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Nature of Suit Code: 870
Nature of Suit: Tax Suits
Cause of Action: 

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NOT RECOMMENDED FOR PUBLICATION

File Name: 19a0482n.06

No. 18-5422

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

BENJAMIN BENNETT, et al.,

Petitionerss,

v.

SUSAN BENNETT BASCOM, et al.,

Respondents,

KINGDOM ENERGY RESOURCES, LLC,

Intervening Petitioner-Appellant,

UNITED STATES OF AMERICA,

Intervening Petitioner-Appellee.

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ON APPEAL FROM THE 

UNITED STATES DISTRICT 

COURT FOR THE EASTERN 

DISTRICT OF KENTUCKY

BEFORE: SILER, BATCHELDER, and DONALD, Circuit Judges.

ALICE M. BATCHELDER, Circuit Judge. On competing claims to the proceeds from 

the sales of certain secured assets, the district court held that an IRS tax lien was superior to a 

lender’s unrecorded security interest (loan) and awarded priority to the IRS. We AFFIRM.

I.

Duane Bennett died in 2006, owing nearly $2.3 million in outstanding loans to two limited 

partnerships, of which he was the general partner and majority owner. Upon his death, his Estate 

owed approximately $2.8 million in federal estate taxes to the IRS. When Kingdom Energy 

Resources (KER) purchased the partnerships’ assets from a state-court-appointed receiver in 2015, 

the limited partners argued that KER had not purchased the right to collect the loans, so they were 

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entitled to $2.3 million in sales proceeds to satisfy those loans. KER disagreed and the state court 

placed the Estate’s share of the sales proceeds ($2.1 million) in escrow. The IRS intervened and 

removed the case to federal court, claiming priority rights to the escrowed money based on tax 

liens it had filed in the applicable Kentucky counties in August 2010.

The district court held that KER had purchased the right to collect the loans as part of the 

partnerships’ assets, so the limited partners had no claim to the escrowed money. Bennett v. 

Bascom, No. 5:17-cv-113, 2018 WL 1473798, at *4 (E.D. Ky. Mar. 26, 2018). The limited 

partners have not appealed that decision and are no longer parties to this action. 

The IRS and KER filed cross-motions for summary judgment. KER based its claim to the 

escrowed money on its having already foreclosed on that money via “strict foreclosure” under

Article 9 of Kentucky’s Uniform Commercial Code. Id. at *5. The district court disagreed, finding 

that the Estate had overcome strict foreclosure by properly objecting within the statutorily required 

20-day window. Id. at *6. KER had argued that, under federal law, 26 U.S.C. § 6323(h)(1), it was 

the “protected holder of a security interest,” and under Kentucky law, KRS § 362.2-703, “a creditor 

cannot obtain a judgment lien on a debtor’s partnership interest,” so “even without perfection, a 

security interest in a debtor’s partnership interest is always protected against a subsequent 

judgment lien.” Id. at *7 (quotation marks omitted). The district court rejected this argument as 

well, finding that the IRS does not have a typical judgment lien, it “has a tax lien against the sale 

proceeds themselves.” Id. at *8. Therefore, the court continued, “under 26 U.S.C. § 6323(a), the 

question is whether [KER] has a competing security interest in the proceeds themselves,” and, 

finding that it did not, held that the IRS lien took priority. Id. The court granted summary 

judgment to the IRS, awarding it the money in escrow, and KER appealed.

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II.

We review the grant of summary judgment de novo, construing facts and inferences in the 

light most favorable to the non-moving party. Brown v. Battle Creek Police Dep’t, 844 F.3d 556, 

565 (6th Cir. 2016). Summary judgment is proper when “there is no genuine dispute as to any 

material fact and the movant is entitled to judgment as a matter of law.” Stryker Corp. v. Nat’l 

Union Fire Ins. Co., 842 F.3d 422, 426 (6th Cir. 2016) (quoting Fed. R. Civ. P. 56(a)).

A.

KER argues that it executed a “strict foreclosure” on the escrowed funds pursuant to KRS

§ 355.9-620, which permits a secured party to accept collateral in satisfaction of an obligation,

provided the debtor does not make an authenticated objection within 20 days. On January 21, 

2017—while litigation was underway—KER sent a letter to the Estate purporting to accept the 

Estate’s partnership interests “in full and final satisfaction” of the Estate’s debts. Two days later, 

the Estate responded by email, answering that the letter was “premature and beyond [KER’s] 

abilities as a purported creditor,” but that its counsel would “send . . . a more detailed response on 

behalf of the Estate in a few days.” The Estate’s counsel never sent the promised response. KER 

argues that, standing alone, the email merely constituted a notice that something more would be 

provided, but did not act as an actual objection. 

When dealing with nonjudicial foreclosure, courts have found that an objection to the 

foreclosure does not require any “magic words.” Blakely v. Tri-Cty. Fin. Grp., Inc., No. 08-cv3783, 2010 WL 1286856, at *6 (N.D. Ill. Mar. 29, 2010). “Any language that manifests an 

intention to reject the proposal of the creditor to retain possession of the collateral in satisfaction 

of the debt satisfies the requirements of the Uniform Commercial Code.” 68A Am. Jur. 2d Secured 

Transactions § 589; see also Bluwav Sys., LLC v. Durney, No. 09–13878, 2011 WL 5375200, at 

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*2 n.3 (E.D. Mich. Nov. 7, 2011) (holding that “[s]trict foreclosure cannot be accomplished 

without the consent of the debtor”). While it is true that the Estate’s counsel never followed up 

with a more detailed response, it is equally true that the email manifested an objection to the strict 

foreclosure, so a more detailed response was not necessary. 

KER argues that, even conceding that the email effectively communicated the Estate’s 

intention to reject the proposal, that email was not properly “authenticated.” Under KRS § 355.9-

102(1)(g), “authenticate” means “[t]o sign” or “[w]ith present intent to adopt or accept a record, 

to attach to or logically associate with the record an electronic sound, symbol, or process.” The

district court said that, because counsel for the Estate typed his name at the end of the email and 

pressed the “send” button, he “intended to presently authenticate and adopt the content of the email as his own writing,” Bennett, 2018 WL 1473798, at *6. Kentucky defines “authenticate” as 

including an electronic signature, KRS § 355.9-102(1)(g), so KER’s argument fails on the merits.

1

B.

KER argues that the district court mischaracterized the nature of the two security interests

and, therefore, mistakenly avoided or overlooked 26 U.S.C. § 6323(a), the federal statute that 

determines the priority of liens against an individual’s property when a federal tax lien is involved. 

The district court said that KER had a security interest in the partnership assets but no “security 

interest in the proceeds themselves” (from the sale of the assets), whereas the IRS’s lien did attach 

to the sale proceeds themselves, which led it to mistakenly conclude that KER had no competing 

security interest so the IRS’s interest was necessarily superior. Bennett, 2018 WL 1473798, at *8. 

 

1 KER claims also that, because the Estate did not respond to KER’s motion for summary judgment, the Estate forfeited 

the defense that it properly objected to the judicial foreclosure. The IRS responded to KER’s motion for summary 

judgment and argued that the Estate had adequately objected. KER argues the IRS should not be allowed to contest 

ownership of the sales proceeds in place of the Estate, but KER does not elaborate on this argument or cite any legal 

proposition for it. Benge v. Johnson, 474 F.3d 236, 245 (6th Cir. 2007).

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To be clear, Bennett’s partnership interest was the collateral for the loans from the 

partnerships, so that collateral (Bennett’s partnership interest) was an asset of the partnerships, and 

KER purchased a security interest in that asset. KER argues that its security interest in that asset 

(Bennett’s partnership interest) necessarily extended to the proceeds from the sale of that asset, the 

same way that the IRS’s lien on that asset extended to the proceeds from the sale. 

From this, KER contends that the district court was obliged to conduct a § 6323(a) analysis,

and, had it done so, it would have found that KER’s security interest was superior to the IRS’s 

lien. KER is mistaken. Section 6323(a) says that a tax lien “shall not be valid as against 

any . . . holder of a security interest . . . until notice thereof . . . has been filed by the [IRS].” Recall 

that the IRS first filed notice of its tax lien in August 2010, some five years before KER purchased 

the partnerships. Moreover, for purposes of § 6323(a), a “security interest” is defined as: 

[A]ny interest in property acquired by contract for the purpose of securing payment 

or performance of an obligation or indemnifying against loss or liability. A security 

interest exists at any time (A) if, at such time, the property is in existence and the 

interest has become protected under local law against a subsequent judgment lien 

arising out of an unsecured obligation, and (B) to the extent that, at such time, the 

holder has parted with money or money’s worth.

§ 6323(h)(1) (emphasis added). 

Courts in the Sixth Circuit have equated the word “protected” in § 6323(h)(1) with the 

word “perfected.” In Citizens State Bank, a case applying Kentucky law, we held that § 6323(a)

“exclude[s] security interests which have not yet become perfected under local law.” 932 F.2d 

490, 493 (6th Cir. 1991) (emphasis added); see also First Bancorp, Inc. v. United States, 945 F. 

Supp. 2d 802, 813 (W.D. Ky. 2013) (applying Kentucky law to hold that, under § 6323(a), 

“a private security interest has priority over a federal tax lien only if it attached to the property in 

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question and was perfected prior to the filing of notice of the federal tax lien”) (emphasis added).

2

 

In Kentucky, a holder of a security interest perfects an interest by filing a financing statement. 

KRS § 355.9-310(1). The limited partners never filed a financing statement. Therefore, KER 

purchased a loan that was not secured by a perfected security interest and, correspondingly, was

not “protected” for purposes of § 6323(h)(1). KER does not qualify as holding a security interest 

under federal law, § 6323(a), and KER’s interest therefore does not have priority over the IRS lien. 

KER responds that this misunderstands Kentucky law. According to KER, a securityinterest holder in a partnership interest is always protected under Kentucky law regardless of 

whether that interest is perfected. This argument has no support from—and is actually refuted 

by—our prior decisions interpreting § 6323(a) in light of Kentucky law. KER does not attempt to 

distinguish these decisions, but even if it could, KER’s substantive argument is meritless. KER 

reads KRS § 362.2-703—the Kentucky statute governing the transfer of a partner’s interest in a

partnership—to say that there is no such thing as a judgment lien on a partnership interest. Rather, 

“all a judgment creditor can do is request a charging order when a limited partnership interest is 

involved.” So, KER argues, § 6323(h)(1) says nothing about a “charging order”; instead, what 

matters is a “judgment lien,” and a security interest in a partnership is therefore “‘protected’ against 

a subsequent judgment lien because [a judgment lien on a partnership] does not exist” under 

 

2 Other circuits have held also that in § 6323(h)(1), “protected” means “perfected.” See, e.g., In re Haas, 31 F.3d 

1081, 1087 (11th Cir. 1994) (holding that the phrase “protected under local law against a subsequent judgment lien” 

is “equivalent” to a “lien creditor” in the UCC); United States v. T.C. Trigg, 465 F.2d 1264, 1270 (8th Cir. 1972) 

(holding that under § 6323(a), “holders of unperfected interests remain subject to the ‘first in time is first in right,’ 

priority standard” and therefore “unperfected security interests are subordinate to a federal tax lien”); see also 

Saltzman & Book, IRS Practice and Procedure, ¶ 16.02[2] (2019) (“The ‘holder of a security interest’ as used in 

Section 6323(a) was meant to . . . bring the tax lien statute in line with the UCC . . . [T]o achieve maximum possible 

priority over competing lienors, the secured party must ‘perfect’ his security interest. . . . A security interest generally 

is perfected by filing a financing statement. An unperfected security interest is subordinate to the rights of ‘lien 

creditors’ before the security interest is perfected.”). But see Dragstrem v. Obermeyer, 549 F.2d 20, 25 (7th Cir. 1977) 

(“[W]e conclude that a security interest need not be perfected under the UCC in order to be protected against a 

subsequent judgment lien under Section 6323(h)(1) of the Federal Tax Lien Act.”).

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Kentucky law. But this same statute states unequivocally that “[a] charging order constitutes a 

lien.” KRS 362.2-703(2). KER can neither explain nor overcome this glaring inconsistency in its 

argument. 

KER makes additional arguments, but none survives controlling Sixth Circuit precedent. 

We hold that KER’s unperfected security interest does not have priority over the IRS’s lien. 

C.

Finally, KER argues that its lien is entitled to “superpriority” under § 6323(b). KER raised 

this argument for the first time in its reply brief to the IRS’s motion for summary judgment. We 

generally do not permit arguments to be raised for the first time in a reply brief. Scottsdale Ins. 

Co. v. Flowers, 513 F.3d 546, 553 (6th Cir. 2008). The rationale for this rule is straightforward: 

[R]eply briefs reply to arguments made in the response brief—they do not provide 

the moving party with a new opportunity to present yet another issue for the court’s 

consideration. Further the non-moving party ordinarily has no right to respond to 

the reply brief, at least not until oral argument. As a matter of litigation fairness 

and procedure, then, we must treat [such issues] as waived.

Id. (quoting Novosteel SA v. United States, 284 F.3d 1261, 1274 (Fed. Cir. 2002)). 

The IRS relied on § 6323(a) in its motion for summary judgment; it made no reference to 

§ 6323(b). In its response, KER did not rely upon § 6323 at all. KER’s subsection (b) 

“superpriority” argument was entirely new in its summary judgment reply brief and was unrelated 

to its § 6323(a) argument. The IRS had no opportunity to respond, and, therefore, as “a matter of 

litigation fairness and procedure,” KER’s superpriority argument is forfeited. Flowers, 513 F.3d 

at 553. We decline to consider this novel argument on appeal.

III.

For the foregoing reasons, we AFFIRM the judgment of the district court. 

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