UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
MILTON W. KEENEY
d/b/a K-Bar Trailer Manufacturing
DEBTOR CASE NO. 96-60529
MARY JEAN SMITH PLAINTIFF
VS. ADV. NO. 96-6035
MILTON W. KEENEY; WINFRED
KEENEY and RUTH KEENEY DEFENDANTS
This matter has been submitted to the Court for decision on the defendant=s Motion for Summary Judgment Dismissing the Second Amended Complaint. 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)(H) and (J).
The plaintiff's Complaint, which has been amended twice, is based on a judgment she obtained against the debtor and defendant Winfred Keeney in 1971. On appeal, the judgment was affirmed as to the debtor and reversed as to Winfred Keeney. It became final on May 21, 1975. Except for $10,000.00 paid by an insurer in 1971, the plaintiff has been unable to collect the judgment. She maintains that over the years the debtor has acquired various parcels of real estate and items of personal property whose titles he has recorded in the names of his parents, Winfred and Ruth Keeney ("the Keeneys"). She further maintains that she was unable to discover these alleged fraudulent conveyances until informed of them in December 1995 and January 1996.
The defendants filed their Motion for Summary Judgment on March 26, 1997. Therein they set out that the alleged fraudulent conveyances complained of in this matter are: 1) a deed from Sam and Linda Barlow to the Keeneys dated March 9, 1983, and recorded on March 14, 1983; 2) the sale of certain assets of K-Bar to the Keeneys dated May 2, 1995, and recorded on the same date, in consideration of the full payment by the Keeneys of a debt to Mutual Federal Savings Bank in the amount of $12,423.45; and 3) the conveyance of unspecified motor vehicles into the name of Ruth Keeney.
The plaintiff asserts that she should recover the property or its value which was fraudulently conveyed by virtue of Kentucky Revised Statutes 378.010, et seq., made applicable to this case by virtue of 11 U.S.C.'544, the trustee=s strong arm clause. At the outset it must be observed that recovery under '544 must be had by the trustee and an action may not be brought by a creditor absent specific order of the court allowing someone other than the trustee to bring the action. In re Allard, 198 B.R. 715 (Bkrtcy.N.D.Ill. 1996).
Additionally, the defendants contend that all of the transfers complained of are outside the applicable Kentucky statute of limitations. KRS 413.120(11) provides that action brought for relief or damages on the grounds of fraud or mistake is subject to a five year statute of limitations. KRS 413.130(3) further clarifies that in an action for relief or damages for fraud or mistake pursuant to KRS 413.120(11), the cause of action is not deemed to have accrued until the discovery of the fraud or mistake, subject, however, to a ten year maximum statute of limitations from the time of the perpetration of the fraud. See Gillardi v. Henry, 113 S.W.2d 1158, 1162, Ky. (1938), in which the court sets out ten years as the maximum period.
The defendants further argue that Kentucky law is clear that the five year statute of limitations applies to a fraudulent conveyance claim, and that a party is placed on constructive notice of the conveyance at the time the deed is recorded. The only exception to this rule is in regard to a confidential relationship between the transferor and the party seeking to set aside the alleged fraudulent conveyance. In such a case there must be actual notice rather than mere constructive notice by filing of the deed before the five year statute of limitations begins to run. Nevertheless, the maximum limitations period is ten years. Gillardi, supra; Jennings v. Fain, 10 S.W.2d 1101, Ky. (1928).
These arguments apply especially to the alleged fraudulent transfer of real estate in 1983. The plaintiff contends that because the transfers complained of were fraudulently concealed from her, and that consequently they remained undiscovered until December 1996, the statute of limitations did not begin to run as against her until then. The problem with this argument is that, even if the Court agreed with the plaintiff's contention that it was not possible to discover the transfers until 1996, the maximum limitation period allowed by the applicable statute had already run. The plaintiff does not have a viable argument to counter this fact.
As concerns the transfer of K-Bar assets in May, 1995, the plaintiff does not dispute that the consideration for this transfer was the Keeneys' full payment of the sum of $12,423.45 owed to Mutual Federal Saving Bank, the secured creditor. The defendants have presented evidence, which the plaintiff has not contradicted, that the value of this property was less than what was owed on it. Mutual Federal filed a UCC statement on November 11, 1985, establishing that it had a lien on all of K-Bar's inventory, equipment, furniture and fixtures. Therefore, even if the placing of the lien in 1985 could be construed as fraudulent, the applicable statute of limitation bars this claim as well, even under the most liberal reading of the statutes as set out above, since more than ten years elapsed between the placing of the lien and the filing of the within bankruptcy petition.
Finally, the mother acquired title to two motor vehicles in 1983 and 1989, apparently from third parties, placing both of them outside the five year limitation period.
Having reviewed the effect of the running of appropriate statutes of limitation, the Court will now address the specific allegations of the plaintiff's Complaint. Therein it was set out that the plaintiff was bringing her action pursuant to the provisions of 11 U.S.C.''523(a)(2)(A), 523(a)(2)(B), 523(a)(6), 727(a)(3), 727(a)(4)(A), 727(a)(5), and 548.
The provisions of 11 U.S.C.'523 are inapplicable because the plaintiff's civil judgment was a personal injury tort judgment which was not based on allegations of fraud ['523(a)(2)] or on conversion or other wilful and malicious injury to property ['523(a)(6)]. Any allegation pursuant to 11 U.S.C. '548 is inapplicable because actions brought under that statute must be based on transfers made or incurred on or within one year before the date of filing of the petition as amended and all of the transfers complained of in the complaint were outside that time period. Additionally, '548 actions must be brought by the trustee absent court approval. Allard, supra.
Denial of discharge is sought pursuant to various elements of 11 U.S.C.'727. Application of '727(a)(2) is inapplicable because there has been no factual assertion of the transfer, removal, destruction, mutilation or concealment of property of the debtor within one year before the date of filing of the petition or of property of the estate after the filing of the petition; ''727(a)(3)and (a)(5) are inapplicable because there is no evidence herein either of the concealment or destruction of records or of the loss of assets.
The plaintiff also claims a cause of action based on 11 U.S.C.'727(a)(4), which provides, in part, that the debtor shall be denied a discharge if he knowingly and fraudulently, in or in connection with his bankruptcy case made a false oath or account. The plaintiff has alleged that the debtor acquired real estate and items of personal property which he placed in the names of his parents and in which the debtor retained his interest at the time this case was filed. The affidavits and other information before the Court do not resolve the facts concerning these particular allegations. If the plaintiff=s allegations are proven, the debtor would have retained an equitable interest in property which he apparently did not list in any of his bankruptcy schedules. Pursuant to 11 U.S.C. '541(a)(1), the bankruptcy estate includes all legal and equitable interests of the debtor in property as of the commencement of the case. The false oath which is a sufficient ground for denying a discharge may consist of a false statement or omission in the debtor's schedules. In In re Chalik, 748 F.2d 616 (11th Cir. 1984), the court stated:
....a discharge pursuant to 11 U.S.C. 727(a)(4)(A) should not be granted where the debtor knowingly and fraudulently made a false oath or account in connection with the bankruptcy proceeding. .... Deliberate omissions by the debtor may also result in the denial of a discharge. .... (Cite omitted.)
At page 618. The materials before the Court in support of the motion for summary judgment and in opposition thereto do not establish that there in no genuine issue as to any material fact concerning this allegation and thus summary judgment must be denied on this particular issue.
In consideration of all of the foregoing, it is therefore the opinion of this Court that the defendants have carried forward their burden of establishing that there is no genuine issue as to any material fact as regards allegations pursuant to 11 U.S.C.'' 523, 548, and 727(a)(2), (3), and (5) and that they are entitled to judgment thereon as a matter of law. However, they have not carried forward that burden as concerns the plaintiff's cause of action pursuant to 11 U.S.C. '727(a)(4). Therefore their Motion for Summary Judgment should be sustained in part and overruled in part. An order in conformity with this opinion will be entered separately.
By the Court -
Marcia A. Smith, Esq.
Charles A. Adams, Esq.