UNITED STATES BANKRUPTCY COURT 

Eastern District of Virginia 

Richmond Division 

In re: 

Chamberlayne Auto Sales & Repair, Inc., Case No. 17-30335-KLP 

 Debtor. Chapter 7 

Peter J. Barrett, Trustee, 

 Plaintiff, 

v. Adv. Pro. No. 17-04534-KLP 

Vehicle Acceptance Corporation, 

 Defendant. 

MEMORANDUM OPINION 

 Defendant Vehicle Acceptance Corporation (“VAC”) has moved, 

pursuant to Federal Rule of Civil Procedure 12(b)(6), Fed. R. Civ. P. 12(b)(6),1

to dismiss the amended complaint (the “Amended Complaint”) filed by Peter 

J. Barrett, Trustee for Debtor Chamberlayne Auto Sales & Repair, Inc. (the 

“Debtor”). In the Amended Complaint, Barrett (the “Trustee”) seeks to avoid 

and recover certain postpetition transfers made by the Debtor to VAC, to 

avoid and recover certain prepetition transfers that occurred within ninety 

days prior to the Debtor’s bankruptcy filing, and to be awarded damages for 

VAC’s alleged violation of the automatic stay. 

The Trustee argues that VAC’s asserted security interests are invalid 

because VAC entered into an unlawful financing agreement with the Debtor. 

That agreement required the Debtor to give VAC physical possession of titles 

 

1 Made applicable herein by Rule 7012(b) of the Federal Rules of Bankruptcy 

Procedure, Fed. R. Bankr. P. 7012(b). 

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to cars the Debtor had purchased for resale. The Trustee’s allegation that 

VAC violated the automatic stay stems from VAC’s alleged postpetition 

collection of funds from the Debtor by illegally refusing to turn over vehicle 

titles in order to coerce the Debtor into making payments. VAC takes the 

position that its agreement with the Debtor gave it a valid and enforceable 

security interest in the Debtor’s property and that the Amended Complaint 

fails to state a claim upon which relief may be granted because each count 

relies on the erroneous assumption that its floor planning agreement was 

unlawful and unenforceable. 

Background 

 On January 24, 2017, the Debtor filed its voluntary petition for relief 

under Chapter 7 of the Bankruptcy Code. The Trustee was appointed to 

administer the Debtor’s bankruptcy estate. 

 On October 18, 2017, the Trustee filed the Amended Complaint,2 which 

consists of four counts. Count I requests that the Court enter a declaratory 

judgment that VAC’s floor planning agreement was unlawful and is not 

enforceable. Count II requests the avoidance of postpetition transfers 

pursuant to 11 U.S.C. § 549 and recovery from VAC pursuant to 11 U.S.C. 

§ 550 in the amount of $56,701.90. Count III seeks damages for violation of 

the automatic stay pursuant to 11 U.S.C. § 362(k). Count IV requests the 

avoidance and recovery of prepetition transfers pursuant to 11 U.S.C. 

 

2 The Amended Complaint was filed one day after the original complaint. The 

amendments do not appear to be substantive; rather, they appear to correct certain 

inconsistencies in the numbering and some wording in the original complaint. 

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§§ 547(b) and 550 in the amount of $135,769.93. 

 On November 22, 2017, VAC filed its motion to dismiss the Amended 

Complaint for failure to state a claim (the “Motion”). The Trustee filed his 

response to the Motion on December 6, 2017 (the “Response”). A hearing on 

the Motion was held on December 13, 2017. 

Jurisdiction and Venue 

 This adversary proceeding is a core proceeding pursuant to 28 U.S.C. 

§ 157 (b)(2)(A),(E),(F) and (O). The Court has subject matter jurisdiction 

pursuant to 28 U.S.C. § 1334, and venue in this Court is proper under 28 

U.S.C. § 1409. 

Motion to Dismiss 

A motion to dismiss under Rule 12(b)(6) challenges the legal sufficiency 

of a complaint. Birmingham v. PNC Bank, N.A. (In re Birmingham), 846 

F.3d 88, 92 (4th Cir. 2017). When ruling on a motion to dismiss, the Court 

must assume that the facts alleged in the complaint are true. Eastern Shore 

Mkts, Inc. v. J.D. Assocs. Ltd. P’ship, 213 F.3d 175, 180 (4th Cir. 2000); 

Francis v. Giacomelli, 588 F.3d 186, 192 (4th Cir. 2009). All reasonable 

inferences must be made in the plaintiff’s favor. Nemet Chevrolet, Ltd. v. 

Consumeraffairs.com, Inc., 591 F.3d 250, 253 (4th Cir. 2009). 

 The United States Supreme Court has stated that “[t]o survive a 

motion to dismiss, a complaint must contain sufficient factual matter, 

accepted as true, to ‘state a claim to relief that is plausible on its face.’” 

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Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. 

Twombly, 550 U.S. 544, 570 (2007)). Under this plausibility standard, a 

plaintiff must demonstrate more than a “sheer possibility that a defendant 

has acted unlawfully.” Iqbal, 556 U.S. at 678. Thus, a plaintiff must 

articulate facts that, when accepted as true, state a claim upon which relief 

can be granted and cannot rely upon “labels and conclusions, and a formulaic 

recitation of the elements of a cause of action.” Twombly, 550 U.S. at 555. 

Determining whether a complaint states a plausible claim for relief is “a 

context-specific task that requires the reviewing court to draw on its judicial 

experience and common sense.” Francis v. Giacomelli, 588 F.3d at 193. “[A] 

plaintiff is not required to plead facts that constitute a prima facie case in 

order to survive a motion to dismiss” but allegations must be sufficient 

“enough to raise a right to relief above the speculative level.” Coleman v. Md. 

Court of Appeals, 626 F.3d 187, 190 (4th Cir. 2010) (citing Twombly, 550 U.S. 

at 555). 

Facts 

The following facts are alleged by the Trustee. On July 16, 2015, the 

Debtor, a used automobile dealer, and VAC entered into an agreement (the 

“Agreement”)3 whereby VAC would finance the acquisition of vehicles 

purchased by the Debtor for resale. The Agreement, prefaced by a one-page 

 

3 A copy of the Agreement is attached as Exhibit A to the Trustee’s Response and, by 

agreement of the parties, is deemed a part of the Amended Complaint. The 

Agreement includes a credit limit of $150,000.00 and replaces the original contract 

between the parties dated December 29, 2014, which provided a credit limit of only 

$50,000.00. A copy of the original contract is attached to the Motion as Exhibit B. 

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application entitled “Dealer Floor Plan Agreement,” includes an 18-page 

document entitled “Demand Promissory Note and Security Agreement” that 

provides that VAC may advance funds to the Debtor for the purpose of 

enabling the Debtor to purchase and hold inventory (a term defined as 

including all vehicles) for resale. The Agreement grants VAC a security 

interest in the Debtor’s inventory.4 

 Appended to the Agreement is a one-page document signed by VAC 

and the Debtor entitled “Basic Vehicle Acceptance Corporation Guidelines” 

(the “Guidelines”). The Guidelines list “basic rules you should be aware of 

regarding your Vehicle Acceptance Corporation Floor plan account.” One of 

the rules included in the Guidelines and confirmed by the Debtor’s signature 

states the following in bold print: “All original vehicle title documents will be 

held by Vehicle Acceptance Corporation.” The Amended Complaint alleges 

that the arrangement with VAC required the Debtor to give VAC physical 

possession of the titles to vehicles purchased by the Debtor, even though VAC 

was not listed as a lienholder on the title.5

 

4 The Amended Complaint does not include a specific allegation that the Debtor was 

a “motor vehicle dealer” or “dealer” as defined in Va. Code Ann. § 46.2-1500; 

however, the Dealer Floor Plan Agreement and Demand Promissory Note and 

Security Agreement that, by “agreement of the parties” are deemed part of the 

Amended Complaint (Response, at 5), identify the Debtor as a Virginia Used Retail 

Dealer (Virginia Dealer License: 39033) located at 2425 Chamberlayne Ave., 

Richmond, Virginia, and both parties have treated the Debtor as a motor vehicle 

dealer in their pleadings. For purposes of this Motion, the Debtor will be considered 

a “motor vehicle dealer” as defined in Va. Code Ann. § 46.2-1500. 

5 The Agreement and the Guidelines are two separate documents, with neither 

making reference to the other. 

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During the ninety days prior to the January 24, 2017, petition date, 

the Debtor made payments to VAC in the total amount of $135,769.93. 

Between January 26, 2017, and February 16, 2017, the Debtor made 

postpetition payments to VAC totaling $56,701.90. The payments were made 

so that VAC would release the titles to vehicles the Debtor had sold and were 

made without the knowledge or consent of the Trustee. 

 After the bankruptcy filing, VAC retained possession of titles to 

several vehicles that had been purchased by the Debtor for resale. The 

Trustee repeatedly demanded that VAC turn over the titles to those vehicles. 

The Trustee also demanded that VAC return the postpetition payments it 

had received from the Debtor. VAC rejected these demands. 

 Counsel for Honor Financial, an entity that had purchased the retail 

installment sales contracts for some of the vehicles sold by the Debtor, 

contacted the Trustee because the titles held by VAC had not been delivered 

to the purchasers at the time of sale and, as a result, the Division of Motor 

Vehicles could not process title documents in the new owners’ names and 

could not record Honor Financial as lienholder. Honor Financial demanded 

that the Trustee resolve this problem. After the Trustee retained counsel and 

prepared to initiate legal proceedings, VAC returned some of the titles 

necessary for Honor Financial to complete the transactions. 

 Although VAC knew, or should have known, that the Debtor had filed 

bankruptcy, it did not seek relief from the automatic stay and continued to 

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operate as if no order for relief had been entered. VAC collected funds from 

the Debtor by holding vehicle titles in order to force the Debtor to continue to 

make payments and as a result, the Trustee and bankruptcy estate incurred 

damages, including attorneys’ fees. 

Analysis 

 In the Amended Complaint, the Trustee asserts that Virginia law 

prohibits any creditor from taking possession of a title to a vehicle unless the 

creditor is listed as the lienholder on the title and that VAC’s practice of 

taking physical possession of the titles as a form of security for its loan was 

illegal. The Trustee does not contend that the Agreement fails to grant VAC 

a security interest in the Debtor’s inventory. Nor does the Trustee assert 

that VAC’s security interest in the Debtor’s inventory is avoidable because 

VAC failed to perfect its lien properly by filing a UCC financing statement 

pursuant to Va. Code Ann. § 8.9A-301.6 There is no dispute that the 

financing statement was, in fact, properly filed. Rather, the Trustee argues 

that VAC’s otherwise properly perfected security interest is invalid because 

 

6 Although in the Amended Complaint, the Trustee points to Va. Code Ann. § 46.2-

637, which provides that “a security interest in a motor vehicle, trailer, or 

semitrailer which is held for sale shall be perfected only as provided in §§ 8.9A-301 

through 8.9A-52.7,” the Amended Complaint does not include an allegation that 

VAC failed to comply with these provisions. In a letter from the Trustee to counsel 

for VAC dated April 18, 2017, a copy of which is attached to the Amended Complaint 

as part of Exhibit B, the Trustee asserts that VAC failed to file a UCC financing 

statement in connection with its security interest in the Debtor’s inventory. 

However, Exhibit B also includes a copy of an email from VAC’s counsel dated May 

17, 2017, informing the Trustee that VAC filed its UCC against the inventory on 

December 31, 2014. A copy of the recorded UCC Financing Statement filed by VAC 

is attached as Exhibit A to the Motion. It is clear from the pleadings and exhibits, 

as well as the acknowledgement of counsel to the trustee during the hearing on the 

Motion, that VAC’s timely filing of a UCC financing statement is not disputed. 

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VAC held the titles to vehicles that the Debtor purchased for resale until 

after those vehicles were sold to a consumer, a practice the Trustee claims is 

unlawful. The Trustee asserts no other basis for avoiding or invalidating 

VAC’s lien. Thus, if it is not impermissible for a motor vehicle dealer’s floor 

plan lender to hold the titles to vehicles subject to its lien, the Trustee’s 

declaratory judgment and avoidance counts must be dismissed. 

 Virginia’s motor vehicle laws are contained in Title 46.2 of the Virginia 

Code. Chapter 15 of Title 46.2, Va. Code Ann. §§ 46.2-1500 – 46.2-1582, is 

devoted exclusively to laws affecting motor vehicle dealers. As a motor 

vehicle dealer operating in Virginia, the Debtor is subject to and governed by 

the provisions of this Chapter. 

 One provision included in Chapter 15, Va. Code Ann. § 46.2-1542,7

clearly contemplates that there may be situations in which a dealer does not 

 

7 A. Notwithstanding §§ 46.2-617 and 46.2-628, whenever a dealer 

licensed by the Board sells or conditionally sells and delivers to a 

purchaser a motor vehicle, the dealer may issue temporary license 

plates and a certificate of temporary registration. The temporary 

license plates and the certificates for temporary registration shall be 

obtained from the Commissioner or may be printed according to terms 

set by the Commissioner and may be issued if (i) the dealer has the 

title or the certificate of origin for the vehicle or (ii) is unable at the 

time of the sale to deliver to the purchaser the certificate of title or 

certificate of origin for the vehicle because the certificate of title or 

certificate of origin is lost or is being detained by another in possession 

or for any other reason beyond the dealer's control. The temporary 

registration certificate shall bear its date of issuance, the name and 

address of the purchaser, the identification number of the vehicle, the 

registration number to be used temporarily on the vehicle, the name of 

the state in which the vehicle is to be registered, the name and 

address of the person from whom the dealer acquired the vehicle, and 

whatever other information may be required by the Commissioner. A 

copy of the temporary registration certificate and a bona fide buyer's 

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order shall be delivered to the purchaser and shall be in the 

possession of the purchaser at all times when operating the vehicle. 

One copy of the certificate shall be retained by the dealer, which copy 

may be retained in electronic format under terms set by the 

Commissioner, and shall be subject to inspection at any time by the 

Department's agents. The original of the certificate shall be 

forwarded by the dealer to the Department directly on issuance to the 

purchaser if the vehicle is to be titled outside the Commonwealth, 

along with the physical or electronic application for title. The issuance 

of a temporary certificate of registration to a purchaser pursuant to 

this section shall have the effect of vesting sufficient interest in the 

vehicle in the purchaser for the period that the certificate remains 

effective for purposes of allowing the purchaser (a) to obtain and 

provide insurance coverage for the vehicle, including insurance 

indemnifying the purchaser against liability or providing for recovery 

for damage to or loss of the vehicle and (b) to operate the vehicle as if 

the purchaser had full rights of ownership, all subject to cancellation 

by applicable law or agreement between the dealer and the purchaser 

prior to the time the dealer submits an application for title along with 

all required fees. If the dealer or purchaser exercises the statutory or 

contractual rights to cancel a purchaser's contract to buy a vehicle 

before application for title to the vehicle has been submitted to the 

Department in the name of the purchaser, the dealer shall have the 

right to possession of the vehicle without claim of possession by the 

purchaser within 24 hours of written or oral notice to the purchaser 

and without regard to the provision of Title 8.9A, provided the dealer's 

right to possession is enforced otherwise in accordance with law and 

without breach of the peace. In the event the dealer regains possession 

of the vehicle, in the same condition, normal wear and tear excepted, 

as delivered to the purchaser, the purchaser shall have the right to 

possession of any trade-in and return of any down payment, and if the 

dealer fails to return the trade-in and/or down payment the dealer 

may be held liable under § 59.1-200 of the Virginia Consumer 

Protection Act (§ 59.1-196), in addition to any other rights and 

remedies available by statute or contract. 

B. A temporary certificate of registration issued by a dealer to a 

purchaser pursuant to this section shall expire when the certificate of 

title to the vehicle is issued by the Department in the name of the 

purchaser or vehicle ownership is transferred in accordance with § 

46.2-603.1 and the permanent license plates have been affixed to the 

vehicle, but in no event shall any temporary certificate of registration 

issued under this section be effective for more than 30 days from the 

date of its issuance. In the event that the dealer fails to produce the 

old certificate of title or certificate of origin to the vehicle, fails to 

transfer vehicle ownership in accordance with § 46.2-603.1, or fails to 

apply for a replacement certificate of title pursuant to § 46.2-632, 

thereby preventing delivery to the Department or purchaser before the 

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expiration of the temporary certificate of registration, the purchaser's 

temporary rights may terminate and the purchaser shall have the 

right to return the vehicle to the dealer and obtain a full refund of all 

payments made toward the purchase of the vehicle, provided the 

purchaser provides notice to the dealer of a decision to return the 

vehicle before issuance of a title for the vehicle by the Department, 

less any damage to the vehicle incurred while ownership was vested in 

the purchaser, and less a reasonable amount for use not to exceed onehalf the amount allowed per mile by the Internal Revenue Service, as 

provided by regulation, revenue procedure, or revenue ruling 

promulgated pursuant to § 162 of the Internal Revenue Code, for use 

of a personal vehicle for business purposes. 

C. Notwithstanding subsection B, if the dealer fails to deliver the 

certificate of title or certificate of origin to the purchaser or fails to 

transfer vehicle ownership in accordance with § 46.2-603.1 within 30 

days, a second temporary certificate of registration may be issued. 

However, the dealer shall, not later than the expiration of the first 

temporary certificate, deliver to the Department an application for 

title, copy of the bill of sale, all required fees and a written statement 

of facts describing the dealer's efforts to secure the certificate of title 

or certificate of origin to the vehicle. On receipt of the title application 

with attachments as described herein, the Department shall record 

the purchaser's rights hereunder to the vehicle and may authorize the 

dealer to issue a second 30-day temporary certificate of registration. If 

the dealer does not produce the certificate of title or certificate of 

origin to the vehicle before the expiration of the second temporary 

certificate, the purchaser's rights to the vehicle under this section may 

terminate and he shall have the right to return the vehicle as provided 

in subsection B. 

D. If the dealer is unable to produce the certificate of title or 

certificate of origin to the vehicle or transfer vehicle ownership in 

accordance with § 46.2-603.1 within the 60-day period from the date of 

issuance of the first temporary certificate, the Department may extend 

temporary registration for an additional period of up to 90 days, 

provided the dealer makes application in the format required by the 

Department. If the dealer does not produce the certificate of title or 

certificate of origin to the vehicle or transfer vehicle ownership in 

accordance with § 46.2-603.1 before the expiration of the additional 

90-day period, the purchaser's rights hereunder to the vehicle may 

terminate and he shall have the right to return the vehicle as provided 

in subsection B. 

E. The Commissioner, on determining that the provisions of this 

section or the directions of the Department are not being complied 

with by a dealer, may suspend, after a hearing, the right of the dealer 

to issue temporary certificates of registration. The provisions of this 

section shall also apply to watercraft trailers and watercraft trailer 

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have possession of the certificate of title to a vehicle when the vehicle is 

delivered to a customer. That section authorizes a dealer to issue temporary 

license plates and a certificate of origin for the vehicle when the dealer “is 

unable at the time of sale to deliver to the purchaser the certificate of title . . . 

because [it] . . . is lost or is being detained by another in possession or for any 

other reason beyond the dealer’s control.” The same provision allows the 

effectiveness of a temporary registration to be extended beyond the initial 30-

day period if the dealer is unable to produce the certificate of title within that 

time frame. Va. Code Ann. § 46.2-1542(C),(D). While neither this provision 

nor any other statute in Title 46.2 specifically authorizes a floor plan lender 

to hold vehicle titles (or prohibits the practice), § 46.2-1542’s language is 

tailored to address circumstances in which the dealer must retrieve a 

certificate of title from its floor plan lender in order to complete the sale 

process. If the legislature had intended to require a dealer to deliver the 

certificate of title to a customer at the time of the vehicle’s delivery to the 

customer, one would question the reason for enacting § 46.2-1542. 

 The District Court for the Eastern District of Virginia has 

acknowledged on more than one occasion that under Virginia law a dealer 

may effectuate a sale without having possession of the certificate of title at 

the time the vehicle is delivered to the customer. See Tripp v. Charlie Falk 

Auto, No. CIV. 3:00CV512, 2001 WL 1105132, at *4-5 (E.D. Va. Aug. 22, 

 

dealers but shall not apply to all-terrain vehicles and off-road 

motorcycles. 

Va. Code Ann. § 46.2-1542. 

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2001) (“[T]his Court could conclude that ownership in this transaction was 

passed upon the signing of the Re-assignment of Title form, which is 

recognized as a legitimate means of transferring title and therefore would 

effectuate a valid transfer of ownership.”), aff'd sub nom. Tripp v. Charlie 

Falk's Auto Wholesale Inc., 290 F. App'x 622 (4th Cir. 2008); Nigh v. Koons 

Buick Pontiac GMC, Inc., 143 F. Supp. 2d 535 (E.D. Va. 2001) (Automobile 

dealer's failure to order new license plate for truck did not violate its 

statutory duty to transfer title on truck in timely manner, where dealer 

transferred title by timely completing reassignment of title form, citing Va. 

Code Ann. §§ 46.2-628, 46.2-1542). Motor vehicle dealers, such as the Debtor, 

operate differently from private sellers of motor vehicles, and Virginia’s 

titling laws are designed to accommodate dealers’ standard business 

practices by imposing upon them a different scheme of statutory oversight. 

 In arguing that VAC’s practice of holding certificates of title 

constitutes a crime, the Trustee cites Va. Code Ann. § 46.2-618.8 Section 

 

8Va. Code Ann. § 46.2-618 provides that: 

A. It shall constitute a Class 1 misdemeanor for any person in the 

Commonwealth to possess a certificate of title issued by the 

Commissioner to a person other than the holder thereof, unless the 

certificate of title has been assigned to the holder as provided in this 

title. This section, however, shall apply neither to secured parties who 

legally hold certificates of title as provided in this title nor to the 

spouse of the person to whom the certificate of title was issued. 

B. When a purchaser of a motor vehicle is unable to obtain the title 

for such vehicle because the motor vehicle dealer who sold the vehicle 

to the purchaser is no longer engaged in business in the 

Commonwealth as a dealer as defined in § 46.2-1500 and the 

purchaser must petition a court of competent jurisdiction to direct that 

a person other than the dealer holding the title to release the title to 

the purchaser, the Court may order the title be released to the buyer if 

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46.2-618 states that it is a Class 1 misdemeanor for any person other than 

the holder to possess a certificate of title. The Trustee maintains that the 

motor vehicle laws, including § 46.2-618, were carefully crafted to require the 

immediate transfer of a certificate of title when possession of a vehicle is 

given to a buyer in order to protect innocent consumers from being victimized 

by unscrupulous sellers. 

It is true that one of the fundamental purposes of Virginia’s motor 

vehicle registration laws “is to prevent the sale of stolen or other unregistered 

vehicles in this State.” U.S. Fid. & Guar. Co. v. Trussell, 208 F. Supp. 154, 

158-59 (W.D. Va. 1962). In that same vein, “[t]he motor vehicle titling 

statutes . . . were enacted to protect the public by providing for the issuance 

of certificates of title as evidence of ownership of motor vehicles and to 

provide potential buyers and creditors with a single place where information 

about the status of motor vehicles could be found.” Toyota Motor Credit Corp. 

v. C.L. Hyman Auto Wholesale, Inc., 506 S.E.2d 14, 15 (Va. 1998). 

Nevertheless, it is evident that § 46.2-618 and similar statutes9 are intended 

to address circumstances other than those involving dealer transactions, as is 

 

the court finds that the purchaser has a right to the title superior to 

that of the person holding the title under the laws of the 

Commonwealth. The court may also, upon finding that the person 

holding the title must release it, award reasonable attorney fees, 

expenses, and costs incurred by the purchaser in making the petition 

to the court. 

9 See, e.g., Va. Code Ann. § 46.2-637, requiring a security interest in a vehicle to be 

shown on the certificate of title, but specifically excluding “those [vehicles] in 

inventory held for sale” 

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clearly demonstrated by the inclusion of specific language in § 46.2-618 

exempting secured lenders from its application.10 

 The Trustee has cited no statute that specifically prohibits a floor plan 

lender from retaining possession of certificates of title to vehicles that are 

collateral for its loan when the lender is not listed as lienholder on the titles. 

Section 46.2-637 of the Virginia Code, a statute the Trustee claims prohibits 

the lender from holding titles, states that a security interest in a motor 

vehicle that is inventory held for sale “shall be perfected only as provided in 

§§ 8.9A-301 through 8.9A-527.” Va. Code Ann. §46.2-637 (emphasis added). 

Contrary to the Trustee’s assertion, this language does not prohibit a floor 

plan lender from possessing certificates of title; rather, it provides that the 

lender’s lien shall not be perfected unless the lender has complied with 

Virginia’s version of the Uniform Commercial Code, which requires the filing 

of a financing statement. See Va. Code Ann. §§ 8.9A-301 – 8.9A-527. Had 

VAC failed to comply with these provisions, its lien on the Debtor’s inventory 

would be subject to avoidance despite its having retained possession of the 

certificates of title. But again, there is no allegation that VAC did not comply 

with §§ 8.9A-301 – 8.9A-527. 

 

10 Section 46.2-618 authorizes a purchaser of a vehicle from a dealer that has gone 

out of business to petition the court to direct a third party holding the title to release 

it to the purchaser if the court finds that the purchaser has a superior right. See

supra note 7. Once again, the statutory language appears to contemplate 

circumstances in which a floor plan lender may have retained possession of 

certificates of title securing its inventory lien. 

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 The Office of the Comptroller of the Currency (OCC) publishes a 

Handbook to guide OCC examiners in their oversight and supervision of the 

lending practices of national banks and federal savings associations. The 

Handbook is composed of various booklets, among them one entitled “Floor 

Plan Lending,” housed in the section of the Handbook titled “Safety and 

Soundness.”11 Although VAC may not be subject to the OCC’s jurisdiction, 

the booklet offers a comprehensive overview of “prudent risk management 

guidelines” and “procedures to guide examiners in evaluating the impact of 

floor plan lending activities on a bank’s risk profile and financial condition.” 

Comptroller’s Handbook, Floor Plan Lending, Version 1.2 at 1 (2017). In the 

absence of any specific restrictions otherwise imposed by federal or state law, 

one may reasonably assume that the lending practices recommended in the 

OCC’s Handbook are generally considered acceptable. 

 The OCC’s Handbook states that in a typical floor plan arrangement, 

the dealer executes a loan agreement granting the bank a continuing security 

interest in the dealer’s inventory, receipts and accounts receivable, and the 

bank perfects its security interest pursuant to article 9 of the Uniform 

Commercial Code. Id. at 3. When discussing the risks associated with floor 

plan lending, the OCC emphasizes the need for the bank to maintain an 

effective risk management system, since a lender who is unable to exercise 

full control over the inventory may find itself in a “sold-out-of-trust position.” 

 

11 The booklet is in the Handbook’s subcategory “Asset Quality” and may be found at 

https://www.occ.treas.gov/publications/publications-by-type/comptrollershandbook/floor-plan-lending/pub-ch-floor-plan.pdf. 

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Id. at 9. The OCC offers a comprehensive list of steps a lender should take to 

protect itself from a loss, including monitoring the dealer’s inventory and 

conducting regular inspections. “[F]loor plan lenders should regularly 

inspect and verify the inventory, take control of title documents, and, if 

necessary, take physical control of the inventory . . . .” Id. at 18 (emphasis 

added).12 It appears that in the view of the OCC, a prudent floor plan lender 

may hold the title documents to its collateral even when perfection of its 

security interest requires the filing of a financing statement. This may help 

explain the Trustee’s inability to point to any statutes or regulations 

prohibiting the practice. 

 As previously observed, Virginia’s motor vehicle titling laws, including 

those cited by the Trustee, were enacted to protect innocent parties. Allowing 

a floor plan lender to hold certificates of titles does not thwart this legislative 

intent. While a floor plan lender may potentially reduce its risk of loss by 

controlling title documents, the practice does not eliminate the possibility 

that its collateral may be subject to the superior claim of a dealer’s customer 

or the customer’s lender. 

 

12 The OCC notes that lenders are subject to certain regulatory and compliance 

requirement and that “[i]f a floor plan lender structures a loan in violation of 

statutory and regulatory requirements, it may face a greater difficulty in defending 

its contractual rights . . . . It could also face consequences for noncompliance, such 

as a civil monetary penalty and lender liability lawsuits.” Id. at 9. The Trustee has 

cited no statutory or regulatory prohibitions against a floor plan lender possessing 

certificates of title to motor vehicles subject to its inventory lien and held for resale 

by a motor vehicle dealer. 

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A case decided by a district court in the Southern District of Texas, 

involving a factual scenario similar to the case before this Court, found that a 

“buyer in the ordinary course of business” has superior rights over the floor 

plan lender, despite the lender’s having retained possession of the certificate 

of title, when the proceeds of sale were not passed on by the dealer to the 

lender. Lundy v. First Nat’l Bank of El Campo (In re Dota), 288 B.R. 448 

(S.D. Tex. 2003) (buyer in the ordinary course of business took title to vehicle 

free of floor plan lender’s security interest in dealer’s inventory even though 

sale was not accompanied by transfer of certificate of title);13 see also Valley 

 

13 Many of the provisions of the Texas Certificate of Title Act (COTA) are similar to 

Virginia’s motor vehicle titling laws. For example, the Texas Transportation Code 

states that “[a] motor vehicle may not be the subject of a subsequent sale unless the 

owner designated in the certificate of title transfers the certificate of title at the time 

of sale.” Tex. Transp. Code Ann. § 501.071(a). Similarly, Va. Code Ann. § 46.2-628 

requires that “[t]he owner of a motor vehicle . . . when transferring or assigning his 

title or interest thereto, shall . . . deliver the certificate to the purchaser or 

transferee at the time of delivering the motor vehicle. . . .” Texas law exempts 

dealers from the statutory requirement to transfer the certificate of title at the time 

of sale by excluding dealers from the definition of “owner.” Tex. Transp. Code Ann. 

§ 501.002(19). See Lundy v. First Nat’l Bank of El Campo (In re Dota), 288 B.R. 448, 

456 (S.D. Tex. 2003). Under Virginia law, a dealer is exempted from the § 46.2-628 

requirement to deliver the title certificate at the time of delivering the motor vehicle 

by the provisions of Va. Code Ann. § 46.2-1542(A). Interestingly, the Agreement 

provides that it will be construed under Texas law, although neither party has 

argued that Texas law should be applied to this case. Nevertheless, given the 

similarity between the motor vehicle titling laws, the Court’s ruling would be the 

same were it to apply Texas law. 

 In Dota, a floor plan lender argued that the buyer’s failure to comply with the 

provision in COTA requiring a transfer of a vehicle’s certificate of title at the time of 

sale (similar to what the Trustee contends is required under Virginia law) negated 

his “buyer in the ordinary course” assertion. The court rejected this argument, 

noting the intent of the Texas legislature to exclude motor vehicle dealers from this 

requirement. “[T]he Bank’s assertion that [the buyer] should have received the 

certificate of title to the Silverado at the time of sale misstates the COTA’s 

requirements for transfer of a certificate of title pursuant to a subsequent sale by a 

licensed Texas dealer . . . .” Id. at 461. Likewise, the Trustee’s reliance on certain 

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Bank & Trust Co. v. Holyoke Cmty. Fed. Credit Union, 121 P.3d 358, 362 

(Colo. App. 2005) (when the inventory was sold, the lender’s security interest 

on that vehicle was extinguished, leaving it with a security interest in the 

proceeds only).14 Thus, contrary to the Trustee’s concerns, a floor plan 

lender’s practice of holding the title certificates to its collateral will not 

interfere with protecting the public from fraud because it will not enable the 

lender to overcome the rights of a buyer in the ordinary course of business.15

 

Virginia statutes for his argument that a dealer is required to deliver the certificate 

of title to the buyer simultaneously with the deliver of the vehicle is misplaced. 

 It is worth noting that while the specific issue was not raised, the court in 

Dota did not question the validity of the floor plan lender’s loan agreement that 

required the dealer to arrange for the release of the original title from the Bank for 

each vehicle sold. As in the present case, the lender was not shown as lienholder on 

the title. In Dota, the dealer failed to apply the proceeds of the sale to the loan and 

failed to request or arrange for the Bank to release the title before filing bankruptcy. 

Having determined that the buyer was “a buyer in the ordinary course of business,” 

the court refused to order him to deliver the vehicle to the Bank. 

14 See also Gen. Credit, Inc. v. Winchester, Inc., 85 S.E.2d 201 (Va. 1955) (upholding 

the claim of an innocent purchaser over that of the dealer’s finance company despite 

the finance company’s lien having been noted on the certificate of title). 

15 The Trustee has also raised the specter of odometer fraud that may occur if the 

dealer does not transfer physical possession of a certificate of title at the time a 

vehicle is delivered to a buyer, claiming that both federal and state law require that 

the certificate of title be the sole means of disclosing a vehicle’s mileage. Once 

again, the Trustee has disregarded a provision of Virginia’s motor vehicle laws 

applicable to dealers. Va. Code Ann. § 46.2-1532 states that “[e]very motor vehicle 

dealer shall comply with all requirements of the Federal Odometer Act and § 46.2-

629 by completing the appropriate odometer mileage statement form for each vehicle 

. . . [that] shall be maintained by the dealer in a manner that permits systematic 

retrieval.” This statute contemplates that a document other than the certificate of 

title may be utilized to disclose a vehicle’s mileage. Moreover, the Trustee’s 

assertion that in the absence of actual fraud, disclosing mileage at the time of 

delivery of the vehicle on a separate form rather than on the title violates the 

Federal Odometer Act has been rejected at least twice by the District Court for the 

Western District of Virginia. See Mayberry v. Ememessay, Inc., 201 F. Supp. 2d 687, 

695 (W.D. Va. 2002) (“Even the idea that there can be a ‘non-mileage violation’ of an 

act whose central purpose is to ensure the accurate reporting of mileage strains 

credulity.”); Compton v. Altavista Motors, Inc., 121 F. Supp. 2d 932, 941-42 (W.D. 

Va. 2000) (“even if [plaintiff] can show that an Odometer Act violation occurred, she 

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 Whether intentional or not, the Trustee has obscured the distinction 

between motor vehicle dealers and non-dealer sellers in order to construct an 

argument that a secured floor plan lender’s practice of holding titles to 

vehicles held for resale by a dealer is unlawful. The Trustee has not cited, 

nor has the Court found, any statute or regulation prohibiting the practice. 

Accordingly, the Court rejects the Trustee’s contention that the practice 

violates Virginia’s motor vehicle titling laws. Therefore, the Court need not 

address the Trustee’s further argument that the Agreement constitutes an 

unlawful, unenforceable contract. For these reasons, the Court will dismiss 

the Trustee’s declaratory judgment and avoidance counts (Counts I, II and 

IV) for failure to state a claim upon which relief may be granted. 

 Count III of the Amended Complaint seeks relief for VAC’s violation of 

the automatic stay. The automatic stay created by 11 U.S.C. § 362(a) became 

effective upon the Debtor’s bankruptcy filing. The Trustee claims that VAC 

knew or should have known that the Debtor was in bankruptcy, yet 

“continued to operate as if no order for relief had been entered” and 

“attempted to, and in fact did, collect funds from the Debtor after the Petition 

Date by illegally holding vehicle titles to coerce the Debtor to continue to 

make improper and unnecessary payments.” (Amended Complaint at 7-8.) 

The Trustee alleges that VAC’s actions, “in addition to others, constitute an 

attempt by VAC to obtain property of the estate, which attempt was 

 

cannot avoid summary judgment unless she can provide evidence sufficient to show 

that [the dealer] committed the violation with an intent to defraud.”) 

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successful.” Id. The Trustee further alleges that VAC’s stay violations 

caused him and the bankruptcy estate to suffer damages. Id. 

 A party seeking damages for violation of 11 U.S.C. § 362(a) must 

establish three elements: (1) that a violation occurred; (2) that the violation 

was committed willfully; and, (3) that the violation caused actual damages. 

Skillforce, Inc. v. Hafer, 509 B.R. 523, 529 (E.D. Va. 2014). The Trustee has 

alleged facts that, if proven, would satisfy these elements. For that reason, 

the Court will deny VAC’s motion to dismiss Count III of the Amended 

Complaint. 

 A separate order consistent with this Memorandum Opinion will issue. 

Date: February 22, 2018 /s/ Keith L. Phillips 

 United States Bankruptcy Judge 

Copies: 

Peter J. Barrett, Trustee 

c/o Jeremy S. Williams 

Kutak Rock LLP 

901 East Byrd Street, Suite 1000 

Richmond, VA 23219 

Thomas D. Domonoske 

Consumer Litigation Associates 

763 J. Clyde Morris Blvd, Suite 1-A 

Newport News, VA 23601 

Dale W. Pittman 

The Law Office of Dale W. Pittman, PC 

112-A W. Tabb Street 

Petersburg, VA 23803 

Entered on Docket: February 22, 2018

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Virginia Acceptance Corporation 

c/o Madeline A. Trainor 

Redmon, Peyton & Braswell LLP 

510 King Street, Suite 301 

Alexandria, VA 22314 

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