In Re: Judith K. Baker, Debtor. Appeal Of: Claire Ann Resop
430 F.3d 858, 2005 WL 3288303, 2005 U.S. App. LEXIS 26543 (2005)
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Rule of Law:
Under Wisconsin's version of the Uniform Commercial Code, a security interest in a vehicle perfected by a certificate of title in one jurisdiction remains perfected when the debtor moves to another jurisdiction. The four-month grace period for re-perfection does not apply as long as the original certificate of title remains in effect and has not been replaced by a new one from the new jurisdiction.
Facts:
- In 2001, Judith K. Baker purchased a 2000 Oldsmobile Alero.
- Primus Financial Services financed the purchase.
- The State of New Mexico issued a certificate of title for the vehicle, which listed Primus as the lienholder.
- Shortly after the purchase, Baker moved to Wisconsin with the vehicle.
- Baker registered the vehicle in Wisconsin but never applied for or obtained a Wisconsin certificate of title.
- The New Mexico certificate of title remained the only title of record for the vehicle.
- In 2004, approximately three years after moving, Baker filed for Chapter 7 bankruptcy in Wisconsin.
Procedural Posture:
- Judith K. Baker filed a Chapter 7 bankruptcy petition in the U.S. Bankruptcy Court for the Western District of Wisconsin.
- The bankruptcy trustee, Claire Ann Resop, initiated an adversary proceeding to avoid Primus Financial Services' lien on Baker's vehicle.
- The bankruptcy court (court of first instance) ruled in favor of Primus, holding that the lien remained perfected.
- Resop (appellant) appealed the decision to the U.S. District Court for the Western District of Wisconsin.
- The district court affirmed the bankruptcy court's ruling in favor of Primus (appellee).
- Resop (appellant) then appealed to the U.S. Court of Appeals for the Seventh Circuit.
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Issue:
Does a creditor's perfected security interest in a vehicle, evidenced by a certificate of title from one state, become unperfected when the debtor moves to another state and the creditor fails to re-perfect its interest within four months, even if the debtor never obtains a new certificate of title in the new state?
Opinions:
Majority - Judge Evans
No. A creditor's perfected security interest in goods covered by a certificate of title remains perfected as long as the original certificate of title is effective. The court reasoned that while Wisconsin's general statutes point to a four-month rule for re-perfection after a debtor moves (Wis. Stat. § 409.316(1)), that rule is subject to an explicit exception for goods covered by a certificate of title. The controlling statute, Wis. Stat. § 409.303(3), states that for titled goods, the local law of the jurisdiction that issued the title governs perfection until the goods cease to be covered by that title. Since Baker never obtained a Wisconsin title, the New Mexico title remained in effect, and Primus's security interest remained perfected under New Mexico law. The court concluded that it would be an absurd result to require a secured creditor to monitor the location of its debtors when the purpose of a certificate of title is to provide a single, reliable public record of the lien, regardless of the debtor's or collateral's location.
Analysis:
This decision clarifies the 'choice of law' rules for perfecting security interests in titled motor vehicles that cross state lines. It establishes that the certificate of title is the controlling document for perfection, trumping general rules based on the debtor's location. The ruling protects secured creditors from losing their perfected status due to a debtor's failure to re-title a vehicle in a new state, placing the onus on the debtor to take the action (applying for a new title) that would trigger a creditor's need to re-perfect. This strengthens the reliability of certificates of title as a nationwide system for notice of security interests in vehicles.
