In re: JONATHAN NORTHINGTON, Debtor.
JONATHAN NORTHINGTON, Defendant- Appellee. TITLE MAX, Plaintiff-Appellant, In re: GUSTAVIUS A. WILBER, Debtor. TITLE MAX, Plaintiff-Appellant,
GUSTAVIUS A. WILBER, Defendant- Appellee.
from the United States District Court for the Middle District
of Georgia D.C. Docket Nos. 4:16-cv-00174-CDL,
4:16-cv-00172-CDL, Bkcy Nos. 4:15-bkc-40962-JTL,
WILSON and NEWSOM, Circuit Judges and MORENO, [*] District Judge.
NEWSOM, Circuit Judge
case requires us to assess the interplay between the United
States Bankruptcy Code and a Georgia statute that defines
state-law property rights. For its part, the Code describes a
bankruptcy estate as including "all legal or equitable
interests of the debtor in property as of the commencement of
the case, " 11 U.S.C. § 541(a)(1), and goes on to
provide, as relevant here, that a Chapter 13 plan can
"modify the rights of holders of secured claims" on
property in the estate, id. § 1322(b)(2).
Meanwhile, Georgia's "pawn" law states that any
"pledged"-i.e., pawned-item that is not
"redeemed" within a statutorily prescribed grace
period "shall be automatically forfeited to the
pawnbroker by operation of [law], and any ownership interest
of the pledgor … shall be automatically extinguished
in the pledged item." Ga. Code Ann. §
do these provisions interact? Very briefly, here's the
deal: The debtor in this case entered into a pawn transaction
in which he pledged his car in exchange for a loan, defaulted
on the loan by failing to repay it on time, and then, shortly
before the expiration of the redemption period-during which
he could pay off his debt (with interest) and thereby regain
title to his car-filed a Chapter 13 bankruptcy petition. Even
though the Bankruptcy Code extended the debtor's
state-law grace period an additional 60 days, he still failed
to redeem the car. All agree that because the debtor filed
for bankruptcy before the grace period lapsed, the car and
the associated right of redemption initially became part of
the bankruptcy estate pursuant to Section 541(a)(1). But this
case presents the following interesting question: Did the
filing of the bankruptcy petition necessarily freeze those
assets in the estate just as they were, such that at
confirmation the pawnbroker remained a mere "holder of
[a] secured claim" whose "rights" the
bankruptcy court could "modify" under Section
1322(b)(2)- here, by extending the repayment schedule? Or
instead, even after the petition's filing, did
Georgia's pawn statute continue to operate in the
background, so to speak, such that upon the expiration of the
redemption period, the car was "automatically forfeited
to the pawnbroker by operation of [law]" and thus ceased
to be property of the estate, leaving no bankruptcy-based
"claim" or "right" to be
of the deference owed to state-law definitions and
regulations of property rights-even in this heavily
"federal" area of law-we hold that the Bankruptcy
Code did not forestall the "automatic" operation
of Georgia's pawn statute, that the car dropped out of
the bankruptcy estate (and vested in the pawnbroker) when the
prescribed redemption period lapsed, and, accordingly, that
with respect to the car, Section 1322(b)(2) had no field of
operation. Simply put, following the expiration of the grace
period, the pawnbroker didn't have a mere
"claim" on the debtor's car-it had the car
September 2, 2015, Gustavius Wilber and TitleMax entered into
a pawn transaction under Georgia law, see Ga. Code
Ann. § 44-14-403, in which Wilber exchanged the
certificate of title on his 2006 Dodge Charger for a $4, 400
cash advance. Because pawn transactions are nonrecourse
loans, Wilber had no firm obligation to repay the advance or
to redeem the Charger; rather, if Wilber failed to pay off
the loan with interest, TitleMax simply took the car.
See Ga. Code Ann. § 44-14-403. Wilber's
pawn transaction matured on October 2, 2015, by which point
he had to repay his loan in order to regain title to his car.
failed to repay the loan by its maturity date. Georgia law,
though, gives a defaulting debtor in a motor-vehicle pawn
transaction a 30-day grace period during which he can redeem
his car. See id. § 44-14-403(b)(1). Here, on
October 30, just before his redemption period was set to
expire on November 2, Wilber-still in possession of the
Charger-filed a petition for relief under Chapter
13 of the United States Bankruptcy Code. Wilber
simultaneously filed his Chapter 13 plan, which listed
TitleMax as a creditor holding a secured claim on the
Charger. Pursuant to 11 U.S.C. § 108(b), the Bankruptcy
Code extended Wilber's state-law grace period an
additional 60 days from the date of his petition, giving him
until December 29 to redeem the car.
extended expiration date came and went with no redemption. On
January 8, 2016, before the bankruptcy court held a
confirmation hearing on Wilber's proposed plan, TitleMax
filed a motion for relief from the Code's automatic-stay
provision, 11 U.S.C. § 362(a), so that it could recover
the Charger, which Wilber still had in his possession. In the
motion, TitleMax contended that Wilber's bankruptcy
estate no longer included the car because Wilber had failed
to redeem it within the extended grace period.
bankruptcy court conducted confirmation hearings on January
21 and February 2, and then on February 9-with TitleMax's
motion for relief from the stay still pending-entered an
order confirming Wilber's Chapter 13 plan. The confirmed
plan treated TitleMax as a creditor on a $5, 036 debt secured
by a claim on the Charger, and provided for repayment of the
pawn loan at a 5% interest rate in installments of $175 per
confirmation, the parties continued to litigate
TitleMax's earlier-filed motion for relief from the
automatic stay, and on April 29, 2016, the bankruptcy court
entered a final order denying that motion. Rejecting
TitleMax's arguments, the court held (1) that the Charger
and the redemption right were property of Wilber's
bankruptcy estate, and remained so even after the expiration
of the Code-extended grace period, and accordingly (2) that
TitleMax didn't own the car itself, but rather continued
to hold only a secured "claim" on it, which gave
rise to repayment "rights" that could be
"modif[ied]" under Section 1322(b)(2). In re
Wilber, 551 B.R. 542, 544-47 (Bankr. M.D. Ga. 2016). The
bankruptcy court separately (and alternatively) concluded
that under 11 U.S.C. § 1327(a) and "[t]he doctrine
of res judicata, " the order confirming Wilber's
Chapter 13 plan precluded any relief for TitleMax, which the
court said had "slept on its rights by not timely
objecting" to confirmation. Id. at 547-48.
district court affirmed the bankruptcy court's decision
on the merits, without addressing the "res
judicata" issue. In particular, the district court
"agree[d] with the bankruptcy court's
conclusion" that "because the vehicle[ was] part of
the debtor['s] estate when the debtor filed [his]
Chapter 13 petition, Title Max held [a] secured claim in
the vehicle that could be modified under 11 U.S.C. §
1322(b)(2)." Title Max v. Northington, 559 B.R.
542, 545 (M.D. Ga. 2016).
timely appealed to this Court, challenging the district
court's affirmance of the order denying its motion for
relief from the automatic stay. Title Max's appeal
presents questions of law, which we review de novo.
See In re Paschen, 296 F.3d 1203, 1205 (11th Cir.
2002) (internal citations omitted).
jumping into the merits, we must first address the bankruptcy
court's alternative (but logically antecedent) holding
that TitleMax's challenge is procedurally barred on
"res judicata" grounds.
bankruptcy court held that TitleMax "slept on its
rights" by "fail[ing] to timely object to
confirmation" of Wilber's proposed Chapter 13 plan.
551 B.R. at 548. Accordingly, the court held that its
confirmation order was conclusive under 11 U.S.C. §
1327(a)-which generally binds a debtor and his creditors to
the terms of a confirmed plan-and "[t]he doctrine of res
judicata." 551 B.R. at 548.
particular circumstances of this case, we cannot agree that
TitleMax impermissibly "slept on its rights" and
thus forfeited its ability to raise the argument that it
presents on appeal. The decision that the bankruptcy court
cited for support, In re Young, 281 B.R. 74 (Bankr.
S.D. Ala. 2001), provides a useful (and stark) contrast. As
in this case, the debtor in Young failed to redeem
property that it had pledged to a pawnbroker. And as in this
case, the bankruptcy court held a hearing on the debtor's
proposed Chapter 13 plan-which listed the pawnbroker as the
creditor on the pawn debt-and later entered an order
confirming the plan. The pawnbroker in Young,
however, did absolutely nothing to preserve its argument that
it had rightful title to the pawned property. It didn't
"participate in the confirmation [hearing], " nor
did it in any way contest the plan's consummation;
rather, following confirmation, the pawnbroker simply set
out, unilaterally, to sell the pawned property, prompting the
debtor to file a motion to enforce the automatic stay.
See id. at 76, 80.
by contrast, even before the bankruptcy court held a
confirmation hearing, and thus by definition before it
entered any confirmation order, TitleMax filed a written
motion in which it contended-just as it does here-that at the
moment Wilber failed to redeem the Charger pursuant to
Georgia's pawn statute, the car ceased to be property of
the bankruptcy estate. TitleMax then appeared at the hearing,
and later filed post-hearing briefs, to reiterate its
position. When the bankruptcy court later denied its motion
for relief from the automatic stay, thereby bringing the
bankruptcy proceeding to a close, TitleMax appealed directly
to the district court and then, following that court's
affirmance, directly to this Court.
dissenting colleague, who would affirm on res-judicata
grounds, is of course quite right to say that TitleMax had
"to take some action" in order to preserve its
position that the car dropped out of the estate upon the
expiration of the redemption period. Dissenting Op. at 30
n.2. The question is precisely what form that
"action" had to take. The dissent repeatedly
protests that TitleMax didn't formally "object"
to the confirmation of Wilber's Chapter 13 plan. See,
e.g., Dissenting Op. at 29, 30, 31, 32, 33, 36, 37, 38,
39. That's true-no one denies it, and TitleMax freely
admits it. We hold, though, that on the unique facts
of this case, TitleMax was not required to file an
"Objection"-styled as such-but rather adequately
preserved its position through its pre-confirmation motion
for relief from the automatic stay, which it briefed and
argued to the bankruptcy court.
as a practical matter, there is no substantive difference
between the styled-as-such "Objection" that the
dissent would seemingly require and the motion for relief
that TitleMax actually filed. As Wilber's counsel
candidly acknowledged at oral argument, "the body of
[TitleMax's motion] was exactly what they needed for an
objection to confirmation." Oral Arg. Tr. at 20:38.
"They could've changed the title" of the
pleading, he said, "and not had to change anything else
other than the request for the relief." Id. The
parties thus agree that TitleMax put the substance
of its position-namely, that the Charger ceased to be estate
property when the redemption period lapsed-squarely before
the bankruptcy court.
as a legal matter, in the circumstances presented here,
TitleMax didn't need to file a styled-as-such
"Objection" in order to preserve its position that
the Charger ceased to be estate property upon the expiration
of the redemption period; rather, that argument was
adequately teed up (just as TitleMax presented it) in a
motion for relief from the stay. Cf. In re Boyd, 11
F.3d 59, 60 (5th Cir. 1994) (holding that even where a
Chapter 13 plan was confirmed without a formal objection, a
creditor's motion for relief from the stay adequately
preserved its argument that disputed property was not
properly part of the bankruptcy estate). TitleMax filed
its motion pre-confirmation, making exactly the same argument
and seeking exactly the same relief that it does here. When
the bankruptcy court rejected its argument and denied its
motion, TitleMax took an appeal directly to the district
court and then, following that court's affirmance, came
straight to this Court.
that in the particular (and peculiar) factual and procedural
posture in which this case arises, TitleMax did enough to
preserve its position. We turn, then, to an evaluation of the
district court explained its decision on the merits in two
parts. Initially, the court observed, "when [Wilber]
filed [his] Chapter 13 petition, the vehicle[ was] part of
[his] bankruptcy estate and Title Max held [a] secured
claim" in it. 559 B.R. at 546. Accordingly, the court
concluded, because the Bankruptcy Code provides in 11 U.S.C.
§ 1322(b)(2) that "a Chapter 13 plan may
'modify the rights of holders of secured claims'
… the bankruptcy court was authorized to modify Title
Max's claim as it did …." Id. The
district court skipped an important step-a mistake that our
dissenting colleague largely repeats-and it is that step on
which this appeal largely turns.
order to hold (as the district court did) that Wilber's
Chapter 13 plan could modify TitleMax's rights, it would
be necessary not only to conclude (as the district court did)
that the Charger initially became part of Wilber's
bankruptcy estate with the filing of his petition, but also
to find (as the district court did not) that it
remained in the estate even after the expiration of the
prescribed redemption period. We agree with the district
court that the Charger entered Wilber's estate, but we
hold that it dropped out-pursuant to the
"automatic" operation of Georgia's pawn
statute-when the grace period lapsed.
make quick work of the first issue. Section 541 of the
Bankruptcy Code specifies the property interests that
constitute the bankruptcy estate. 11 U.S.C. § 541. In
relevant part, Section 541 states that a debtor's estate
comprises "all legal or equitable interests of the
debtor in property as of the commencement of the case."
Id. at (a)(1). As used in Section 541(a)(1), the
term "commencement" means the date on which the
debtor filed his bankruptcy petition. See 5
Collier on Bankruptcy ¶ 541.02 (16th ed. 2017).
concedes, and the parties thus agree, that "on October
30, 2015- the date he filed his bankruptcy petition-Wilber
retained property interests in the Charger that became
'property of the estate' under 11 U.S.C. §
541." Br. of Appellant at 10. In particular, the parties
agree that the car, which remained in Wilber's
possession, as well as the associated right to redeem
it-which at that time had not yet expired-entered the estate
with the filing of his petition. Id. at 8 (referring
to the "right to possess" and the "right to
redeem" as "property interests related to the
Charger that … entered the bankruptcy estate").
all seems right to us. The Supreme Court has observed that
"§ 541(a)(1)'s scope is broad, "
United States v. Whiting Pools, 462 U.S. 198, 204
(1983), and existing precedent supports the parties'
shared view that both the Charger and the right of redemption
became estate assets upon the filing of Wilber's
bankruptcy petition. See In re Lewis, 137 F.3d 1280,
1284 (11th Cir. 1998) (stating that a debtor's
"statutory right of redemption in the automobile became
'property of the estate' under 11 U.S.C. §
541(a)(1) at the commencement of the case"); In re
Moore, 448 B.R. 93, 100 (Bankr. N.D.Ga. 2011) (finding
that debtors' vehicles entered the estate where, as here,
the debtors "had possession of the pawned vehicles at
the time of the bankruptcy filing and the grace periods for
their redemptions had not yet expired").
it's a big but-contrary to the district court's
(implicit) determination, finding that the car and the
redemption right were initially made part of Wilber's
bankruptcy estate doesn't end the inquiry. The
controlling question isn't whether Wilber's property
interests in the Charger entered the bankruptcy estate in the
first instance-they did-but rather whether, despite the
expiration of the prescribed grace period, those assets
remained in the estate at the time of confirmation,
such that TitleMax's rights in them could be
"modif[ied]" under Section 1322(b)(2). That is the
issue to which we now turn.
parties have clearly joined issue on the question whether an
asset that is initially made part of a bankruptcy estate must
necessarily remain there, irrespective of the underlying
state law that defines it-or whether, instead, the ordinary
operation of that state law can (for reasons wholly separate
from the bankruptcy) cause the asset to drop out of the
estate. For its part, TitleMax insists that "[n]o
principle of bankruptcy law requires that a debtor's
bankruptcy estate be frozen in time where a debtor's
state-law interest in property is divested after the date of
filing." Br. of Appellant at 10. Wilber rejoins,
precisely to the contrary, that "it is clear that the
estate is in fact 'frozen in time' as of the filing
of the case." Br. of Appellee at 5. The battle lines
thus clearly drawn, we must decide whether the filing of a
bankruptcy petition necessarily freezes the debtor's
estate and thereby forestalls the operation of the state-law
rules that define and regulate the property interests that
comprise that estate.
assessing this question, we begin with an important
stage-setting observation: Even in the uniquely
"federal" bankruptcy context, "[p]roperty
interests are created and defined by state law."
Butner v. United States, 440 U.S. 48, 55 (1979);
accord, e.g., Barnhill v. Johnson, 503 U.S.
393, 398 (1992) (observing that, as a general matter,
"'property' and 'interests in property'
are creatures of state law"). Particularly significant
for present purposes, this Court has emphasized that although
"whether an interest of the debtor is property of the
estate is a federal question, " "the nature and
existence of the debtor['s] right to property is
determined by looking to state law." In re
Thomas, 883 F.2d 991, 995 (11th Cir. 1989).
analyzing a bankruptcy estate requires two tiers of inquiry,
first into the assets of the estate, and then into the
underlying property rights and interests that constitute each
asset-first, that is, into the estate's contents, and
then into the contents of the contents. The second, more
granular inquiry-into the nature of a debtor's property
interest in a particular estate asset-turns on state law.
See Butner, 440 U.S. at 54 ("Congress has
generally left the determination of property rights in the
assets of a bankrupt's estate to state law.");
In re Smith, 85 F.3d 1555, 1557 (11th Cir. 1996)
("The property rights of a debtor in a bankruptcy estate
are defined by state law."); Norton Bankruptcy Law
and Practice § 61.3 (3d ed. 2016) ("State law
determines the existence, nature, and extent of any property
interests a debtor may have.").
respect to the particular estate asset at issue
here-Wilber's pawned Charger-the applicable state law is
crystal clear: Under Georgia's pawn statute,
"[p]ledged goods not redeemed within the grace period
shall be automatically forfeited to the pawnbroker .
. . and any ownership interest of the pledgor or seller shall
automatically be extinguished as regards the pledged
item." Ga. Code Ann. § 44-14-403(b)(3) (emphasis
added). All agree that under Section 44-14-403(b)(3)'s
plain terms, the expiration of the redemption period is
conclusive-the debtor loses title to his pawned property,
which vests immediately and by operation of law in the
pawnbroker. Indeed, at oral argument, Wilber's counsel
acknowledged that but for the bankruptcy "stepp[ing] in,
" TitleMax "would have had th[e] car" and
Wilber would have had "no recourse." Oral Arg. Tr.
at 24:50. The question presented here is whether federal
bankruptcy law changes all that, prevents the ordinary and
"automatic" operation of Georgia's pawn
statute, and prohibits title to the Charger from passing, as
it otherwise would, from Wilber to TitleMax.
clear, we are not concerned here with congressional power;
Congress has extensive authority in the bankruptcy
arena-including the authority to supersede state property
law. See U.S. Const. Art. I, § 8, cl. 4.
Rather, the issue before us is whether Congress has in fact
exercised that authority. In answering that question, we take
our cue from the Supreme Court's decision in BFP v.
Resolution Trust Corp., 511 U.S. 531 (1994). There, the
Court considered the meaning of Section 548 of the Bankruptcy
Code, which empowers a bankruptcy trustee to set aside
"constructively fraudulent transfers, " including
an insolvent debtor's sale of property, within one year
before filing bankruptcy, for less than "reasonably
equivalent value." 11 U.S.C. § 548(a)(2). The
particular issue before the Court in BFP was whether
the term "reasonably equivalent value" should be
read to imply a "fair market value" benchmark-or
whether, instead, the statutory term should be understood by
reference to the underlying state law, such that the price
fetched at a foreclosure ...