On consecutive days, bankruptcy judges in San Antonio and Oklahoma City wrote decisions on preference questions where the courts are divided.
Chief Bankruptcy Judge Ronald B. King of San Antonio sided with the majority by holding that Bankruptcy Rule 9006(a) expands the 30-day window for perfection of a security interest until the next business day when the last day falls on a weekend or holiday.
Bankruptcy Judge Janice Loyd of Oklahoma City did not rule definitively but said she was “inclined” to follow the majority by taking the more flexible approach and finding no preference if perfection was “substantially contemporaneous,” even though perfection occurred outside the 30-day window.
Does Rule 9006(a) Expand the 30-Day Window?
Judge King’s case involved a debtor who purchased a car two months before filing a chapter 13 petition. The car dealer took a purchase money security interest but did not record title until 32 days after delivering the car to the debtor.
The thirtieth day fell on a Saturday. The seller recorded the deed on the following Monday. The chapter 13 trustee sought to avoid the security interest as a preference because it was not perfected within 30 days under Section 547(c)(3)(B).
In his August 5 opinion, Judge King ruled in favor of the seller and found no preference in light of Bankruptcy Rule 9006(a).
Section 547(c)(3)(B) provides that a trustee may not avoid a transfer “that is perfected on or before 30 days after the debtor receives possession of such property.” Perfection on the 32nd day would not be a preference if Bankruptcy Rule 9006(a)(1)(C) were to apply.
Entitled “Computing Time,” the rule applies “in computing any time period specified in these rules, in the Federal Rules of Civil Procedure, in any local rule or court order, or in any statute that does not specify a method of computing time.” When the last day falls on a weekend or holiday, the rule goes on to say that the last day becomes the next day that is not a weekend or holiday.
The trustee argued that the procedural rule in Rule 9006(a) does not apply because the 30-day limit in Section 547(c) is substantive. Judge King disagreed.
The majority of courts, he said, make the rule applicable to the statute, especially because the rule now says it applies to “any statute.” He noted that some of the cases taking the contrary view were written before the rule was amended in 2009. Before the change, the rule applied to “any applicable statute.” Now it pertains to “any statute that does not specify a method of computing time.”
The minority view, Judge King said, would “significantly shorten” the time within which a lender must perfect a security interest. He therefore granted summary judgment in favor of the seller.
The Conflict Between Sections 547(c)(1) and 547(e)(2)
In her August 6 opinion, Judge Loyd tackled a circuit split regarding the avoidance of a security interest when perfection occurs more than 30 days after the lender made a cash advance. She laid out compelling arguments for both sides.
The question arose under Section 547(c)(1), which provides that a trustee may not avoid a transfer of a security interest if it was intended by both parties “to be a contemporaneous exchange” and was “in fact a substantially contemporaneous exchange.”
The question was this: Is perfection not “substantially contemporaneous” if not made within the 30-day window prescribed by Section 547(e)(2)? For preferences, the section provides that a transfer occurs when the transfer takes effect if perfection occurs within 30 days.
A majority of circuits take a “flexible approach,” Judge Loyd said. They hold that Section 547(e)(2) does not determine when perfection is substantially contemporaneous under Section 547(c)(1). In other words, she said that the majority believe that Section 547(e)(2) does not “create an absolute, thirty-day deadline for when the perfection of a security interest can be deemed substantially contemporaneous under § 547(c)(1).”
Judge Loyd said that the Tenth Circuit has not taken sides. “If pressed,” Judge Loyd said she “is inclined to adopt the more flexible approach” of the majority.
However, Judge Loyd did not adopt either point of view, because she denied the trustee’s motion for summary judgment. Trial and a full airing of the facts, she said, might lead to the same result, whichever test is applied.
The opinions are Viegelahn v. Ruben’s Auto Sales (In re Daniel), 20-05009 (Bankr. W.D. Tex. Aug. 5, 2020); and Gould v. Falcon Strategic Partners IV LP (In re Integrity Directional Services LLC), 19-01104 (Bankr. W.D. Okla. Aug. 6, 202).
On consecutive days, bankruptcy judges in San Antonio and Oklahoma City wrote decisions on preference questions where the courts are divided.
Chief Bankruptcy Judge Ronald B. King of San Antonio sided with the majority by holding that Bankruptcy Rule 9006(a) expands the 30-day window for perfection of a security interest until the next business day when the last day falls on a weekend or holiday.
Bankruptcy Judge Janice Loyd of Oklahoma City did not rule definitively but said she was “inclined” to follow the majority by taking the more flexible approach and finding no preference if perfection was “substantially contemporaneous,” even though perfection occurred outside the 30-day window.
Does Rule 9006(a) Expand the 30-Day Window?
Judge King’s case involved a debtor who purchased a car two months before filing a chapter 13 petition. The car dealer took a purchase money security interest but did not record title until 32 days after delivering the car to the debtor.
The thirtieth day fell on a Saturday. The seller recorded the deed on the following Monday. The chapter 13 trustee sought to avoid the security interest as a preference because it was not perfected within 30 days under Section 547(c)(3)(B).
In his August 5 opinion, Judge King ruled in favor of the seller and found no preference in light of Bankruptcy Rule 9006(a).