Hunter v. Snap-On Credit Corp. (In re Fox)

On May 8, 1996, David. C. Fox contracted with Patrick Hurley, the authorized dealer for Snap-On Tools (Snap-On) (defendant), to lease equipment for his business. Fox agreed to pay $9,784.55 for the equipment in 48 monthly installments. The contract permitted Fox to purchase the equipment at the end of the lease-term for $1. The contract further provided that Fox would become immediately liable for the total outstanding balance if he canceled or terminated the lease early. On May 20, 1996, Hurley filed a financing statement with the Ohio Secretary of State covering the lease contract and naming Snap-On as the assignee. Fox could not pay the monthly installments. Accordingly, on June 23, 1997, Fox returned the equipment to Snap-On. Approximately two months later, Fox filed for Chapter 7 bankruptcy. John Hunter (plaintiff) was named the bankruptcy trustee. Hunter initiated an adversary proceeding against Snap-On. Hunter argued that Fox’s return of the equipment to Snap-On before the bankruptcy filing constituted a preferential transfer and sought to recover the transfer pursuant to 11 U.S.C. § 547(b). Snap-On moved for summary judgment. Snap-On argued that Fox’s interest in the equipment had no cash value because this was a lease transaction and, therefore, it received no more than it would have pursuant to a hypothetical Chapter 7 distribution. Alternatively, Snap-On argued that even if the court deems the contract to be a security agreement, the transfer was not preferential because it was entitled to the return of its collateral upon Fox’s default.