Dymarkowski v. Savage (In re Hadley)

Case Type:
Case Status:
16-8010 (6th Circuit, Dec 21,2016) Published

Concluding that the debtor's attorney had not previously perfected a lien on two vehicles pledged by the debtor prior to bankruptcy as collateral for the repayment of unpaid legal fees, the BAP affirmed the bankruptcy court's decision that signing of the two vehicle titles over to the debtor's attorney six days before the debtor filed for chapter 7 protection constituted an avoidable transfer within the meaning of 11 U.S.C. § 547(b). 

Procedural context:

The chapter 7 trustee filed an adversary proceeding to avoid the prepetition transfer of two vehicles to the debtor's attorney and recover the value of the vehicles for the estate.  The bankruptcy court granted partial summary judgment on the avoidability of the transfer under 11 U.S.C. § 547(b), and set a subsequent hearing to determine the value of the transferred vehicles for purposes of the trustee's recovery under 11 U.S.C. § 550.  Although the debtor and attorney had agreed prior to bankruptcy that the value of one of the vehicles was $25,000, the Court accepted testimony at trial that the vehicle was inoperable and required substantial repair and assigned a value to the vehicle midway between $25,000 and the lower amount to which a mechanic testified who had worked on the vehicle.  The debtor's attorney appealed.    


Four years prior to the debtor's bankruptcy filing, debtor gave his attorney possession of the titles to two vehicles as security for the repayment of unpaid legal fees.  Just over 90 days prior to the bankruptcy filing, the debtor turned over possession of the two vehicles to his attorney.  It was not until six days before the bankruptcy filing, however, that the debtor signed over the two vehicle titles and completed the transfer of ownership of the two vehicles to his attorney.  In considering the attorney's argument that he had a common law attorney's lien on the two vehicles well prior to the 90-day avoidance period, the bankruptcy court concluded that the attorney had neither a retaining lien, a charging lien, or a contractual lien at any point in time based solely on his possession of the vehicle titles and, later, the vehicles themselves.  As no transfer legally occurred until the vehicle titles were signed over just prior to the bankruptcy filing, the bankruptcy court concluded that an avoidable transfer had occurred.  On the question of value, the bankruptcy court essentially split the difference in the competing valuation testimony, noting that bankruptcy courts commonly adopt a "middle" value in the face of equally persuasive, but conflicting, evidence.    

Delk, Preston, and Wise

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