UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
CLINT ALLYN HAHN
DEBTOR CASE NO. 04-21499
LORI A. SCHLARMAN, TRUSTEE PLAINTIFF
VS. ADV. NO. 04-2067
CLINT ALLYN HAHN
US BANK DEFENDANTS
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;
(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.
Jeannette M. Conrad, Esq.
Debra S. Pleatman, Esq.