UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
COVINGTON DIVISION
IN RE:
CLINT ALLYN
HAHN
DEBTOR CASE NO. 04-21499
LORI A. SCHLARMAN, TRUSTEE PLAINTIFF
VS. ADV.
NO. 04-2067
CLINT ALLYN
HAHN
US BANK DEFENDANTS
MEMORANDUM
OPINION
This matter is before the court on
the Plaintiff’s and Defendant US Bank’s cross Motions for Summary
Judgment. The issue before the court is
whether the Plaintiff may avoid as a preferential transfer and preserve for the
benefit of the estate US Bank’s lien on an automobile purchased by the Debtor
in Ohio. The Plaintiff maintains that
the lien is unperfected. After
considering the documentary and other evidence, and the briefs and arguments of
counsel, the court will sustain US Bank’s Motion for Summary Judgment and
overrule the Plaintiff’s Motion for Summary Judgment for the reasons set out
below. This court has jurisdiction of
this matter pursuant to 28 U.S.C. § 1334(b); it is a core proceeding
pursuant to 28 U.S.C. § 157(b)(2)(F).
1. Factual and procedural background
The Debtor purchased a 1997 Ford
Mustang, VIN1FALP42X1VF140952, from an Ohio auto dealership on May 10,
2004. On the same date, the Debtor gave
a security interest in favor of US Bank.
An Ohio certificate of title was generated which notes a lien in favor
of US Bank filed on May 26, 2004. The Debtor,
with a Kentucky address, appears on this certificate of title as the
owner. A title lien statement in regard
to US Bank’s lien was filed in the Boone County (Kentucky) Clerk’s office on
June 8, 2004; a Kentucky certificate of title was issued on July 21, 2004,
noting US Bank’s lien with the June 8, 2004 filing date. The Debtor filed his Chapter 7 bankruptcy
petition in this court on June 14, 2004.
At all relevant times he was a resident of Kentucky.
The Plaintiff filed her Complaint in
this matter on October 6, 2004. After
having received an extension of time in which to answer, US Bank filed its
Answer on November 26, 2004. The
Plaintiff filed her Motion for Summary Judgment on December 10, 2004; US Bank
filed its Motion for Summary Judgment on January 5, 2004. A hearing on the motions was conducted on
February 1, 2005.
2. Legal discussion
a. Standard for summary
judgment
Federal Rule of Civil Procedure
56(c), made applicable in bankruptcy by Bankruptcy Rule 7056, provides that summary judgment is
appropriate and “shall be rendered forthwith if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to material fact and
that the moving party is entitled to a judgment as a matter of law.” The Supreme Court has observed that
this standard provides that the mere existence of some
alleged factual dispute between the parties will not defeat an otherwise
properly supported motion for summary judgment; the requirement is that there
be no genuine issue of material fact.
As to materiality,
the substantive law will identify which facts are material. Only disputes over facts which might affect
the outcome of the suit under governing law will properly preclude the entry of
summary judgment.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-248, 106 S. Ct.
2505, 2510 (1986)(emphasis in original).
The summary judgment standard is set
out in Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548,
2552-53 (1986):
[T]he plain language of Rule 56(c) mandates the entry of
summary judgment, after adequate time for discovery and upon motion, against a
party who fails to make a showing sufficient to establish the existence of an
element essential to that party’s case, on which that party will bear the
burden of proof at trial. In such a
situation, there can be ‘no genuine issue as to any material fact,’ since a
complete failure of proof concerning an essential element of the nonmoving
party’s case necessarily renders all other facts immaterial.
The Sixth Circuit has opined that “[r]ead together, Liberty
Lobby and Celotex stand for the proposition that a party may move
for summary judgment asserting that the opposing party will not be able to
produce sufficient evidence at trial to withstand a directed verdict
motion.” Street v. J.C. Bradford
& Co., 886 F.2d 1472, 1478 (6th Cir. 1989).
b. Avoidability of the lien
The Plaintiff maintains that US
Bank’s lien is avoidable as a preference pursuant to Bankruptcy Code section
547(b) and (c) which provide in pertinent part:
(b) Except as provided in subsection (c) of this section,
the trustee may avoid any transfer of an interest of the debtor in property--
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt ow4ed by the
debtor before the transfer was made;
(3) made while the debtor was insolvent;
(4) made--
(A) on or within 90 days before the filing of the petition;
or
. . .
(5) that enables such creditor to receive more than such
creditor would received if--
(A) the case were a case under Chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the
extent provided by the provisions of this title.
(c) The trustee may not avoid under this section a transfer-
. . .
(3) that creates a security interest in property acquired by
the debtor--
. . .
(B) that is perfected on or before 20 days after the debtor
receives possession of such property;
11 U.S.C. §547(b), (c).
The Plaintiff must prove every
element of section 547(b)in order to prevail, although she seems to take the
position in her Motion for Summary Judgment that she must only demonstrate that
the transfer was made within 90 days prior to the filing of the bankruptcy
petition. The primary issue before the
court, however, is whether section 547(c) operates to remove US Bank’s
perfection of its lien from the purview of section 547(b).
The Plaintiff maintains that US
Bank’s notation of its lien on the Ohio certificate of title did not operate to
perfect the lien for purposes of determining whether that perfection was timely
made. The Plaintiff argues that since
the Debtor is a Kentucky resident, the lien had to be noted on a Kentucky
certificate of title within 20 days of the Debtor’s obtaining possession of the
vehicle. She bases her argument on
various provisions of KRS Chapter 186A.
KRS 186A.195 provides that perfection of a security interest in property
for which a Kentucky certificate of title has been issued is by notation on the
certificate of title. The notation of
the lien is to be done in the office of the county clerk for the county in
which the debtor resides. KRS
186A.190.
The Plaintiff further argues that to
be effective in this instance, the filing had to be accomplished in Kentucky
within the 20 day period because KRS 186A.095 provides as follows:
An owner of a vehicle for which a certificate of
registration or title must be obtained shall be allowed a 15 (fifteen) day
grace period from the date on which he purchased a vehicle or brings a vehicle
into the Commonwealth from another state, during which time the owner shall
apply for and obtain motor vehicle insurance pursuant to KRS 304.39-080, a
certificate of registration or title, and a license plate in his name.
The Plaintiff maintains that this provision requiring that a
vehicle owner who is a resident of Kentucky obtain a Kentucky title means that
timely perfection could only take place in Kentucky.
US Bank contends that its lien is
properly perfected as a result of the notation of that lien on the Ohio
certificate of title on May 26, 2004, within 20 days of the Debtor’s purchase
of the vehicle. In support of its position,
US Bank cites a provision of the Ohio Revised Code which provides in pertinent
part that “the clerk shall accept for filing an application and shall issue a
certificate of title . . . [w]hen the motor vehicle is purchased by a
nonresident of this state for immediate removal from this state, and will be
permanently titled and registered in another state . . .” O.R.C. § 4505.06(F)(6). A certificate of title with US Bank’s lien
timely noted upon it was therefore lawfully issued in Ohio. US Bank then refers to UCC section 9-303
which has been adopted by both Ohio and Kentucky. KRS 355.9-303 concerning the perfection and priority of security
interests in goods covered by a certificate of title provides as follows:
(1) This section applies to goods covered by a certificate
of title, even if there is no other relationship between the jurisdiction under
whose certificate of title the goods are covered and the goods and the goods or
the debtor.
(2) Goods become covered by a certificate of title when valid
application for the certificate of title and the applicable fee are delivered
to the appropriate authority. Goods
cease to be covered by a certificate of title at the earlier of the time the
certificate of title ceases be effective under the law of the issuing
jurisdiction or the time the goods become covered subsequently by a certificate
of title issued by another jurisdiction.
(3) The local law of the jurisdiction under whose
certificate of title the goods are covered governs perfection, the effect of
perfection or nonperfection, and the priority of a security interest in goods
covered by the certificate of title from the time the goods become covered by the certificate of title until the goods
cease to be covered by the certificate of title.
The language of the Ohio statute is the same.
As pointed out by US Bank, both
statues apply where there is no relationship between the state issuing the
certificate of title and the nonresident purchaser. Further, KRS 355.9-316(4) governs the continued perfection of
security interests following a change in governing law:
Except as otherwise provided in subsection of (5) of this
section, a security interest in goods covered by a certificate of title which
is perfected by any method under the law of another jurisdiction when the goods
become covered by a certificate of title from this Commonwealth remains
perfected until the security interest would have become unperfected under the
law of the other jurisdiction had the goods not become so covered.
The Plaintiff argues that these provisions are trumped by
the requirement of KRS 186A.095 that requires an owner importing a vehicle from
another jurisdiction obtain a Kentucky certificate of registration or title
within fifteen days. The effect of this
requirement, she maintains, is that the notation of a security interest on a
prior existing certificate of title is void if the vehicle is not registered
within fifteen days. The Plaintiff
cites no case law in support of this position, and, as US Bank further points
out, KRS 355.9-303 expressly provides for the Ohio certificate of title with US
Bank’s lien noted upon it to continue in effect until a Kentucky certificate of
title is issued.
The court notes that KRS 355.9-303
contains provisions analogous to former 355.9-103 which was repealed and
reenacted in 2000 (See Note to KRS 355.9-303).
KRS 355.9-103(4) provided in pertinent part:
[I]f personal property is covered by a certificate of title
issued under a statute of this state or any other jurisdiction which requires
indication on a certificate of title of any security interest in the property
as a condition of perfection, then the perfection is governed by the law of the
jurisdiction which issued the certificate.
The Sixth Circuit has on several occasions interpreted this
provision as applied in other states that adopted the Uniform Commercial
Code. In Uhle v. Parts and Trucks
(In re Paige), 679 F.2d 601 (6th Cir. 1982) and Yampolsky v. White Motor
Credit Corp. (In re Angier), 684 F.2d 397 (6th Circuit 1982) the court
addressed situations in which a creditor had its lien noted on a certificate of
title in the state where the vehicle was purchased when the debtor was a
resident of another state. In both
instances the court ruled that the notation of the creditor’s security interest
on the first state’s certificate of title perfected that interest under the law
of the debtor’s state of residence. The
court observed that the purpose of the statute in question was the uniform
recognition of security interests which have been noted on a certificate of
title.
The court therefore finds that the
Plaintiff may not avoid US Bank’s lien, as it was timely noted on the
certificate of title lawfully issued in Ohio and was continuously perfected
thereby until its notation on the Kentucky certificate of title. US Bank has demonstrated that there is no
genuine issue as to any material fact and that it is entitled to judgment as a
matter of law, and the court will grant US Bank’s Motion for Summary Judgment. The Plaintiff has not demonstrated that she
is entitled to judgment as a matter of law, and the court will overrule her
Motion for Summary Judgment.
Copies to:
Jeannette
M. Conrad, Esq.
Debra S.
Pleatman, Esq.