UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
DEBTOR CASE NO. 95-60732
JAMES D. LYON, TRUSTEE PLAINTIFF
VS. ADV. NO. 96-6013
MARLENE STACEY and WALTER
STACEY; CARDINAL CONCRETE
SUPPLY CO., INC.; CLAY
BUILDING SUPPLY, INC.;
CUMBERLAND VALLEY NATIONAL
BANK; JAMES ELKINS, d/b/a
ELKINS CABINET SHOP; EUGENE
SHEPHERD, d/b/a SHEPHERD'S
PLUMBING AND CONTRACTING;
SIDING SALES, INC. DEFENDANTS
This matter is before the Court on Motions to Dismiss filed herein by defendants Marlene and Walter Stacey ("the Staceys") and Cumberland Valley National Bank ("the Bank"). The Bank filed its Motion on July 2, 1996, and the Staceys filed their Motion on July 10, 1996. The plaintiff filed a Response to the Staceys' Motion to Dismiss on July 22, 1996. 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).
The plaintiff filed his Complaint herein on May 17, 1996, alleging inter alia that the debtor in this case, Edward Tincher, had made transfers of property which were intended to delay, hinder or defraud his creditors, were without valuable consideration at a time when he had existing creditors, and which were void. These allegations were made pursuant to KRS 378.010 and 378.020 and 11 U.S.C.'544(b). One transfer was made to both of the Staceys and one to Marlene Stacey. The Bank claims a lien on one piece of property by virtue of its mortgage.
The Bank's Motion to Dismiss states without support or elaboration that the Complaint "was filed outside the time period allowed by the Court and the Bankruptcy Statute and Rules." The only deadline for filing a complaint in a Chapter 7 case is that for a complaint objecting to the discharge of the debtor, or to determine the dischargeability of certain debts. These complaints must be filed within sixty days of the first date set for the first meeting of creditors. FRBP 4004(a); FRBP 4007(c). This deadline obviously does not apply herein, and the Bank does not propose any other deadline that might be applicable. Its Motion to Dismiss should therefore be overruled.
The Staceys' Motion to Dismiss contends that the plaintiff's claims of fraudulent conveyance in Count II of the Complaint are barred by the five year statute of limitations found in KRS 413.120(11). They state that the subject deed is dated December 3, 1990, and that it was lodged for record on December 5, 1990. The Complaint herein was filed more than five years later, as set out above. The plaintiff responds that the five year statute of limitations does not apply when a deed is void pursuant to KRS 378.010, and cites In re Bradley, 27 F.Supp. 475 (D.C.Ky. 1939), in support of this statement.
Additionally he contends that the transaction in question was a sale and lease back which was not completed until December 15, 1991, and that because of the debtor's concealment of his insolvency his creditors could not have had knowledge of his intent until after December 11, 1990, or as late as after December 11, 1994. Therefore, the plaintiff argues, the sale and lease back was within the five year limitation period.
The Court will first consider whether KRS 413.120(11) is applicable herein. That statute provides that an action for relief or damages on the ground of fraud or mistake shall be commenced within five years after the cause of action accrued.
The plaintiff cites In re Bradley, supra, at page 478, because the court stated there: "There is no five year statute of limitation applicable to the execution of a void deed as provided by Section 1906." Section 1906 is the precursor of KRS 378.010. The Bradley court cited Wolf et al. v. Eblen, 101 F.2d 469 (6th Cir. 1939), stating that it had "considered" and "determined" the question of the applicability of the five year statute of limitation in that case. In Wolf, however, the court considered whether the six month statute of limitation applicable in preference actions was before it. The court concluded that it was not, as "the petition .... was framed under Sections 1906 and 1907, ...." At page 471.
In support, the Wolf court referred to Gillardi v. Henry, 272 Ky. 188, 113 S.W.2d 1158 (1938), where the Court of Appeals held:
The instant action is brought under sections 1906, 1907, and 1907(a) of the same statutes, and which may be maintained at any time within five years after the perpetration of the fraud against which relief is prayed (section 2515 of the same statutes), or within five years from the discovery of the fraud through the exercise of due diligence; but not later than ten years from its perpetration. See section 2519 of the same statutes.
At page 1162. (Section 2515 is the precursor of KRS 413.120; section 2519 is the precursor of KRS 413.130). This Court is therefore at a loss to understand the Bradley court's holding concerning the five year statute of limitation, as the cases that precede it, and upon which it purports to be based, do not support or explain that holding.
As stated in Wolf, where a case "concerns the alleged fraudulent conveyance of real property situated in Kentucky, the statutes and decisions of the highest court of that state are controlling." At page 472. The Court of Appeals in Gillardi clearly stated that the five year limitation period applies in cases brought under KRS 378.010 and 378.020. Thus the Staceys' Motion to Dismiss may not be overruled on the basis that the limitation period is inapplicable.
The plaintiff, however, also argues in response that the actual fraudulent transaction is not embodied in the December 1990 deed, but in the sale and lease back, as Count II of the Complaint alleges. The lease was entered into on December 15, 1991, and not lodged for record until December 1, 1995. Even if a creditor were held to the December 1991 date, the five year limitation period has not yet run. The Staceys' Motion to Dismiss based on the running of the five year statute of limitation should be overruled. An order in conformity with this opinion will be entered separately.
By the Court -
John O. Morgan Jr., Esq.
Marcia A. Smith, Esq.
Warren B. Little, Esq.