THOMAS H. FULTON, Bankruptcy Judge.
Vanderbilt Mortgage and Finance, Inc. ("Appellant") appeals the grant of summary judgment by the U.S. Bankruptcy Court for the Eastern District of Kentucky (the "Bankruptcy Court") to Maxie E. Higgason, Jr., Chapter 7 Trustee ("Appellee") for Debtor William W. Pierce, Jr. ("Debtor"), which avoids Appellant's lien on Debtor's manufactured home under 11 U.S.C. § 544.
Although Appellant ostensibly raises five issues on appeal, those issues essentially boil down to one question: Under the Kentucky Revised Statutes, is a security interest in a manufactured home perfected where the secured party obtained notation of its lien on the certificate of title by filing a title lien statement in a county other than that of the debtor's residence?
The Bankruptcy Appellate Panel of the Sixth Circuit (the "BAP") has jurisdiction to decide this appeal. The United States District Court for the Eastern District of Kentucky has authorized appeals to the BAP.
For purposes of appeal, an order is final if it "`ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.'" Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S.Ct. 1494, 1497, 103 L.Ed.2d 879 (1989) (citations omitted). A grant of summary judgment constitutes a final and appealable order. Palmer v. Washington Mut. Bank (In re Ritchie), 416 B.R. 638 (6th Cir. BAP 2009).
The issue raised in this appeal is an issue of law and, therefore, is to be reviewed de novo. See Deutsche Bank Nat. Trust Co. v. Tucker, 621 F.3d 460 (6th Cir.2010) (statutory interpretation and application reviewed de novo). "Under a de novo standard of review, the reviewing court decides an issue independently of, and without deference to, the trial court's determination." Menninger v. Accredited Home Lenders (In re Morgeson), 371 B.R. 798, 800 (6th Cir. BAP 2007). Essentially, the reviewing court decides the issue "as if it had not been heard before." Mktg. & Creative Solutions, Inc. v. Scripps Howard Broad. Co. (In re Mktg. & Creative Solutions, Inc.), 338 B.R. 300, 302 (6th Cir. BAP 2006) (citation omitted). "No deference is given to the trial court's conclusions of law." Id. (citations omitted).
The facts are not in dispute. In April of 2007, Debtor purchased a manufactured
Appellant filed an application for first title and a title lien statement with the Whitley County, Kentucky, County Clerk. Clayton Homes is located in Whitley County. Debtor resided at the time in Laurel County, Kentucky.
At some point thereafter,
On July 15, 2010, Debtor filed his voluntary Chapter 7 bankruptcy petition. Appellee was appointed Chapter 7 Trustee and, on February 28, 2011, initiated the adversary proceeding that is the subject of this appeal (the "Adversary Proceeding"). The Adversary Proceeding sought to, among other things, avoid Appellant's lien on the Manufactured Home under 11 U.S.C. § 544.
Appellant and Appellee filed cross-motions for summary judgment in the Adversary Proceeding, and on September 20, 2011, the Bankruptcy Court granted Appellee summary judgment, concluding that Appellant had failed to perfect its lien against the Manufactured Home because it had filed the required title lien statement in Whitley County rather than Laurel County. Appellant timely appealed the Bankruptcy Court's decision.
The parties agree that the sole means for perfecting a security interest in property requiring a certificate of title "is by notation of the lien on the [property's] certificate of title." Johnson v. Branch Banking and Trust Co., 313 S.W.3d 557, 560 (Ky.2010). The Bankruptcy Court concluded, and Appellee asserts here, that Appellant's security interest in the Manufactured Home was unperfected at the time of Debtor's petition despite notation of Appellant's lien on the certificate of title because the proper procedure had not been followed in obtaining that notation. In other words, the notation was not "in accordance with this chapter" (i.e., KRS Ch. 186A) because the notation had been made following submission of a title lien statement to the Whitley County Clerk rather than the clerk of the county of Debtor's residence, Laurel County.
Appellant asserts that its lien was perfected when noted on the certificate of title even if Appellant did not follow proper procedure to obtain the notation — i.e., even if the Whitley County Clerk mistakenly caused the notation to be placed on the certificate. Appellant alternatively asserts that it in fact followed proper procedure in obtaining the notation because Kentucky has a two-track system for obtaining notation, one for new property for
Although the Kentucky Supreme Court has considered the issue of when a lien is perfected under KRS Ch. 186A, concluding that perfection is not complete until the lien is noted on the certificate of title, it has not directly addressed whether perfection is achieved where the notation was obtained despite a filing deficiency. See Johnson, 313 S.W.3d at 560 (including citations to prior cases where liens either were not noted or were incorrectly noted as released). It has also not addressed whether KRS Ch. 186A in fact creates a two-track notation system as asserted by Appellant. To decide the merits of this appeal, then, the Panel must determine "how that court would rule if it were faced with the issue." Meridian Mut. Ins. Co. v. Kellman, 197 F.3d 1178, 1181 (6th Cir. 1999). In doing so, the Panel "may use the decisional law of the state's lower courts, other federal courts construing state law, restatements of law, law review commentaries, and other jurisdictions on the `majority' rule in making its determination." Id. (citing Grantham & Mann v. American Safety Prods., 831 F.2d 596, 608 (6th Cir.1987)).
KRS 186A.190 governs the perfection of security interests in "certificate of title" property such as motor vehicles and manufactured homes. It states in pertinent part as follows:
(Emphasis added.)
KRS 186A.195 states as follows:
(Emphasis added.)
Appellant's argument is based in large part upon the following provisions of KRS 186A.120:
(Emphasis added.)
The U.S. District Court for the Eastern District of Kentucky and the Bankruptcy Court have previously interpreted KRS Ch. 186A under substantially similar facts and rejected the basic position taken by Appellant here.
First, as noted in Epling,
Second, setting aside Appellant's "two-track" argument for the moment, several provisions of KRS Ch. 186A, when read together, clearly contemplate that a secured creditor will apply for title lien notation by filing a "title lien statement" with the clerk of the debtor's county of residence and that only that county clerk will enter the information into the AVIS. See KRS 186A.190(2), (6); KRS 186A.195(1), (3); KRS 186A.120(2)(a), (b). Moreover, KRS 186A.195(5) supports Appellee's argument that, if the secured creditor fails to follow the correct procedure, the creditor's lien would be deemed unperfected until the creditor does so. "Otherwise, the security interest shall be deemed perfected at the time that such fees are tendered and such documents are submitted to the appropriate county clerk." KRS 186A.195(5) (emphasis added).
Third, Appellant overstates the applicability of prior Kentucky decisions in asserting
Appellant asserts alternatively that it in fact followed proper procedure in filing its title lien statement with the clerk of a county other than Debtor's county of residence. Appellant bases its argument on KRS 186A.120, which covers applications for initial title and registration for new property. KRS 186A.120(1) and (2) provide that, where the property is purchased by an end user who resides in a county other than the county of the seller's principal place of business, application for registration or title may be made in either the purchaser's county or the seller's county. Appellant essentially argues that this permission to apply for initial "title or registration" outside a debtor's county of residence amounts to permission also to apply for title lien notation in the seller's county.
In making the argument for a "two-track" system, Appellant also looks to the phrase "for which has been issued a Kentucky certificate of title" in the first sentence of KRS 186A.190(1) to distinguish circumstances where a certificate of title has already been obtained (e.g., liens against older "used" property) from circumstances where the initial certificate of title has not been obtained (e.g., purchase money liens against "new" property, as here). To bolster its argument for a two-track system further, Appellant also reads the phrase "if the secured party tenders the required fees and submits a properly completed title lien statement and application for first title" in KRS 186A.195(5) as if it is not modified by the phrase "to the appropriate county clerk" later in the same sentence.
The Panel is not persuaded by Appellant's strained reading of KRS Ch. 186A. KRS 186A.120 only expressly addresses applications for certificates of title or registration, allowing them to be made in a county other than that of the property owner's residence. KRS 186A.120(2)(a). In stark contrast, it is silent as to whether title lien statements may be filed outside the county of the
For the foregoing reasons, the Panel AFFIRMS the grant of summary judgment in favor of Appellee by the Bankruptcy Court.
These questions in different ways all ask the Panel to determine whether the Bankruptcy Court correctly applied the provisions of the Kentucky Revised Statutes governing perfection of security interests in manufactured homes. Appellant's Tenth Amendment argument, in particular, begs the question as to whether the Bankruptcy Court properly interpreted Kentucky state law. "[A] federal court upholds, rather than disrupts, Kentucky's statutory regime when it interprets a Kentucky law to mean what its words say. Federal bankruptcy courts apply state law to determine if a creditor has perfected a security interest...." Vanderbilt Mortg. & Fin., Inc. v. Westenhoefer (In re Epling), 2011 WL 4356358 (E.D.Ky.2011) at *4 (citing Stellwagen v. Clum, 245 U.S. 605, 613, 38 S.Ct. 215, 62 L.Ed. 507 (1918)).
