“Res judicata cannot bar objections to charges that debtors did not know existed”
How later courts described this case
- “Res judicata cannot bar objections to charges that debtors did not know existed”
- superseded by statute on other grounds
- holding that a newly created security interest in a vehicle did not automatically perfect under § 501.114(a) because the transaction giving rise to the security interest was not an assignment
- considering the Federal Reserve Board’s definition of a refinance in distinguishing a refinance and a mortgage modification
Written by the judges who cited it.
The opinion
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IT IS HEREBY ADJUDGED and DECREED that the “aie ky
.- .
below described is SO ORDERED. ac &.
Dated: May 24, 2024. | □ Pur
MICHAEL M. PARKER
UNITED STATES BANKRUPTCY JUDGE
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
IN RE: §
§
FORTUNATO CARRAMAN, JR. & §
GUADALUPE V. CARRAMAN, § CASE NO. 22-51009-MMP
§
§
DEBTORS. § CHAPTER 13
oS
§
Mary K. VIEGELAHN, §
CHAPTER 13 TRUSTEE, §
§
PLAINTIFF, §
§
Vv. § ADVERSARY NO. 23-05045-MMP
§
TITLEMAX OF TEXAS, INC., §
§
DEFENDANT.
OPINION
I. INTRODUCTION
Before the Court are cross-motions for summary judgment: Plaintiff’s Amended Motion
for Entry of Summary Judgment Pursuant to Fed.R. Bankr.P. 7056 (“Trustee’s Motion,” ECF
No. 23)1 and TitleMax of Texas, Inc.’s Motion for Summary Judgment (“TitleMax’s Motion,”
ECF No. 26). Both parties seek to determine the validity of a security interest held by TitleMax of
Texas, Inc. (“TitleMax”) on the Debtors’ vehicle.
II. JURISDICTION
The Court has jurisdiction under 28 U.S.C. § 1334, and the Standing Order of Reference
of the United States District Court for the Western District of Texas, dated October 4, 2013. This
is a core proceeding under 28 U.S.C. § 157(b)(2)(K). Venue is proper under 28 U.S.C. § 1409.
Plaintiff has consented to the entry of final orders and a judgment by this Court in this adversary
proceeding. (ECF No. 12). Defendant’s Answer (ECF No. 16) contains consent to the Court’s
entry of final judgments, subject only to Defendant’s denied jurisdictional claims in its Motion to
Dismiss (ECF Nos. 5 and 14).2
III. BACKGROUND
The basic facts are uncontested, even though the parties characterize the same facts
differently. The Debtors entered into a Loan Agreement, Promissory Note and Security Agreement
with TitleMax (collectively, “First Loan”). The First Loan lent the Debtors $5,571.00 at an
interest rate of 176.06% per year, with TitleMax retaining a security interest in the Debtors’
1 “ECF” denotes the electronic filing number.
2 To the extent both parties have not consented to this Court’s entry of a final judgment, this Opinion represents the
Court’s findings of fact and conclusions of law, which are subject to de novo review.
2
vehicle. The Documents did not contain a “future advance” or “dragnet” clause.3 Less than a month
later the Debtors entered into yet another set of financing documents (“Second Documents”) with
TitleMax (collectively, “Second Loan”). This time, TitleMax advanced $9,988.00 at an interest
rate of 181.55% annually. The Second Loan satisfied the First Loan and increased Debtors’
obligations to TitleMax by an additional $4,417 over the balance of the First Loan. On September
7, the Debtors filed bankruptcy in the Western District of Texas (Case No. 22-51009, the “Main
Case”). Main Case, ECF No. 1. The next day, the Texas Department of Motor Vehicles issued a
certificate of title covering the Chevrolet Traverse, which identified TitleMax as a lienholder and
identified the “lien date” as August 2, 2022 (reflecting the date of the First Loan). After it advanced
funds for the Second Loan, TitleMax never filed the Second Documents with the Texas
Department of Motor Vehicles seeking to obtain a new lien notation on the Chevrolet Traverse
certificate of title, which would have again identified TitleMax as a lienholder, but would have
also identified a new lien date, corresponding to the Second Loan date.
Both parties move for summary judgment. The Trustee asserts TitleMax’s failure to record
its Second Loan security interest on the Chevrolet Traverse certificate of title renders TitleMax
unperfected, and that the Trustee may avoid the security interest created by the Second Loan under
§ 544.4 The Trustee asserts the security interest created by the First Loan was extinguished when
TitleMax funded the Second Loan and used part of the Second Loan proceeds to satisfy and
extinguish the First Loan and its security interest.
3 A “future advance” or “dragnet” clause allows a creditor’s existing, perfected security agreement to secure a
creditor’s future advances of funds to a debtor, without requiring such creditor to re-perfect its security interest in
those future advances.
4 Unless otherwise noted, all statutory references are to Title 11 of the United States Code.
3
TitleMax contends that there was no need to perfect the Second Loan, because the Second
Loan merely “extended and renewed” or “refinanced” the First Loan, and that the security interest
created on the Chevrolet Traverse certificate of title remains in effect as originally perfected.
TitleMax also argues that because the Debtors’ confirmed chapter 13 Plan5 listed TitleMax as a
“secured creditor,” res judicata prevents the Trustee from challenging its secured status. Finally,
TitleMax argues that because the Trustee allowed the Debtors to remove the car from the
bankruptcy estate via exemption, this security interest avoidance action is not “for the benefit of
the estate,” and therefore the Trustee lacks the standing necessary to bring this claim.
IV. SUMMARY JUDGMENT STANDARD
Summary judgment is appropriate when there is no genuine issue of material fact and the
movant is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322
(1986). Both parties concede that there is no genuine issue of material fact, and instead each argue
that they are entitled to judgment as a matter of law based on the law of perfection. If the Trustee
can show that TitleMax’s security interest was unperfected at the time of the bankruptcy filing,
and if the Trustee has standing to avoid the security interest, the Trustee is then entitled to judgment
as a matter of law. If TitleMax, however, can show that its Second Loan was merely an extension
and renewal of its First Loan,6 such that TitleMax did not need to record the Second Loan security
interest on the Chevrolet Traverse’s certificate of title7 to maintain a perfected security interest
5 Main Case, ECF Nos. 2 and 23.
6 TitleMax also alleges that if it can show the Second Loan was merely a “refinance” of the First Loan, it is entitled to
judgment as a matter of law but, as explained below, the Court does not agree with that conclusion if the “refinance”
satisfied the First Loan.
7 All that would change on the certificate of title would be the date of the security interest (from the First Loan date to
the Second Loan date), as the secured party would remain the same.
4
(created by the First Loan security agreement), or show that the Trustee lacks standing to bring
this claim, it is entitled to judgment as a matter of law.
V. DISCUSSION
a. TITLEMAX’S SECURITY INTEREST IS UNPERFECTED AND AVOIDABLE
TitleMax contends that the Second Loan was an “extension and renewal” of the First Loan,
or that the Second Loan was a “refinance” of the First Loan. In either case, TitleMax contends, the
First Loan was (i) properly perfected and (ii) never satisfied, such that there was no need to re-
perfect the security interest. TitleMax argues that a holding to the contrary would put “form over
substance,” essentially forcing it to re-record its security interest just to change the security interest
date on the certificate of title.
The Trustee counters that the Second Loan was neither an extension and renewal nor a
refinance, as TitleMax appears to define this term, of the First Loan. Instead, the Trustee argues,
the Second Loan was a new loan, greater in amount than the balance of the First Loan when it was
made, which completely paid off or satisfied the First Loan, extinguishing the First Loan’s security
interest. The Second Loan was thus a new, separate loan, requiring separate perfection to obtain
perfected secured status. The Trustee also argues that a holding to the contrary would put “form
over substance,” disregarding the actual nature of the Second Loan in favor of TitleMax’s
assertions that it was an extension and renewal of the First Loan.
i. THE SECOND LOAN SATISFIED THE FIRST LOAN
The parties characterize the Second Loan differently, knowing that such characterization
drives the determination of whether TitleMax needed to perfect the Second Loan security interest.
Setting aside the labels placed on the Second Loan transaction, a key factor driving the
5
characterization of the Second Loan is whether proceeds from the Second Loan satisfied the First
Loan. If the Second Loan satisfied the First Loan, the First Loan and its security interest were
extinguished, requiring TitleMax to independently perfect the Second Loan’s security interest. If
the First Loan security interest survived, it may also serve to secure the Second Loan’s security
interest.
Security agreements may contain a “future advances clause,” under which a lender’s
security interest in the collateral secures not only the original loan, but also later advances of
money to a borrower. LAW AND PRACTICE OF SECURED TRANSACTIONS § 2.05. A lender’s interest
in collateral covered by a future advances clause will automatically perfect when it makes a future
advance. Id. The parties here concede that the Security Agreement has no explicit future advances
clause. TitleMax’s Motion at 8.
The Security Agreement does, however, contain the following section, which will be the
starting point for understanding the mechanics of the Second Loan:
“Lender may agree to refinance this Loan in its sole discretion. If [Credit
Services Organization (“CSO”)]8 agrees to help me refinance my loan from
Lender, I must enter into a new CSO Contract with CSO and pay an additional
CSO Fee to CSO for its services provided to me in connection with refinancing
the Loan. As a condition to any refinance, I must pay to Lender the minimum
refinance payment amount, satisfy the Lender’s other underwriting criteria for
refinances and enter into a new Loan Agreement, Promissory Note and Security
Agreement with Lender.”
ECF No. 24 at 7 (emphasis added) (“New Document Provision”).
This language contemplates that the Second Loan would require new documentation,
including a new security agreement. An advantage of a future advances clause is to obviate the
8 A credit services organization, or CSO, is defined under the Texas Finance Code as an entity that (i) helps improve
a consumer’s credit history or rating, (ii) extends consumer credit to a borrower, or (iii) gives advice or assistance
regarding (i) or (ii). Tex. Fin. Code § 393.001(3).
6
need for new security documents whenever additional funds are advanced by a lender. Bruce A.
Campbell, Contracts Jurisprudence and Article Nine of the Uniform Commercial Code: The
Allowable Scope of Future Advance and All Obligations Clauses in Commercial Security
Agreements, 37 HASTINGS L.J. 1007, 1008 (1986). TitleMax relies on the provision above to
support its assertions that the Second Loan was either a “renewal and extension” or a “refinance,”
which, even with no future advances clause, would allow TitleMax to rely on its original perfected
security interest to secure later advances like the Second Loan. The Court interprets this provision
differently.
TitleMax first argues the Second Loan renewed and extended the First Loan.9 In a renewal
and extension, a lender grants a borrower more time to perform its obligations under a loan in
exchange for fees or additional conditions to the loan. Inwood Nat'l Bank v. Wells Fargo Bank,
N.A., 463 S.W.3d 228, 238 (Tex. App.—Dallas 2015, no pet.). The original loan “survives” the
renewal and extension (rather than being satisfied and replaced by a new loan). Id. Although its
security agreement nominally allows for “renewals,” TitleMax’s characterization of the Second
Loan as a renewal and extension is unconvincing. Renewals and extensions do not typically
involve the advancement of additional funds to the borrower. Id. They simply allow a borrower
more time to comply with its performance obligations. Id. Here, the Second Loan involved the
advance of an additional $4,417 to the Debtors (over the First Loan amount), so it was not a
renewal and extension of the First Loan.
9 TitleMax’s Security Agreement allows the Debtor to request a loan renewal through the CSO. The Court cannot find
any reference to a loan extension in the TitleMax Security Agreement or Loan Agreement.
7
TitleMax also argues that the Second Loan was a refinance of the First Loan, which would
allow TitleMax to use the perfection of its First Loan to also perfect its Second Loan.10 Texas
courts looking to define “refinance” have considered, if not deferred to, the definition of
“refinance” under federal regulations. See, e.g., Sims v. Carrington Mortg. Servs., L.L.C., 440
S.W.3d 10, 13 (Tex. 2014) (considering the Federal Reserve Board’s definition of a refinance in
distinguishing a refinance and a mortgage modification). Accordingly, the Court will turn to a
relevant definition of “refinance” under federal regulations.
Regulation Z of the Truth in Lending Act (“TILA”), which applies to closed-end consumer
credit transactions, states that a “refinancing occurs when an existing obligation that was subject
to this subpart is satisfied and replaced by a new obligation undertaken by the same consumer. A
refinancing is a new transaction requiring new disclosures to the consumer.”11 12 C.F.R
§ 1026.20(a) (2024) (emphasis added). The official comments to the TILA definition add that a
“refinancing may involve the consolidation of several existing obligations, disbursement of new
money to the consumer or on the consumer’s behalf, or the rescheduling of payments under an
existing obligation.” Id. (emphasis added). In any event, a refinance must involve, and is
characterized by, the satisfaction and replacement of an existing debt. Id.
Under the TILA definition, if the Second Loan satisfied and replaced the First Loan, then
TitleMax’s label of the Second Loan as a “refinance” is correct, but may not help TitleMax. The
10 Neither party defines “refinance” in their pleadings, but both argue that defining the loan as a refinance favors their
position. The New Document Provision uses the term “refinance” four times.
11 TILA provides for five exceptions to this definition, none of which apply to the loans here. These are: (1) a renewal
of a single payment obligation with no change in the original terms, (2) a reduction in the annual percentage rate with
a corresponding change in the payment schedule, (3) an agreement involving a court proceeding, (4) a change in
collateral requirements or payment schedule in response to the borrower’s default or delinquency unless the interest
rate is increased or the amount financed exceeds the unpaid balance, and (5) the renewal of optional insurance bought
by the borrower and added to an existing transaction. 12 C.F.R § 1026.20(a)(1-5).
8
key question is not whether the Second Loan was a “refinance,” but whether the First Loan was
satisfied. If so, the Second Loan was an advance of new money that required the protection of a
newly perfected security interest.
Here, the Second Loan satisfied the First Loan. TitleMax never disbursed the face amount
of the Second Loan to the Debtors. Instead, TitleMax used the Second Loan proceeds to pay
themselves what was still owed on the First Loan, satisfying it, and then releasing the remaining
funds to the Debtors, who continued making loan payments to TitleMax (at a higher interest rate).12
The Court therefore holds that the Second Loan satisfied the First Loan, extinguishing it
and its security interest, requiring TitleMax, absent a future advances clause in its security
agreement, to perfect the security interest it obtained when advancing the Second Loan. As a new
loan, the Second Loan imposed greater procedural requirements upon TitleMax, requiring new
loan documents, a new security agreement, and new perfection.
In short, TitleMax needed to re-perfect its interest upon making the Second Loan unless
the Second Loan was a future advance covered by an effective future advances clause. As the
Court explains below, the Second Loan was a future advance but was not covered by a future
advances clause.
ii. TITLEMAX’S SECURITY AGREEMENT HAS NO FUTURE ADVANCES CLAUSE
The parties do not contest that there is no explicit future advances clause in either of
TitleMax’s loan agreements with the Debtors. Without such a clause (whether explicit or implied),
any future advances TitleMax made to the Debtors would not automatically perfect. Thus, if the
12 The Second Loan’s documents showed that the proceeds of the Second Loan were applied to the balance of the First
Loan before the remainder was released to the Debtor. TitleMax’s Motion, Ex. C. Thus, the Debtor was not making
two separate loan payments each month (one for the First Loan and another for the Second Loan) to TitleMax.
9
Second Loan was a future advance made without a future advances clause, TitleMax’s interest is
unperfected.
The Trustee argues that the lack of future advances clause dooms the Second Loan’s
perfection because the Second Loan satisfied and extinguished the First Loan, thereby eliminating
its security interest. Thus, TitleMax’s entire claim is unperfected. TitleMax counters that a future
advances clause is implied, or unnecessary, to perfect the Second Loan. Both TitleMax and the
Trustee rely on Guiles v. RBFCU (In re Guiles), 580 B.R. 466 (Bankr. W.D. Tex. 2017).
In Guiles, the debtor took out a loan secured by her car. Id. at 469. Sometime later, the
debtor took out a second loan from the same lender, part of which satisfied the balance of the first
loan. Id. The trustee sued to avoid the lender’s security interest on the car using § 544(a)(1),
arguing that the lender’s failure to record its security interest for the second loan, rendered the
entire claim unperfected.13 Id. Judge Gargotta held that the cross-collateralization clause in the
lender’s security agreement operated as an enforceable future advances clause, and that the second
loan was a future advance within the scope of that clause. Id. at 473. Thus, there was no need for
the lender to re-perfect its security interest. While Judge Gargotta relied heavily on the existence
of a future advances clause in the security agreement in Guiles, the security agreement here has
no future advances clause or cross collateralization clause, and TitleMax identifies no such clause.
Does this change the result?
It does. The question at the heart of Guiles was whether the future advances clause in that
security agreement extended to perfect a second advance after satisfaction of an initial loan. Id. at
13 The Trustee may step into the shoes of a hypothetical judicial lien creditor and avoid a security interest that is
unperfected as of the commencement of a bankruptcy case. Tex. Bus. & Comm. Code Ann. § 9.317(a)(2) (West 2023).
Tarbox v. Soris (In re Biggerstaff), 2004 Bankr. LEXIS 837 (Bankr. N.D. Tex. 2004) (citing, e.g., Mitchell Coach
Mfr. Co. v. Stephens, 19 F. Supp. 2d 1227, 1235-36 (N.D. Okla. 1998) (applying Texas law)).
10
472. That the Trustee in Guiles did not contest the existence of a cross collateralization clause or
that it could serve as a future advances clause in the security agreement is critical—the analysis
relies on the principle that “full payment of a loan does not satisfy the debtor’s obligation if a
future advance clause properly covers other existing loans.” Id. (citing In re Conte, 206 F.3d 536
(5th. Cir. 2000)) (emphasis added). Thus, Guiles focused on whether satisfaction (via a future
advance) of an initial loan extinguished a security interest created by a security agreement
containing a valid, uncontested future advances clause. Guiles relies heavily upon the assumption
that the parties were operating under a future advances clause. Without any future advances clause,
Guiles is distinguishable.
The facts here establish that the Second Loan was a future advance and the language
TitleMax cites does not substitute for a future advances clause. Thus, the lack of future advances
clause renders TitleMax’s security interest unperfected and avoidable under § 544.
1. NO FUTURE ADVANCES CLAUSE WAS IMPLIED
TitleMax argues the lack of a future advances clause in the security agreement is not fatal
because a future advances clause is implied under the parties’ agreement. TitleMax does not cite
the record or law that provides how a court can imply a future advances clause in a security
agreement, but does refer to two cases which suggest certain language in a security agreement,
specifically cross collateralization language, may serve as a future advances clause. Community
Credit Union v. Conte (In re Conte), 206 F.3d 536, 537 (5th Cir. 2000); Guiles, 580 B.R. at 471.
11
The security agreement in Conte contained this cross-collateralization clause, which was
held to be a future advance clause:
“The security interest […] also secures any other loans you have with the credit
union now or in the future and any other amounts you owe the credit union for any
reason now or in the future.” Id. at 537 (emphasis added).
The security agreement in Guiles contained a similar clause:
“You are giving this Interest to secure repayment of your loan as well as any other
amount you now owe or will owe the Credit Union in the future. The collateral also
secures your performance of all other obligations under your loan, this security
agreement, and any other agreement you have with the Credit Union.” Guiles, 580
B.R. at 471 (emphasis added).
The provisions in Conte and Guiles contained clear language indicating that the security
interest in the collateral would continue to secure future advances. The Court can find no language
in TitleMax’s security agreement, including the New Document Provision, that implies future
advances will be secured by the security interest created by the First Loan’s security agreement.
Moreover, TitleMax’s security agreement for the First Loan provides that the Second Loan would
require a new security agreement. By definition, a future advances clause contemplates the use of
an existing security agreement to secure future advances. Campbell, supra at 1008.
While the language of TitleMax’s security agreement does appear to contemplate a
potential future advance, TitleMax cites no language in the security agreement suggesting such
future advance will be secured by the existing security agreement. Conte, 206 F.3d 536, 538 (5th
Cir. 2000) (citing Kimbell Foods, Inc. v. Republic Nat’l Bank of Dallas, 557 F.2d 491, 495 (5th
Cir. 1977)) (The language of the security agreement determines whether the parties intended for
future advances, and the test is an objective one).
12
The Court can find no reason to imply a future advances clause based on the language of
the New Document Provision. So even though the parties contemplated that TitleMax might make
a Second Loan to the Debtors, the security agreement does not appear to contemplate a way to
secure future advances either in name (TitleMax calls the transaction a “refinance” or a “renewal
and extension”) or substance (each transaction requires a new security agreement, unlike an
extension and renewal of a promissory note secured by an existing security agreement). The New
Document Provision does not “clearly and unequivocally” represent the intention of the parties
that the original security agreement and collateral should secure future advances, and so the Court
declines to treat it as a future advances clause. Kimbell Foods, 557 F.2d at 496.
2. THE SECOND LOAN WAS A FUTURE ADVANCE
Having found that the security agreement had no future advances clause, either explicit or
implied, the Court now turns to whether the Second Loan was a future advance. The Bankruptcy
Code does not define “future advance,” although it may be simply described as a separate extension
of value by a creditor to the debtor made after the original security agreement. Campbell, supra at
1008. Under this definition, the Second Loan was a future advance: a separate extension of value
by TitleMax, made after, and functionally separate from, the First Loan. Id.
TitleMax did not structure the transaction in a way to allow automatic perfection of future
advances.14 Without a valid future advances clause, TitleMax’s security interest did not
automatically perfect when it made the Second Loan.
14 TitleMax benefitted from the future advance by changing the loan terms (specifically, increasing the interest rate)
between the First Loan and Second Loan.
13
iii. TITLEMAX WAS SEPARATELY REQUIRED UNDER TCOTA TO RE-PERFECT
ITS SECURITY INTEREST BY RE-TITLING
1. CLARK CONTRACTING DOES NOT APPLY
TitleMax also argues that failure to re-title a vehicle to change the security interest date on
the certificate of title is not required for perfection, relying on Wells Fargo Equip, Fin. v.
Rodriguez (In re Clark Contr. Servs.), 438 B.R. 913 (W.D. Tex. 2010). In Clark Contracting, the
District Court for the Western District of Texas reversed the Bankruptcy Court’s order holding
that a creditor’s failure to re-title vehicles bought from the prior security interest holder rendered
those security interests unperfected. Clark Contracting, 438 B.R. at 925. In so deciding, the
District Court held that re-titling upon assignment of a security interest under § 501.114 of the
Texas Certificate of Title Act (“TCOTA”) is permissive, not mandatory. Section 501.114(a) of
TCOTA was amended in response to the Bankruptcy Court’s decision in Clark Contracting to
state:
“A lienholder may assign a lien recorded under Section 501.113 without making any filing
or giving any notice under this chapter. The lien assigned remains valid and perfected and
retains its priority, securing the obligation assigned to the assignee, against transferees from
and creditors of the debtor, including lien creditors…”
TCOTA § 501.114(a) (2011) (amending TCOTA § 501.114 (2009)).
The Court does not find Clark Contracting applicable here. First, § 501.113 of TCOTA
covers the recordation of security interests obtained by any means, not just assignment. Yet the
Texas Legislature opted to amend only § 501.114(a) to specify that re-titling need not maintain
perfection upon assignment. Because § 501.114(a) is intentionally narrower than its predicate
provision, § 501.113, it should not be read to extend to security interests obtained by non-
assignment means. See ANTONIN SCALIA & BRYAN A. GARNER, READING LAW: THE
14
INTERPRETATION OF LEGAL TEXTS 183 (2012) (expressing the canon of construction that the more
specific provision prevails when a general and specific provision conflict).
Second, the nature of the Second Loan is distinct from the assignment in Clark
Contracting, where the creditor stepped into the shoes of the prior security interest holder’s
already-perfected security interest. Here, on the other hand, TitleMax created a new security
interest when it, by the terms of its own loan agreement, entered into a new security agreement
with the Debtor upon issuance of the Second Loan. A transaction that creates a new security
interest does not fall within § 501.114(a)’s exception to re-titling. In re Moye, 437 F. App'x 338,
343 (5th Cir. 2011) (holding that a newly created security interest in a vehicle did not automatically
perfect under § 501.114(a) because the transaction giving rise to the security interest was not an
assignment).
2. THE PURPOSE OF THE RE-TITLING REQUIREMENT
TitleMax finally argues that its failure to re-title upon issuing the Second Loan did not
change the perfection of its security interest because the only thing that would change on the
certificate of title for the car would be the date of the security interest, so creditors would still have
notice of its security interest.15 TitleMax asserts that the small variance in the dates between the
First Loan and the Second Loan is insignificant given the logistics of re-titling a car, and requiring
perfection via re-titling of the Second Loan under these circumstances would be a “pointless
exercise” that would “not serve the notice goals of [Texas’] perfection process.” TitleMax’s
Motion at 9. The Court disagrees.
15 “Functionally, the lien notation would have looked precisely the same—the same collateral and the same creditor
information—but for the listed date the lien came into effect.” Guiles, 580 B.R. at 468.
15
While the fact that re-titling here would only change the date notation on the car title by a
month gave the Court pause, only re-titling serves the notice goals of Texas’ perfection process.
While notation of a security interest on a title puts potential creditors on inquiry notice of
encumbrances on the vehicle, a holding that lenders like TitleMax are not required to re-title upon
making a future advance would only confuse and disadvantage other creditors. A new lender
relying on a car title with an earlier-dated security interest (and no future advances clause) could
advance funds to a debtor, mistakenly thinking such newly advanced funds have priority over any
future advance to that debtor by its original title lender. Under TitleMax’s view of the law,
however, the original title lender (here, TitleMax) may continue to advance funds to that debtor,
with each future advance relating back to the date of the original security interest and gaining
priority over a new lender’s security interest (despite the lack of notice to the new lender that a
future advances clause would provide).16
To illustrate, suppose a subsequent creditor (“Second Title Lender”) sought to extend the
Debtor credit secured by the same car in which TitleMax claims a perfected security interest. Upon
seeing TitleMax’s security interest on the car’s certificate of title, the Second Title Lender would
likely ask about the balance owed to TitleMax to determine whether the Debtor has any equity in
the car and investigate TitleMax’s security agreement with the Debtor to determine whether it
contained a future advances clause. If the Second Title Lender determined that there was sufficient
equity in the car and that TitleMax’s original loan lacked a future advances clause, the Second
16 The Court acknowledges that, under these facts, a Second Title Lender would have difficulty, in the month between
the First Loan and Second Loan, determining the secured status of the Second Loan given that TitleMax still had the
car’s certificate of title. From a policy perspective, however, the hypothetical judgment lien creditor must operate
under hard deadlines, and those deadlines required that TitleMax timely perfect its security interest in a later advance.
The Court lacked any evidence that TitleMax even tried to comply with its obligation to retitle the car where no future
advances clause existed. In fact, TitleMax believed it had no such obligation.
16
Title Lender could be confident that, if it advanced money to the Debtor, it could obtain a security
interest in the Debtor’s equity in the car that could not be subordinated by any future advance from
TitleMax to the Debtor. Without a later loan perfection date on the certificate of title or a future
advances clause, the Second Title Lender would not be put on notice that later advances from
TitleMax to the Debtor could decrease the value of the Second Title Lender’s subordinate security
interest while allowing TitleMax to retain its priority.17 To hold that TitleMax did not need to re-
perfect by re-titling would upset the Second Title Lender’s expectations and improperly award
TitleMax by allowing it to leapfrog the Second Title Lender’s position in the priority “waterfall,”
despite TitleMax’s failure to include a future advances clause in its security agreement or obtain a
notice of its Second Loan security interest on the certificate of title.
TitleMax’s reliance on Guiles for the proposition that “Texas law avoids mandatory re-
titling when no purpose is served” is also misplaced. Guiles, 580 B.R. at 474. Perhaps there was
no purpose served by re-titling in Guiles, in which the court found that the challenged security
interest was properly perfected by an effective future advances clause. Id. Here, however, re-titling
(i) perfects TitleMax’s Second Loan security interest, which did not automatically perfect under a
future advances clause, and (ii) provides unambiguous notice to potential secondary creditors
regarding the priority of any security interest they might take in the car.
Further, in Texas, perfection of a security interest in a vehicle is governed by TCOTA and
Article Nine of the Texas Business and Commerce Code (“Texas Article Nine”).
TCOTA § 501.111 (providing procedures under both TCOTA and Texas Article Nine for
17 That is, advances made after (i) the First Loan date noted on the car title if the security agreement had a future
advances clause, or (ii) the Second Loan date noted on the car title if the security agreement did not have a future
advances clause, as was the case here.
17
perfecting security interests in vehicles). Thus, while the purposes of TCOTA may diverge from
those of Texas Article Nine, TCOTA’s treatment of security interests is inextricable from Texas
Article Nine. Accordingly, the “notice goals of the perfection process” in Texas are not defined
solely based on TCOTA, but also based on the purposes of Texas Article Nine.
By validating the perfection of security interests through a future advances clause, Article
Nine of the Uniform Commercial Code aimed to both reduce transaction costs and the risks
assumed by secured creditors in lending. Campbell, supra at 1074. Article Nine’s treatment of
future advances contemplates the reduction of those risks not only to the primary secured lender,
but to any secondary lenders (who run the risk of having their “equity cushion” in the collateral
wiped out by snowballing future advances made by the primary lender). See id. at 1015-16. The
trade-off for the primary secured lender is not too steep—it must simply make clear in its contract
that its security interest is protected by a future advances clause. Indeed, while pre-Article Nine
courts were “liberal in construing the parties’ agreement as including future advances,” courts
today are highly reluctant to read in a future advances clause when the parties’ intent is unclear.
Id. at 1020; see, e.g., Kimbell Foods, 557 F.2d at 496.
TCOTA adds to this statutory scheme (adopted by Texas) the requirement that a security
interest be recorded on a vehicle’s title to perfect. TCOTA § 501.111(a). This requirement serves
both TCOTA’s independent purpose of preventing theft and Texas Article Nine’s purposes of
notice and risk reduction to creditors. See TCOTA § 501.003 (articulating the purposes of TCOTA,
which include theft prevention).
18
In short, TCOTA’s re-titling requirement is not a “pointless exercise” of changing the date
on the car title. TitleMax needed to comply when it made the Second Loan.18 Thus, the Court holds
that TitleMax’s failure to re-title after the Second Loan rendered its security interest unperfected.
b) THE PLAN IS NOT RES JUDICATA AS TO THE TRUSTEE’S CLAIM.
TitleMax argues confirmation of the Debtors’ Plan, which treats TitleMax as a secured
creditor, precludes (via res judicata) the Trustee’s avoidance complaint. § 1327(a) (“[t]he
provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such
creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted,
or has rejected the plan.”); Friendly Fin. Service – Eastgate v. Dorsey (In re Dorsey), 505 F.3d
395, 398-99 (5th Cir. 2007); Fed. R. Bankr. P. 3015 (after a chapter 13 plan is confirmed, “any
determination in the plan made under Rule 3012 about the amount of a secured claim is binding
on the holder of the claim, even if the holder files a contrary proof of claim or the debtor schedules
that claim, and regardless of whether an objection to the claim has been filed.”).
Res judicata may bar a party from bringing a claim where: (1) the parties are identical to
that of the prior action (or in privity with the original parties); (2) the prior judgment was rendered
by a court of competent jurisdiction; (3) the prior action was concluded by a “final judgment on
the merits”; and (4) the same claim is involved in both actions. United States v. Davenport, 484
F.3d 321, 326 (5th Cir. 2007). Res judicata and its related doctrine of collateral estoppel “relieve
parties of the cost and vexation of multiple lawsuits, conserve judicial resources, and, by
preventing inconsistent decisions, encourage reliance on adjudication.” Allen v. McCurry, 449
U.S. 90, 94 (1980). Confirmation of a chapter 13 plan under § 1327(a) is treated as “res judicata
18 The cure for TitleMax and similar title lenders is evident—include future advances clauses in security agreements
to obtain automatic perfection of security interests in future advances and avoid re-titling issues.
19
as to all justiciable issues which were or could have been decided at the confirmation hearing.”
Sanchez v. Ameriquest Mortg. Co. (In re Sanchez), 372 B.R. 289, 307 (Bankr. S.D. Tex. 2007)
(citing In re Brady Municipal Gas Corp., 936 F.2d 212, 215 (5th Cir. 1991)). Only those issues
ripe for decision at the time of confirmation are binding—parties are not barred from raising post-
confirmation objections to claims if they could not have done so at the confirmation hearing.
Sanchez, 372 B.R. at 307 (“Res judicata cannot bar objections to charges that debtors did not know
existed”); see also In re Linkous, 141 B.R. 890, 898 (W.D. Va. 1992), aff’d, 990 F.2d 160 (4th
Cir. 1993) (“Issues that were not mature for decision and could not be appropriately resolved in
either the confirmation hearing or in the order confirming the plan are not barred.”). This exception
to the res judicata effect of a confirmed plan logically follows from the general res judicata criteria
that the prior judgment be “on the merits” and involve “the same claim.” Davenport, 484 F.3d at
326.
Here, pre-confirmation the Trustee objected to TitleMax’s claim, seeking to avoid
TitleMax’s security interest (“Trustee’s Objection”).19 While it was procedurally improper, the
Trustee’s Objection was pending at the time of confirmation without response from TitleMax.20
The Court granted the unopposed Trustee’s Objection shortly after the confirmation hearing but
before entry of the order confirming Debtor’s plan.21 Notwithstanding the Trustee’s outstanding
challenge to the secured status of TitleMax’s claim, the Court accepted the Trustee’s
recommendation and confirmed the Debtors’ plan subject to the Trustee’s outstanding objection
to the secured status of TitleMax’s claim in the Debtors’ plan.22 Before entry of the confirmation
19 Main Case ECF No.13.
20 Main Case ECF Nos. 13 and 23.
21 Main Case ECF No. 21.
22 Main Case ECF No. 2.
20
order, the Court granted the Trustee’s Objection, which changed TitleMax’s claim status to
unsecured; as a result, by the time the Court entered the confirmation order, TitleMax’s claim had
been changed from secured to a general unsecured claim of $11,453.60.23 Several months later, on
TitleMax’s motion, the Court vacated on procedural grounds theorder granting the Trustee’s
Objection.24
TitleMax argues that because the pre-confirmation objection was later “overruled,” the
Trustee is now barred from filing this adversary proceeding. TitleMax argues that the post-
confirmation vacating of the order finding its claim unsecured imputes to the Trustee knowledge
that TitleMax’s claim was avoidable pre-confirmation, and as such the Trustee should have sought
to avoid TitleMax’s lien in a procedurally proper manner pre-confirmation. The Court agrees that
the Trustee had preconfirmation notice that TitleMax’s security interest was avoidable and had the
Trustee not acted on that notice, it might have been bound by res judicata. But the Trustee did act.
At the time of the confirmation hearing, the Trustee (and the Debtors) had already brought
an action to avoid the security interest and the Court had avoided TitleMax’s security interest
before the Court entered an order confirming the Debtors’ plan. While the Court acknowledges the
incongruity between TitleMax’s challenged secured status and the Debtors’ confirmed plan, the
Court cannot retroactively apply res judicata to bar the Trustee from suing post-confirmation where
the Trustee had no reason to bring an avoidance adversary pre-confirmation when she had a
pending (albeit procedurally defective), uncontested challenge to TitleMax’s secured claim status,
and obtained an order avoiding TitleMax’s security interest pre-confirmation. See Roman Cath.
Archdiocese of San Juan v. Feliciano, 140 S. Ct. 696, 700-01 (2020) (holding that courts may
23 Main Case ECF Nos. 21 and 23.
24 Main Case ECF No. 32.
21
not enter nunc pro tunc orders which seek to retroactively change the past); Main Case ECF No.
21.
TitleMax cites Hope v. Acorn Fin. (In re Fluellen) as authority holding that a Trustee may
not bring a security interest avoidance action post-confirmation if the creditor has already been
treated as secured under the plan. Fluellen, 446 B.R. 612 (Bankr. M.D. Ga. 2011). In Fluellen, a
lender perfected its security interest in the debtor’s vehicle post-petition, giving rise to a preference
avoidance action. The chapter 13 trustee, however, did not file an adversary proceeding
challenging the preference until after the debtor’s plan was confirmed. The bankruptcy court, after
analyzing many cases in which courts prevented trustees and debtors from pursuing post-
confirmation challenges to a secured creditor’s status, held similarly that the trustee could not
challenge the post-confirmation perfection as a preference. The Fluellen court, however, limited
its ruling to the facts of its case, specifically stating that “the Trustee was fully aware of the
avoidable nature of the creditor’s security interest before confirmation.” Id. at 619. Indeed,
Fluellen distinguished a case holding that confirmation did not bar an avoidance action where the
trustee did not discover untimely perfection until after confirmation. Id. at 617 (reviewing Hope
v. First Fam. Fin. Svcs. of Ga., Inc. (In re Harrison), 259 B.R. 794 (Bankr. M.D. Ga. 2000)).
Here, the Trustee’s Objection challenged TitleMax’s security interest before the
confirmation hearing, and, shortly before the confirmation order was entered, the Court granted
the Trustee’s Objection and avoided TitleMax’s security interest (even though that order was later
vacated for procedural defects in the Trustee’s Objection). The Trustee raised the avoidance issue
before the confirmation hearing and successfully obtained an order avoiding TitleMax’s security
interest before entry of the confirmation order, and so should not be penalized for failing to file an
22
adversary proceeding pre-confirmation. In other words, by the time the confirmation order was
entered, TitleMax’s security interest had been avoided, so there was nothing left for the Trustee to
avoid. The Trustee is thus not barred by res judicata from pursuing this adversary proceeding.
c) THE TRUSTEE HAS STANDING TO BRING THE SECURITY INTEREST AVOIDANCE CLAIM.
TitleMax also argues that the Trustee lacks standing to bring this adversary proceeding
because (i) there is no “benefit to the estate” and (ii) the action is not to avoid security interests on
“property of the estate.”
Section 551 provides that any transfer avoided under § 544 “is preserved for the benefit of
the estate but only with respect to property of the estate.” A trustee may not avoid a transfer where
the benefit of such avoidance flows solely to the debtor instead of to the estate. Whiteford Plastics
Co. v. Chase Nat’l Bank, 179 F.2d 582 (2d Cir. 1950); Wellman v. Wellman, 933 F.2d 215, 217-
18 (4th Cir. 1991). The Trustee counters that the avoidance would, in fact, benefit the estate in this
case. Avoidance of TitleMax’s security interest would increase distributions to unsecured creditors
or at least expedite equivalent distributions to those creditors. Thus, the estate benefits if the
Trustee avoids the security interest.
TitleMax’s also asserts that the Trustee may not avoid the security interest on exempted,
non-estate collateral. As mentioned above, § 551 preserves avoided transfers “only with respect to
the property of the estate.” The Debtors’ exemptions vested thirty days after the § 341(a) meeting
of creditors. § 522(l); Fed. R. Bankr. P. 4003(b); Taylor v. Freeland & Kronz, 503 U.S. 638, 643
(1992). TitleMax contends that because the Debtors exempted the car, it is not “property of the
estate,” so the Trustee may not use § 551 to preserve TitleMax’s avoided interest.
23
Section 541(a) defines “property of the estate” as, among other things, “all legal and
equitable interests of the debtor in property as of the commencement of the case.” § 541(a)(1)
(emphasis added); United States v. Whiting Pools, Inc., 462 U.S. 198, 203-06 (1983). Of course,
“property of the estate” is not static: debtors and trustees may add to the property of the estate via
avoidance actions and turnover motions, and debtors may subtract from the property of the estate
by claiming exemptions. Owen v. Owen, 500 U.S. 305, 308 (1991) (superseded by statute on other
grounds). (“An exemption is an interest withdrawn from the estate (and hence from the creditors)
for the benefit of the debtor.”) But as Owen points out, “[n]o property can be exempted (and
thereby immunized), however, unless it first falls within the bankruptcy estate.” Id. So the question
remains: when an avoidance action is brought under § 544, as it is here, is “property of the estate”
what the estate holds at the petition date, or what it holds when the adversary proceeding is
brought?
Section 544 gives the trustee the rights and powers of “a creditor that extends credit to the
debtor at the time of the commencement of the case, and obtains, at such time and with respect to
such credit, and execution against the debtor that is returned unsatisfied at such time…”
§ 544(a)(2) (emphasis added). The trustee’s “strong arm” reflects powers as they exist at the
petition date, and § 551 automatically preserves those avoided transfers for the benefit of the estate.
Whether or not the debtor later exempts property is immaterial for the analysis under § 544 and
§ 551—property in the estate at the time of filing is “property of the estate” for purposes of § 551.
By contrast, if a chapter 7 trustee sought to avoid a tax lien encumbering exempt property
under § 724(a), the trustee could not avoid the lien. See United States v. Warfield (In re Tillman),
53 F.4th 1160 (9th Cir. 2022) (holding that because § 724(a) and § 726(a)(4) describe property of
24
the estate upon distribution, avoidance under § 724(a) applies only to property that is part of the
estate at time of distribution). Avoidance under § 544 considers circumstances as they were on the
date of filing bankruptcy, not when the trustee brings the avoidance action itself. Therefore, § 551
does not exclude exempt property from preservation. Heintz v. Carey (In re Heintz), 198 B.R.
581, 586 (9th Cir. B.A.P. 1996).
To hold otherwise would provide odd incentives: the Trustee would have been forced to
object to the Debtor’s exemption (likely without merit) only to try to avoid the unperfected security
interest. Or it would place the Debtor in a strange situation, deciding between exempting property
subject to an otherwise avoidable security interest, or forgoing the exemption to allow the trustee
to avoid the security interest. Instead, this Court holds that a trustee has standing to avoid security
interests under §§ 544 and 551 on property that the debtor has exempted.
VI. CONCLUSION
For all these reasons, the Court will DENY TitleMax’s Motion for Summary Judgment and
GRANT the Trustee’s Motion for Summary Judgment and enter a separate Judgment consistent
with this Opinion.
# # #
25