UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
CUNNINGHAM USED CARS, INC.
DEBTOR CASE NO. 94-20491
EAGLE FINANCE CORPORATIONS PLAINTIFF
and ROBERT BARNES
VS. ADV. NO. 94-2019
CUNNINGHAM USED CARS, INC.;
AUTOMOTIVE FINANCE CORPORATION;
AUTO DEALERS EXCHANGE CINCINNATI-
DAYTON, INC. n/k/a Adesa-Ohio, Inc. DEFENDANTS
This matter is before the Court on the plaintiffs' Motion for Summary Judgment, filed herein on August 1, 1995, and on defendant Automotive Finance Corporation's Response and Cross Motion for Summary Judgment and Motion to Dismiss Auto Dealers Exchange, filed herein on August 31, 1995. As in a previous adversary proceeding in this case, the issue to be determined is the ownership of a vehicle. This Court has jurisdiction of this matter pursuant to 28 U.S.C.'1334(b). Both the plaintiffs and the answering defendants have alleged that this is a non-core proceeding and have consented to the entry of judgment or final orders herein. The debtor has not filed an Answer in this matter.
The plaintiffs initiated this matter by the filing of their Complaint on March 30, 1995. Defendants Automotive Finance Corporation ("AFC") and Auto Dealers Exchange Cincinnati-Dayton, Inc. ("ADE") filed their Answers on May 2, 1995. By Order of this Court entered on June 20, 1995, the parties were allotted time within which to file Motions for Summary Judgment and a briefing schedule was set. At the end of the briefing period the parties were to file Joint Stipulations of Fact and tender an Order of Submission. The parties filed their respectiveMotions for Summary Judgment as set out above. On November 13, 1995, AFC and ADE filed a "Notice of Filing," which represented that they were submitting a "Joint Stipulation of Fact" signed on behalf of AFC. An actual Joint Stipulation of Fact, signed by counsel for the plaintiffs as well as the answering defendants was never tendered. An Order of Submission was entered on December 4, 1995.
The record in this case reveals that plaintiff Robert Barnes ("Barnes") purchased a certain motor vehicle, a 1993 Isuzu pickup truck, from the debtor on September 9, 1994, by way of a purchase agreement of the same date. Based upon the purchase agreement, Barnes and plaintiff Eagle Financial Corporation ("Eagle") entered into a loan financing agreement by which Barnes was provided sufficient funds to complete the purchase of the vehicle. Barnes took delivery of the vehicle, but did not receive a Certificate of Title or an executed Vehicle Transaction Record. AFC retains the title pursuant to its security interest against the vehicle arising from its floor plan financing arrangement with the debtor. The debtor has never paid AFC the amount it owed for the vehicle.
The plaintiffs argue that Barnes is a buyer in the ordinary course of business ("BOCB") from the debtor as set out in KRS 355.9-307, and that as such he takes goods free and clear of a security interest created by his seller. KRS 355.9-307(1) provides in pertinent part: "A buyer in ordinary course of business, ....takes free of a security interest created by his seller even though the security interest is perfected and even though the buyer knows of its existence." The definition of a BOCB is found at KRS 355.1-201(9), which provides that the term means:
a person who in good faith and without knowledge that the sale to him is in violation of the ownership rights or security of a third party in the goods buys in ordinary course from a person in the business of selling goods of that kind but does not include a pawnbroker.
In the absence of the requirements of the Certificate of Title Act, Barnes would obviously qualify as a BOCB.
Procedures for transferring ownership of a vehicle are set out in KRS 186A.215, which provides:
(1) If an owner transfers his interest in a vehicle, he shall, at the time of the delivery of the vehicle, execute an assignment and warranty of title to the transferee in the space provided therefore on the certificate of title, except if the space provided therefore on the owner's certificate of title fails to meet the Kentucky requirements for lawful conveyance of title or if the space provided therefore on the owner's certificate of title fails to meet the requirements for the owner to execute an Odometer Disclosure Statement. Pursuant to the exceptions provided by this subsection and in other cases where applicable, the transferor shall execute an assignment and warranty of title to the transferee by executing the transferor portions of the vehicle transaction record provided by this chapter. The transferor shall cause the vehicle transaction record with the certificate of title attached to be delivered to the transferee.
(2) Except as otherwise provided in this chapter, the transferee shall, promptly after delivery to him of the vehicle, execute the application for a new certificate of title and registration by executing the applicable portions of a vehicle transaction record. If a vehicle transaction record is required by subsection (1) of this section, the transferee shall execute the applicable portions of the vehicle transaction record provided to him by his transferor.
The requirements for a buyer upon purchase of a vehicle are also set forth in KRS 186A.220(5):
When he (dealer) assigns a vehicle to a purchaser for use, he shall deliver the properly assigned certificate of title and a properly executed vehicle transaction record, to such purchaser, who shall make application for registration and a certificate of title thereon. The dealer may, with the consent of the purchaser, deliver the assigned certificate of title, and the executed vehicle transaction record of a new or used vehicle, directly to the county clerk, and on behalf of the purchaser, make application for registration and a certificate of title.
These requirements were not satisfied when Barnes purchased the vehicle from the debtor.
Similar arguments concerning the applicability of U.C.C. provisions concerning the purchaser's status as a BOCB were made to this Court by the plaintiff in a previous adversary proceeding in this case, "SCT Motor Cars, Inc. v. ADE of Lexington, et al.", Adv. No. 94-2041 (E.D.Ky., May 10, 1995). That matter involved a similar controversy over the transfer of title to a vehicle, except that the entity which had purchased the vehicle and not received title to it was another auto dealership, not an individual. The plaintiffs maintain that a different result should obtain here because Barnes is an individual consumer and not a dealer. This Court is of the opinion, however, that the same reasoning applies herein as did in the previous matter. Consideration of whether Barnes was a BOCB must begin with the basic question of whether he ever attained the status of buyer, or in the alternative, whether a sale occurred.
In this regard, the question of whether transfer of title provisions govern the determination of whether a sale has occurred is considered at length in In re Superior Ground Support, Inc., 140 B.R. 878 (Bkrtcy.W.D.Mich. 1992). There the court applied the Michigan Vehicle Code which contains definitions and requirements similar to those found in KRS Chapters 186 and 186A, to determine that
...transfer of ownership in a motor vehicle must be accomplished in compliance with the vehicle code. A sale does not take place and a buyer emerge until the statutory duties have been performed. The vehicle code states clearly that the term 'owner' means, in relevant part, 'a person holding legal title of a vehicle.' ... This makes sense since no ownership rights are transferred by a void sale. (Cite omitted).
...the protection afforded to a buyer in the ordinary course of business of motor vehicles does not result without compliance with the Michigan vehicle code's provisions on the transfer of ownership.
At page 883.
This Court agrees with this interpretation and finds it applicable in this matter. Statutory duties concerning transfer of title were not performed, and therefore there was no sale completed by the debtor to the plaintiff. Two salient facts allow the Court to resolve this matter in AFC's favor: title to the vehicle was never transferred to plaintiff Barnes, and AFC had a perfected security interest in it.
The initial burden of the movant for Summary Judgment is to show that there is no basis in the record for findings of facts that might determine a result of the case in favor of the non-movant. Such a showing would satisfy the movant's burden under Federal Rule of Civil Procedure 56(c) that there are no genuine issues as to any material fact. In re Calisoff, 92 B.R. 346 (Bkrtcy N.D. Ill. 1988), citing Anderson vs. Liberty Lobby, Inc., 477 U.S. 242, at 251, 106 S.Ct. 2505, at 2510, 91 L.Ed. 202, at 214. The Court finds that the defendants have satisfied their burden, and the plaintiffs have not. The defendants are therefore entitled to judgment as a matter of law. An order in conformity with this opinion will be entered separately.
By the Court -
Taft A. McKinstry, Esq.
Dennis R. Williams, Esq.