Sheehan et al v. Klein et al

1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
IN RE:
MOUNTAINEER BULK SERVICES, INC.,
Debtor.
___________________________________
MARTIN P. SHEEHAN,
Plaintiff,
v.
MITCHELL L. KLEIN, LIBERTY
MUTUAL INSURANCE COMPANY,
MOUNTAINEER TANKLINES, LLC, and
GENERAL CORPORATION,
Defendants.
___________________________________
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
Case No. 3-10492
Chapter 7
Adv. Proc. No. 12-31
MEMORANDUM OPINION
Pending before the court are General Corporation’s (“Defendant”) and Martin P.
Sheehan’s motions for summary judgment. Both parties request entry of summary judgment on
count II of Mr. Sheehan’s complaint. 	For the reasons stated herein, the court grants the
Defendant’s partial motion for summary judgment.
I. BACKGROUND
On January 12, 1998, before Mountaineer Bulk Services, Inc. (“Debtor”) filed for
bankruptcy, the Defendant obtained a judgment against the Debtor for $320,826.70 in the Circuit
Court of Kanawha County, West Virginia. 	The Defendant perfected its lien on real estate by
recording the judgment in the counties where the Debtor held real estate, and also perfected its
Dated: Tuesday, February 19, 2013 2:14:40 PM
No. 1:12-ap-00031 Doc 100 Filed 02/19/13 Entered 02/19/13 14:38:21 Page 1 of 5

2
lien on personal property by obtaining a writ of fieri facias. The sheriff did not seize any of the
Debtor’s motor vehicles and a report was not filed with the West Virginia Department of Motor
Vehicles.
On February 14, 2003, the Debtor filed for bankruptcy under chapter 11. On October 3,
2005, the Debtor’s bankruptcy case was converted to a case under chapter 7; on the same date,
the United States Trustee designated Mitchell Klein as trustee in the case. 	Mr. Klein held the
meeting of creditors pursuant to 11 U.S.C. § 341(a) on November 22, 2005 in Clarksburg, West
Virginia. During the administration of the case, Mr. Klein distributed proceeds from the sale of
the Debtor’s motor vehicles to the Defendant. 	Mr. Klein eventually resigned as chapter 7
trustee; Martin P. Sheehan (“Trustee”) was appointed as successor trustee on February 8, 2010.
On July 6, 2012, the Trustee filed an adversary complaint in this court against the
Defendant, Mountaineer Tanklines, LLC, Mr. Klein, and International Sureties, Ltd. 	The
Trustee’s complaint contains two counts, only one of which is relevant here: count II. 	The
Trustee alleges that the Defendant did not properly perfect its liens on the Debtor’s motor
vehicles, and therefore Mr. Klein improperly distributed the proceeds from the sale of the
Debtor’s motor vehicles. The Trustee requests recovery of these proceeds from the Defendant.
II. 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). Demonstrating 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). 	A
movant is entitled to judgment as a matter of law if “the record as a whole could not lead a
No. 1:12-ap-00031 Doc 100 Filed 02/19/13 Entered 02/19/13 14:38:21 Page 2 of 5

3
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 shows that there is no genuine dispute of material fact, 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 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, 323-24.
III. DISCUSSION
The parties before the court dispute the method to perfect judgment liens on motor
vehicles in West Virginia. The Defendant contends that compliance with W. Va. Code § 38-4-8
is sufficient to perfect judgment liens on motor vehicles. 	The parties do not dispute that the
Defendant complied with this statute. The Trustee argues, however, that W. Va. Code § 38-4-8
does not operate to perfect judgment liens on motor vehicles; instead, perfection requires
adherence to W. Va. Code § 17-4A-9. The Trustee concludes that because the Defendant did not
comply with W. Va. Code § 17-4A-9, its liens against the Debtor’s motor vehicles were invalid;
and as a hypothetical lien creditor under 11 U.S.C. § 544(a), the bankruptcy estate took title to
the vehicles free from the Defendant’s claimed lien.
The Defendant also argues that the Trustee’s avoidance action violates the statute of
limitations under 11 U.S.C. § 546(a). 	The Trustee provided no response to the Defendant’s
contention that his § 544(a) action is untimely. 	Due to the Trustee’s tardily filed summary
judgment motion and failure to respond to the Defendant’s statute of limitations argument, the
court held a hearing on January 4, 2013. At the hearing, the Trustee and the Defendant informed
the court that no further filings were necessary and that the summary judgment motions were
ripe for disposition. At that time, the court took the matter under advisement.
The Trustee relies on § 544(a) to cut off the Defendant’s alleged unperfected security
interests. 	Avoidance actions under § 544(a) are conferred to the Trustee by federal law. 	But
before he may avail himself of the powers under § 544(a), he must demonstrate that his action is
No. 1:12-ap-00031 Doc 100 Filed 02/19/13 Entered 02/19/13 14:38:21 Page 3 of 5

4
timely commenced. 	Section 546(a) establishes the statute of limitations for avoidance actions
brought under § 544(a).
Actions or proceedings under § 544 may not commence after the earlier of the date set
out under §§ 546(a)(1) or 546(a)(2). 1 Section 546(a)(1) provides that § 544 actions must
commence within two years from the entry of the debtor’s order for relief. 	§ 546(a)(1)(A).
However, if a trustee is appointed before two years from the order for relief, the trustee is
provided with one additional year after the trustee’s appointment or election under § 702. 	§
546(a)(1)(B). 	Section 546(a)(2), if applicable, looks to the time the case was closed or
dismissed. The earlier of §§ 546(a)(1) or 546(a)(2) is the date by which an action or proceeding
under § 544 must commence.
Two years from the entry of the Debtor’s order for relief is February 14, 2005. 	§
546(a)(1)(A). The Debtor’s voluntary chapter 11 petition, filed February 14, 2003, constitutes an
order for relief. 11 U.S.C. § 301(b) (“The commencement of a voluntary case under a chapter of
this title constitutes an order for relief under such chapter.”). Although the Debtor converted to
chapter 7, the original order for relief remains the operative date under § 546(a)(1)(A). 	11
U.S.C. § 348(a) (“Conversion of a case . . . does not effect a change in the date of the filing of
the petition, the commencement of the case, or the order for relief.”); Bergquist v. Vista Dev.,
Inc. (In re Quality Pontiac Buick GMC Truck, Inc.), 222 B.R. 865, 868 (Bankr. D. Minn. 1998).
Next, under § 546(a)(1)(B), the court must assess whether the appointment of the first trustee
occurred before February 14, 2005. 	Burtch v. Georgia-Pacific Corp. (In re Allied Digital
Technologies Corp.), 341 B.R. 171, 174 (D. Del. 2006) (“[T]he appointment or election [under §
546(a)(1)(B)] must satisfy two criteria in order to effect an extension of the statute of limitations:
it must be an appointment or election under one of the listed sections of the Code, and it must
take place prior to the expiration of the two years that begins with the filing of the bankruptcy
petition.”). 	In a chapter 7 case, the “appointment” of the trustee means the time when the
position becomes permanent. 	If the trustee is not elected by creditors, the interim trustee
1 In full, § 546(a) provides:
An action or proceeding under section 544, 545, 547, 548, or 553 of this title may not be
commenced after the earlier of — (1) the later of — (A) 2 years after the entry of the
order for relief; or (B) 1 year after the appointment or election of the first trustee under
section 702, 1104, 1163, 1202, or 1302 of this title if such appointment or such election
occurs before the expiration of the period specified in subparagraph (A); or (2) the time
the case is closed or dismissed.
No. 1:12-ap-00031 Doc 100 Filed 02/19/13 Entered 02/19/13 14:38:21 Page 4 of 5

5
automatically becomes the permanent trustee at the time of the meeting of creditors pursuant to §
341. 	11 U.S.C. § 702(d) (“If a trustee is not elected under this section, then the interim trustee
shall serve as trustee in the case.”); Maurice Sporting Goods v. Maxway Corp. (In re Maxway
Corp.), 27 F.3d 980, 984 (4th Cir. 1994). The United States Trustee designated Mr. Klein as the
interim trustee in this case on October 3, 2005; his appointment became permanent on November
22, 2005 — the date of the meeting of creditors under § 341. His appointment, however, did not
occur before February 14, 2005, which renders § 546(a)(1)(B) inapplicable.2 Thus, § 546(a)(1)
sets a bar date of February 14, 2005.
Lastly, looking to § 546(a)(2), the Debtor’s case was closed on October 3, 2007. Section
546(a) requires that the Trustee’s action under § 544(a) commence on the earlier of §§ 546(a)(1)
or 546(a)(2) — February 14, 2005 or October 3, 2007 respectively.3 The Trustee’s complaint
was filed on April 17, 2012; accordingly, § 546(a) bars count II of the Trustee’s complaint
because it was not commenced by February 14, 2005. Consequently, the court does not need to
consult nonbankruptcy law to determine the extent of the Trustee’s rights as a judicial lien
creditor under § 544(a); namely, whether W. Va. Code § 17-4A-9 provides the only method to
validly perfect judgment liens against motor vehicles.
IV. CONCLUSION
For the above-stated reasons, the court grants the Defendant’s partial motion for
summary judgment. A separate order will be entered contemporaneously with this memorandum
opinion pursuant to Fed. R. Bankr. P. 9021.
2 Notably, the appointment of a successor trustee does not extend the time limitations under §
546(a). E.g., Salisbury v. Mirage Resorts, Inc. (In re Mizuno), 223 F.3d 1050, 1054 (9th Cir.
2000) (“[T]he most logical interpretation of section 546(a) is that the statute of limitations begins
running from the date the first trustee is appointed and that all subsequent trustees are subject to
the same statute of limitations.”) (quoting Ford v. Union Bank (In re San Joaquin Roast Beef), 7
F.3d 1413, 1415 (9th Cir.1993)); Lindquist v. FMB-First Michigan Bank (In re Dryland Marina,
Inc.), 180 B.R. 487, 490 (Bankr. W.D. Mich. 1995). Thus, the Trustee’s appointment as
successor trustee does not create a new window for his avoidance action.
3 The court recognizes that a question exists as to whether this case was “properly and finally”
closed under 11 U.S.C. § 350(b) because it was reopened on December 10, 2007. In re Petty, 93
B.R. 208, 212 (B.A.P. 9th Cir. 1988); see White v. Boston, 104 B.R. 951, 955 (S.D. Ind. 1989)
(“[I]t is clear that the closing of a case cannot trigger section 546(a)(2) unless the case has been
properly closed, i.e., the assets fully administered.”) (emphasis in original). But whether the
court chooses to consider October 3, 2007 as the closing of the case, or some later date, has no
bearing on the court’s disposition because the court must use the earlier of §§ 546(a)(1) or
546(a)(2) as the bar date.
No. 1:12-ap-00031 Doc 100 Filed 02/19/13 Entered 02/19/13 14:38:21 Page 5 of 5