No.

OFFICE OF THE CLERK

upreme ourt o[ the niteb tate

AMERICREDIT FINANCIAL SERVICES, INC.,Petitioner,

V.

MARLENE A. PENROD,Respondent.

On Petition for a Writ of Certiorari to the UnitedStates Court of Appeals for the Ninth Circuit

PETITION FOR A WRIT OF CERTIORARI

RANDALL P. MROCZYNSVdCOOKSEY, TOOLEN,GAGE, DUFFY & WOOG535 ANTON BOULEVARD

10TH FLOOR

COSTA MESA, CA 92626TELEeHONE: (714) 431-1100FACSIMILE: (714) 431-1145rmroczynski@cookseylaw.com

WILLIAM M. BURKE

Counsel of Record1811 TANAGER DRIVECOSTA MESA, CA 92626TELEPHONE: (714) 979-2159FACSIMILE: (714) 434-9816edxceo@aol.com

Counsel for Petitioner

May 25, 2011

Becker Gallagher - Cincinnati, OH ¯ Washington, D.C. ¯ 800.890.5001

Blank Page

QUESTION PRESENTED

Section 506 of the United States Bankruptcy Code,11 U.S.C. § 506 (2005), ("Bankruptcy Code"), inconjunction with the Chapter 13 wage earner planrequirements of Section 1325, 11 U.S.C. § 1325 (2005),permits the debtor in his or her wage earner plan tobifurcate a claim secured by property into a securedclaim, to the extent of the value of the debtor’s interestin the property, and an unsecured claim to the extentthe secured claim exceeds the value of the debtor’sinterest in the property. The "hanging paragraph,"adopted by Congress as part of the Bankruptcy AbusePrevention and Consumer Protection Act of 2005, 11U.S.C. § 1325(a)(*) (2005), provides that Section 506"shall not apply" to the claim of a secured creditor if(i)the creditor has a purchase-money security interestsecuring the debt that is the subject of the claim, (ii)the debt was incurred within 910-days preceding thefiling of the Chapter 13 case, (iii) the collateral is amotor vehicle and (iv) the motor vehicle was acquiredfor the personal use of the debtor. If the hangingparagraph applies, the debtor may not bifurcate thesecured creditor’s claim under Section 506 and mustpropose a wage earner plan that pays the securedcreditor the entire amount of its secured claim.

The issue in this case is whether the hangingparagraph forbids the bifurcation of securedindebtedness incurred in a consumerautomobile finance transaction in which adealer extends financing to a purchaser toacquire a new motor vehicle and the financingincludes a charge for an advance made by thedealer to discharge the purchaser’sindebtedness on a trade-in vehicle, thereby

ii

enabling the purchaser to acquire the newvehicle.

The United States Court of Appeals for the NinthCircuit held that the hanging paragraph does notapply to this charge, thus allowing it to be bifurcatedfrom the secured claim and treated as unsecuredindebtedness in the debtor’s Chapter 13 wage earnerplan. The holding of the Ninth Circuit is in directconflict with nine opinions in eight other federal circuitcourts and an opinion of the highest court of the stateof New York. The Ninth Circuit’s opinion stands aloneamong federal circuit courts in its interpretation of thehanging paragraph.

.oo111

PARTIES TO THE PROCEEDING

The Petitioner is AmeriCredit Financial Services,Inc. and the Respondent is Marlene A. Penrod. Thereare no other parties to the proceeding.

iv

CORPORATE DISCLOSURE STATEMENT

The Petitioner, AmeriCredit Financial Services,Inc., is a corporation. General Motors FinancialCompany, Inc., formerly known as AmeriCredit Corp.,owns 100% of the stock of AmeriCredit FinancialServices, Inc. General Motors Financial Company, Inc.is owned by General Motors Holdings LLC, which, inturn, is owned by General Motors Company. Nopublicly held corporation owns 10% or more of thestock of AmeriCredit Financial Services, Inc. orGeneral Motors Financial Company, Inc.

V

TABLE OF CONTENTS

QUESTION PRESENTED ....................i

PARTIES TO THE PROCEEDING ............iii

CORPORATE DISCLOSURE STATEMENT ....iv

TABLE OF CONTENTS .....................v

TABLE OF AUTHORITIES ..................x

PETITION FOR A WRIT OF CERTIORARI .....1

OPINIONS BELOW ........................ 1

STATEMENT OF JURISDICTION ............1

STATUTORY PROVISIONS INVOLVED .......2

STATEMENT OF THE CASE ................5

1. Facts .................................. 5

2. Proceedings Below ....................... 6

BACKGROUND STATEMENT CONCERNINGAUTOMOBILE FINANCING AND THEHANGING PARAGRAPH .................9

1. Automobile Financing and Negative Equity .. 9

2. BAPCPA and the Hanging Paragraph ......12

a. Pre-BAPCPA ........................ 12

vi

b. Post-BAPCPA ....................... 12

REASONS FOR GRANTING THE WRIT ......14

This Case Presents a Recurring and ImportantIssue of Federal Law and is the Ideal, and Only,Vehicle Through Which the Conflict in theCircuits Can Be Resolved ................ 14

II. The Opinion of the Ninth Circuit Is In ConflictWith the Plain Text of the HangingParagraph ............................ 17

Ig. The Opinion of the Ninth Circuit Conflicts Withthe Decisions of Eight Other Circuits and withan Opinion of New York’s Highest Court ....20

A. Article 9 ........................... 21

B. Automobile Sales Finance Act ..........27

IV. The Opinion of the Ninth Circuit Will FrustrateSignificant Federal and State Policies ......30

CONCLUSION ........................... 32

APPENDIX

Appendix A: Opinion, United States Court ofAppeals for the Ninth Circuit(July 16, 2010) .............. la

vii

Appendix B: Opinion, United StatesBankruptcy Appellate Panel ofthe Ninth Circuit(July 28, 2008) ............. 16a

Appendix C: Order Partially SustainingAmericredit Financial Services,Inc.’s Objection to PlanConfirmation, United StatesBankruptcy CourtNorthernDistrict of California(September 17, 2007) .......69a

Appendix D: Order denying Petition forRehearing En Banc, UnitedStates Court of Appeals for theNinth Circuit(February 28, 2011) ......... 73a

Appendix E: 11 U.S.C.S. § 506 ...........88a11 U.S.C.S. § 547 ...........90a11 U.S.C.S. § 1325 ..........97a

Appendix F:

Appendix G:

Appendix H:

Cal. Civ. Code § 2981 .......103a

Cal. U. Com. Code § 9103 ... 110a

Opinion, In the Matter of FaithAnn Peaslee and Others GeorgeM. Reiber, v. GMAC, LLC, et al.,Court of Appeals of New York(June 24, 2009) ............ 120a

Vlll

AppendixI: Voluntary Petition, United StatesBankruptcy CourtNorthernDistrict of California(March 2, 2007) (Foldout Exhibit,3 pages) .................. 135a

Appendix J: Objection to Confirmation ofProposed Chapter 13 Plan, andDeclaration in Support, UnitedStates Bankruptcy Court,Northern District of California,San Francisco Division(March 22, 2007)(Foldout Exhibit4 pages) .................. 136a

Appendix K: Order Confirming Chapter 13Plan and Order ApprovingAttorney Fees and Notice, UnitedStates Bankruptcy Court,Northern District of California(September 21, 2007) ....... 159a

Appendix L: Notice of Appeal, United StatesBankruptcy Court, NorthernDistrict of California, SanFrancisco Division(September 25, 2007) ....... 162a

Appendix M: Notice of Appeal, United StatesBankruptcy Court, NorthernDistrict of California, SanFrancisco Division(September 28, 2007) ....... 165a

ix

Appendix N: Petition for Rehearing En Banc,In the United States Court ofAppeals for the Ninth Circuit(August 30, 2010) .......... 168a

Appendix O: States That Expressly AllowNegative Equity to Be Financedas Part of a Secured RetailInstallment Sales Contract . . 198a

Appendix P: Negative Equity Cases as ofMarch 2011 .............. 201a

X

TABLE OF AUTHORITIES

CASES

Dean v. Davis,242 U.S. 438 (1917) ..................... 27

GMAC v. Horne,390 B.R. 191 (E.D.Va. 2008) ..............23

GMAC v. Peaslee,373 B.R. 252 (W.D.N.Y. 2007) .............13

In re Bellanca Aircraft Corp.,850 F.2d 1275 (8th Cir. 1988) .............. 27

In re Callicott,580 F.3d 753 (8t~l Cir. 2009) ................ 8

In re Cohrs,No. 07-21431-A-13G, 2007 WL 2050980 (Bankr.E.D.Ca. July 31, 2007) ................... 29

In re Dale,No. 4:07-CV-03176, 2008 U.S. Dist. LEXIS88959 (S.D.Tx. Aug. 14, 2008) .............18

In re Dale,582 F.3d 568 (5th Cir. 2009) ....... 8, 18, 24, 26

In re EDC, Inc.,930 F.2d 1275 (7th Cir. 1991) .............. 27

In re Ford,574 F.3d 1279 (10t~ Cir. 2009) ..... 8, 23, 24, 31

xi

In re Foxmeyer Corp.,286 B.R. 546 (Bankr. D.Del. 2002) .........27

In re Graupner,537 F.3d 1295 (11th Cir. 2008) .......... passim

In re Hampton,No. 07-14990, 2008 Bankr. LEXIS 2551(S.D.Oh. Mar. 19, 2008) ..................18

In re Howard,597 F.3d 852 (7th Cir. 2010) ............ passim

In re Mierkowski,580 F.3d 740 (8th Cir. 2009) .......... 8, 23, 28

In re Muldrew,396 B.R. 915 (E.D.Mich. 2008) .........18, 23

In re Myers,393 B.R. 616 (Bankr. S.D.Ind. 2008) ........31

In re Padgett,408 B.R. 374 (10th Cir. BAP 2009) .......... 18

In re Pajot,371 B.R. 139 (Bankr. E.D.Va. 2007) ........23

In re Peaslee,13 N.Y. 3d 75 (N.Y. Ct. App. 2009) . 8, 23, 24, 26

In re Peaslee,585 F.3d 53 (2d Cir. 2009) ..............8, 28

xii

In re Price,No. 5:07-CV-133-BR, 2007 WL 5297071(E.D.N.C. Nov. 14, 2007) .................23

In re Price,562 F.3d 618 (4th Cir. 2009) ............ passim

In re Sanders,377 B.R. 836 (Bankr. W.D.Tex. 2007) .......23

In re Sanders,403 B.R. 435 (W.D.Tex. 2009) ..........18, 23

In re Takk Harold Kerst,347 B.R. 418 (Bankr. D. Col. 2006) .........27

In re Westfall,599 F.3d 498 (6th Cir. 2010) ....... 8, 23, 24, 26

In re Whipple,No. 09-80090, 2009 Bankr. LEXIS 2882 (Bankr.C.D.Ill. Sept. 21, 2009) .................. 18

In re Wright,492 F.3d 829 (7th Cir. 2007) ............... 20

CONSTITUTIONAL PROVISIONS

U.S. Const. Art. 1, § VIII, cl. 4 ...............15

STATUTES

11 U.S.C. § 506 (2005) ..................i, 19, 2011 U.S.C. § 506(a)(1) (2005) ...............2, 1211 U.S.C. § 547(a)(2) (2005) ..............26, 2711 U.S.C. § 547(c)(3) (2005) ..............26, 27

xiii

11 U.S.C.11 U.S.C.11 U.S.C.11 U.S.C.11 U.S.C.11 U.S.C.28 U.S.C.28 U.S.C.28 U.S.C.28 U.S.C.28 U.S.C.28 U.S.C.Cal. Civil

§ 547(c)(4) (2005) ................. 27§ 1325 (2005) ....................... i§ 1325(a)(*) (2005) ............i, 2, 3, 6§ 1325(a) (2005) ...........2, 3, 14, 17§ 1325(a)(5) (2004) ................12§ 1325(a)(5)(B) (2005) ............2, 20§ 157(B)(2)(A), (B), (L) ..............1§ 158 ............................ 1§ 158(d) .......................... 1§ 1254(1) ......................... 1§ 1291 ........................... 1§ 1334(a) ......................... 1Code § 2981, et seq .............. 20, 28

Cal. Civil Code § 2981(e) ..................6, 28Cal. Comm. Code § 1103(2)(b) ...............30Cal. Comm. Code § 9101 ....................20Cal. Comm. Code § 9103 ..................5, 21Cal. Comm. Code § 9103(a)(b) ................4

UNIFORM COMMERCIAL CODE PROVISIONS

UCC § 9-103 ........................... passimUCC § 9-103(a)(b) ........................ 3, 4

REGULATIONS

12 C.F.R. Part 226, Supp. 1, ~[ 18(j)-3 at 464 ....28

OTHER AUTHORITIES

Pub. L. 109-8, § 306(b), 119 Stat. 23 (2005).. 13, 30

Official Comment 3 to Cal. Comm. Code § 9103... 5, 21

Official Comment 3 to U.C.C. § 9-103 ......passim

xiv

ARTICLES

Sharon Silke Carty and Chris Woodyard, For CarDealers, Tight Credit is Fueling a ’Catastrophe,’USA Today, Oct. 21, 2008 available athttp://www.usatoday.com/money/autos/2008-10-20-auto-dealerships-credit-crisis-loans_N.htm ................................. 9

Wilson & DiChiara, The Changing Landscape ofIndirect Automobile Lending, FDIC SupervisoryInsights, Summer 2005, at 29 .............10

Kiley, Car Buyers Burned By Negative Equity, USAToday, July 6, 2003, available at http://www.usatoday.com/money/autos/2003-07-06-car-loan_x.htm ............................ 10

1

PETITION FOR A WRIT OF CERTIORARI

Petitioner, AmeriCredit Financial Services, Inc.,petitions the Court for a writ of certiorari to review afinal judgment of the United States Court of Appealsfor the Ninth Circuit entered on July 16, 2010affirming a decision of the United States BankruptcyAppellate Panel of the Ninth Circuit which, in turn,affirmed a decision of the United States BankruptcyCourt for the Northern District of California.

OPINIONS BELOW

The Bankruptcy Court did not issue a writtenopinion. The court’s order is unreported and isreprinted in the Appendix ("Pet. App.") at Pet. App.69a-72a. The opinion of the Bankruptcy AppellatePanel is reported at 392 B.R. 835 (9th Cir. BAP 2008)("Penrod BAP"). Pet. App. 16a-68a. The opinion of theNinth Circuit is reported at 611 F.3d 1158 (9th Cir.2010) ("Penrod’). Pet. App. 1a-15a. The order of theNinth Circuit denying Petitioner’s Petition forRehearing En Banc is reported at 2011 U.S. App.LEXIS 3798 and is reprinted at Pet. App. 73a-87a.

STATEMENT OF JURISDICTION

The bankruptcy court had jurisdiction under 28U.S.C. 8 1334(a), the general order of reference for theNorthern District of California, and 28 U.S.C.8 157(b)(2)(A), (B), & (L). The Bankruptcy AppellatePanel had jurisdiction under 28 U.S.C. 8 158. TheNinth Circuit had jurisdiction under 28 U.S.C.88 158(d) and 1291. This Court has jurisdictionpursuant to 28 U.S.C. 8 1254(1).

2

The Ninth Circuit filed its opinion on July 16, 2010.Petitioner filed a timely Petition for Rehearing EnBanc, which was denied on February 28, 2011, withfour Judges dissenting.

STATUTORY PROVISIONS INVOLVED

Section 506(a)(1) of the Bankruptcy Code provides,in pertinent part, that:

An allowed claim of a creditor secured by a lienon property in which the estate has an interest... is a secured claim to the extent of the valueof such creditor’s interest in the estate’s interestin such property.., and is an unsecured claim tothe extent that the value of such creditor’sinterest ... is less than the amount of suchallowed claim. 11 U.S.C. § 506(a)(1).

Section 1325(a) of the Bankruptcy Code sets forththe requirements for a Chapter 13 wage earner plan tobe confirmed by the bankruptcy court. Subsection1325(a)(5)(B) is one of those requirements and states,in pertinent part, that the court shall confirm the planif, with respect to each allowed secured claim providedfor by the plan:

(B)(i) the plan provides that ... (ii) the value, asof the effective date of the plan, of property to bedistributed under the plan on account of suchclaim is not less than the allowed amount ofsuch claim .... 11 U.S.C. §1325(a)(5)(B).

Section 1325(a)(*), often denominated the "hangingparagraph" because it is appended to the end of

3

Section 1325(a) with no subsection reference, provides,in pertinent part, that:

For purposes of paragraph (5), section 506 shallnot apply to a claim described in thatparagraph if the creditor has a purchase moneysecurity interest securing the debt that is thesubject of the claim, the debt was incurredwithin the 910-day [sic] preceding the date ofthe filing of the petition, and the collateral forthat debt consists of a motor vehicle (as definedin section 30102 of title 49) acquired for thepersonal use of the debtor; ....11 U.S.C.1325(a)(*).

The Bankruptcy Code does not define the term"purchase money security interest" as used in thehanging paragraph. However, Article 9 of the UniformCommercial Code, effective in every state in thecountry and in the District of Columbia, specificallydefines the term "purchase-money security interest."Section 9-103(a)(b) provides, in pertinent part, asfollows:

(a)(1)

(2)

Definitions. In this section:"purchase-money collateral" means goods orsoftware that secure a purchase-moneyobligation incurred with respect to thatcollateral; and"purchase-money obligation" means anobligation of an obligor incurred as all orpart of the price of collateral or for valuegiven to enable the debtor to acquire rightsin or use of the collateral if the value is infact so used.

4

(b)

(1)

Purchase-money security interest ingoods. A security interest in goods is apurchase-money security interest:to the extent that the goods are purchase-money collateral with respect to thatsecurity interest; ... Uniform CommercialCode § 9-103(a)(b); Cal. Comm. Code§9103(a)(b).1

Official Comment 3 to Section 9-103(a)(2)specifically defines the terms "price" and "value givento enable" as used in Section 9-103:

As used in subsection (a)(2), the definition of"purchase-money obligation," the "price" ofcollateral or the "value given to enable" includesobligations for expenses incurred in connectionwith acquiring rights in the collateral, salestaxes, duties, finance charges, interest, freightcharges, costs of storage in transit, demurrage,administrative charges, expenses of collectionand enforcement, attorney’s fees, and othersimilar obligations.

The concept of "purchase-money securityinterest" requires a close nexus between theacquisition of collateral and the securedobligation. Thus, a security interest does notqualify as a purchase-money security interest ifa debtor acquires property on unsecured credit

1 The parties agree that the Uniform Commercial Code, as

applicable in California, applies to the transaction betweenPetitioner and Respondent. Section 9-103 and Comment 3, asrelevant to the issue in this appeal, are uniform throughout thecountry.

and subsequently creates the security interestto secure the purchase price. UniformCommercial Code § 9-103, Comment 3; Cal.Comm. Code § 9103, Comment 3.

STATEMENT OF THE CASE

1. Facts

On September 12, 2005, Respondent, Marlene A.Penrod ("Penrod") purchased from a dealership for herpersonal use a new 2005 Ford Taurus ("Vehicle").Penrod agreed to pay $23,516 for the Vehicle, plus tax,title, license fees and other charges described below.The transaction was memorialized by a retailinstallment sales contract. Pet. App. 158a. Thecontract was subsequently assigned to Petitioner,AmeriCredit Financial Services, Inc. ("AmeriCredit").The contract contains terms which permit Penrod tofinance other charges in addition to the sticker price of$23,516. Pet. App. 158a.

One of the additional charges financed under thecontract arose in connection with Penrod’s trade-invehicle. At the time Penrod purchased the Vehicle, sheowned a 1999 Ford Explorer upon which she still owed$13,137. Id. The parties agreed upon a trade-inallowance of $6,000 for the Ford Explorer. Id. Thus,the "negative equity" related to the trade-in vehicle(i.e., the amount by which the indebtedness secured bythe vehicle exceeded its value) was $7,137. Id.

Other charges financed under the contract includelicense and title fees, document preparation fees andfees for gap insurance. These fees are not at issue inthis case. The "Total Cash Price" disclosed in the

Contract was $28,920. Id. As required by Californialaw, the charge for negative equity is disclosed in thecontract as part of the "Total Cash Price" of theVehicle. Id. Cal. Civ. Code §2981(e). Penrod agreed topay the "Total Sales Price" of $46,693 in 60 paymentsof $778. Id.

2. Proceedings Below

On March 2, 2007, 523 days after purchasing theVehicle, Penrod filed a Petition for Relief underChapter 13 of the Bankruptcy Code. Pet. App. 135a.At the time the Petition was filed, Penrod owed$25,675 under the contract, and AmeriCredit filed asecured claim in that amount. Pet. App. 158a. In herChapter 13 plan, Penrod proposed to bifurcateAmeriCredit’s claim into secured and unsecuredcomponents based on the value of the Vehicle. Pet.App. 146a-157a. Thus, Penrod proposed to pay thealleged value of the Vehicle on the petition date as asecured claim, and treat the balance of the claim as anunsecured claim.

AmeriCredit objected to Penrod’s plan on the basisthat its claim was entitled to protection frombifurcation and cramdown under the hangingparagraph adopted as part of the Bankruptcy AbusePrevention and Consumer Protection Act of 2005("BAPCPA"). 11 U.S.C. § 1325(a)(*) (2005). Pet. App.136a-140a. The bankruptcy court ruled thatAmeriCredit was not entitled to the protection of thehanging paragraph as to the negative equity. Pet.App. 69a-72a. The court entered an order partiallyoverruling AmeriCredit’s objection, Pet. App. 69a-72a,and later entered an order confirming Penrod’s SecondAmended Chapter 13 Plan, which bifurcated

7

AmeriCredit’s claim into a secured claim for $18,540and an unsecured claim for the balance. Pet. App.159a-16 la. AmeriCredit appealed both orders, and theappeal was referred for decision to the United StatesBankruptcy Appellate Panel of the Ninth Circuit("BAP"). Pet. App. 162a-167a.

On July 28, 2008, the BAP issued its opinion,affirming the orders of the Bankruptcy Court. PenrodBAP, 392 B.R. 835. Pet. App. 16a-68a. In its opinion,the BAP concluded that the charge for negative equitywas not protected from bifurcation and cramdown bythe hanging paragraph based upon the court’s viewthat this charge did not meet the "purchase-moneysecurity interest" requirement of the hangingparagraph. This charge, the court held, could bebifurcated from AmeriCredit’s secured claim andtreated as unsecured indebtedness in Penrod’s Chapter13 plan. However, the court held that all othercharges that make up AmeriCredit’s secured claimwere protected from bifurcation and cramdown by thehanging paragraph and therefore must be paid assecured debt in Penrod’s plan. Penrod BAP, 392 B.R.at 860. Pet. App. 68a. The court thus bifurcatedAmeriCredit’s claim, not based on the value of thecollateral (the Vehicle) as specified by Section 506 ofthe Bankruptcy Code, but, instead, based on adissection of the indebtedness that makes upAmeriCredit’s claim.

AmeriCredit filed a timely appeal from the opinionof the BAP to the United States Court of Appeals forthe Ninth Circuit. In the meantime, the issue decidedby the BAP was pending before trial and appellatecourts all across the country. By the time the NinthCircuit heard the Penrod appeal, eight other federal

8

circuit courts, in nine opinions, had ruled consistentlythat charges for negative equity are purchase-moneyobligations and are protected from bifurcation andcramdown by the hanging paragraph.2 The SecondCircuit certified the issue of state law (Article 9’sdefinition of"purchase-money security interest") to theNew York Court of Appeals, which likewise concludedthat charges for negative equity are purchase-moneyobligations under Section 9-103; and the SecondCircuit relied upon that conclusion in reaching itsdecision. Peaslee, 585 F.3d at 57. Pet. App. 120a-134a.Despite this overwhelming and consistent precedent,the Ninth Circuit, in an opinion written by UnitedStates District Judge Richard Mills from Illinois,rejected the reasoning and conclusions of these eightcircuit courts, as well as the opinion of the New YorkCourt of Appeals, and held that charges for negativeequity are not purchase-money obligations and aretherefore not protected from bifurcation and cramdownby the hanging paragraph. Penrod, 611 F.3d 1158. Pet.App. 15a. The court’s opinion contains no analysiswhatsoever of the opinions of the other eight circuitscourts that reached the opposite result.

AmeriCredit filed a timely Petition for RehearingEn Banc with the Ninth Circuit. Pet. App. 168a-197a.

2 In re Westfall, 599 F.3d 498 (6th Cir. 2010); In re Howard, 597

F.3d 852 (7th Cir. 2010); In re Peaslee, 585 F.3d 53 (2d Cir. 2009);In re Price, 562 F.3d 618 (4th Cir. 2009); In re Dale, 582 F.3d 568(5t~ Cir. 2009); In re Mierkowski, 580 F.3d 740 (8th Cir. 2009); Inre Callicott, 580 F.3d 753 (8t~ Cir. 2009); In re Ford, 574 F 3d 1279(10th Cir. 2009); In re Graupner, 537 F.3d 1295 (11th Cir. 2008).The opinion of the New York Court of Appeals, which the SecondCircuit relied upon, is reported at In re Peaslee, 13 N.Y. 3d 75(N.Y. Ct. App. 2009).

9

The Ninth Circuit denied the Petition for RehearingEn Banc, but four Circuit Judges filed a lengthydissent, concluding that, by denying the Petition, theNinth Circuit had placed itself"on the wrong end of aneight to one circuit split." Order denying Petition forRehearing at 2976 (Bea, J., dissenting). Pet. App. 73a-87a.

BACKGROUND STATEMENT CONCERNINGAUTOMOBILE FINANCING AND THE

HANGING PARAGRAPH

1. Automobile Financing and Negative Equit_v

Automobile sales and financing are essential andvital parts of our national economy.3 Americans relyupon the automobile to transport them to and fromtheir homes, schools, businesses, houses of worship,shopping centers and vacation venues. The averageprice of a new automobile is beyond the means of mostconsumers to purchase through a single cash paymentat the point of purchase, usually a dealership. Dealersand their financing sources have therefore designed avariety of different financing packages to enable

3 A recent article, chronicling the plight of automobile dealers

throughout the United States, reports that vehicle sales are a keyindicator of the health of the economy, as the automobile salesindustry supports 1 in 10 jobs in the United States, employsmore than 1.1 million workers and accounts for nearly 20 percentof retail sales in most states. Sharon Silke Catty and ChrisWoodyard, For Car Dealers, Tight Credit is Fueling a"Catastrophe," USA Today, Oct. 21, 2008 available at http://www.usatoday.comJmoney/autos/2008-10-20-auto-dealerships-credit-crisis-loans_N.htm.

10

consumers to purchase vehicles and pay the purchaseprice in installments.4

Most consumers purchasing a new automobile cometo the dealership with a trade-in vehicle which theyoffer as part of the down payment for the new car.They choose this option, rather than selling the vehicleon their own, because the dealership offers them aready market to dispose of their vehicle for what theybelieve will be the best possible price. Often, thetrade-in vehicle will be subject to an existing lienarising out of a previous financing. In many, perhapseven most, cases, the indebtedness secured by theexisting lien on the trade-in vehicle exceeds the valueof the vehicle, resulting in the consumer beingconsidered "upside down" with respect to the trade-invehicle. This disparity in value versus indebtedness isreferred to as "negative equity.’’~

4 In most instances, the financing is extended by the dealer to the

purchaser pursuant to a retail installment sales contract that issold by the dealer to a bank or automobile sales finance company.

5 See, e.g., Wilson & DiChiara, The Changing Landscape of

Indirect Automobile Lending, FDIC Supervisory Insights, Summer2005, at 29 ("J.D. Power and Associates estimates thatapproximately 38 percent of new car buyers have negative equityat trade-in, compared to 25 percent two years ago."); see also,Kiley, Car Buyers Burned By Negative Equity, USA Today, July6, 2003, available at http://www.usatoday.conffmoney/autos/2003-07-06-car-loan_x.htm ("Mark Eddins of Friendly Chevrolet inDallas estimates that 90% of his customers are upside-down, oftenowing $10,000 to $15,000 more than the trade-in is worth"). Seealso, Graupner, 537 F.3d at 1303; Price, 562 F.3d at 628-29;

11

When the trade-in vehicle is subject to an existinglien, the lien must be discharged in order for thepurchase of the new vehicle to take place. This isbecause a sale of the trade-in vehicle without theapproval of the existing lienholder will breach thecontract held by the lienholder, resulting in arepossession of the vehicle and possibly lawsuitsagainst both the consumer and the dealer. The dealerwould also be unable to resell the trade-in vehiclebecause the lien of the existing creditor will appear onthe vehicle’s certificate of title.

When the consumer is upside down with respect tothe trade-in vehicle, he or she has two choices: financethe negative equity through the dealership or borrowmoney from another source (e.g., a finance company oran advance on a credit card) to eliminate the negativeequity. Once again, consumers make the choice thatis most efficient and economically beneficial to them.This almost always involves financing the negativeequity through the dealership since this form offinancing is usually cheaper than alternative financingsources available to the consumer, assumingalternative financing sources are available at all.

Automobile financing is heavily regulated in theUnited States. Virtually every state has a retailinstallment sales act that regulates the terms offinancing that can be offered to consumers in vehiclepurchase transactions. Because of the widespreadprevalence of negative equity financing in vehicle

Howard, 597 F.3d at 857-58 discussing the high frequency ofautomobile sales finance transactions in which negative equity isfinanced by the dealer.

12

purchase transactions and its importance infacilitating new car sales, 36 states, includingCalifornia, have enacted statutes as part of their retailinstallment sales acts specifically permitting thedealer to finance negative equity with respect to atrade-in vehicle. Pet. App. 198a-200a. These laws takea variety of forms, but they all include the negativeequity as part of the purchase price that the consumeragrees to pay for the new vehicle.

2. BAPCPA and the Hanging Paragraph

a. Pre-BAPCPA

Prior to enactment of BAPCPA, the BankruptcyCode allowed a Chapter 13 debtor to modify the rightsof a secured creditor with a purchase-money securityinterest in a vehicle by bifurcating the claim intosecured and unsecured portions based on the vehicle’svalue. 11 U.S.C. §§ 506(a)(1), 1325(a)(5) (2004). Thus,the creditor would have a secured claim to the extentof the value of the vehicle and an unsecured claim tothe extent the creditor’s claim exceeds the value of thevehicle. That portion of the creditor’s claim allowed assecured would be paid in full with interest, while theunsecured portion would be paid pro-rata with othergeneral unsecured claims. Such a proposal in aChapter 13 plan is commonly referred to as a"bifurcation and cramdown."

b. Post-BAPCPA

In 1996, Congress undertook a major revision of theBankruptcy Code to address abuses in the bankruptcyprocess as it applies to consumer credit. This revisionprocess culminated in the enactment of BAPCPA,

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which became effective on October 17, 2005. Pub. L.No. 109-8, 119 Stat. 80 (2005). One of the importantfeatures of BAPCPA was the adoption of a "meanstest" which compels individual debtors with thefinancial ability to make meaningful payments to theircreditors to use Chapter 13 if they file for bankruptcyprotection. Credit card companies were the principalproponents of this change since they generally heldunsecured claims and were paid little or nothing in aChapter 7 liquidation case.

Automobile finance companies would have beensignificantly harmed by this change. Automobilefinance companies typically fare well in Chapter 7liquidation cases because their liens follow the vehiclethrough the case and debtors therefore most often signreaffirmation agreements with respect to theindebtedness secured by the vehicle. In addition, thestrip down/bifurcation process described above wasbeing abused by debtors who would purchase a newvehicle and then file a Chapter 13 case shortlythereafter in order to strip down the secured claim tothe reduced value of the vehicle and cram down a planof arrangement which would pay the automobilefinance company a fraction of the amount owed on itssecured indebtedness. GMAC v. Peaslee, 373 B.R. 252,261 (W.D.N.Y. 2007).

To cure this abuse, Congress amended theBankruptcy Code to give motor vehicle financiersspecial protection against cramdown. Under BAPCPA,claims of creditors who finance the purchase of a motorvehicle acquired for the debtor’s personal use within910 days preceding bankruptcy are treated morefavorably than other secured claims: the securedclaims of motor vehicle purchase-money financiers are

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no longer limited to the value of the financed vehicle.This new treatment is required by the hangingparagraph appended at the end of § 1325(a).

REASONS FOR GRANTING THE WRIT

This Case Presents a Recurring andImportant Issue of Federal Law and is theIdeal, and Only, Vehicle Through Which theConflict in the Circuits Can Be Resolved

The issue that is the subject of this Petition for aWrit of Certiorari is of recurring and exceptionalimportance for three reasons.

First, the momentous importance of the questionpresented is demonstrated by the number of cases thathave addressed the issue. As set forth in Petitioner’sAppendix, to date, 96 trial and appellate courtsthroughout the country have ruled on this issue. Pet.App. 201a-208a. The overwhelming majority ofdecisions favor automobile financiers. Eight federalcircuit courts, in 9 opinions, have ruled that a chargefor negative equity is protected from bifurcation andcramdown by the hanging paragraph, while only 1circuit court-the Ninth Circuit panel’s opinion in thiscase-has reached a contrary result. Pet. App. 204a.Setting aside decisions that have been reversed oroverruled on appeal, 18 appellate courts haveconsidered the issue and reached this same result,while only 3 appellate courts (a one paragraph percuriam order of the district court in In re Look, withoutany analysis of the issue, and the 2 appellate decisionsin this case) reach the opposite result. Pet. App. 201a-208a.

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Second, the opinion of the panel concerns animportant, and highly litigated, provision of the UnitedStates Bankruptcy Code, which was adopted byCongress pursuant to its constitutional authority to "toestablish uniform laws on the subject of bankruptciesthroughout the United States." U.S. Const. Art. I,§ VIII, cl. 4. The opinion conflicts with authoritativedecisions of 8 other federal circuit courts and standsalone among federal circuit courts in its interpretationof the hanging paragraph. The opinion thus creates asplit among the circuits on a significant rule ofnational application as to which there is an overridingneed for national uniformity.

The opinion conflicts with not just one or twoopinions of other federal circuit courts, but 9 opinionsfrom 8 other federal circuit courts. The decisions of theother eight circuits were not poorly reasoned, percuriam or perfunctory. Each was thoughtful andcareful in its analysis of BAPCPA, the hangingparagraph and state law. The Second Circuit evencertified the question of state law to New York’shighest court and then based its decision on the statecourt ruling. In its Petition for Rehearing En Banc,AmeriCredit urged the Ninth Circuit to reconsider theissue en banc in view of the importance of the issue,the overwhelming authority supporting AmeriCredit’sposition and the problems inherent in applying theBankruptcy Code in a non-uniform manner only instates that are part of the Ninth Circuit. Pet. App.168a-207a. The Ninth Circuit declined to do so,

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meaning that any review and resolution of this conflictmust come from this Court.~

Third, negative equity financing is a highly popularfinancing option for automobile purchasers since itallows them to use their existing vehicle as a trade inon the purchase of a new vehicle. The prevalence ofthis financing and its popularity with consumers hasresulted in 36 states, including California, expresslyapproving this financing in state retail installmentsales acts. Pet. App. 198a-200a. The panel’s opinion,which allows debtors in the Ninth Circuit to treat suchfinancing as unsecured debt in their Chapter 13 case,will force dealers and their financing sources in theNinth Circuit to deny such financing to automobilepurchasers. See order denying Petition for RehearingEn Banc, at 2977 ("Would anyone extend this line ofcredit and payoffthe buyer’s negative equity on her oldcar if he could not get a purchase money securityinterest.., in the total amount of debt he assumed?Not if he wanted to stay in business.") (Bea, J.,dissenting). Pet. App. 76a. The four dissenting Judgesin the Ninth Circuit are correct in their assessmentthat the opinion of the Ninth Circuit will affectthousands of transactions every year and willsubstantially and negatively impact long-establishedtrade practices in the Ninth Circuit to the detriment ofconsumers, automobile dealers and automobile financecompanies. Id. at 2976, 2979. Pet. App. 75a, 79a.

~ Four Judges dissented from the order denying the Petition forRehearing en Banc in a well-reasoned ll-page opinion aligningthemselves with the other eight circuit courts. Pet. App. 73a-87a.Thus, of the six active Ninth Circuit Judges that have consideredthis issue, four favor the position urged by AmeriCredit.

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II. The Opinion of the Ninth Circuit Is InConflict With the Plain Text of the HangingParagraph

The hanging paragraph provides:

For purposes of paragraph (5), section 506 shallnot apply to a claim described in thatparagraph if the creditor has a purchase moneysecurity interest securing the debt that is thesubject of the claim, the debt was incurredwithin the 910-day [sic] preceding the date ofthe filing of the petition, and the collateral forthat debt consists of a motor vehicle (as definedin section 30102 of title 49) acquired for thepersonal use of the debtor; ....11 U.S.C.§ 1325(a).

Four requirements must be satisfied for thehanging paragraph to apply: (i) the creditor must havea purchase money security interest securing theindebtedness that is the subject of its claim, (ii) theindebtedness must have been incurred within the 910-day period preceding the filing of the petition, (iii) thecollateral must consist of a motor vehicle and (iv) themotor vehicle must have been acquired for thepersonal use of the debtor. Only the first listedrequirement is at issue in this case.

The text of the hanging paragraph is clear andunambiguous. The statute prohibits bifurcation andcramdown of any claim coming within its scope.AmeriCredit’s security interest clearly comes withinthat scope. AmeriCredit’s security interest is apurchase-money security interest since it securesindebtedness that was incurred by Penrod to purchase

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the Vehicle. The BAP conceded this point in itsopinion. Pet. App. 18a, 68a. The statutory languageis broad, absolute and unqualified. The statutecontains no language limiting its conferred benefit "tothe extent" of a purchase-money security interest, nordoes it require that the entire indebtedness be securedby a purchase-money security interest. Instead, thestatute requires only that a purchase-money securityinterest exist-it applies "if the creditor has apurchase-money security interest securing the debtthat is the subject of the claim." AmeriCredit’ssecurity interest in the Vehicle is clearly a purchase-money security interest, which brings it squarelywithin the language of the statute. Numerous caseshave reached this result based on the plain meaning ofthe hanging paragraph, without finding the need toconsult state law. E.g., In re Dale, No. 4:07-CV-03176,2008 U.S. Dist LEXIS 88959 (S.D.Tex. Aug. 14, 2008),af[’d on other grounds, Dale, 582 F.3d 568; In reSanders, 403 B.R. 435 (W.D.Tex. 2009); In reHampton, No. 07-14990, 2008 Bankr. LEXIS 2551(Bankr. S.D.Ohio Mar. 19, 2008); In re Whipple, No.09-80090, 2009 Bankr. LEXIS 2882 (Bankr. C.D.Ill.Sept. 21, 2009). Accord, In re Muldrew, 396 B.R. 915,925 (E.D.Mich. 2008); In re Padgett, 408 B.R. 374,381et seq. (10tt~ Cir. BAP 2009) ("Padgett’) (Starzynski, J.,concurring).

Significantly, the BAP conceded the following: (i)AmeriCredit has a purchase-money security interest inPenrod’s Vehicle as to all charges evidenced by theretail installment sales contract, except the charge fornegative equity; (ii) the hanging paragraph applies toAmeriCredit’s secured claim; and (iii) AmeriCredit’sclaim therefore cannot be bifurcated based on the

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value of Penrod’s Vehicle.7 In order to circumvent theplain text of the hanging paragraph, the BAP inventeda new rule of bifurcation, not based on the value of theVehicle, as specified in Section 506, but instead basedon a dissection of the indebtedness underlyingAmeriCredit’s claim. Penrod BAP, 392 B.R. at 860;Pet. App. 68a. The BAP reached this result byadopting an unprecedented federal "dual status" rule.Id. However, this new rule of bifurcation finds nosupport in the plain text of the hanging paragraph orin any other provision of the Bankruptcy Code. Therule cannot be premised on Section 506 of theBankruptcy Code since Section 506 permits bifurcationbased on the value of the collateral, not the make-up ofthe secured indebtedness; and, in any event, Section506 is taken out of the equation by the hangingparagraph, which the BAP concedes is applicable.

In affirming the decision of the BAP, the NinthCircuit placed its stamp of approval on this drasticrewrite of the Bankruptcy Code without everdiscussing the above cases or AmeriCredit’s challengebased on the text, purpose and legislative history ofthe hanging paragraph. The Ninth Circuit’s opinioncannot possibly be reconciled with the plain text of thehanging paragraph. Either the hanging paragraphapplies to AmeriCredit’s claim or it does not. If thehanging paragraph applies, Section 506 vanishes fromthe scene and Penrod is left with an obligation under

7 In its opinion, the BAP held that"Americredit receives purchase

money status for that portion of its collateral not allocable tonegative equity." Penrod BAP, 392 B.R. at 860; Pet. App. 68a.Applying the hanging paragraph, the BAP bifurcatedAmeriCredit’s claim based on the components of the indebtednessunderlying the claim.

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Section 1325(a)(5)(B) to propose a plan that paysAmeriCredit the entire amount of its allowed securedclaim,s

AmeriCredit respectfully submits that the opinionsof the lower courts in this case are themselves asufficient basis for the Court to grant AmeriCredit’sPetition for a Writ of Certiorari and reverse thedecision of the Ninth Circuit upon the basis that thehanging paragraph applies to AmeriCredit’s claim andthe claim cannot be bifurcated under Section 506 of theBankruptcy Code.

III. The Opinion of the Ninth Circuit ConflictsWith Decisions of Eight Other Circuits andwith the Opinion of New York’s HighestCourt

The Bankruptcy Code does not define the term"purchase-money security interest." Most courtsinterpreting the hanging paragraph, including all ninecircuit courts, have therefore turned to state law forthe definition. California has two statutory regimesthat are directly relevant: Article 9 of the UCC, Cal.Comm. Code § 9101 et seq., and the Automobile SalesFinance Act ("ASFA"), Cal Civ. Code § 2981 et seq.Both Article 9 and ASFA support AmeriCredit.

8 See In re Wright, 492 F.3d 829, 832 (7th Cir. 2007) stating that

application of the hanging paragraph "implies replacing acontract-defeating provision such as § 506 ... with the agreementfreely negotiated between debtor and creditor." (opinion byEasterbrook, J.)

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A. Article 9

Section 9-103 of Article 9 provides that a securityinterest in goods is a purchase-money security interestto the extent that it secures "an obligation ... incurredas all or part of the price of the collateral or for valuegiven to enable the debtor to acquire rights in or theuse of the collateral if the value is in fact so used." TheUCC definition of purchase-money security interestthus contains two prongs: (i) the price of the collateraland (ii) value given to enable the debtor to acquirerights in or use of the collateral.

Comment 3 to Section 9-103 very broadly definesthe terms "price" and "value given to enable:"

It]he "price" of collateral or "value" given toenable" includes obligations for expensesincurred in connection with acquiring rights inthe collateral, sales taxes, duties, financecharges, interest, freight charges, costs ofstorage in transit, demurrage, administrativecharges, expenses of collection and enforcement,attorney’s fees, and other similar obligations.Uniform Commercial Code § 9-103, Comment 3;Cal. Comm. Code § 9103, Comment 3.

The second paragraph of Comment 3 sets forth theoverriding test that must be satisfied for expenses, feesand charges to qualify for treatment as a purchase-money security interest:

The concept of "purchase-money securityinterest" requires a close nexus between theacquisition of collateral and the securedobligation. Id (emphasis added).

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The United States Courts of Appeal for the Second,Fourth, Fifth, Sixth, Seventh, Eighth, Tenth andEleventh Circuits, and the New York Court of Appeals,carefully analyzed Article 9 and concluded that acharge for negative equity is a purchase-moneysecurity interest under Section 91103 and Comment 3since the charge satisfies both the price and valueprongs of Section 9-103. The overwhelming weight ofauthority supports this view. Pet. App. 211a-218a.

The charge for negative equity meets the price andvalue prongs of Section 9-103 because it is an "expenseincurred in connection with acquiring rights in thecollateral" as that phrase is used in Comment 3. Asaptly stated by Judge Posner, writing for the SeventhCircuit, "that seems a pretty good description ofnegative equity." Howard, 597 F.3d at 857. Thecharge is directly related, and closely connected, to thedebtor’s acquisition of the new vehicle, and would nothave been incurred without the purchase of thevehicle. In fact, it is an absolute prerequisite to thecompletion of the transaction because the purchasecannot take place until the indebtedness secured bythe trade-in vehicle is discharged. Applying the "closenexus" test of Comment 3, the courts have held thatthe charge is a purchase-money security interest underSection 9-103:

We believe there is such a "close nexus" betweenthe negative equity in Debtor’s trade-in vehicleand the purchase of his new vehicle. Thefinancing was part of the same transaction andmay be properly regarded as a "package deal."Payment of the trade-in debt was tantamount toa prerequisite to consummating the salestransaction, and utilizing the negative equity

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financing was a necessary means to accomplishthe purchase of the new vehicle. As the districtcourt held in affirming the bankruptcy court,the negative equity was an "integral part of,"and "inextricably intertwined with," the salestransaction. To hold otherwise would not be afair reading of the UCC. Graupner, 537 F.3d at1302.

Accord Price, 562 F.3d at 625-26; Mierkowski, 580 F.3dat 742-43; Ford, 574 F.3d at 1285; Westfall, 599 F.3d at505; Peaslee, 13 N.Y.3d at 82; Muldrew, 396 B.R. at926 ("[a] closer nexus to the collateral can hardly beimagined.")

The Ninth Circuit panel summarily dismissed alleight of these circuit opinions, opting instead to followthe decision of Bankruptcy Judge Markell, the authorof the BAP opinion. Penrod, 611 F.3d at 1161. Pet.App. 6a.9 The panel failed to analyze any of theseopinions or explain how these highly respected circuit

9 Although the Ninth Circuit panel found the reasoning of

Bankruptcy Judge Markell more persuasive than the reasoning ofits eight sister circuits, the panel never discussed BankruptcyJudge Markell’s opinion. Nor did it respond to the manyarguments advanced by AmeriCredit in its briefs pointing out theserious flaws in Bankruptcy Judge Markell’s analysis of state law.The panel’s failure to analyze carefully Bankruptcy JudgeMarkell’s opinion is regrettable, since the principal decisionsrelied upon by Judge Markell in his opinion were all laterreversed on appeal. E.g., In re Price, 2007 WL 5297071, No. 5:07-CV- 133-BR (W.D.N.C. Nov. 14, 2007), rev’d Price, 562 F.3d 618; Inre Sanders, 377 B.R. 836 (Bankr. W.D.Tex. 2007), rev’d In reSanders, 403 B.R. 435 (W.D.Tex. 2009); In re Pajot, 371 B.R. 139(Bankr. E.D.Va. 2007), rev’d GMAC v. Horne, 390 B.R. 191(E.D.Va. 2008).

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courts erred in their analysis. Instead, in its paltryand superficial 2-page analysis of the "price" prong ofArticle 9, the panel relies almost entirely upondissenting opinions, and not its own independentanalysis of the issues. Penrod, 611 F.3d at 1162-63.Pet. App. 8a-11a.

The panel’s analysis of the "value given to enable"prong of Section 9-103 is also fatally flawed. The panelstates that the "value" prong is different, and broader,than the "price" prong but does not apply since thiswas a sale, and not a loan, transaction. Penrod, 611F.3d at 1164. Pet. App. 14a-15a. This is plainlyincorrect. Comment 3 defines these terms identicallyand does not distinguish between purchase-moneysellers and purchase-money lenders. This is whyvirtually all of the appellate courts have held that thecharge for negative equity satisfies both the price andvalue prongs. Westfall, 599 F.3d at 503-04; Price, 562F.3d at 625; Dale, 582 F.3d at 574; Howard, 597 F.3dat 855-56; Graupner, 537 F.3d at 1302; Ford, 574 F.3dat 1284; Peaslee, 13 N.Y. 3d at 80-82. This seriousflaw in the panel’s reasoning is extensively analyzed inJudge Bea’s opinion dissenting from the denial ofAmeriCredit’s Petition for Rehearing En Banc. Pet.App. 74a-87a:

It is undisputed that she ]Penrod] used herownership interest in the Explorer "to enable[her] to acquire rights in or the use of the[Taurus]" and that the value given was in factso used. Cal. Comm. Code § 9-103(a)(2). If thetransfer of title of the Explorer to the Taurusdealer did not "enable" the sale of the Taurus toPenrod, then words have lost their meaning.Order denying Petition for Rehearing En Banc,

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at 2982-2983 (Bea, J., dissenting). Pet. App.82a-83a.1°

The Ninth Circuit characterizes the advance madeby the dealer to Penrod to discharge the negativeequity as a payment of "antecedent debt." Penrod,611 F.3d at 1163. Pet. App. 11a. This is both amischaracterization of the transaction and amisstatement of the law. The dealer made a singleadvance, pursuant to a single contract, which createda single indebtedness, incurred in the purchase of asingle asset-the Vehicle. The indebtedness evidencedby Penrod’s contract was not previously owed to thedealer, was an amount that was much lower than theunpaid balance of the secured debt on the trade-invehicle and was extended on entirely different terms.The new indebtedness created by the transactionplainly was not antecedent debt but was new valueextended by the dealer:

Debtors further assert that the negative equityrelates to an antecedent debt, and thereforedoes not qualify as "value given to enable." Thisargument fails for the simple reason that theportion of Debtors’ obligation to Nuvell owed onaccount of negative equity does not, in fact,amount to a refinance of antecedent debt ....

10 In reaching this conclusion concerning the "value given to

enable" prong, the dissenting Judges cited the dictionarydefinition of "enable: .... 1. to make able; give power, means,competence, or ability to; to authorize .... ""2. to make possible oreasy:..." Order denying Petition for Rehearing En Banc at 2983,n. 7 (Bea, J., dissenting). Pet. App. 83a. Accord, Price, 562 F.3dat 625. The charge for negative equity fits easily into each ofthese definitions.

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Prior to financing the negative equity inconnection with their purchase of the newvehicle, Debtors owed Nuvell nothing. Theyowed the debt secured by the trade-in vehicle toan unrelated third-party. The obligation securedby the new vehicle-including the negative equityportion-consisted of all new credit funded byNuvell. Westfall, 599 F.3d at 505.

Accord Dale, 582 F.3d at 575; Graupner, 537 F.3d at1301; Peaslee, 13 N.Y. 3d at 80-82. The panel makesno effort to reconcile its decision with these decisionsor explain why they are wrong.11

The panel relies upon Section 547(c)(3) of theBankruptcy Code, stating that AmeriCredit would notqualify for this exception to the preference avoidancerules of the Bankruptcy Code because the advance todischarge the negative equity does not meet the "newvalue" definition in Section 547(a)(2); instead itrepresents the substitution of one obligation foranother. Penrod, 611 F.3d at 1163-64. Pet. App. 12a-14a. This observation is both puzzling anddemonstrably inaccurate. AmeriCredit never claimedentitlement to rights under the enabling loanprovisions of Section 547(c)(3). It did not need to,because the advance made by the dealer to Penrod was

11 There is nothing in Section 9-103 or Comment 3 that

disqualifies an advance as a purchase-money security interestbecause it is used to discharge, in part, existing indebtedness.The test under Comment 3 is not whether the advance is used todischarge existing indebtedness but, instead, whether the advancebears a close nexus to the acquisition of the asset. An advancemade by a dealer to discharge the negative equity on the debtor’strade-in vehicle clearly meets this test.

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not a preference, since it did not represent thepayment of antecedent debt. See Dean v. Davis, 242U.S. 438, 443 (1917). Even if Section 547(c)(3) wereapplicable, AmeriCredit would prevail since theadvance made by the dealer to Penrod was "newcredit," a term specifically included in the definition of"new value" in Section 547(a)(2). The phrase"obligation substituted for an existing obligation," asused in the definition of new value, refers to thesubstitution of one obligation to a creditor for anotherobligation owed to the same creditor. In re BellancaAircraft Corp., 850 F.2d 1275, 1280 (8th Cir. 1988); Inre EDC, Inc., 930 F.2d, 1275, 1282 (7th Cir. 1991); In reFoxmeyer Corp., 286 B.R. 546, 565 (Bankr. D. Del.2002) (the substitution of obligations requires that thetwo obligations involve, "at a minimum, precisely (a)the same obligee, and (b) the same essentialterms .... "); In re Takk Harold Kerst, 347 B.R. 418, 423(Bankr. D. Col. 2006). The panel’s unprecedented anderroneous interpretation of the new value definition inSection 547(a)(2), which conflicts with decisions of theSeventh and Eighth Circuits, could have serious andadverse repercussions to the "subsequent advance"defense of Section 547(c)(4) since it would denypreference protection to the quintessential transactionshielded by that section: an advance by a new creditorto pay existing debt owed to existing creditors.

B. Automobile Sales Finance Act

The California ASFA buttresses AmeriCredit’sconstruction of Article 9 because it authorizes dealersto finance the charge for negative equity and requiresthat the charge be disclosed to the purchaser as part of

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the "price" of the vehicle. Cal. Civ. Code § 2981(e).12

The panel rejects this argument, claiming that ASFAis merely a disclosure statute that does not purport todefine the term purchase-money security interest.Penrod, 611 F.3d at 1163. Pet. App. 11a-12a. In fact,ASFA is much more than a disclosure statute, as itcomprehensively regulates virtually every aspect ofconsumer automobile financing in California.13

Moreover, ASFA’s treatment of negative equity iscompelling evidence that this charge is a commonelement in automobile purchase transactions andtherefore meets the "close nexus" test of Comment 3 toSection 9-103. The panel’s rejection of ASFA asrelevant to the Article 9 analysis puts it in conflictwith opinions of the Seventh, Eighth and EleventhCircuits. Howard, 597 F.3d at 857 (finding the Illinoisretail installment sales act helpful, although notcontrolling); Mierkowski, 580 F.3d at 743; Graupner,537 F.3d at 1301. See also Peaslee, 585 F.3d 539(basing its decision on the opinion of the New YorkCourt of Appeals, which relied upon the New Yorkretail installment sales act); Order denying Petition forRehearing En Banc at 2984, n. 9 (Bea, J., dissenting)

12 This is consistent with the federal Truth in Lending Act, which

likewise requires negative equity to be disclosed as part of the"total sales price" of the vehicle. 12 C.F.R. Part 226, Supp. I,~18(j)-3 at 464.

~3 The California ASFA regulates much more than just the

disclosures required in an automobile finance transaction. Thestatute regulates the terms that may be included in a motorvehicle installment sales contract, the charges that can beimposed, the manner in which the contract can be administered,amended and enforced, the liens that can be placed on the vehicleand the rights of holders of the contract. Cal. Civ. Code § 2981 et.seq.

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(finding it unnecessary to consult ASFA because of theclarity of Article 9, but stating that, if ASFA wererelevant, it would compel the Court to include thecharge for negative equity as part of the price of theVehicle under Article 9) Pet. App. 85a; In re Cohrs, No.07-21431-A-13G, 2007 WL 2050980 (Bankr. E.D. Ca.July 31, 2007) (relying upon ASFA to conclude thatcharges for negative equity are part of the "price" ofthe collateral and are thus protected from bifurcationand cramdown by the hanging paragraph).

AmeriCredit respectfully submits that properdeference to the opinions of eight sister circuits on arecurring issue of national importance as to whichuniformity is essential calls for at least someindependent analysis and explanation of the applicablelaw and why the panel believes that every otherfederal circuit court got it wrong. If the Ninth Circuitis to strike out in a dramatically different directionfrom all of the other circuits that have ruled on anissue of such national importance, it should have doneso en banc, and not in an opinion of a single panel,most especially one that treats the issues sosuperficially and the overwhelming precedent fromother circuit courts so dismissively. The NinthCircuit’s refusal to revisit the issue en banc has lockedin a conflict in the circuits that can only be resolved bythis Court.

Given the enormous size of the Ninth Circuit,which includes states, like California, where there isa huge demand for automobile sales and financing, itcan be expected that the panel’s decision will spawnextensive, expensive and protracted litigation in thefederal courts and will severely depress automobilesales and financing, at least in states that are part of

30

the Ninth Circuit. This Court should grantAmeriCredit’s Petition for a Writ of Certiorari toresolve this issue on a national basis.

The Opinion of the Ninth Circuit WillFrustrate Significant Federal and StatePolicies

Significant federal and state policies are at stake inthis case. The hanging paragraph was adopted byCongress in order to "Give Secured Creditors FairTreatment in Chapter 13," Pub. L. 109-8, § 306(b), 119Stat. 23, 80 (2005), and, in the specific context of thehanging paragraph, to "Restore the Foundation forSecured Credit," id., thus facilitating automobile salesand financing in the United States. California statelaw advances the same policies since the overarchingpurpose of the UCC is to "permit the continuedexpansion of commercial practices through custom,usage and the agreement of the parties" and "to giveeffect to the contract of the parties and establishedtrade practices." Cal. Comm. Code §1103(2)(b). Theopinion of the Ninth Circuit panel ignores both a long-standing industry practice and the contract of theparties.

Section 9-103 of the UCC and Comment 3 call for abroad construction of the term purchase-moneysecurity interest so as to facilitate purchase-moneyfinancing. This dovetails perfectly with ASFA, whichlikewise facilitates vehicle sales and financing byspecifically approving the financing of negative equitybased upon its close nexus to automobile purchasetransactions, its popularity with consumers and itsfrequency in automobile purchase transactions. Thefederal trial and appellate courts have uniformly taken

31

note of the popularity and frequency of this financingin interpreting the hanging paragraph14, and have heldthat shielding charges for negative equity frombifurcation and cramdown best effectuates the intentof Congress in enacting the hanging paragraph.15

The implications of the Ninth Circuit’s opinion toconsumers, automobile dealers and automobile financecompanies in the Ninth Circuit cannot be overstated.Penrod negotiated a package transaction with thedealership, which included the charge to satisfy theindebtedness on her trade-in vehicle, as specificallyauthorized by California law. The Ninth Circuit hasnow told her that she need not pay for this charge assecured indebtedness under her plan. Dealers andtheir financing sources will have no choice but to denythis financing to all purchasers of motor vehicles in

14 E.g., Howard, 597 F.3d at 858; Price, 562 F.3d at 628-29; Ford,

574 F.3d at 1286.

1~ E.g., Graupner, 537 F.3d at 1303 ("If Congress did not intend for

the hanging paragraph to apply to a trade-in’s negative equity...itwould have the effect of excluding a substantial number of lawfulauto finance transactions that were industry practice whenBAPCPA was enacted (a practice that Congress is presumed tohave known about). This would be an absurd result .... "); Price,562 F.3d at 628 ("it simply vitiates congressional intent to readthe hanging paragraph in a way that denies its protections to alarge percentage of claims held by car lenders."); Myers, 393 B.R.at 622 ("This court doubts that Congress would have gone to thetrouble of enacting the hanging paragraph for the benefit ofautomobile lenders just to render it inapplicable to typical andcommon automobile financing transactions such as this."). Seealso, Order denying Petition for Rehearing En Banc at 2980~81("keeping the entire loan, including negative equity, as a secureddebt appears to be exactly what Congress intended.") (Bea, J.,dissenting).

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states in the Ninth Circuit. For many consumers,perhaps most, this may result in their inability tocomplete the purchase transaction because alternativefinancing is not available to them to pay offthe debt ontheir trade-in vehicle. It is hard to see how this resultcan be reconciled with the broad purposes and policiesof the hanging paragraph and California state law.

The Ninth Circuit failed to address any of theseimportant policy considerations urged by AmeriCreditin its briefs and at oral argument. AmeriCreditrespectfully urges this Court to grant its Petition for aWrit of Certiorari so that these policy issues can begiven plenary consideration.

CONCLUSION

For the reasons set forth above, the Petition for aWrit of Certiorari should be granted.

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Respectfully submitted.

William M. BurkeCounsel of Record

1811 Tanager DriveCosta Mesa, CA 92626Telephone: (714) 979-2159Facsimile: (714) 434-9816edxceo@aol.com

Randall P. Mroczynski, Esq.COOKSEY, TOOLEN, GAGE,

DUFFY & WOOG535 Anton Boulevard, 10th FloorCosta Mesa, CA 92626Telephone: (714) 431-1100Facsimile: (714) 431-1145rmroczynski@cookseylaw.com

Counsel for Petitioner

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