TitleMax Can’t Have Its Cake and Eat it Too

Posted by NCBRC - April 21, 2021

TitleMax waived its right to forfeiture under a title pawn transaction when it failed to object to treatment of the loan as a secured debt prior to confirmation of the debtor’s plan. TitleMax of Alabama v. Deakle, No. 20-335 (S.D. Ala. March 31, 2021).

Prior to filing for bankruptcy, the debtor entered into a title pawn transaction with TitleMax. The pawn matured and the grace period for redemption expired before the debtor filed her chapter 13 petition. Her proposed plan provided for payments to TitleMax as a secured creditor. TitleMax raised no objection to the treatment of the loan until three months after the debtor’s plan was confirmed. At that time, TitleMax filed a motion to “confirm termination or absence of stay.” The bankruptcy court found that, by failing to object to confirmation, TitleMax had waived the forfeiture provision of Alabama’s Pawnshop Act and was bound by the terms of the confirmed plan under section 1327(a).

Alabama’s Pawnshop Act, provides: “[p]ledged goods not redeemed within 30 days following the originally fixed maturity date shall be forfeited to the pawnbroker and absolute right, title, and interest in and to the goods shall vest in the pawnbroker.” Ala. Code § 5-19A-6. The Act provides an additional 30-day grace period for redemption.

On appeal, TitleMax argued that, by operation of the Pawnshop Act, the vehicle was not part of the bankruptcy estate and, therefore, TitleMax was not required to object to the debtor’s proposed plan. The district court disagreed. The court pointed to in ln re Eldridge, 2020 WL 2844358 (Bankr. S.D. Ala. Feb. 13, 2020), where the debtor pawned his vehicle and failed to redeem it within the forfeiture period. Instead, he and TitleMax entered into subsequent pawn transactions. In his bankruptcy, the debtor in Eldridge argued that he was entitled to the return of some of the payments he had made on the vehicle after the 60-day maturity date and grace period expired. TitleMax opposed, arguing that, by ignoring maturity dates and entering into new transactions with the debtor, they waived the right to forfeiture and could continue to collect on the debt. TitleMax won the day, establishing that the Pawnshop Act’s forfeiture provision was waivable.

In this case, TitleMax distinguished Eldridge, as involving the situation where both parties voluntarily entered into new pawn transactions after the forfeiture grace period had ended. In contrast, in this case, TitleMax did not affirmatively enter into a new agreement with the debtor, but was found to have waived forfeiture by silence.

Under Alabama law, waiver is defined as relinquishment of a known right and a bankruptcy court may determine that a right has been waived based on a party’s conduct. Here, the court found that “bankruptcy-savvy” TitleMax was aware of the debtor’s bankruptcy as well as her proposed treatment of the debt in her plan but elected not to object to confirmation of the plan. The court noted that TitleMax routinely waived forfeiture, citing an extensive list of cases currently in the bankruptcy court where TitleMax did just that. The court deemed these facts sufficient to meet the state standards for waiver.

The court also cited the contrasting case of ln re Northington, 876 F.3d 1302, 1310 (11th Cir. 2017), where the circuit court acknowledged that TitleMax could waive its right to forfeiture by sleeping on its rights prior to confirmation, but found that TitleMax had not done so. Rather, in Northington, TitleMax asserted its right to title prior to confirmation of the debtor’s plan by moving for relief from stay on the basis that the vehicle was not part of the bankruptcy estate. Based on TitleMax’s pre-confirmation action, the Northington court found that it was not bound by the terms of the confirmed plan.

In this case, TitleMax did not assert forfeiture or argue ownership of title until three months after the plan was confirmed. The court rejected TitleMax’s argument that because the forfeiture period had ended prior to the debtor’s bankruptcy petition, the waiver contemplated by Northington did not apply. The court found that TitleMax had to assert its right to forfeiture prior to plan confirmation without regard to whether the grace period for redemption ended pre- or post-petition.

The court addressed the factually similar case of In re Thorpe, 612 B.R. 463 (Bankr. S.D. Ga. 2019), where the bankruptcy court found no waiver of forfeiture, but found that case unpersuasive as it rested on interpretation of Georgia rather than Alabama law.

The court summarized: “If the debtor in Eldridge is right and forfeiture cannot be waived after the grace period has run, then outside bankruptcy many Alabama customers are paying TitleMax on non-recourse loans for vehicles which TitleMax already owns. Likewise, if forfeiture cannot be waived, then TitleMax is filing secured claims and accepting chapter 13 plan payments on non-recourse loans for vehicles it already owns. The ruling here accords with both the reality on the ground and Alabama waiver law.”

The court affirmed.

Deakle SD Ala Mar 2021

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