VS. ADV. NO. 89-0239







This matter is before the Court on the Motion of defendant Kentucky Finance Company for Summary Judgment on the pleadings, proof and exhibits. The defendant contends that no material fact is at issue and that it is entitled to judgment as a matter of law. The parties have stipulated that there are no factual issues in dispute and that the matter should be submitted to the Court for decision. This Court has jurisdiction of this matter pursuant to 28 U.S.C. '1334. It is a core proceeding pursuant to 28 U.S.C. '157.

The plaintiffs herein, Joseph Lee Williams and Dava Lynn Williams, filed a Complaint to Determine Validity of Lien, or, in the Alternative, Complaint to Avoid Lien on Exempt Property, on October 16, 1989, alleging that a non-possessory, non-purchase money security interest which the defendant took in certain items of their property impaired their interest in property of a kind described in Bankruptcy Code '522f(2)(A)(B) or (C). In the alternative, plaintiffs alleged that the referenced lien is of the kind and nature which 16 CFR 444.2(a)(4) holds to be an unfair practice under the Federal Trade Commission Act and as such should be declared null and void. The defendant filed its Answer on November 13, 1989, and on June 12, 1990, its Motion for Summary Judgment. The plaintiffs filed their Response to Motion for Summary Judgment on June 18, 1990.

At a hearing on June 22, 1990, the parties stipulated that there were no factual issues in dispute, and, based upon the pleadings, proof and exhibits, the facts as stipulated are that the defendant Kentucky Finance Co., Inc., holds a claim against the plaintiff in the approximate amount of $690.50, based on a note and security agreement executed on or about January 28, 1988, whereby the defendant took a non-possessory, non-purchase money security interest in property of the plaintiffs which is more particularly described as follows:

1 Pioneer cassette recorder

2 AM/FM radios

1 25" black and white Zenith TV

1 Magnavox VCR

1 Skill table saw

1 drill

2 cameras

In re Pine, 717 F.2d 281 (6th Cir. 1983), is controlling in this matter. The Pine court, in considering "opt-out" statutes in Tennessee and Georgia, held that '522(f) cannot be utilized independently of '522(d) and that debtors may avoid liens only on that property which the states have declared to be exempt. At 284. The decision was cited in a Kentucky case, In re Estep, 96 B.R. 87 (Bkrtcy E.D. Ky 1988), wherein Judge Roberts ruled that a creditor was entitled to retain its voluntary non-possessory, non-purchase money lien on the debtors' property under KRS 427.010(4) despite the exemptions outlined in '522(f). At 88.

The plaintiffs rely on Vaughn vs. Heights Finance Corporation, 67 B.R. 140 (Bkrtcy C.D. Ill. 1986), to support their contention that the non-possessory, non-purchase money security interest should be declared null and void. The Vaughn court held that a lien is voidable under '522(f) if it impairs an exemption to which the debtor would have been entitled but for the lien. The court determined that the Illinois exemption statute did not preclude the application of the lien avoidance provision of '522(f) and that the only remaining issue was whether the piece of property in question, a stereo, was "household goods" within the meaning of '522(f)(2)(A). The Kentucky statute, KRS 427.010(4), however, does preclude the application of '522(f) as it explicitly conserves liens. Consequently, this Court declines to follow the ruling in Vaughn.

The only other question raised is whether 16 CFR 444.2(a)(4) operates to invalidate the lien on the plaintiffs' property. That rule states that it is an unfair act or practice within the meaning of the Federal Trade Commission Act for a lender or retail installment seller directly or indirectly to take from a consumer an obligation that constitutes or contains a non-possessory security interest in what it defines as household goods other that a purchase money security interest. The defendant contends that in regard to the only items of the plaintiffs' property that might be considered household goods, the 25" black and white Zenith television and the two AM/FM radios, the plaintiffs granted the lien to the defendant on the understanding that they were the plaintiffs' second or subsequent radios and second television. The plaintiffs have not controverted this contention. It is therefore the opinion of this Court that 16 CFR 444.2(a)(4) does not operate to invalidate the lien on any of the subject property.

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 defendant has satisfied its burden. The plaintiffs, in their Response to Motion for Summary Judgment, do not set forth specific facts showing that there is a genuine issue for trial, as required by FRCP 56, in defense of the Motion for Summary Judgment. No genuine issue as to any material fact having been presented, therefore, and the Court having determined that there is no just reason for delay, the defendant is entitled to judgment as a matter of law.



By the Court -






Copies to:

Timothy Crawford, Esq.

Anthony L. Barber, Esq.

James R. Westenhoefer, Esq., Trustee