UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
PIKEVILLE DIVISION
IN RE:
FLOYD RAY CHAPMAN
a/k/a SOUTHERN STAR GUNSHOP CASE NO. 90-00100
DEBTOR
JAMES A. NOLAN, TRUSTEE PLAINTIFF
VS. ADV.
NO. 90-0092
JAMES SHEPPARD d/b/a
SHEP'S GUN AND SPORTS WORLD
and
SCOTTSDALE INSURANCE COMPANY DEFENDANTS
OPINION AND ORDER
This matter is
pending before the Court on the Trustee's Motion for Summary Judgment based on
the pleadings herein. The Trustee's
Complaint to Collect Account Receivable, which is the basis of this adversary
proceeding, prayed for judgment against the defendants in the sum of
$39,636.00, plus interests and costs, and for defendant Scottsdale Insurance
Company to pay said amount into this Court, pending the outcome of this
proceeding. The Complaint alleges that
certain insurance proceeds in the amount prayed for are an asset of the
debtor's estate. This Court has
jurisdiction of this proceeding pursuant to 28 U.S.C. '1334; it is a core
proceeding pursuant to 28 U.S.C. '157(b)(1).
The record in this
case reveals that the Trustee's Complaint was filed on April 10, 1990. Defendant James Sheppard filed his Answer on
May 2, 1990. Defendant Scottsdale
Insurance Company filed its answer on May 14, 1990. The Trustee filed his Motion for Summary Judgment on June 12,
1990. Defendant Scottsdale Insurance
Company filed a Motion to Dismiss Scottsdale Insurance Company on July 13,
1990. Defendant Sheppard filed his
Response to Motion for Summary Judgment on July 23, 1990. On July 27, 1990, this Court overruled
without prejudice defendant Scottsdale Insurance Company's Motion to Dismiss.
Defendant Sheppard
contends that he moved for attachment of the subject proceeds more than 90 days
before the debtor filed his bankruptcy case.
On May 2, 1989, an Order of Attachment was entered in the Martin Circuit
Court in Civil Action 89-CI-120, James Sheppard, d/b/a Shep's Gun and Sports
World vs. Joey Bailey and Floyd Chapman, d/b/a Southern Star Gun Shop,
Scottsdale Insurance Company, and GAB Business Services, Inc. The Court therein directed that any
insurance settlement proceeds to be paid to the debtor by defendants,
Scottsdale Insurance Company and/or GAB Business Services, Inc., be attached
and levied upon. The subject proceeds
were therefore directed to be removed from the possession of the defendants and
placed in the hands of the Martin Circuit Clerk pending further orders of the
Court.
The debtor filed a
Chapter 13 petition in this Court on June 7, 1989. It was dismissed on October 31, 1989, and is therefore not
significant for purposes of determining the outcome of this proceeding. On February 22, 1990, the debtor filed a
Chapter 7 petition in this Court, and on the same date judgment was entered in
Civil Action 89-CI-120.
As set out above,
defendant James Sheppard moved for and was granted an Order of Attachment as to
the subject insurance proceeds on May 2, 1989.
The funds were paid over to the Court per the terms of the Order. KRS 426.383 provides in part that "[a]
lien shall be created on the property of the defendant by the levy of the
attachment...". The principle that
an attachment lien becomes effective at the time of levy has been expounded in Glass
v. Alcorn, 70 S.W.2d 964, 254 Ky. 16 (1934), and Thacker v. Commonwealth,
284 S.W.2d 325 (Ky. 1956).
In In re Coston,
65 B.R. 224 (Bkrtcy. D.N.M. 1986), the Bankruptcy Court dealt with this issue
in a proceeding arising from a dispute concerning the ownership of a Kentucky
family farm. The circumstances of that
case were similar to those of the case at bar.
A prejudgment attachment order had been entered in Meade Circuit Court,
a certain sum was paid over to the Court Registry, and a Chapter 13 bankruptcy
petition filed. The levy on the
attached property was effected more than 90 days before the filing of the
bankruptcy petition. The Court ruled
that the creditor had, according to KRS 426.383, acquired a lien on the
attached property. and that it was a
judicial lien, as 11 U.S.C. '101(32) defines judicial lien as a "lien
obtained by judgment, levy, sequestration or other legal or equitable process
or proceeding."
In addition, the
Court ruled that the circuit court judgment operated to perfect the prejudgment
attachment lien and to preserve the priority established by the attachment
lien. The priority of the lien dated
back to the levy on the attached property, a date outside the preference period
of '547. The relationship of the date of entry of
judgment to the date of filing of the bankruptcy petition was therefore
immaterial. The creditor was found to
be a secured judicial lien creditor.
In the case at bar,
the Order of Attachment was entered and the levy on attached property effected
well outside the 90 day preference period, and indeed, outside the 180 day
period allowed by state law. See KRS 378.060.
Defendant Sheppard acquired a valid judicial lien as of the date of the
levy, and according to pertinent statutory and case law, must be considered to
be a secured judicial lien creditor.
The Trustee therefore not having carried forward his burden of
demonstrating that there is no genuine issue as to any material fact and that
he is entitled to judgment as a matter of law, it is the opinion of this Court
that the Trustee's Motion for Summary Judgment should be, and it hereby is,
OVERRULED.
Dated:
By the Court -
_____________________________________
Judge
Copies to:
James A. Nolan, Trustee
John R. Triplett, Esq.
William G. Francis, Esq.
mchap.opi