TitleMax of Alabama, Inc. v. Arnett et al

Filing 9

MEMORANDUM OPINION AND ORDER: the bankruptcy court's order confirming the Appellee Arnett's plan is AFFIRMED, as further set out in Order. Signed by Chief Judge Emily C. Marks on 10/18/2023. (Furnished: ALMD BK Clerk) (am, )

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF ALABAMA
NORTHERN DIVISION
TITLEMAX OF ALABAMA, INC.,
Appellant,
v.
KIMBERLY HOPE ARNETT,
Appellee.

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) CASE NO. 2:23-cv-170-ECM
)
[WO]
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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
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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.

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.
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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

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.

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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.
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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
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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
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.
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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,
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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
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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

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.
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