UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
FLOYD RAY CHAPMAN
a/k/a SOUTHERN STAR GUNSHOP CASE NO. 90-00100
JAMES A. NOLAN, TRUSTEE PLAINTIFF
VS. ADV. NO. 90-0092
JAMES SHEPPARD d/b/a
SHEP'S GUN AND SPORTS WORLD
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.
By the Court -
James A. Nolan, Trustee
John R. Triplett, Esq.
William G. Francis, Esq.