IN RE: HUGH MONTGOMERY RICHARDS CASE NO. 93-60227

UNITED STATES BANKRUPTCY COURT 

EASTERN DISTRICT OF KENTUCKY

CORBIN

IN RE:

HUGH MONTGOMERY RICHARDS CASE NO. 93-60227

DEBTOR

HUGH MONTGOMERY RICHARDS PLAINTIFF

VS. ADVERSARY NO. 93-6042-L

DONALD LEE BAKER AND

JAMES D. LYON, TRUSTEE DEFENDANTS

MEMORANDUM OPINION

This matter is before the court on the motion of the debtor for summary judgment on the debtor's complaint to avoid the judicial lien of the defendant Donald Lee Baker on real property of the debtor.

The plaintiff debtor is an attorney. The defendant Baker, one of the debtor's clients, obtained a judgment against the debtor in state court, the Laurel County, Kentucky circuit court, based on a jury verdict awarding Baker damages for the debtor's malpractice in the handling of Baker's workers' compensation case. The judgment on the jury verdict was entered April 1, 1993. On April 8, 1993, the debtor filed a motion pursuant to Rule 52.02 of the Kentucky Rules of Civil Procedure to set aside the jury verdict and for a judgment for himself as defendant notwithstanding the verdict. On April 12, 1993, before the state court ruled on the debtor's motions with respect to the jury verdict, Baker filed in the office of the clerk of Laurel County, the county of the debtor's residence, a Notice of Judgment Lien in the amount of $125,556.85.

Under state law the Notice of Judgment Lien operates as a judicial lien on any interest of the debtor in real property located in the county in which the lien is filed. KRS 426.720.

The debtor owned two tracts of real estate in Laurel County, his residence and an office building in which he conducts his law practice.

The debtor timely moved to quash the Notice of Judgment Lien on the ground it was filed prematurely before the judgment became final, that is before the court ruled on the debtor's motion to set aside the jury verdict and to enter judgment for the debtor notwithstanding the verdict.

On May 21, 1993, the judge in the state court action entered an order overruling the motion of the debtor to set aside the jury verdict and for judgment notwithstanding the verdict, and also overruling the motion of the debtor to quash the Notice of Judgment Lien.

On June 1, 1993, the debtor filed a petition for relief under chapter 7 of the Bankruptcy Code in this court.

On October 14, 1993, the debtor commenced this adversary proceeding against the judgment creditor, Donald Lee Baker, and the trustee in bankruptcy, to set aside Baker's judgment lien on the ground the lien is void because notice thereof was filed before the judgment became final.

The trustee in bankruptcy filed an answer and a cross-claim seeking to avoid the judgment lien pursuant to 11 U.S.C. 547 as a preferential transfer of property of the debtor.

On October 27, 1994, an agreed judgment was entered between the trustee in bankruptcy and Donald Lee Baker setting aside the judgment lien on the debtor's residence. After notice and hearing the debtor's one-half undivided interest in the residence was sold to the debtor's wife for $15,500, subject to encumbrances other than the avoided judicial lien.

The agreed order between the trustee and Donald Lee Baker makes no disposition of the judicial lien of Baker on the office building or other real property in which the debtor has an ownership interest. On motion of the debtor, by counsel, after notice and a hearing, an order was entered on June 29, 1994 abandoning the interest of the estate in the office building. Title to the debtor's interest in this property revested in the debtor. 11 U.S.C. 554(b), Rule 6007(b), Federal Rules of Bankruptcy Procedure. The office building is owned jointly by the debtor and his wife, Beverly A. Richards. According to the schedules to the petition, the property is valued at $50,000 and is subject to a mortgage in excess of $48,000 in favor of Cumberland Valley National Bank and Trust Company of London, Kentucky. The judicial lien of Baker is attached to the debtor's undivided one-half interest of approximately $1,000 in the property.

Baker has filed a claim in the debtor's bankruptcy case as a secured claim in the amount of $125,556.85 based on the judgment of the Laurel Circuit Court and the Notice of Judgment Lien filed in the office of the Laurel County clerk's office and also in the office of the Clerk of Gallatin County.

The debtor also owns jointly with his wife an undivided interest a 19-acre farm in Gallatin County. Baker caused a Notice of Judicial Lien to be filed in the office of the Clerk of Gallatin County on April 12, 1993. The debtor's interest in the Gallatin County property remains property of the estate. The judicial lien of Donald Lee Baker on the estate's interest in this property has not been avoided by the trustee as of this date.

At the hearing on the motion of the debtor for summary judgment the court took this matter under advisement.

CONCLUSIONS OF LAW:

The applicable Kentucky statutes and rules of procedure are as follows:

KRS 426.030 Execution not to issue for ten days; exception

 

No execution shall issue on any judgment, unless ordered by the court, until after the expiration of ten days from the rendition thereof.

 

 

KRS 426.720 Final Judgment to act as lien on realty; judgment creditors notice requirements

 

A final judgment for the recovery of money or costs in the courts of record in this Commonwealth, whether state or federal, shall act as a lien upon all real estate in which the judgment debtor has any ownership interest, in any county in which [notice of the judgment has been filed in conformity with the requirements of the statute.]

 

 

CR 62.01 Motions after verdict or judgment

 

A motion for a new trial or to alter, amend or vacate a judgment made pursuant to Rule 59, or a motion for judgment in accordance with a motion for a directed verdict made pursuant to Rule 50, or a motion for amendment to the findings or for additional findings made pursuant to Rule 52.02 shall operate to stay the execution of or any proceedings to enforce a judgment pending the disposition of any such motion or motions, provided that such motion is filed with the court within the time prescribed for the making of or service of such motion....

 

The debtor's motion to set aside the jury verdict and for judgment notwithstanding the verdict was timely filed in the state court action. Under state law this prevented an execution from issuing on the judgment before the expiration of ten days from May 21, 1993, the date of the order overruling the debtor's motions for relief from the judgment on the jury verdict. City of Louisville v. Verst, 213 S.W.2d 517 (Ky. 1948). CR 62.01 codifies this rule of law.

The law obviously is the same with respect to the filing of a Notice of Judgment Lien. KRS 426.720 contemplates the filing of a Notice of Judgment Lien only after a judgment for the recovery of money or costs is "final." The filing of such a notice was stayed by CR 62.01 when one or more of the motions referred to in the rule was filed by the defendant debtor. According to state law an action commenced in violation of the automatic stay provided for by 11 U.S.C. 362(a) is void. Raikes v. Langford, Ky. App., 701 S.W.2d 142 (1985). We see no reason why the law should be less stringent with respect to the stay provided for by CR 62.01.

In any event, the ten-day period running from the May 21, 1993 order, after which an execution could have issued on the judgment or the Notice of Judgment Lien might properly have been filed, expired on May 31, 1993. Then, bankruptcy intervened on June 1, 1993, without a new Notice of Judgment Lien having been filed. On these facts the court is of the opinion the motion of the debtor for summary judgment finding the Baker's judgment lien to be void is proper.

The bankruptcy estate's interest in the office building in Laurel County has been abandoned by the trustee and title to the debtor's interest in that property has revested in the debtor. Consequently, the court is of the opinion the debtor does have standing to question the validity of Baker's judgment lien against that property. The relief sought by the debtor is in the nature of a request for a determination of the dischargeability of a debt. To the extent the judgment lien is avoidable, the underlying debt is dischargeable.

The debtor may lack standing to avoid the judgment lien on the Gallatin County property. The debtor's interest in that property remains property of the estate. The trustee has not presented to the court the question of whether Baker's judgment lien on that property is avoidable as a preference.

The court has considered the question of whether the order of the state court overruling the motion of the debtor to quash Baker's Notice of Judgment Lien is res judicata.

The 30-day period for filing a notice of appeal from that order had not expired when the debtor sought relief under the Bankruptcy Code on June 1, 1993. Rule 73, Kentucky Rules of Civil Procedure. Because the state court action was an action against the debtor, the appeal was stayed by the intervention of bankruptcy. Cathey v. Johns-Manville Sales Corp., 711 F.2d 60 (6th Cir. 1983).

The stay of the appeal was in effect when on October 14, 1993 the debtor commenced this adversary proceeding seeking a determination of the validity of the judicial lien claimed by Baker. Consequently, the court does not believe the state court

 

order of May 21, 1993 is res judicata with respect to the debtor's right to avoid the judicial lien of Baker.

Dated:

By the court -

 

______________________________

JOE LEE, CHIEF JUDGE

 

Copies to:

 

John O. Morgan, Jr., Esq.

Austin Mehr, Esq.

Sam Begley, Esq.

James Lyon, Esq.

U.S. Trustee

 

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

CORBIN

 

 

IN RE:

 

HUGH MONTGOMERY RICHARDS CASE NO. 93-60227

 

DEBTOR

 

 

HUGH MONTGOMERY RICHARDS PLAINTIFF

 

VS. ADVERSARY NO. 93-6042-L

 

DONALD LEE BAKER AND

JAMES D. LYON, TRUSTEE DEFENDANTS

 

 

ORDER

 

 

In conformity with the Memorandum Opinion of the court this day entered, the motion of the plaintiff debtor for summary judgment on his complaint to avoid the judicial lien of the defendant Donald Lee Baker which encumbers the debtor's undivided interest in an office building located in Laurel County, Kentucky is sustained.

There being no just reason for delay, this is a final and appealable order.

Dated:

By the court -

 

______________________________

JOE LEE, CHIEF JUDGE

 

 

Copies to:

 

John O. Morgan, Jr., Esq.

Austin Mehr, Esq.

Sam Begley, Esq.

James Lyon, Esq.

U.S. Trustee