of the estate and that Robert’s lien was unperfected. 22 Trustee informed the bankruptcy court that he had demanded 23 turnover of the Corvette or payment of its value by emails and a 24 letter but that Debtors failed to cooperate. 25 Two weeks before the scheduled hearing on the Turnover 26 Motion, Debtors filed amended Schedules B and C listing the 27 vehicle’s value at $23,000 based on the CarMax appraisal and 28 listing an exemption of this entire value under Nevada Revised
-4- 1 Statute (NRS) 21.090(1)(f).3 Debtors did not amend Schedule D 2 which showed that Robert held a secured interest in the vehicle. 3 Debtors also responded to the Turnover Motion, asserting 4 that they did not initially claim an exemption in the vehicle 5 because they believed that it was subject to a valid security 6 interest. They further stated that once the negotiations with 7 Trustee ended, they amended their schedules to reflect the 8 exemption in the Corvette. 9 In a subsequent reply, Trustee asserted that he could avoid 10 Robert’s unperfected lien under §§ 544 and 550. He further 11 argued that Debtors could not exempt the Corvette based on the 12 provisions of § 522(g)(1)(A) because they had voluntarily 13 transferred a security interest to Robert, citing In re Bub, 528 14 B.R. 555 (Bankr. E.D.N.Y. 2015), and Glass v. Hitt (In re 15 Glass), 60 F.3d 565, 569 (9th Cir. 1995), in support.4 16 Debtors responded to the reply, arguing that there was no 17 transfer of the vehicle but only transfer of the title and the 18 keys. Therefore, according to Debtors, Trustee had not 19 “recovered” the vehicle from a third party since it was always 20 in Debtors’ possession. Debtors also pointed out that there was 21 no attempt to defraud or mislead the bankruptcy court as the 22 3 23 This subsection allows an exemption in one vehicle if the judgment debtor’s equity does not exceed $15,000 or the creditor 24 is paid an amount equal to any excess above that equity. 25 4 Glass stands for the proposition that the trustee 26 “recovers” property within the meaning of § 522(g) so long as the trustee has taken some action resulting in the reconveyance 27 of the property of the estate. In re Glass, 60 F.3d at 568-69. No formal adversary proceeding is required. Bub cites Glass and 28 other cases which hold the same.
-5- 1 vehicle had been listed in their schedules. 2 At the November 19, 2015 hearing on the Turnover Motion, 3 Trustee informed the bankruptcy court that Debtors had claimed 4 an exemption in the vehicle after he filed the motion. As a 5 result, Trustee suggested continuing the matter “about 30 days 6 and - or maybe 45 days,” and stated: “I will file a[n] 7 objection to the claim of exemption that could be heard at the 8 same time as a motion to -- for turnover of the vehicle.” The 9 bankruptcy court set the matter for a January 6, 2016 status 10 conference on Judge Landis’s calendar5 since he was assigned the 11 case and an evidentiary hearing was required. 12 On January 11, 2016, the bankruptcy court scheduled the 13 matter for an evidentiary hearing on May 2, 2016. At the May 2, 14 2016 hearing, the parties advised the court that they had agreed 15 to submit the matter on the basis of stipulated facts. The next 16 day, the bankruptcy court entered an order setting May 9, 2016, 17 as the deadline for filing the stipulation regarding the 18 evidentiary record and closing the record as of that date. The 19 court also set further dates for the parties to file their post- 20 hearing briefs. 21 The parties filed the stipulated facts as required. 22 Trustee filed his post-hearing brief on May 16, 2016. Trustee 23 argued that he raised a timely and sufficient objection to 24 Debtors’ claimed exemption in the Corvette under Rule 4003; 25 i.e., Debtors amended their schedules to claim the exemption on 26 5 27 The November 19, 2015 hearing was before Judge Davis, who as duty judge heard a status conference calendar of motions in 28 cases assigned to all judges in the division.
-6- 1 November 5, 2015, and he objected to the exemption on 2 November 12, 2015, in his reply brief to the Turnover Motion. 3 Accordingly, Trustee maintained that his objection was within 30 4 days of Debtors’ amended Schedule C. Trustee further argued 5 that his objection satisfied Rule 4003, which does not require 6 any particular form for an objection to an exemption under the 7 holding in Spenler v. Siegel (In re Spenler), 212 B.R. 625, 629 8 (9th Cir. BAP 1997). According to Trustee, all that Rule 4003 9 requires is notice of Trustee’s objection and its basis, which 10 must be raised within the applicable time period. Finally, 11 Trustee asserted that Debtors admitted in the stipulated facts 12 that they voluntarily transferred a security interest in the 13 vehicle to Robert. Under these circumstances, Trustee argued 14 that § 522(g)(1)(A) prevented them from claiming the Corvette as 15 exempt. 16 Debtors filed their post-hearing brief on May 23, 2016. 17 Debtors asserted that Trustee had failed to file a timely 18 objection to their exemption and that at no time during the 19 November 19, 2015 hearing did the bankruptcy court acknowledge 20 that Trustee’s reply brief was an objection to Debtors’ 21 exemption. They further argued that at the November 19th 22 hearing, Trustee was directed to file and place on calendar an 23 objection within 45 days. Debtors also pointed out that the 24 facts in Spenler were distinguishable from those here. In 25 Spenler, the trustee had filed a document entitled “Trustee’s 26 Objection to the Two Individual Retirement Accounts Claimed as 27 Exempt by Debtor” within the 30 day period under Rule 4003. In 28 contrast, Trustee filed no pleading expressly objecting to
-7- 1 Debtors’ claim of exemption in this case. 2 Debtors further asserted that § 522(g)(1)(A) was not 3 applicable as there was no transfer of a security interest in 4 the Corvette. According to Debtors, no transfer occurred 5 because the promissory note did not contain a sufficient 6 description of the collateral - a requirement for attachment 7 under NRS 104.9203. For this argument, Debtors relied on the 8 reasoning in Checkett v. Sutton (In re Sutton), 365 B.R. 900 9 (8th Cir. BAP 2007), In re Seibold, 351 B.R. 741 (Bankr. D. 10 Idaho 2006), and In re Dolven, 549 B.R. 386 (Bankr. D. Idaho 11 2016). Finally, Debtors contended that at all times they were 12 acting honestly and simply availed themselves of the exemption 13 provided to them under Nevada law. 14 On May 27, 2016, Trustee filed a response which reiterated 15 his previous arguments; i.e., his objection to Debtors’ 16 exemption set forth in his reply brief was sufficient to meet 17 the requirements of Rule 4003 and § 522(g) applied. 18 On June 30, 2016, the bankruptcy court issued its oral 19 ruling. First, the court found that Trustee’s reply brief in 20 support of the Turnover Motion was sufficient to constitute a 21 timely objection to Debtors’ claim of exemption in the Corvette 22 under the holding in Spenler. Next, the bankruptcy court 23 sustained Trustee’s objection to Debtors’ claimed exemption in 24 the Corvette under § 522(g). According to the court, the 25 agreement between Steven and his brother showed the loan was 26 secured by the value of the Corvette. The bankruptcy court also 27 found that a transfer of the security interest occurred because 28 Debtors gave the title and keys to Robert. The court further
-8- 1 noted that Debtors had stipulated that the transfer was 2 voluntary. Finally, the bankruptcy court held that Trustee had 3 recovered the vehicle under §§ 544 and 550 for the benefit of 4 the estate through his actions since Debtors represented that 5 Robert had released his lien. In the end, the bankruptcy court 6 sustained Trustee’s objection to the exemption and granted 7 Trustee’s Turnover Motion. 8 On July 6, 2016, the bankruptcy court entered an order 9 consistent with its oral ruling. Debtors timely appealed from 10 that order. 11 II. JURISDICTION 12 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 13 §§ 1334 and 157(b)(2)(A), (B) and (E). We have jurisdiction 14 under 28 U.S.C. § 158. 15 III. ISSUES 16 A. Whether the bankruptcy court erred in finding that 17 Trustee timely objected to Debtors’ claimed exemption in the 18 Corvette under Rule 4003; 19 B. Whether the bankruptcy court erred in denying Debtors’ 20 claimed exemption in the Corvette under § 522(g)(1)(A); and 21 C. Whether the bankruptcy court erred in granting 22 Trustee’s Turnover Motion. 23 IV. STANDARD OF REVIEW 24 The issues raised in this appeal are subject to de novo 25 review. See In re Spenler, 212 B.R. at 628 (proper application 26 of Rule 4003(b) is a question of law which we review de novo); 27 Hitt v. Glass (In re Glass), 164 B.R. 759, 761 (9th Cir. BAP 28 1994); Graham Oil Co. v. Gordon C. York, Inc. (In re Kramer), 64
-9- 1 B.R. 531, 532 (9th Cir. BAP 1986) (whether the bankruptcy court 2 correctly applied the law to the stipulated facts is a legal 3 issue subject to de novo review); Gaughan v. Smith (In re 4 Smith), 342 B.R. 801, 805 (9th Cir. BAP 2006) (a debtor’s right 5 to claim exemptions is question of law reviewed de novo); Conrad 6 v. Ace Prop. & Cas. Ins. Co., 532 F.3d 1000, 1004 (9th Cir. 7 2008) (interpretation and meaning of security agreements 8 (contracts) is de novo). 9 De novo means review is independent, with no deference 10 given to the trial court’s conclusion. Charlie Y., Inc. v. 11 Carey (In re Carey), 446 B.R. 384, 389 (9th Cir. BAP 2011) 12 (citing McComish v. Bennett, 611 F.3d 510, 519 (9th Cir. 2010)). 13 V. DISCUSSION 14 On appeal, Debtors contend that the bankruptcy court erred 15 in granting Trustee’s turnover request because the Corvette is 16 an exempt asset. Their arguments regarding the bankruptcy 17 court’s error in denying their exemption essentially mirror 18 those made in the bankruptcy court. First, Debtors contend that 19 Trustee’s objection to their exemption, which was raised for the 20 first time in his reply brief in connection with the Turnover 21 Motion, was not proper. According to Debtors, Trustee was 22 required to file a separate document objecting to their 23 exemption. Since the time has passed for doing so, Debtors 24 maintain that the court should have allowed their exemption. 25 Second, Debtors assert that § 522(g) is not applicable because 26 they disclosed the vehicle in their schedules and only took the 27 exemption after they obtained an appraisal and realized that 28 they had not fully used their vehicle exemption. We are not
-10- 1 persuaded by either of these arguments. 2 A. Trustee’s objection to Debtors’ exemption was timely. 3 Rule 4003(b) governs objections to claims of exemption and 4 states in relevant part: 5 (1) Except as provided in paragraphs (2) and (3), a party in interest may file an objection to the list of 6 property claimed as exempt within 30 days after the meeting of creditors held under § 341(a) is concluded 7 or within 30 days after any amendment to the list or supplemental schedules is filed, whichever is later. 8 The court may, for cause, extend the time for filing objections if, before the time to object expires, a 9 party in interest files a request for an extension. 10 If no objection is filed within the 30 day period 11 proscribed by Rule 4003(b), the debtor’s claimed exemption is 12 valid. Taylor v. Freeland & Kronz, 503 U.S. 638 (1992). Taylor 13 dealt with the timeliness of an objection and not its 14 sufficiency. The panel addressed the sufficiency of an 15 objection in Spenler stating: 16 Rule 4003(b) proscribes no particular form for an objection to exemption. Nevertheless the purpose 17 behind Rule 4003(b) is clear. Rule 4003(b) was meant to provide the debtor with timely notice that the 18 trustee or other interested party objects to a debtor’s claimed exemption. 19 20 212 B.R. at 630. 21 In support of its reasoning, the Spenler panel cited 22 numerous cases where pleadings were “deemed objections” even 23 though they were not styled as an “objection to exemption.” For 24 example, in Havas Leasing Co. v. Breen (In re Breen), 123 B.R. 25 357, 360 (9th Cir. BAP 1991), the panel held that a trustee’s 26 motion for relief from the stay which in essence objected to the 27 debtors’ claim that their truck was exempt as a tool of the 28 trade constituted an objection filed within the 30 day period
-11- 1 for purposes of Rule 4003(b). 2 In Young v. Adler (In re Young), 806 F.2d 1303, 1305 (5th 3 Cir. 1987), overruled on other grounds by Canfield v. Orso (In 4 re Orso), 283 F.3d 686 (5th Cir. 2002), the debtor amended his 5 statement of financial affairs to include an annuity as personal 6 property and claimed it exempt after the trustee had filed a 7 motion arguing that the annuity was part of the estate. The 8 Fifth Circuit found the motion filed by the trustee constituted 9 a timely objection, noting: 10 Debtor does not, and surely cannot, complain that he did not have actual notice of Trustee’s objections. 11 To allow Debtor to gain refuge behind Rule 4003(b) when he amended his financial statement in response to 12 Trustee’s objections would be to elevate form over substance. We cannot countenance such a wooden 13 application of the Bankruptcy Rules. 14 Id. (emphasis in original). 15 Finally, in Applebee v. Brawn (In re Brawn), 138 B.R. 327, 16 333 (Bankr. D. Maine 1992), the debtor asserted a right to a 17 homestead exemption in his motion to avoid the judgment 18 creditors’ lien against his homestead property. The judgment 19 creditors filed a response to the motion, stating that the 20 Debtor was not entitled to a homestead exemption. The judgment 21 creditors later filed a pleading styled “Objection to Exemption 22 Claim,” which the debtor contended was untimely. The bankruptcy 23 court disagreed, finding that, although the judgment creditors 24 had not filed a distinct objection the first time around, they 25 manifested their intent to contest the debtor’s homestead 26 exemption claim and effectively communicated that intent to him 27 and the court well within Rule 4003(b)’s 30-day period. 28 The holding in Spenler is applicable to this case.
-12- 1 Although the better practice would have been for Trustee to file 2 a separate pleading styled as an objection to Debtors’ 3 exemption, under Spenler he did not need to do so. Trustee set 4 forth the basis for his objection to Debtors’ exemption in his 5 reply brief since Debtors had amended their Schedule C claiming 6 the exemption in response to Trustee’s Turnover Motion. 7 Trustee’s reply was filed within 30 days of Debtors’ amending 8 their Schedule C and nowhere do Debtors complain that they did 9 not have notice of Trustee’s objection. Nor could they claim no 10 notice when they responded to Trustee’s objection to their 11 exemption prior to the November 19, 2015 hearing on Trustee’s 12 Turnover Motion. 13 Finally, although Debtors contend otherwise, the November 14 19th hearing transcript does not convince us that the rule in 15 Spenler is inapplicable under these circumstances. The hearing 16 was a status conference and no substantive rulings were made. 17 Although Trustee offered to file a separate objection to 18 Debtors’ exemption, the bankruptcy court did not order him to do 19 so. Accordingly, we hold that Trustee’s objection to Debtors’ 20 exemption in the Corvette was timely. 21 B. Since the requirements of § 522(g)(1)(A) were met, Debtors were not entitled to claim an exemption in the Corvette. 22 23 Section 522(g)(1), in relevant part, provides: 24 [T]he debtor may exempt under subsection (b) of this section property that the trustee recovers under 25 section 510(c)(2), 542, 543, 550, 551, or 553 of this title, to the extent that the debtor could have 26 exempted such property under subsection (b) of this section if such property had not been transferred, if— 27 (1)(A) such transfer was not a voluntary transfer of 28 such property by the debtor; and
-13- 1 (B) the debtor did not conceal such property . . . . 2 It is undisputed that Debtors did not conceal the Corvette, 3 so subsection (B) is not at issue. Rather, our analysis centers 4 on whether Debtors’ grant of a security interest in the Corvette 5 to Robert, who failed to properly perfect that interest, was in 6 the nature of a voluntary transfer which prevents Debtors from 7 asserting an exemption in the vehicle upon Trustee’s recovery of 8 the vehicle for the benefit of the estate. Without either a 9 transfer or recovery, § 522(g)(1)(A) is inapplicable. 10 1. The Voluntary Transfer Element 11 Whether Debtors transferred an enforceable security 12 interest in the Corvette to Robert is a matter of Nevada law. 13 See Butner v. United States, 440 U.S. 48, 54–55 (1979); Diamant 14 v. Kasparian (In re S. Cal. Plastics, Inc.), 165 F.3d 1243, 1248 15 (9th Cir. 1999) (to determine the validity, nature and effect of 16 a lien, courts must look to state law). 17 Under Nevada law, a “security agreement” is “an agreement 18 that creates or provides for a security interest.” 19 NRS 104.9102(uuu). A “security interest,” in turn, is “an 20 interest in personal property . . . which secures payment or 21 performance of an obligation. . . .” NRS 104.1201(ii). Under 22 the Uniform Commercial Code (UCC) as enacted in Nevada, a 23 security interest attaches to collateral when it becomes 24 enforceable against the debtor with respect to the collateral. 25 NRS 104.9203(1). A security interest is enforceable against the 26 debtor and third parties with respect to collateral only if: 27 (a) Value has been given; 28 (b) The debtor has rights in the collateral or the
-14- 1 power to transfer rights in the collateral to a secured party; and 2 (c) One of the following conditions is met: 3 (1) the debtor has authenticated a security 4 agreement that provides a description of the collateral . . . .6 5 NRS 104.9203(2). Unless the creditor’s interest has attached to 6 the collateral, the creditor has no enforceable interest in the 7 collateral. Debtors have placed only subsection (c)(1) of NRS 8 104.9203(2) at issue in this appeal. Therefore, we consider 9 whether there is an authenticated security agreement that 10 provides an adequate description of the collateral. 11 The record shows that Steven signed a promissory note in 12 favor of Robert, dated July 1, 2011, and that a loan for $80,000 13 was made by Robert to Steven. The last sentence of the note 14 states: “Principal and interest due is to be paid in full by 15 August 1, 2016. This note is partially secured by 1965 Corvette 16 automobile.” Accordingly, the promissory note qualifies as a 17 security agreement which by its terms “creates or provides for a 18 security interest.” NRS 104.9102(uuu); see also Nolden v. Plant 19 Reclamation (In re Amex-Protein Dev. Corp.), 504 F.2d 1056, 20 1059-60 (9th Cir. 1974) (finding promissory note qualified as a 21 security agreement). Furthermore, the note was signed by Steven 22 and was therefore authenticated. In re Schwalb, 347 B.R. 726, 23 745 (Bankr. D. Nev. 2006) (“‘[S]igning’ is ‘authentication’ 24 under the UCC . . . .”). In short, the requirement of an 25 authenticated security agreement was met. Debtors do not argue 26 27 6 None of the other conditions listed in the statute are 28 relevant in this case.
-15- 1 otherwise on appeal. 2 Instead, Debtors state in conclusory fashion that they did 3 not have a security agreement with Robert, but rather only a 4 promissory note which did not contain a proper description of 5 the collateral. Debtors argue that without a proper description 6 of the collateral, Robert’s security interest did not attach and 7 therefore was unenforceable. As a result, Debtors contend that 8 they did not make a transfer within the meaning of 9 § 522(g)(1)(A). We disagree with these assertions. As 10 explained below, Debtors did transfer a security interest to 11 Robert under controlling state law. 12 First, contrary to Trustee’s assertion, Debtors did not 13 stipulate that they transferred a security interest to Robert. 14 Rather, they agreed that they scheduled the Corvette as subject 15 to a security interest held by Robert and that they “delivered 16 the original title certificate and keys to the Corvette to 17 Robert Wharton in July 2011.” 18 Whether these facts constitute a “transfer” is a legal 19 conclusion controlled by Nevada law. These stipulated facts are 20 sufficient to show that Steven gave Robert an interest in the 21 1965 Corvette as a condition of obtaining the $80,000 loan, and 22 that Robert held onto the title and keys to ensure repayment.7 23 These facts, coupled with the language in the promissory note, 24 show a “transfer” of “an interest in personal property [that] 25 26 7 To the extent Debtors contend no “transfer” occurred 27 because they had physical possession of the Corvette, they are mistaken. The “transfer” at issue is the transfer of the 28 security interest.
-16- 1 secure[d] payment . . . of an obligation.” NRS 104.1201(ii). 2 There was thus a “transfer” of a security interest in the 3 Corvette to Robert under Nevada law and Debtors did agree that 4 it was voluntary. Debtors are bound by these stipulated facts. 5 See E.H. Boly & Son, Inc. v. Schneider, 525 F.2d 20, 23 n.5 (9th 6 Cir. 1975). 7 Second, Debtors’ contention that the description of the 8 collateral in the promissory note was inadequate is 9 disingenuous. One treatise explains: 10 The principal function of the description requirement is to enable the parties themselves to identify the 11 collateral, and if the parties to the agreement understand what collateral was pledged, the security 12 interest cannot be challenged on the basis that the agreement insufficiently describes the collateral. 13 14 79 C.J.S. Secured Transactions § 45 (June 2011). Here, there is 15 no doubt that the parties to the promissory note - Robert and 16 Steven - understood what collateral was pledged - the 1965 17 Corvette. Therefore, Debtors cannot challenge their transfer of 18 the security interest in the “1965 Corvette” on the basis that 19 the promissory note insufficiently described the collateral. 20 Moreover, a description of collateral under Nevada law is 21 sufficient when “it reasonably identifies what is described.” 22 NRS 104.9108(1). This lenient description standard is met by 23 the description of the collateral as a “1965 Corvette”. 24 In sum, Robert’s security interest attached to the Corvette 25 as all the requirements for attachment under Nevada law were 26 met: value was given, Debtors had rights in the Corvette, and 27 Steven authenticated (signed) the promissory note (security 28 agreement) that provided an adequate description of the
-17- 1 collateral. Robert’s lien against the Corvette was thus 2 enforceable. Moreover, Debtors agreed that they voluntarily 3 gave Robert a security interest. Accordingly, the voluntary 4 transfer element under § 522(g)(1)(A) has been met. 5 The case law cited by Debtors — Sutton, Seibold, and Dolven 6 — do not support a contrary conclusion regarding the transfer 7 element. As shown below, unlike here, in each of those cases no 8 security interest was ever created by the debtor’s actions. 9 Accordingly, there was no transfer of an interest to avoid and 10 recover. 11 Sutton involved a Missouri statute which set forth the 12 requirements for attachment of a security interest which is 13 identical to Nevada’s statute: i.e., value must have been 14 given; the debtor must have rights in the collateral; and the 15 debtor must have authenticated a security agreement that 16 provides a description of the collateral (a vehicle). In re 17 Sutton, 365 B.R. at 904. Similar to this case, a family member, 18 Mrs. Sutton’s father, loaned money to the debtors to purchase a 19 vehicle. However, there was no underlying security agreement 20 and only a notation on the application for the title on the 21 vehicle which listed Mrs. Sutton’s father as a lien holder. The 22 Suttons filed a chapter 7 petition and claimed the entire fair 23 market value of the vehicle exempt and also listed Mrs. Sutton’s 24 father as a secured creditor in their Schedule D. Sometime 25 postpetition, the debtors sold the vehicle and the father 26 released whatever interest he had in the vehicle so the sale 27 could close. 28 After the debtors filed a chapter 7 petition, the trustee
-18- 1 sought to avoid the father’s interest in the vehicle under 2 § 544(a) and also filed an objection to the debtors’ claim of 3 exemption under § 522(g)(1)(A). The father conceded that he did 4 not have a security interest in the vehicle. The bankruptcy 5 court entered judgment in favor of the trustee on his action, 6 but overruled his objection to the debtors’ exemption in the 7 vehicle in two separate orders. In the adversary order, the 8 court noted that the debtors had not authenticated a written 9 security agreement in favor of the father and thus the father 10 did not possess an interest in the vehicle. Although the 11 trustee filed the action under § 544(a) to avoid the lien, the 12 court’s order did not grant a § 544 avoidance but instead 13 granted judgment for the trustee based on a declaration that no 14 security interest existed. Id. at 906. 15 In overruling the trustee’s objection to the exemption, the 16 bankruptcy court found that since there was no valid security 17 agreement in favor of the father, the debtors did not make a 18 prepetition voluntary transfer of an interest in the vehicle to 19 him and thus § 522(g)(1)(A) was inapplicable. In short, since 20 there was no lien, there was nothing to avoid or recover and 21 thus § 522(g) was not applicable. On appeal, the bankruptcy 22 appellate panel affirmed, essentially following the same 23 reasoning as the bankruptcy court. 24 Similarly, Seibold involved a motor vehicle and the lack of 25 an authenticated security agreement. In re Seibold, 351 B.R. at 26 741. The chapter 7 trustee alleged that the debtor’s father had 27 an “unperfected” security interest that could be avoided and 28 obtained a stipulation from him whereby the father surrendered
-19- 1 the certificate of title and agreed to file an unsecured claim. 2 The debtor then filed a second amended Schedule C, again 3 asserting an exemption in the vehicle and adding another 4 exemption in the car under a different Idaho statute. The 5 bankruptcy court ultimately ordered the debtor to give 6 possession of the vehicle to the trustee, who sold the vehicle 7 at auction. 8 After the sale, the debtor filed a motion seeking to 9 enforce her exemptions in the vehicle. The trustee contended 10 that § 551 applied to preserve the lien he had avoided for the 11 benefit of creditors. The bankruptcy court disagreed, 12 concluding that no security interest ever attached under 13 Article 9 of the UCC because there was never a written security 14 agreement authenticated by the debtor. The bankruptcy court 15 held that without the avoidance of an underlying lien, § 551 did 16 not apply. Accordingly, the court granted the debtor’s motion 17 to enforce her exemption claims against the funds. 18 Last, in Dolven the bankruptcy court found that the 19 creditor-bank did not have a lien on real property owned by the 20 debtor because there was no writing containing a legal 21 description of the property - a requirement for a lien under 22 Idaho law. In re Dolven, 549 B.R. at 386. Again, since there 23 was no lien to avoid, the court found that the trustee had not 24 recovered anything to which § 522(g) was relevant. 25 Unlike any of these cases, Debtors had voluntarily 26 transferred a security interest in the Corvette to Robert which 27 had attached and was enforceable under Nevada law. 28 ///
-20- 1 2. The Recovery Element 2 Although Debtors transferred a security interest to Robert, 3 that interest was not perfected. Nevada law requires the 4 secured interest to appear on the state-issued certificate of 5 title. In re Schwalb, 347 B.R. at 746. That was not done here. 6 As a result, Robert’s unperfected interest was subject to 7 avoidance under § 5448 and subject to recovery for the benefit 8 of the estate under § 550. The bankruptcy court properly found 9 Trustee had avoided the interest and recovered it for the 10 estate. 11 In its oral ruling, the bankruptcy court found that the 12 recovery requirement under § 522(g) had been met even though 13 Trustee had not filed an adversary proceeding. The court noted 14 that it was Trustee’s Turnover Motion and the threat of using 15 his avoidance powers under § 544(a) which caused Debtors to 16 amend their Schedules to claim the Corvette exempt and show that 17 Robert’s lien had been released. Since Debtors do not challenge 18 8 19 Section 544 provides in relevant part:
20 (a) The trustee shall have, as of the commencement of the case, and without regard to any knowledge of the 21 trustee or of any creditor, the rights and powers of, or may avoid any transfer of property of the debtor or 22 any obligation incurred by the debtor that is voidable 23 by--
24 (1) a creditor that extends credit to the debtor at the time of the commencement of 25 the case, and that obtains, at such time and 26 with respect to such credit, a judicial lien on all property on which a creditor on a 27 simple contract could have obtained such a judicial lien, whether or not such a 28 creditor exists; . . . .
-21- 1 any of these findings on appeal, those arguments are deemed 2 waived. Smith v. Marsh, 194 F.3d 1045, 1052 (9th Cir. 1999). 3 Moreover, the Ninth Circuit has held that the word 4 “recovers,” as used in § 522(g), does not necessarily require a 5 formal adversary action or proceeding; rather, the ordinary 6 meaning of the word suggests that a trustee may “recover” 7 property in a number of ways, including by merely using the 8 threat of avoidance powers to induce a debtor or transferee to 9 return the property to the estate. In re Glass, 60 F.3d at 568. 10 In other words, “[t]he filing of the objection [to the 11 exemption] containing the threat to use avoidance powers which 12 resulted in the reconveyance of the property to the estate was 13 ‘some action’” taken by the trustee to recover the property. 14 Id. at 569. 15 In sum, all the requirements for application of 16 § 522(g)(1)(A) have been met. Accordingly, Debtors are unable 17 to claim an exemption in the Corvette. 18 C. Ordering turnover of the vehicle was proper. 19 With several exceptions not applicable here, under § 542, a 20 trustee may seek turnover of estate property. Section 542(a) 21 provides: 22 Except as provided in subsection (c) or (d) of this section, an entity, other than a custodian, in 23 possession, custody, or control, during the case, of property that the trustee may use, sell, or lease 24 under section 363 of this title, or that the debtor may exempt under section 522 of this title, shall 25 deliver to the trustee, and account for, such property or the value of such property, unless such property is 26 of inconsequential value or benefit to the estate. 27 Steven was the sole owner of the vehicle listed on the 28 title certificate and was in possession of the Corvette at all
-22- 1 times. Accordingly, on the petition date, the vehicle became 2 property of Debtors’ estate whether it was exempt or not. 3 Taylor, 503 U.S. at 642 (property that is claimed as exempt is 4 included as property of the estate by § 541(a)). As the 5 bankruptcy court properly found, Debtors were not entitled to 6 exempt the Corvette under § 522(g)(1)(A). Therefore, the 7 bankruptcy court did not err in granting Trustee’s Turnover 8 Motion. 9 VI. CONCLUSION 10 For the reasons stated above, we AFFIRM. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
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