JOHN E. WAITES, US Bankruptcy Judge, District of South Carolina.
This matter is before the Court on Debtor's Motion for Immediate Turnover, filed November 26, 2014. The Court has jurisdiction over the proceeding pursuant to 28 U.S.C. §§ 1334 and 157. This adversary proceeding is a core proceeding under 28 U.S.C. § 157(b)(2)(E) and relates to the Chapter 13 bankruptcy case of Debtor Jason Curtis Nelson, C/A No. 14-06385, pending before the undersigned. Pursuant to Fed.R.Civ.P. 52, which is made applicable to this contested matter by Fed. R. Bankr.P. 7052 and 9014(c), the Court makes the following findings of fact and conclusions of law.
1. On October 28, 2013, Debtor submitted a Credit Application to Arlington Auto Exchange in connection with the financing and purchase of a 2002 Chevrolet Trailblazer ("vehicle") from Arlington Auto Exchange. $6,723.40 of the vehicle's total purchase price of $8,699.00 was financed and a related Security Agreement and Sales Contract were completed and subsequently assigned to Summit Funding Corporation ("Summit"). The entirety of this transaction, including the formation and execution of the Security Agreement and Sales Contract, took place in the state of Florida. At the time of the financing and purchase of the vehicle, Debtor was a resident of Florida.
2. In December of 2013, Debtor received an offer of temporary employment which required him to relocate to the state of South Carolina. Debtor continued to use the vehicle as his primary means of transportation during and after his December relocation.
3. In May of 2014, Debtor was offered a full-time position with his South Carolina employer, which he accepted. Several months later, in August of 2014, Debtor was let go by his employer; Debtor remained in South Carolina while unemployed and continues to reside in the state today. The loss of his full-time employment income caused Debtor to fall behind on his payments on the vehicle.
4. Due to Debtor's default in payments, Summit exercised its rights as a secured party and repossessed the vehicle on October 29, 2014.
5. On November 7, 2014, Debtor filed a voluntary Chapter 13 bankruptcy petition in this District with the goal of reorganizing his finances to cure child support arrears and exercise his purported right to redeem the vehicle. Debtor listed Arlington Auto Exchange as a secured creditor and requested an immediate turnover of the vehicle in light of his proposed Chapter 13 plan's provision of full payment over the life of the plan of Arlington Auto Exchange's secured claim, plus interest.
7. On December 12, 2014, Summit filed an Objection to Debtor's Motion asserting that Debtor should be barred from exercising the statutory right of redemption found in S.C.Code Ann. § 36-9-623,
8. On December 16, 2014, an expedited hearing was held on Debtor's Motion and Summit's Objection. Thereafter, in compliance with the Court's request at the hearing, counsel for Debtor submitted a Response to Summit's Objection on December 18, 2014. Summit submitted its Reply to Debtor's Response on December 19, 2014.
Pursuant to 11 U.S.C. § 542(a),
Under S.C.Code Ann. § 36-9-623,
Merritt Dredging, 839 F.2d at 205.
In discussing the "wrinkle" within the "question of what choice of law rules should be applied by a bankruptcy court... in determining which state's law to apply" in a situation similar to that which is presented by Debtor's Motion, the Fourth Circuit in Merritt Dredging held that "in the absence of a compelling federal interest which dictates otherwise, the Klaxon rule should prevail where a federal bankruptcy court seeks to determine the extent of a debtor's property interest." Id. at 205-06 (emphasis in original). Thus, this Court must apply the conflict of law rules contained within South Carolina state law to determine whether South Carolina or Florida law governs the extent of Debtor's legal or equitable interest, if any, in the vehicle through any applicable right of redemption; the Court does not find a compelling federal interest that would require a different conclusion. Therefore, it is true that the principles of Merritt Dredging and its progeny are applicable to this case, but not in a manner favorable to Debtor's position. Instead, the Merritt Dredging holding and the analysis of South Carolina conflict of law provisions which it requires support Summit's position: Florida law governs the rights of Debtor and Summit in the vehicle.
Pursuant to the Klaxon rule, as adopted by the Fourth Circuit in Merritt Dredging and argued by Debtor as applicable to his case, South Carolina's Commercial Code ("UCC") and its choice of law principles are the state laws through which Debtor's property interest in the vehicle must be examined. "Generally, under South Carolina choice of law principles, if the parties to a contract specify the law under which the contract shall be governed, the [C]ourt will honor this choice of law." Nucor Corp. v. Bell, 482 F.Supp.2d 714, 727 (D.S.C.2007). Beyond this general choice of law principle embodied in cases interpreting South Carolina law, the UCC offers additional statutory guidance on the issue. In Merritt Dredging, for example, the Fourth Circuit reviewed UCC § 36-1-301,
Unlike South Carolina law, the state laws of Florida do not consider the right to redeem a vehicle repossessed pre-petition to be a legal or equitable interest possessed by a debtor which would allow for the repossessed vehicle to qualify as "property of the estate" under § 541. See id. Under Florida law,
In re Lindo-Dmyfryk, No. 6:09-bk-06721-KSJ, 2009 WL 3013496, at *1 (Bankr. M.D.Fla.2009) (quoting Kalter, 292 F.3d at 1354) (referencing Florida Statute § 679.506, predecessor to Florida Statute § 679.623, governing the right to redeem collateral in Florida as of January 1, 2002). In the instant case, Debtor's proposed Chapter 13 plan in his related bankruptcy case does not take the necessary "affirmative
As discussed above, the applicable South Carolina conflict of law requires the Court to honor the Security Agreement's choice of law provision. Debtor's interest in the vehicle and any related right to redeem is, therefore, properly determined under Florida law as agreed by the parties upon execution of the Security Agreement and Sales Contract. Florida law states that a debtor's right to redeem is insufficient to qualify a vehicle repossessed pre-petition as property of the bankruptcy estate, particularly where a debtor does not propose to tender in a single payment the entire balance owed to the secured creditor immediately upon redemption under Florida law. Therefore, Debtor's Motion is
The facts show that the vehicle remains titled under Florida statute. See Summit Obj. at p. 3.