M. Bruenger & Co. (“MBC”) is a trucking concern operating in Kansas. As part of its ongoing business, MBC would locate and sell trucks to its drivers. The drivers would purchase the trucks from MBC and then drive loads provided by MBC. To assist the purchase of the trucks, MBC established a program pursuant to which MBC would provide financing to its drivers purchasing the trucks. The financing provided by MBC would be repaid by the purchasers to MBC primarily through direct deductions from the drivers’ weekly pay. As part of the program, MBC purportedly retained a security interest in each truck until the purchase price for each truck was paid in full. In October 2012 and December 2012, MBC sold two (2) trucks to one of its drivers, Laura B. Brannan (“Brannan”). To obtain funds to cover the purchase price of each truck, Brannan obtained separate financings from MBC for each truck. MBC documented these two (2) transactions by entering into a series of agreements and documents with Brannan beginning with a Weekly Installment Agreement (the “Agreement”). Each Agreement, among other things, described the applicable truck being sold, the purchase price, the date of sale and the weekly installment payment schedule. For each truck MBC then (i) executed a bill of sale conveying to Brannan the truck described therein (which was identified by the vehicle identification number, make and year) and setting forth the purchase price therefor and (ii) assigned to Brannan its certificate of title relating thereto. In the assignment section of the certificate of title, Brannan checked the box indicating that the truck is subject to MBC’s lien and signed a statement affirming that lien as the title form requires. As the new owner of each truck, Brannan then obtained a Title and Registration Receipt from the Kansas Division of Vehicles indicating MBC’s lien on the truck. In November 2013, Brannan filed for bankruptcy protection under Chapter 13. The nongovernmental creditor bar date was set for March 4, 2014. Brannan filed an amended Chapter 13 plan in December 2013 in which she proposed to make sixty (60) monthly payments of $1,437.00. Since Brannan purchased the trucks within a year of filing for bankruptcy, her plan provided for treating MBC under the two (2) truck purchase agreements as “one year loan creditors” under §1325(a)(5). She proposed minimum monthly payments on both trucks and to pay them in full. The bankruptcy trustee (the “Trustee”) objected to Brannan’s plan for several reasons, but did not question whether MBC’s claims were secured claims. On January 2, 2014, MBC objected to confirmation of the plan noting that the plan did not provide for a third tuck, but specifically did not object to the proposed treatment of the two (2) trucks. On February 3, 2014, the parties presented an Agreed Order that resolved MBC’s confirmation objection by providing for the surrender of the unmentioned third truck and setting forth an agreement about the values and the payment terms concerning the two (2) trucks Brannan sought to retain. The Trustee approved the Agreed Order along with counsel for Brannan and MBC. The Agreed Order specifies that (i) MBC shall have a “general secured claim” as to both vehicle transactions, (ii) MBC shall have an unsecured claim for any deficiency balance and (iii) MBC shall retain its liens with respect to its secured claims. The amended plan was ultimately confirmed. MBC filed its proofs of claim on March 4, 2014. After the Trustee reviewed the proofs of claim, the Trustee filed an adversary proceeding under §544 to avoid the secured claim.
The Trustee claims that MBC’s purported secured interests in the two (2) trucks never attached because Brannan never “authenticated” a security agreement as required by the Kansas Uniform Commercial Code (the “Code”). MBC countered arguing that while no form security agreement was made, a reading of all the transaction documents makes clear that the parties intended to, and did, create security interests that attached to the two (2) trucks to secure MBC’s claims. MBC also claimed that the Trustee’s execution of the Agreed Order resolving MBC’s objection to confirmation and the Confirmation Order itself barred the Trustee’s lien avoidance action.
The United States Bankruptcy Court in the District of Kansas (the “Court”) first addressed the question whether the acceptance of the Confirmation Order barred the Trustee’s lien avoidance action. In connection therewith, the Court noted that §1327 provides that the confirmation of the debtor’s plan is binding on the debtor and every creditor (whose interests the Trustee represents) whether or not the plan treats their claims or they have objected to or accepted the plan. Examining the case at hand, the Court noted that the confirmed plan plainly provided that MBC’s claims are secured by the trucks and for those claims to be paid as specified in the Agreed Order. With respect thereto, the Trustee argued that the Agreed Order was approved prior to the filing of the proof of claims and that without the proof of claims being filed, there was no way for her to know that MBC’s liens were flawed. Additionally, she argued that when plans are confirmed, confirmation does not finally allow or disallow claims and that any claim treated in the plan can be disallowed even after confirmation. The Court rejected the Trustee’s argument and held that the lien avoidance complaint was barred. The Court noted that the Trustee’s complaint was not based on information unavailable before confirmation. Since the Trustee affirmatively consented to the debtor’s and creditor’s proposed treatment of the claim as secured and then recommended the amended plan be confirmed, the Trustee is bound by that consent. The Court stated that, although it may not be reasonable to expect the Trustee to conduct discovery as to every secured claim, it is untenable to expose the debtor and the secured creditors to the possibility of having to defend their secured status even after the Trustee has consented to its treatment as a secured claim. Permitting such a challenge would undermine the creditors’ confidence that the resolution they have reached and that the court has blessed, will be final and enforceable. Addressing the Trustee’s argument that §1327 permits reconsideration of claims for cause, the Court noted that there is nothing the Trustee learned that was not ascertainable before confirmation or that was the cause of misconduct.
After rejecting the Trustee’s lien avoidance claim, the Court then addressed the question whether the composite documentation executed and delivered by the parties constituted an authenticated security agreement and attachment of the lien. Examining the facts at hand, the Court noted that the documents clearly intended to create a security interest. Although the “magic words” of grant were not included in the documents, the parties clearly intended to establish a security interest. This is evidenced by, among other things, the acknowledgment on the reverse side of the certificate of titles pursuant to which Brannan acknowledged that each truck was subject to MBC’s lien and the fact that MBC is identified on the Title and Registration Receipts as lienholder on the trucks. The sum of the documents, taken with testimony on behalf of MBC as to the long-standing financing program, make clear that Brannan granted MBC purchase money security interests in the trucks. The Court noted that although the UCC requires that a debtor “authenticate” a security agreement, there is no particular form of security agreement that is required and a composite reading of the documents evidenced the creation of the security interest. (In Re Brannan, 532 B.R. 834, 86 UCC Rep.Serv.2d 973 (2015))