The Bankruptcy Estate of Morgantown Excavators, In v. The Huntington National Bank

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IN THE UNITED STATED BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
IN RE: 	)
)
SHIRLEY E. GODFREY, 	) 	Case No. 14-bk-565
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Debtor. 	) 	Chapter 7
)
IN RE: 	)
)
MORGANTOWN EXCAVATORS, INC 	) 	Case No. 12-bk-570
)
Debtor 	) 	Chapter 7
___________________________________ 	)
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MORGANTOWN EXCAVATORS, INC., 	)
And SHIRLEY E. GODFREY, 	)
)
Plaintiffs, 	)
)
v. 	) 	Adv. Proc. No. 1:13-ap-24
)
THE HUNTINGTON NATIONAL BANK, 	)
)
Defendant. 	)
MEMORANDUM OPINION
On June 14, 2016 Shirley E. Godfrey, Morgantown Excavators, Inc. (“MEI”), and their
respective Chapter 7 bankruptcy estates (collectively, the “Plaintiffs”), filed their complaint
against The Huntington National Bank (“HNB”) and Myron Bowling Auctioneers, Inc. (“Myron
Bowling”), alleging multiple violations of the West Virginia Uniform Commercial Code (U.C.C.)
and other applicable state law based on HNB’s sale of MEI’s equipment, which served as collateral
securing certain loans HNB made to the Plaintiffs, to Myron Bowling. By previous memorandum
opinion and order, the court resolved HNB’s motion for summary judgment partially in its favor
Dated: Monday, September 12, 2016 1:27:41 PM
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and dismissed Myron Bowling as a defendant. The only remaining claim before the court is that
HNB sold MEI’s collateral equipment in a commercially unreasonable manner.
The Plaintiffs seek summary judgment in their favor solely as to HNB’s liability based
upon the claim that HNB failed to sell the collateral in a commercially reasonable manner because
the notice provided was not commercially reasonable. 	They assert that because equitable title
passed to Myron Bowling earlier than HNB’s notice claimed it would sell MEI’s equipment, HNB
disposed of the collateral without sufficient notice. 	In response, HNB argues that the Plaintiffs
seek to reinterpret HNB and Myron Bowling’s Asset Purchase Agreement in a way that contradicts
the intentions of the drafting parties. HNB further asserts that no equitable interest was transferred
until legal title passed, and even if an equitable interest passed, such a transfer is not a disposition
under the U.C.C. 	For the reasons stated herein, the court will grant summary judgment on the
requested declaration by the Plaintiffs.
I. STANDARD OF REVIEW
Federal Rule of Civil Procedure 56, made applicable by Federal Rule of Bankruptcy
Procedure 7056, provides that summary judgment is only appropriate if the movant demonstrates
“that there is no genuine dispute as to any material fact and the movant is entitled to judgment as
a matter of law.” Fed. R. Civ. P. 56(a). A party seeking summary judgment must make a prima
facie case by showing: first, the apparent absence of any genuine dispute of material fact; and
second, the movant’s entitlement to judgment as a matter of law on the basis of undisputed facts.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242 248 (1986).
The movant bears the burden of proof to establish that there is no genuine dispute of
material fact. 	Celotex Corp v. Catrett, 477 U.S. 317, 325 (1986). 	Showing an absence of any
genuine dispute as to any material fact satisfies this burden. Id. at 323. Material facts are those
necessary to establish the elements of the cause of action. Anderson, 477 U.S. at 248. Thus, the
existence of a factual dispute is material—thereby precluding summary judgment—only if the
disputed fact is determinative of the outcome under applicable law. Shaw v. Stroud, 13 F.3d 791,
798 (4th Cir. 1994). “Disposition by summary judgment is appropriate . . . where the record as a
whole could not lead a rational trier of fact to find for the non-movant.” Williams v. Griffin, 952
F.2d 820, 823 (4th Cir. 1991) (citation omitted); see also Anderson, 477 U.S. at 248.
If the moving party satisfies this burden, the nonmoving party must set forth specific facts
that demonstrate the existence of a genuine dispute of fact for trial. 	Celotex Corp., 477 U.S. at
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322-23. The court is required to view the facts and draw reasonable inferences in the light most
favorable to the nonmoving party. 	Shaw, 13 F.3d at 798. 	However, the court’s role is not “to
weigh the evidence and determine the truth of the matter [but to] determine whether there is a need
for a trial.” Anderson, 477 U.S. at 249-50. Nor should the court make credibility determinations.
Sosebee v. Murphy, 797 F.2d 179, 182 (4th Cir. 1986). If no genuine issue of material fact exists,
the court has a duty to prevent claims and defenses not supported in fact from proceeding to trial.
Celotex Corp., 477 U.S. at 317.
II. BACKGROUND
The court summarized many of the relevant facts in its previous memorandum opinion
disposing of the prior motions for summary judgment filed by HNB and Myron Bowling. The
Bankruptcy Estates of Morgantown Excavators, Inc. v. The Huntington National Bank (In re
Godfrey), 537 B.R. 271 (Bankr. N.D.W. Va. 2015). 	Nonetheless, the court will briefly recite
certain key facts.
MEI executed multiple promissory notes to HNB on April 9, 2010. 	Shirley Godfrey
personally guaranteed repayment of these notes. As collateral for the notes, MEI granted HNB a
security interest in multiple categories of collateral, including its equipment. MEI failed to make
required payments on its promissory notes, entered into multiple forbearance agreements, and then
again defaulted by failing to make payments. 	As a result, HNB made plans to sell MEI’s
equipment.
On February 27, 2012, HNB and Myron Bowling entered into an Asset Purchase
Agreement (the “Agreement”). The parties executed this agreement in anticipation of a future sale
of MEI’s equipment. 	By its terms, the Agreement provided that Myron Bowling would pay
$535,000 to HNB for MEI’s collateral. The Agreement obligated Myron Bowling to pay a 25%
deposit upon execution of the contract and to pay the remaining 75% upon “Purchaser’s removal
of the equipment from its location and HNB providing title (including title certificates for any
titled Equipment).” Furthermore, under the Agreement, Myron Bowling was to take possession
of the property no later than March 15, 2012. The Agreement required HNB to deliver good title
for all equipment and permitted the parties to accept partial performance of the contract should
complications arise outside of their control. 	Finally, the Agreement contains a merger clause
which indicates that it constitutes the entire agreement between the parties; supersedes any prior
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agreements, representations, or understandings; and may only be modified by signed written
agreement of the parities.
On March 5, 2012, Myron Bowling took possession of MEI’s equipment. Then, on March
22, 2012, HNB sent a notice of private disposition to the Plaintiffs. This notice stated that HNB
would sell MEI’s equipment by private disposition “sometime after April 9, 2012.” The next day,
March 23, 2012, Myron Bowling paid HNB the full purchase price of MEI’s equipment. Sometime
before April 6, 2012, Myron Bowling began to advertise for a public auction of MEI’s equipment
to be held on April 20, 2012. On April 18, 2012, HNB delivered a Bill of Sale and executed titles
for the equipment in favor of Myron Bowling. Myron Bowling then sold the equipment at a public
auction on April 20, 2012.
III. DISCUSSION
The Plaintiffs assert that the facts before the court demonstrate that Myron Bowling
acquired equitable title to MEI’s equipment no later than March 23, 2012. The Plaintiffs further
allege that transfer of equitable title amounts to a disposition of collateral under the Uniform
Commercial Code (“U.C.C.”). Thus, the Plaintiffs argue that HNB failed to provide commercially
reasonable notice to the Plaintiffs that HNB was disposing of MEI’s collateral. In response, HNB
argues that it and Myron Bowling contracted to transfer title in a commercially reasonable manner
pursuant to the U.C.C., that the Plaintiffs seeks to impose upon the parties to the Agreement
intentions that they lacked, and that the Agreement did not pass equitable title to Myron Bowling.
Moreover, HNB argues that a transfer of equitable title is not a disposition of property under West
Virginia law.
Under West Virginia law, “title passes to the buyer at the time and place at which the seller
completes his performance with reference to the physical delivery of the goods, . . . even though
a document of title is delivered at a different time” unless the parties explicitly agree otherwise.
W. Va. Code § 46-2-401(2). Thus, contracting parties can indicate when title passes during a sale,
however, in the absence of an explicit agreement, title passes to the purchaser upon delivery.
Moreover, the U.C.C. “specifically limits retention of title in delivered goods to a reservation of a
security interest.” Witmer v. Kleppe, 460 F.2d 1245 (4th Cir. 1972) (citing W. Va. Code § 46-2-
401(1)). As a party that retains legal title maintains only a security interest in the property subject
to the sale, a transfer of an interest in property other than legal title must occur because a party
cannot take a security interest in its own property.
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Property interests include both legal and equitable interests. 	Equitable title refers to
“character and quality of title—to the actual and substantial ownership, rather than the strictly legal
title.” Cook v. Citizens’ Ins. Co. of Missouri, 105 W. Va. 375, 378 (1928). Moreover, “equitable
title . . . rests rather ‘on the beneficial ownership and the right to the use and income.’” Id. at 376
(quoting Insurance Company v. Kuhn, 207 Ill. 166, 171 (1904)). A party has equitable title if “the
holders thereof have in a court of equity an equitable chose in action to compel the holders of the
legal title to convey.” Steber v. Combs, 121 W. Va. 509, 514 (1939).
In this case, the Agreement expressed the intentions of the parties. 	Moreover, the
Agreement contained a merger clause that provided that it “constitutes the entire agreement
between the parties pertaining to the subject matter hereof and supersedes any and all prior
agreements, representations, and understandings of the parties, written or oral.” The clause also
restricted modification of the agreement by any means other than a subsequently written and
signed agreement. With regard to the application of W. Va. Code § 46-2-401, two provisions of
the Agreement must be considered. First, the Agreement required the Purchaser to take possession
of the equipment no later than March 15, 2012. Second, the Agreement required the Purchaser to
pay the purchase price’s remaining balance at a later date, at which time the Seller would deliver
title to the equipment. 1 Therefore, the contract explicitly modifies when title transfers: rather than
obtaining title upon acquiring possession of the property, equitable title shifted upon payment of
the entire purchase price. In accordance with W. Va. Code § 46-2-401(1), the failure to transfer
legal title at the time of payment amounted to the retention of a security interest. Nonetheless, a
transfer of an interest in the property clearly occurred at that time.
In addition to the U.C.C., West Virginia common law supports the conclusion that Myron
Bowling acquired equitable title before April 20, 2012. Myron Bowling possessed the equipment,
it paid the full contractual purchase price for the equipment, and it began marketing the equipment
for sale. Considering Myron Bowling intended to acquire the property solely for the purpose of
reselling it at auction, its marketing of the property in preparation for the sale well in advance of
its receipt of legal title indicates that it possessed a property interest sufficient to permit its use of
1 The court recognizes that the parties did not completely honor the form of the agreement. Myron
Bowling paid the entire purchase price on March 23, 2012, however HNB did not deliver legal
title at that time, as the contract required. However, this fact does not alter the court’s analysis as
the execution of the transaction, not the terms of the agreement, are at issue here.
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the property. 	Thus, it enjoyed all of the benefits of ownership at that time. 	Moreover, Myron
Bowling fully performed its obligations under the Agreement, and thus would be entitled to
enforce the Agreement in a court of equity.
HNB argues that the Plaintiffs, as strangers to the Agreement, attempt to give meaning to
the Agreement that the parties did not intend because HNB and Myron Bowling did not intend to
pass equitable title through the execution of the Agreement. However, execution of the Agreement
itself did not pass equitable title—if anything, it delayed passage of title from the time when Myron
Bowling took possession of the property until the time it paid the full purchase price. Rather, the
completion of the transaction described in the Agreement passed title to the property. To be clear,
equitable title passed by operation of law based on the performance of the Agreement, and nothing
in the Agreement indicated that the parties intended to avoid the legal effect of the Agreement’s
completion. HNB further argues that the Agreement contained a provision that required the sale
to comply with the U.C.C., and thus the parties did not intend to pass title before notice in
compliance with the U.C.C. was given. However, such a provision does nothing to prevent liability
from arising if the parties did indeed violate the U.C.C. in performing under the contract.
West Virginia law, by way of Article 9 of the U.C.C., requires a secured creditor to
undertake certain actions before disposing of debtor’s collateral. 	W. Va. Code § 46-9-610 and
611. 	Specifically, “every aspect of a disposition of collateral . . . must be commercially
reasonable” and “a secured party that disposes of collateral . . . shall send to the [debtor] a
reasonable authenticated notification of disposition. 	W. Va. Code § 46-9-610 and 611. 	The
notification date is the date on which “a secured party sends to the debtor . . . an authenticated
notification of disposition.” W. Va. Code § 46-9-611(a)(1). However, notification of disposition
must also be reasonable. W. Va. Code § 46-9-611(a)(2). Whether a notice is reasonably timely is
a question of fact. 	W. Va. Code § 46-9-612. 	The purpose of giving the debtor notice before
disposing of its property is to allow the debtor an opportunity to take action in order to potentially
redeem the property or bring a better offer to the table. “A notification that is sent so near to the
disposition date that a notified person could not be expected to act on or take account of the
notification would be unreasonable.” W. Va. Code § 46-9-612 cmt. 1.
In order to trigger the requirements of §§ 46-9-611 and 612, a secured creditor must dispose
of a debtor’s collateral. However, the U.C.C. does not define disposition. General Elec. Capital
Corp. v. Vashi, 480 N.W.2d 880, 881 (Iowa 1992). Neither has any West Virginia court sought to
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define the term. Thus, the court must look to generally accepted principles of law to “predict how
the state’s highest court would rule on an unsettled issue.” 	Horace Mann Ins. Co. v. Gen. Star
Nat’l Ins. Co., 514 F.3d 327, 329 (4th Cir. 2008).
Many courts have considered the definition of ‘disposition’ under Article 9, and concluded
that it encompasses various types of permanent transfers of possession. 	See e.g. Williams v.
Regency Financial Corp., 309 F.3d 1045, 1049 (8th Cir. 2002) (finding that “sale and disposition
are not intended to be synonymous, and that a disposition of collateral need not be in the form of
a sale.”); Charles E. Brauer Co., Inc. v. Nationsbank of Va. N.A., 466 S.E.2d 382, 386 (Va. 1996)
(“The term ‘disposition’ . . . means an actual transfer of an interest in the collateral by sale, lease,
or contract.”); Mechanics Nat’l Bank of Worcester v. Gaucher, 7 Mass. App. Ct. 143, 3886 N.E.2d
1052, 1055 (Mass. Ct. App. 1979) (“Disposition implies a permanent transfer of possession.”); In
re the Estate of Rothko, 84 Misc.2d 830, 379 N.Y.S.2d 923, 958 (Sur. Ct. N.Y. 1975) (finding that
a “shipment to [an] alleged purchasers for their permanent possession or permanent control” is a
disposition under the U.C.C.). 	The U.C.C. defines sale to mean “the passing of title from the
seller to the buyer for a price.” W. Va. Code § 46-2-106(1). As is made clear above, courts have
repeatedly found that a disposition is a broader form of a transfer than a sale. 	Thus, the
requirements for a disposition are more lenient than those for a sale.
In Williams, the Eighth Circuit indicated that transfer of legal title is not necessary for a
U.C.C. disposition. 309 F.3d at 1049. In that case, the appellee-defendant was a car dealership
that acted as a “repossession churning mill.” Id. at 1046. The defendant engaged in a system of
quickly selling cars to individuals with bad credit, repossessing said cars, and then quickly
reselling them. 	Id. at 1046-47. 	Frequently, the dealership resold cars before acquiring
repossession title. Id. at 1047. Despite lacking legal title, and thus failing to transfer legal title,
the court held that “’disposition’ encompasses the transactions by which [the defendant]
permanently transferred the [plaintiff’s car].” Id. at 1049.
As the court finds the reasoning in Williams persuasive, it now finds that a transfer of
equitable title amounts to a disposition under the U.C.C. 	Therefore, HNB disposed of MEI’s
equipment no later than March 23, 2012, the date upon which Myron Bowling paid the full
purchase price for the equipment. 	As HNB sent this notice only one day before it disposed of
MEI’s equipment, the disposition was not reasonably noticed, and was therefore in violation of W.
Va. Code § 46-9-611. Furthermore, the notice sent to the Plaintiffs indicated that HNB would sell
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the equipment no earlier than April 9, 2012. As the disposition occurred on or before March 23,
2012, this notice was inadequate. Moreover, because W. Va Code § 46-9-610 requires all aspects
of a disposition to be reasonable, and HNB’s notice was unreasonable, the disposition also violated
that provision.
IV. CONCLUSION
Based upon the court’s analysis herein, the court will enter a separate order granting
summary judgment in favor of the Plaintiffs regarding the HNB’s liability under W. Va. Code §§
46-9-610 and 611. As the Plaintiffs motion requests judgment only as to liability, the remaining
issues are preserved for trial.
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