TitleMax of Alabama, Inc. v. Arnett

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF ALABAMA

NORTHERN DIVISION

TITLEMAX OF ALABAMA, INC., )

)

Appellant, )

)

v. ) CASE NO. 2:23-cv-170-ECM

) [WO]

KIMBERLY HOPE ARNETT, )

)

Appellee. )

MEMORANDUM OPINION AND ORDER

This appeal concerns Kimberly Hope Arnett’s (“Arnett”) prepetition conduct in

renewing her pawn agreement with TitleMax of Alabama, Inc. (“TitleMax”), hours before

filing for Chapter 13 bankruptcy protection that same day. After Arnett filed for

bankruptcy protection and submitted her proposed plan, TitleMax objected, claiming that

Arnett lacked good faith in proposing her plan. Following an evidentiary hearing, an initial

ruling, an appeal, and a subsequent status conference, the bankruptcy court overruled

TitleMax’s objection and confirmed Arnett’s proposed plan. This appeal followed.

JURISDICTION

The bankruptcy court’s confirmation of a Chapter 13 plan is a final order. See Catlin

v. United States, 324 U.S. 229, 233 (1945) (“A ‘final decision’ generally is one which ends

the litigation on the merits and leaves nothing for the court to do but execute the

judgment.”). The district court has jurisdiction to hear appeals from all final orders of the

bankruptcy court. 28 U.S.C. § 158(a)(1).

STANDARD OF REVIEW

In an appeal of a bankruptcy court decision, the district court sits as an appellate

court. In re Williams, 216 F.3d 1295, 1296 (11th Cir. 2000) (per curiam). The district court

reviews the bankruptcy court’s findings of fact under the clearly erroneous standard and

conclusions of law under the de novo standard. In re Piazza, 719 F.3d 1253, 1260 (11th

Cir. 2013).

FACTUAL BACKGROUND AND PROCEDURAL HISTORY

The underlying facts behind this appeal are not in dispute. Arnett entered an initial

pawn agreement with TitleMax in November 2020 on a 2013 Kia Forte (“the vehicle”).

Arnett renewed her pawn on a monthly basis through March 2021. Under the terms of the

March 2021 pawn agreement, Arnett could redeem her vehicle by paying $5,355.27 on or

before April 23, 2021, the maturity date. If Arnett did not pay the redemption price by the

maturity date, TitleMax had the option to enter a new pawn transaction with Arnett by

renewing her pawn. If the pawn agreement was not renewed, Arnett had an additional

thirty days to redeem the vehicle in accordance with the Alabama Pawnshop Act’s statutory

redemption period. See Ala. Code. § 5-19A-10(b). If Arnett did not redeem the vehicle

within the thirty-day statutory redemption period, title and complete ownership would be

forfeited to TitleMax.

Clause 22(j) of the pawn agreement between Arnett and TitleMax states, “By

signing this Agreement, Pledgor represents, warrants, acknowledges and agrees as

follows . . . You are not a debtor in bankruptcy. You do not intend to file a federal

bankruptcy petition.” (Doc. 3-24 at 6). This clause was included in all relevant pawn

agreements between Arnett and TitleMax. At the evidentiary hearing, a representative

from TitleMax testified that TitleMax would not enter a pawn agreement with a customer

that indicated an intent to file bankruptcy.

Arnett did not redeem or renew her March 2021 pawn agreement, and TitleMax

subsequently repossessed her vehicle. However, Arnett re-obtained her vehicle after

executing a new pawn agreement with TitleMax on June 14, 2021. TitleMax offered to

lend Arnett additional cash with this renewal, but Arnett rejected the offer. Later in the

day on June 14, 2021, Arnett filed a Chapter 13 bankruptcy petition.

Arnett admits that she decided to file her Chapter 13 bankruptcy petition prior to

entering the June 14 pawn agreement with TitleMax. (Doc. 3-15 at 8). In fact, Arnett

retained a bankruptcy attorney and completed a credit counseling course—a pre-requisite

to filing Chapter 13 bankruptcy—prior to signing the June 14 pawn agreement. At no point

during the pawn renewal process did Arnett inform TitleMax that she intended to file a

Chapter 13 petition.

In the bankruptcy court, TitleMax objected to the confirmation of Arnett’s Chapter

13 plan. TitleMax took issue with its classification within Arnett’s plan as a secured

creditor of the vehicle, arguing that Arnett defaulted on the June 14 pawn agreement prior

to filing for bankruptcy.1 TitleMax also argued that Arnett did not file her Chapter 13 plan

in good faith because of the misrepresentation she made regarding Clause 22(j) of the

agreement.

1 TitleMax’s objection stemmed from its belief that the case fell under In re Northington rather than In re

Womack. This distinction, as well as its impact on the bankruptcy proceeding, is discussed in greater detail

below.

DISCUSSION

Although TitleMax frames nine issues on appeal, each of its arguments ultimately

challenge two findings made by the bankruptcy court: 1) that Arnett was not in default of

the June 14 pawn agreement at the time she filed for bankruptcy and 2) that Arnett proposed

her Chapter 13 Plan in good faith.2 Because the bankruptcy court made errors, according

to TitleMax, the vehicle was improperly included as a part of Arnett’s bankruptcy estate.

The heart of TitleMax’s appeal stems from the distinction between In re Womack,

2021 WL 3856036 (11th Cir. Aug. 30, 2021), and In re Northington, 876 F.3d 1302 (11th

Cir. 2017).3 Under Womack, a debtor that files bankruptcy while party to an unmatured

pawn agreement—an agreement that has not yet reached its maturity date—transfers her

possessory and ownership interests in the relevant property to her bankruptcy estate.

Womack, 2021 WL 3856036 at *2. While the pawnbroker maintains a security interest in

the relevant property, that interest is subject to the debtor’s bankruptcy protections. Thus,

the property receives the protection of the automatic stay, the debtor maintains her right to

modify her interest in the property in a Chapter 13 plan, and the estate’s interest in the

property is not impacted by forfeiture or the statutory redemption period. Id. at *3.

However, if a debtor files bankruptcy after the maturity date of the pawn agreement

expires, Northington applies. Id. In that situation, the bankruptcy estate inherits the

2 On appeal, TitleMax appears only to challenge whether the bankruptcy court properly determined that Arnett

proposed her Chapter 13 Plan in good faith, not whether she filed her bankruptcy petition in good faith.

3 The Court recognizes that Northington is binding precedent, while Womack is not. However, the issue here

is not which case the Court must follow. Each case analyzes claims based on the specific facts presented and

the procedural posture. To resolve TitleMax’s appeal, the Court must determine whether this case, based on

the facts presented and the procedural posture, is most analogous to Northington or Womack.

debtor’s statutory right to redeem the property subject to the pawn agreement. See

Northington, 876 F.3d at 1310–11. However, the automatic stay does not freeze the

statutory redemption period. Id. at 1314–15. Thus, the redemption period continues to run,

subject to the sixty-day extension granted by federal law, see 11 U.S.C. § 108(b), after the

debtor files her bankruptcy petition. Northington, 876 F.3d at 1313. When the statutory

period expires, the property is forfeited to the pawnbroker and does not receive the

protection of the automatic stay. Northington, 876 F.3d at 1315.

TitleMax asserts that Arnett’s bankruptcy estate possessed only a statutory right to

redeem the vehicle under Northington. In support of this proposition, TitleMax argues that

Arnett defaulted on her June 14 pawn agreement before she filed her bankruptcy petition.

Additionally, TitleMax argues that the bankruptcy court erred in confirming Arnett’s

Chapter 13 Plan because Arnett did not propose her Chapter 13 Plan in good faith. For the

reasons that follow, the Court finds that the bankruptcy court is due to be AFFIRMED.

A. Pre-Petition Default

Arnett’s pawn agreement provided that she “will be in default if [she] made any false

representation warranty, promise, or provision in or in connection with entering into this

Agreement.” (Doc. 3-24 at 2). As discussed, Clause 22(j) of the pawn agreement required

Arnett to “represent[], warrant[], acknowledge[] and agree[]” that she did not intend to file

for bankruptcy. (Id. at 6). Because Arnett did intend to file for bankruptcy when she signed

the June 14 pawn agreement, TitleMax argues that Arnett made a false representation by

acknowledging Clause 22(j). Accordingly, TitleMax argues that Arnett defaulted by the

terms of the pawn agreement before she filed her bankruptcy petition. Thus, TitleMax

argues, the vehicle did not become part of Arnett’s bankruptcy estate under Northington.

However, TitleMax fails to articulate how the bankruptcy court’s finding to the

contrary was clearly erroneous. Instead, TitleMax states that “[t]he bankruptcy

court . . . failed to consider whether the Debtor’s pre-petition default triggered the

redemption period of her pawn” agreement. (Doc. 8 at 6). To the contrary, the bankruptcy

court noted that TitleMax failed to raise this argument in its written objections. (Doc. 3-19 at

9). The bankruptcy court also reasoned that “[a] general allegation of . . . breach of contract

is not a typical basis for an objection to confirmation.” (Doc. 3-19 at 10). Ultimately, the

bankruptcy court found that Arnett did not default by breaching her pawn agreement.

TitleMax acknowledges that the bankruptcy court made this finding and has failed to

demonstrate that such finding was clearly erroneous.4 Accordingly, the bankruptcy court is

due to be AFFIRMED as to this finding.

B. Good Faith Determination

Additionally, TitleMax contends that the bankruptcy court erred in determining that

Arnett proposed her Chapter 13 plan in good faith. “A bankruptcy court’s determination

whether a chapter 13 plan has been proposed in good faith is a finding of fact reviewable

under the clearly erroneous standard.” In re Brown, 742 F.3d 1309, 1315 (11th Cir. 2014)

(citation omitted). Under a clearly erroneous standard, “the factual findings of a trial court

must be allowed to stand unless the reviewing court is left with the definite and firm

impression that a mistake has been made.” Am. Nat’l Bank of Jacksonville v. Fed. Deposit

4 Of note, TitleMax continues to argue that Arnett made a false representation when renewing her pawn

agreement. However, the pertinent language in the clause discussing default prohibits a “false representation

warranty.” TitleMax has failed to show that the bankruptcy court made a clearly erroneous interpretation of

these terms as defined by the pawn agreement.

Ins. Corp., 710 F.2d 1528, 1534 (11th Cir. 1983) (citing Morgado v. Birmingham-Jefferson

Cnty. Civ. Def. Corp., 706 F.2d 1184 (11th Cir. 1983)).

In determining whether a debtor proposed her plan in good faith, the bankruptcy court

must consider:

(1) the amount of the debtor’s income from all sources;

(2) the living expenses of the debtor and h[er] dependents;

(3) the amount of attorney’s fees;

(4) the probable or expected duration of the debtor’s Chapter 13 plan;

(5) the motivations of the debtor and h[er] sincerity in seeking relief under the

provisions of Chapter 13;

(6) the debtor’s degree of effort;

(7) the debtor’s ability to earn and the likelihood of fluctuation in h[er]

earnings;

(8) special circumstances such as inordinate medical expense;

(9) the frequency with which the debtor has sought relief under the Bankruptcy

Reform Act and its predecessors;

(10) the circumstances under which the debtor has contracted h[er] debts and

h[er] demonstrated bona fides, or lack of same, in dealings with h[er] creditors;

(11) the burden which the plan’s administration would place on the trustee.

In re Kitchens, 702 F.2d 885, 888–89 (11th Cir. 1983).

TitleMax argues that Arnett did not propose her Chapter 13 Plan in good faith

because she did not enter her June 14 pawn agreement in good faith. In particular, TitleMax

objects to the bankruptcy court’s analysis of the tenth Kitchens factor. In TitleMax’s

opinion, “[t]he bankruptcy court incorrectly downplayed the Debtor’s misconduct,

overlooking dishonesty in both incurring debt and obtaining property, in favor of other

Kitchens factors that were not in dispute.” (Doc. 8 at 15). TitleMax’s arguments

demonstrate that TitleMax disagrees with the bankruptcy court’s analysis, but they do not

establish that the bankruptcy court committed legal error.

In analyzing whether Arnett proposed her Chapter 13 plan in good faith, the

bankruptcy court applied the appropriate eleven-factor Kitchens test. The bankruptcy court

noted that this analysis focuses on the totality of the circumstances. Under the totality of

the circumstances, the bankruptcy court reasoned that “most of the factors [were] not

disputed and . . . weigh[ed] in favor of finding good faith.” (Doc. 3-19 at 22). Amongst

additional facts that supported the bankruptcy court’s determination, the bankruptcy court

considered that Arnett’s “income and expenses were not criticized,” that Arnett was

“sincere in [her] motivation for seeking bankruptcy relief,” and that Arnett “did not file

[her] . . . plan solely to avoid [her] debt[] to TitleMax.” (Id. at 23–24).

TitleMax primarily takes issue with the bankruptcy court’s analysis of the tenth

Kitchens factor. The tenth factor examines “the circumstances under which the debtor has

contracted [her] debts and [her] demonstrated bona fides, or lack of same, in dealings with

[her] creditors.” Kitchens, 702 F.2d at 889. The bankruptcy court acknowledged in its

analysis that “incurring a debt on the eve of bankruptcy may be indicative of bad faith.”

(Doc. 3-19 at 26). Nevertheless, the bankruptcy court examined the totality of the

circumstances and determined that Arnett sought to repay her debt to TitleMax, not thwart

it. In finding that Arnett did not lack bona fides in her conduct, the bankruptcy court

considered the nature of Arnett’s ongoing relationship with TitleMax. Ultimately, the

bankruptcy court found that Arnett’s “pre-petition behavior, viewed in the totality of the

circumstances, [did] not result in a finding a bad faith in filing [her] plan[].” (Id. at 28).

Although TitleMax disagrees with the bankruptcy court’s Kitchens analysis,5 it cannot

show that the bankruptcy court clearly erred in making the factual finding that, under the

totality of the circumstances, Arnett proposed her plan in good faith. Accordingly, the

bankruptcy court is due to be AFFIRMED.

CONCLUSION

For the foregoing reasons, the bankruptcy court’s order confirming the Appellee

Arnett’s plan is AFFIRMED.

DONE this 18th day of October, 2023.

/s/ Emily C. Marks

EMILY C. MARKS

CHIEF UNITED STATES DISTRICT JUDGE

5 Although TitleMax challenges some of the bankruptcy court’s considerations under the tenth Kitchens factor,

challenging the bankruptcy court’s independent rationale under one factor is insufficient to show that the

bankruptcy court’s ultimate factual findings were clearly erroneous such that the Kitchens analysis was legally

incorrect.