ELECTRONIC CITATION: 2012 FED App. 0006P (6th Cir.)

File Name: 12b0006p.06

BANKRUPTCY APPELLATE PANEL OF THE SIXTH CIRCUIT

In re: WILLIAM W. PIERCE, JR.,

Debtor.

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VANDERBILT MORTGAGE AND

FINANCE, INC.,

Appellant,

v.

MAXIE E. HIGGASON, JR., 

CHAPTER 7 TRUSTEE,

Appellee.

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No. 11-8065

Appeal from the United States Bankruptcy Court

for the Eastern District of Kentucky

Bankruptcy Case No. 10-61119

Adversary Proceeding No. 11-6008

Argued April 23, 2012

Decided and Filed: June 1, 2012

Before: FULTON, HARRIS, and PRESTON, Bankruptcy Appellate Panel Judges.

____________________

COUNSEL

ARGUED: John P. Brice, Lexington, Kentucky, for Appellant. Michael B. Baker, THE BAKER

FIRM, PLLC, Florence, Kentucky, for Appellee. ON BRIEF: John P. Brice, Lexington, Kentucky,

for Appellant. Michael B. Baker, THE BAKER FIRM, PLLC, Florence, Kentucky, for Appellee.
Appellant states that the issues are as follows: 1

1. Whether the Bankruptcy Court erroneously decided

that a security interest noted on a certificate of title is not validly

perfected under Kentucky law?

2. Whether the filing of a title lien statement in a county

other than the debtor’s principal residence invalidates the perfection

of a security interest noted on a certificate of title?

3. Whether a security interest noted on a certificate of

title is perfected under Kentucky law regardless of any defect in the

filing of the title lien statement?

4. Whether the Commonwealth of Kentucky is entitled

to establish and enforce the procedures by which security interests are

perfected in manufactured homes?

5. Whether the Bankruptcy Court’s utilization of 11

U.S.C. § 544 to void a security interest noted on a certificate of title

violates the Tenth Amendment to the Constitution of the United

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____________________

OPINION

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THOMAS H. FULTON, Bankruptcy Appellate Panel 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.

ISSUES ON APPEAL

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?1
States of America?

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....” Westenhoefer v. Vanderbilt Mortg. & Fin., Inc. (In re Epling),

2011 WL 4356358 (E.D. Ky. 2011) at *4 (citing Stellwagen v. Clum, 245 U.S. 605, 613 (1918)).

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JURISDICTION AND STANDARD OF REVIEW

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 (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 (B.A.P. 6th Cir. 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 (B.A.P. 6th Cir. 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.),
Only a duplicate Certificate of Title issued on February 16, 2011, has been placed into the 2

record. Although the Bankruptcy Court cited Appellant’s failure to submit the original Certificate

of Title as an independent ground for avoiding Appellant’s lien–i.e., failure to provide basic proof

of perfection of its lien prior to Debtor’s petition–the parties do not dispute that the original

Certificate of Title identified Appellant as a lienholder. 

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338 B.R. 300, 302 (B.A.P. 6th Cir. 2006) (citation omitted). “No deference is given to the trial

court’s conclusions of law.” Id. (citations omitted).

FACTS

The facts are not in dispute. In April of 2007, Debtor purchased a manufactured home (the

“Manufactured Home”) from Clayton Homes of Corbin, Kentucky (“Clayton Homes”), borrowing

the funds from Appellant. To secure repayment of the loan, Debtor granted a security interest in the

Manufactured Home to Appellant.

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, the Commonwealth of Kentucky Transportation Cabinet issued 2

a Certificate of Title for the Manufactured Home, which identified Appellant as “First Lienholder”

and described the “First Lien” as follows:

Notation No. County

7001811 WHIT

Filing Date 04-30-07

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
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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.

DISCUSSION

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 which a certificate of title has never been

issued and a separate one for property for which a certificate of title has previously been issued.
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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:

(1) ....the perfection and discharge of a security interest in any

property for which has been issued a Kentucky certificate of

title shall be by notation on the certificate of title. The

notation of the security interest on the certificate of title shall

be in accordance with this chapter and shall remain effective

from the date on which the security interest is noted on the

certificate of title....

(2) ....the notation of security interests relating to property

required to be titled in Kentucky through the county clerk

shall be done in the office of the county clerk of the county in

which the debtor resides....

....

(6) In noting the security interest upon a certificate of title, the

county clerk shall ensure that the certificate of title bears the

lienholder’s name, mailing address and zip code, the date the

lien was noted, the notation number, and the county in which
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the security interest was noted. The clerk shall obtain the

information required by this subsection for notation upon the

certificate of title from the title lien statement described in

KRS 186A.195 to be provided to the county clerk by the

secured party.

....

(Emphasis added.)

KRS 186A.195 states as follows:

(1) As used in this chapter, a title lien statement is a document to

be submitted by the secured party to the county clerk. Upon

submission of the title lien statement, the county clerk shall

use the information contained therein to note the security

interest on the certificate of title....

(2) If a title lien statement and the required fees accompany the

application for first title of any property in the name of an

owner, the county clerk shall enter the information required

by KRS 186A.190(6) into the automated system so as to

produce a certificate of title in Frankfort bearing in addition

to any other required information, the information designated

by KRS 186A.190(6). The clerk shall thereby produce, in

accordance with design of the automated system, a certificate

of registration, if required.

(3) If a title lien statement and the required fees are not received

at the time of application for first title of any property in the

name of the owner due to the owner’s residency in another

county, or if the form prescribed by KRS 186A.060 indicates

a pending lien but the title lien statement does not accompany

the application for title, the county clerk shall enter into the

Automated Vehicle Information System (AVIS) the name and

address of the lienholder and the county where the lien is to

be noted or that a lien is pending. The clerk shall indicate a

title is not to be issued until the lien has been noted and fees,

according to KRS 186A.190, paid in the county of the owner’s

residence or in thirty (30) days. The county shall then issue

the registration. The county clerk in the county of the owner’s
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residence shall, after receiving the title lien statement and

fees contained in KRS 186A.190, enter into the Automated

Vehicle Information System (AVIS) the date of lien notation

and the notation number, thus enabling the system to produce

the title in Frankfort.

....

(5) The security interest noted on the certificate of title shall be

deemed perfected at the time the security interest attaches

(KRS 355.9-203) if the secured party tenders the required fees

and submits a properly completed title lien statement and

application for first title or, in the case of property previously

titled in the name of its debtor, the certificate of title to the

appropriate county clerk within twenty (20) days of

attachment. 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.

(Emphasis added.)

Appellant’s argument is based in large part upon the following provisions of KRS 186A.120:

(1) Application for a first certificate of registration or title and

plate, shall be made by the owner to the county clerk of the

county in which he resides, except that, if a vehicle is

purchased from a dealer other than in the county in which the

purchaser for use resides, the purchaser, or the dealer on

behalf of the purchaser, may make application for registration

to the county clerk in either the county in which the purchaser

resides, or in the county in which the dealer’s principal place

of business is located.

(2) (a) When purchaser of a vehicle upon which a lien is to

be recorded is a resident of a county other than that of

the dealer, the application for registration or title may

be made to the county clerk in either county. The lien

must be recorded in the county of the purchaser’s

residence.
Appellant’s argument here alleging a “two-track” lien notation system does not appear to

3

have been addressed by the courts in Epling and Walling.

Appellant is extremely familiar with this path as the losing party in both Epling and Walling.

4

2011 WL 4356358 at *2. 5

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(b) If the vehicle application for registration or title is

presented to the county clerk of dealer’s location

rather than purchaser’s residence, the clerk shall

process documents in a manner to that of any

application, with the exception that the AVIS system

shall be programmed in a manner that the title shall

not be issued from Frankfort until the lien information

has been entered by the county clerk of the

purchaser’s residence.

....

(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. See Epling, 2011 WL 4356358, and Palmer v. Vanderbilt Mortg. & Fin., 3

Inc. (In re Walling), 2010 WL 5421148 (Bankr. E.D. Ky. 2010). The Panel finds both decisions

well-reasoned and persuasive. The relevant statutory provisions are unambiguous, and a plain

reading of the same leads to the conclusion that Appellant’s lien is unperfected under Kentucky law.

While the Panel believes that it would be unnecessarily duplicative to restate entirely the courts’

analyses in Epling and Walling, a few points may be emphasized without treading too far down an

already well-worn path.4

First, as noted in Epling, the Kentucky Supreme Court in Johnson concluded that “perfection 5

of a vehicle lien does not occur until physical notation is made on the title pursuant to KRS

186A.190.” Johnson, 313 S.W.3d at 561 (emphasis added). While to some extent dicta–the court

in Johnson was focusing on when perfection occurred rather than if perfection occurred–this is
“The notation of the security interest on the certificate of title shall be in accordance with 6

this chapter....” KRS 186A.190(1) (emphasis added).

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consistent with a plain reading of the second sentence of KRS 186A.190(1) and supports Appellee’s 6

position that obtaining title notation other than in the manner prescribed (i.e., other than “in

accordance with this chapter”) renders that title notation insufficient to perfect the lien in question.

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 that

Epling and Walling are inconsistent with “settled” Kentucky law. Appellant cites cases in which the

courts in question simply did not have to consider whether proper procedure had been followed in

notation of liens on titles. See State Auto. Mut. Ins. Co. v. Chrysler Credit Corp., 792 S.W.2d 626

(Ky. App. 1990), and Hiers v. Bank One, 946 S.W.2d 196 (Ky. App. 1996). Appellant also cites

cases where the titles in question contained no lien notations and, therefore, the issue was whether

the liens could be deemed perfected despite the lack of notation, not whether proper procedure had

been followed in obtaining the notations. See General Motors Acceptance Corp. v. Hodge,

485 S.W.2d 894 (Ky. 1972), and Kentucky Fin. Co. v. Spradlin, 717 S.W.2d 843 (Ky. App. 1986)

(title contained no lien notation because it had been mistakenly released by the county clerk upon

receipt of a forged lien release). Appellant also mistakenly relies upon Lincoln Bank & Trust Co.

v. Queenan, 344 S.W.2d 383 (Ky. 1961), which not only construed a prior version of the statute in
Thus, Appellant would have the provision read as if it said something like the following with 7

respect to initial title applications: “The security interest noted on the certificate of title shall be

deemed perfected at the time the security interest attaches if the secured party tenders the required

fees and submits a properly completed lien statement and application for first title.” As Appellant

concedes, however, this is not how the Kentucky Supreme Court read that provision in Johnson. See

Johnson, 313 S.W.3d at 560.

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question here, but was primarily concerned with perfection of security interests in dealer inventory.

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 ortitle maybe 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.7

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
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debtor’s residence. Had the Kentucky General Assembly intended for title lien statements to be filed

outside the county of the debtor’s residence, it would have made that point explicit here. Indeed, the

very next sentence states, “The lien must be recorded in the county of the purchaser’s residence.”

Id. Appellant argues that recording a lien and submitting a lien to be recorded are two different

things. The Panel believes, however, that the juxtaposition of these two sentences signals the

Kentucky General Assembly’s intention that title lien statements be filed in the county of the

debtor’s residence even if the initial application for certificate of title or registration is filed in

another county under KRS 186A.120(2)(a).

CONCLUSION

For the foregoing reasons, the Panel AFFIRMS the grant of summary judgment in favor of

Appellee by the Bankruptcy Court.