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BAP Affirms the Ohio Court Ruling in Avoiding the Transfer as Preference Because Appellant Did not Have Valid Perfected Lien Over the Vehicles

Dymarkowski v. Savage (In re Hadley), No. 16-8010, 2016 Bankr. LEXIS 4445 (U.S. B.A.P. 6th Cir. Dec. 21, 2016)

Debtor Robert F. Hadley had a long-standing professional and personal relationship with Defendant-Appellant Barry E. Savage. Defendant provided legal services to the Debtor. Due to the business downturn, the Debtor was unable to pay the attorney fees due to the Defendant. So, in May 2012, the Debtor gave possession of its two vehicles to the Defendant towards the payment of the legal fees. Although the Debtor turned over the possession, it did not transfer ownership of the vehicles, i.e. the Debtor did not sign the titles and completed the assignment of ownership forms until August 15, 2012 – just six days before the Debtor’s Chapter 7 bankruptcy filing on August 21, 2012. When the Defendant obtained title to the vehicles, he put the vehicles up as collateral on two bank loans totaling $37,500. Subsequently, the Defendant sold the vehicles to a third party for $40,000. More than eight months after the sale on August 1, 2014, the Trustee filed an adversary complaint against the Appellant under §547(b) to avoid the Debtor’s transfer of ownership to the Defendant-Appellant and to recover the value of the vehicles. The Trustee alleged that the transfer occurred when the Debtor signed the titles over to the Appellant, just six days before bankruptcy. The Appellant contended that he had a possessory attorney’s lien on the vehicles to secure payment of his fees, which was perfected by possession of the title in 2007 or on or about May 1, 2012, when he took possession of the vehicles. The Appellant alleged that either date fell outside the 90-day look-back period for the avoidance of a transfer under §547(b). Both parties filed motions for summary judgment. The bankruptcy court concluded that the Appellant did not have a valid or perfected attorney lien on the vehicles under Ohio law and that the transfer occurred when the Debtor transferred ownership by signing over the vehicle titles on August 15, 2012, within the look-back period for avoidance.

Upon appeal, the BAP held that the bankruptcy court did not err in concluding that the transfers were preferential. The Court stated that there are essentially three types of attorney liens at common law: (1) retaining liens; (2) charging liens; and (3) contractual liens. In the case at bar, the Appellant attorney did not have a retaining lien, as the attorney did not take possession of vehicles in the course of his representation of the Debtor. The attorney did not either have a charging lien because he was not asserting that the titles or vehicles represented an award rendered as a result of his professional services. Next, the attorney did not even have a contractual lien because there was neither any written documentation nor any other memorialized security agreement between the Debtor and the attorney to evidence a security interest in the vehicles or their titles. Further, the Court held that even if the attorney had a valid attorney’s lien, it was unperfected under applicable law. Therefore, the BAP held that any claimed lien interest was unperfected and the Debtor’s transfer of his ownership interest in the two vehicles six days prior to filing bankruptcy was preferential.