Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca6-08-05088/USCOURTS-ca6-08-05088-0/pdf.json

Parties Involved:
Branch Banking and Trust Company
Appellant
Robin Browning Brock
Appellee
Michael W. Johnson

Document Text:

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit Rule 206

File Name: 10a0193p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT _________________

In re: MICHAEL W. JOHNSON,

Debtor.

_____________________________________

ROBIN BROWNING BROCK,

Plaintiff-Appellee,

v.

BRANCH BANKING AND TRUST COMPANY,

Defendant-Appellant.

X

-

-

-

-

>

,

-

-

-

-

-

-

-

N

No. 08-5088

On Appeal from the Bankruptcy Appellate

Panel for the Sixth Circuit.

No. 05-70411—William S. Howard, Bankruptcy Judge.

Argued: January 15, 2009

Decided and Filed: July 2, 2010 

Before: BATCHELDER, Chief Judge; SUHRHEINRICH and SUTTON, Circuit Judges.

_________________

COUNSEL

ARGUED: Christopher A. Conley, CAMPBELL WOODS, PLLC, Ashland, Kentucky, for

Appellant. Carole M. Friend, FRIEND & ASSOCIATES, Georgetown, Kentucky, for

Appellee. ON BRIEF: Christopher A. Conley, CAMPBELL WOODS, PLLC, Ashland,

Kentucky, for Appellant. Carole M. Friend, FRIEND & ASSOCIATES, Georgetown,

Kentucky, for Appellee. 

_________________

OPINION

_________________

SUHRHEINRICH, Circuit Judge. Defendant Branch Banking and Trust Company

(“BB&T”) appeals the order of the Bankruptcy Appellate Panel (“BAP”) ruling in favor of

Plaintiff Robin Browning Brock, Trustee. The BAP held that because perfection of BB&T’s

1

 Case: 08-5088 Document: 006110670948 Filed: 07/02/2010 Page: 1
No. 08-5088 In re Johnson Page 2

security interest did not occur within 20 days of the Debtor’s receiving a new pick up truck

secured by BB&T, the enabling loan exception of 11 U.S.C. § 547(c)(3) was not available

to protect BB&T’s interest from avoidance as a preferential transfer. Having received the

Kentucky Supreme Court’s response to a question we certified regarding when a vehicle lien

becomes perfected under Kentucky law, we now AFFIRM.

I.

The parties stipulated to the relevant facts before the United States Bankruptcy Court

(“BC”). The Bankruptcy Appellate Panel of the Sixth Circuit (“BAP”) summarized them as

follows: 

The relevant facts were stipulated before the bankruptcy court. On February

8, 2005, Michael W. Johnson (“Debtor”) purchased a 2005 Dodge Ram

pickup truck from Jeep & Suzuki Auto World of Big Stone Gap, Virginia

and executed an installment sales contract and security agreement with

Branch Banking & Trust Co. (“BB & T”) to finance the purchase. That same

day, the Debtor took possession of the truck. On February 17, 2005, Jeep &

Suzuki Auto World mailed a title lien statement, application for certificate

of title, and required fees to the Letcher County, Kentucky clerk’s office by

certified mail, return receipt requested. The Letcher County clerk received

the mailed documents and fees on February 22, 2005, as indicated by the

signed return receipt. However, the clerk did not stamp the documents as

received and upload BB & T’s lien for recordation until March 7, 2005,

almost two weeks later. On March 25, 2005, the Commonwealth of

Kentucky Transportation Cabinet issued the appropriate certificate of title,

reflecting notation of BB & T’s lien on March 7, 2005.

Less than 90 days later, on May 11, 2005, the Debtor filed a voluntary

petition for relief under Chapter 7 of the Bankruptcy Code. Thereafter,

Robin Browning Brock, the chapter 7 trustee (“Trustee”), filed a complaint

to avoid the lien of BB & T as a preferential transfer. Upon cross motions for

summary judgment, the bankruptcy court granted summary judgment in

favor of BB & T and dismissed the complaint with prejudice. The Trustee

subsequently moved to alter or amend the judgment, but the court denied the

motion. The Trustee then timely appealed.

Brock v. Branch Banking & Trust (In re Johnson), 380 B.R. 455, 458-59 (B.A.P. 6th Cir.

2007) (footnote omitted). 

The BC judge concluded that the perfection occurred on February 22, 2005, when

the county clerk received the required paperwork and fee. The BAP majority disagreed,

 Case: 08-5088 Document: 006110670948 Filed: 07/02/2010 Page: 2
No. 08-5088 In re Johnson Page 3

holding that perfection did not occur until March 7, 2005, when the security interest was

actually noted on the certificate of title. See In re Johnson, 380 B.R. at 465, 467. One BAP

judge dissented. 

 BB&T then filed this appeal.

II. 

The Bankruptcy Code provides that a bankruptcy trustee may avoid certain transfers

of interest in property that occur on or within the 90 days preceding the filing date of the

bankruptcy petition, subject to certain exceptions. 11 U.S.C. § 547(b), (c). One such

exception, the “enabling loan exception,” protects a purchase money security interest if the

security interest is perfected within a certain number of days after the debtor receives

possession of the collateral. 11 U.S.C. § 547(c)(3). For purposes of the Bankruptcy Code,

the acts necessary to perfect the security interest are determined by state law. 

At issue in this case is whether a security interest in a motor vehicle is perfected

under Title XVI, Chapter 186A of the Kentucky Revised Statutes (“KRS”) during the time

between an applicant’s submission of the required paperwork and fee to the county clerk and

the actual notation of the security interest on the certificate of title. Two provisions of the

KRS - - one providing for perfection once the county clerk receives the required paperwork

and fee, see KRS § 186A.195(5), and the other providing that perfection occurs only upon

actual notation upon the certificate of title, see KRS § 186A.190 - - appear inconsistent. 

The question matters in this case because the county clerk received BB&T’s

application materials on February 22, 2005, which was within 20 days after the security

interest attached. However, the county clerk did not process the application and note the

security interest on the certificate of title until March 7, 2005, outside the 20-day window

for enabling loan protection. 

Thus, we certified the following question to the Kentucky Supreme Court:

In order to perfect a security interest on a motor vehicle in Kentucky, does

the KRS require physical notation on the actual certificate of title as

ultimately issued by the county clerk, or is perfection accomplished as and

when the required paperwork and fee are submitted to the county clerk? In

other words, does KRS 186.A195(5), like § 186A.190, define the acts

necessary for perfecting a security interest in a motor vehicle, or is

 Case: 08-5088 Document: 006110670948 Filed: 07/02/2010 Page: 3
No. 08-5088 In re Johnson Page 4

§ 186A.195(5) designed to operate only as a timing provision for purposes

of determining priority among creditors?

The Kentucky Supreme Court restated the issue as follows: “[T]he question we are

asked to address is: ‘when does a vehicle lien become perfected under the provisions of KRS

Chapter 186A?’” Construing the two provisions to give effect to the intent of the Kentucky

Legislature, the Kentucky Supreme Court concluded that 

under Kentucky law, final perfection of a vehicle lien does not occur until

physical notation is made on the title pursuant to KRS 186A.190, and,

accordingly, perfection is not accomplished as and when the required

paperwork and fee are submitted to the county clerk. KRS 186A.195(5), on

the other hand, while it does address initiation of the perfection process, is

designed primarily as a timing mechanism for establishing priority among

creditors. Compliance alone with the acts set forth therein does not

accomplish perfection.

Johnson v. Branch Banking & Trust Co., – S.W.3d –, 2010 WL 2470849, at *1 (Ky. June

17, 2010). 

The Kentucky Supreme Court’s reasoning is detailed in its opinion, which we

incorporate by reference here. See id. 

With this answer in mind, we uphold the BAP’s conclusion that perfection of

BB&T’s lien did not occur until March 7, 2005, when the security interest was actually noted

on the certificate of title. 

We therefore AFFIRM the BAP’s holding that, because perfection did not occur

within 20 days after Debtor received possession of the truck, the enabling loan exception of

11 U.S.C. § 547(c)(3) did not protect BB&T’s interest from avoidance as a preferential

transfer.

 Case: 08-5088 Document: 006110670948 Filed: 07/02/2010 Page: 4