Opinion ID: 1375685
Heading Depth: 1
Heading Rank: 1

Heading: Negative Equity Financing Fits Both the Price and Value Given to Enable Prongs of the PMSI Definition

Text: The statutory language, viewed in light of Comment 3, establishes that price and value given to enable include numerous expenses not captured by the common understanding of price, including freight charges, demurrage, administrative charges, expenses of collection and enforcement, and attorney's fees. Inclusion of these expenses dispels any notion that `price' and `value given' are limited to the price tag of the vehicle standing alone. Dale, 582 F.3d at 574. After listing specific examples of obligations included in the price, the Comment recites that the price also encompasses other similar obligations. Ohio Rev.Code § 1309.103 cmt. 3. This language demonstrates that the enumerated expenses are merely examples and do not constitute an exhaustive list of eligible expenses. Dale, 582 F.3d at 574. Nor does the doctrine of ejusdem generis narrow the types of expenses covered by the Comment to exclude negative equity. That doctrine provides that when a statute sets out a series of specific items ending with a general term, that general term is confined to covering subjects comparable to the specifics it follows. Hall Street Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 586, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008). As the Fifth Circuit observed, the listed expenses in Comment 3 have no common feature beyond an attenuated connection to the acquisition or maintenance of the vehicle. Dale, 582 F.3d at 574. Because negative equity exhibits a similar connection, ejusdem generis does nothing to advance Debtors' position. Id. at 574-75. Moreover, even if the doctrine served to narrow the meaning of other similar obligations, it does not affect the Comment's preceding statement that both price and value given to enable include[] obligations for expenses incurred in connection with acquiring rights in the collateral. Id. at 574 (quoting Tex. Bus. & Com. Code § 9.103 cmt. 3). This represents a stand alone category of expense, which easily accommodates negative equity. Id. at 575. Thus, regardless of whether negative equity financing qualifies as an other similar obligation, it remains an obligation for an expense incurred in connection with acquiring rights in the collateral, and satisfies the definition of a PMSI. Moreover, in Johns, the Ohio Supreme Court expressly recognized the integral connection between the payoff of a trade-in vehicle's negative equity and the purchase of a new vehicle on an installment basis: It is a matter of common knowledge that most new car sales are accompanied by trade-ins. Inclusion of the negative equity of a trade-in is nothing more than a convenient means of accommodating a buyer who is offering a depreciated trade-in. It is, in other words, a practical method of facilitating the release of an outstanding security interest in order that the trade-in allowance can be made.... Here, appellees were able to purchase the specific automobiles they desired because their trade-ins were afforded more value on paper than they actually had. Johns, 551 N.E.2d at 183. And since the UCC includes within the price such disparate items as sales taxes, finance charges, interest, freight charges, costs of storage in transit, collection expenses, attorney's fees, and an open-ended category of other similar obligations, negative equity financingaccording to Johns, so vital to facilitating the transactionreadily fits within the meaning of price sufficient to generate a PMSI. See Ohio Rev.Code § 1309.103 cmt. 3. [2] And in any event, negative equity separately qualifies for the hanging paragraph's protection by meeting the value given to enable prong, which provides that a purchase-money obligation consists of value given to enable the debtor to acquire rights in or the use of the collateral if the value is in fact so used. Ohio Rev.Code § 1309.103(A)(2). The value supplied by the Dealer to fund the payoff of Debtors' negative equity in their trade-in vehicle enabled them to purchase the vehicle. The portion attributable to negative equity played an integral role in the overall transaction. Debtors incurred the entire obligation at the same time for the singular purpose of acquiring the new vehicle. Relying on In re Sanders, 377 B.R. 836, 856 (Bankr.W.D.Tex. 2007), rev'd, 403 B.R. 435 (W.D.Tex.2009), Debtors argue for a distinction between enabling a transaction to occur and enabling the acquisition of rights in new collateral, suggesting that negative equity assists only the former. But [f]rom a practical perspective, that distinction is meaningless. Price, 562 F.3d at 625. If negative equity financing enabled the transaction in which the new car was acquired, then, in reality, the negative equity financing also enabled the acquisition of rights in the new car. Id. Debtors further assert that the negative equity relates to an antecedent debt, and therefore does not qualify as value given to enable. This argument fails for the simple reason that the portion of Debtors' obligation to Nuvell owed on account of negative equity does not, in fact, amount to a refinance of antecedent debt. See In re Muldrew, 396 B.R. 915, 926 (E.D.Mich. 2008). Prior to financing the negative equity in connection with their purchase of the new vehicle, Debtors owed Nuvell nothing. They owed the debt secured by the tradein vehicle to an unrelated third-party. The obligation secured by the vehicleincluding the negative equity portionconsisted of all new credit funded by Nuvell. See Dale, 582 F.3d at 575.