491 F.3d 1136 (10th Cir. 2007), 06-3243, In re Hicks

Docket Nº:06-3243.
Citation:491 F.3d 1136
Party Name:In re Jon A. HICKS; Amy E. Hicks, Debtors. J. Michael Morris, Trustee, Plaintiff-Appellant, v. Jon A. Hicks; Amy E. Hicks, Defendants, and Boeing Wichita Credit Union, Defendant-Third-Party-Plaintiff-Appellee, v. State of Kansas, Department of Revenue, Division of Vehicles, Third-Party-Defendant-Appellee.
Case Date:June 25, 2007
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit

Page 1136

491 F.3d 1136 (10th Cir. 2007)

In re Jon A. HICKS; Amy E. Hicks, Debtors.

J. Michael Morris, Trustee, Plaintiff-Appellant,

v.

Jon A. Hicks; Amy E. Hicks, Defendants,

and

Boeing Wichita Credit Union, Defendant-Third-Party-Plaintiff-Appellee,

v.

State of Kansas, Department of Revenue, Division of Vehicles, Third-Party-Defendant-Appellee.

No. 06-3243.

United States Court of Appeals, Tenth Circuit

June 25, 2007

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS, D.C. No. 05-CV-1370-MLB.

Page 1137

Submitted on the briefs:[*]

J. Michael Morris, Klenda, Mitchell, Austerman & Zuercher, L.L.C., Wichita, Kansas, for Plaintiff-Appellant.

Eric D. Bruce, Bruce, Bruce & Lehman, L.L.C., Wichita, Kansas, for Defendant-Third-Party-Plaintiff-Appellee Boeing Wichita Credit Union.

Jay D. Befort, Robert W. Challquist, Kansas Department of Revenue, Topeka, Kansas, for Third-Party-Defendant-Appellee Kansas Department of Revenue.

Before McCONNELL, PORFILIO, and BALDOCK, Circuit Judges.

Page 1138

PORFILIO, Circuit Judge.

J. Michael Morris, trustee in bankruptcy (trustee), appeals from an order of the district court reversing a decision of the bankruptcy court that granted his complaint for lien avoidance. We conclude that the bankruptcy court correctly determined that the lien the trustee sought to avoid was not perfected as of the date the debtors filed for bankruptcy. The trustee should therefore have been permitted to avoid the unperfected lien. This being the case, we reverse the decision of the district court and remand for further proceedings.

FACTS

The lien in question arose when the debtors, Jon Anthony Hicks and Amy Elizabeth Hicks, borrowed funds from Boeing Wichita Credit Union (BWCU) to buy a Ford Expedition automobile. The debtors granted BWCU a purchase money security interest in the vehicle. The parties have stipulated to the following facts concerning this transaction and the subsequent history of BWCU's security interest:

1. On September 2, 2003, debtors purchased a 1999 Ford Expedition with the VIN of 1FMPU18L5XLC09309 (hereinafter "vehicle") from Innovative Auto Sales. The Credit Union was granted a purchase money security interest in the vehicle.

2. On September 2, 2003, Amy Hicks signed a Notice of Security Interest (NOSI) in favor of the Credit Union on the vehicle[.]

3. The Credit Union mailed a check in the amount of $52.50 for recording fees to the Kansas Department of Revenue with twenty-one NOSI forms, including the one on the Hick's [sic] vehicle. The check was deposited on September 10, 2003.

4. KDOR [Kansas Department of Revenue] acknowledges receiving the NOSI dated September 2, 2003, from the Credit Union on September 8, 2003[.]1

5.On October 22, 2003, the debtors made a submission to the Kansas Department of Revenue in applying for title on the vehicle pursuant to K.S.A. 8-135(b)[.] This submission by the debtors failed to note the lien of the [Credit] Union.

6.A paper document denominated "title" was subsequently printed by the Kansas Department of Revenue, indicating its "issued date" to be December 1, 2003. This document did not list the Credit Union or anyone else as a lienholder. This document was mailed to the debtors and it was in their possession on the date of the bankruptcy[.]

7.From at least December 1, 2003, through May 26, 2004, the digital records of the Kansas Department of Revenue showed the debtors to be the owners of the vehicle, with no lien[.]

8.On December 8, 2003, debtors filed for Chapter 7 bankruptcy protection.

9.On or about December 18, 2003, the debtors made submission of documents to the Kansas Department of Revenue[.] This submission of the Debtors listed the lien of the Credit Union. The debtors surrendered the December 1, 2003 title to the Kansas Department of Revenue as part of this submission.

10.On May 26, 2004, the Credit Union's lien began to appear on the digital

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records of the Department of Revenue, by virtue of the second documents submission of the debtors of December 18, 2003.

11.On May 7, 2004, debtors received their discharge.

Aplt. App. at 65-66.

On March 10, 2004, the trustee filed this adversary proceeding, contending that he was entitled to avoid BWCU's lien.2 The bankruptcy court concluded that the filing of a NOSI only perfects a security interest until a certificate of title has been issued. BWCU lost its temporary perfection once a title was issued that failed to denote its lien, the court reasoned, and was therefore unperfected at the time the debtors filed for bankruptcy. The bankruptcy court therefore entered a memorandum decision granting the trustee's complaint for lien avoidance.

BWCU appealed to the district court. The district court concluded that the lien the NOSI created continued in effect even though KDOR had issued an "inappropriate" title certificate to the debtors. It reasoned that the title certificate, which did not identify the lien specified in the NOSI, could not make the previously-issued NOSI ineffective. The trustee therefore could not avoid BWCU's lien. Accordingly, the district court reversed and remanded the case to the bankruptcy court.

ANALYSIS

1. Jurisdiction

In response to the trustee's complaint in this action, BWCU filed a third party complaint against KDOR. BWCU sought to hold KDOR liable for improperly issuing a title certificate that omitted BWCU's lien. After the bankruptcy court ruled in favor of the trustee, in order to facilitate an immediate appeal from its decision granting the trustee's complaint for lien avoidance notwithstanding the unresolved third party complaint, it entered a certification and judgment under Fed.R.Civ.P. 54(b).

We ordered the parties to brief whether, in light of the district court's order remanding the case to the bankruptcy court, and given BWCU's unresolved third party complaint, the district court's order was a "final decision" that could be appealed to this court. See 28 U.S.C. §§ 158(d), 1291. We now conclude that the order was final and appealable. As the parties acknowledge, the bankruptcy court's only task on remand would have been to dismiss the trustee's complaint, and to dismiss the third-party complaint as moot. These ministerial actions would not have involved significant further proceedings on remand. A district court order that leaves the bankruptcy court with "no significant further proceedings to conduct" on remand is final and may be appealed to this court. Office of Thrift Supervision v. Overland Park Fin. Corp. (In re Overland Park Fin. Corp.), 236 F.3d 1246, 1251 (10th Cir.2001) (quotation omitted). We therefore have jurisdiction to consider this appeal.

2. Standard of Review

Our review of the bankruptcy court's decision is governed by the same standards of review that govern the district court's review of the bankruptcy court. Accordingly we review the bankruptcy court's legal determinations de novo and its factual findings under the clearly erroneous standard.

Connolly v. Harris Trust Co. (In re Miniscribe Corp.), 309 F.3d 1234, 1240 (10th Cir. 2002)

Page 1140

(quotation omitted). Here, the facts are stipulated. This case therefore presents us with a single legal issue that we review de novo: was BWCU's security interest perfected at the time the debtors filed for bankruptcy?

3. Governing Law

a. Trustee's Status as Lien Creditor

The so-called "strong arm" powers of 11 U.S.C. § 544(a)(1) grant the trustee the status of a hypothetical lien creditor once the bankruptcy petition has been filed. See LMS Holding Co. v. Core-Mark Mid-Continent, Inc., 50 F.3d 1520, 1523 (10th Cir.1995) (discussing lien creditor status assumed by debtor-in-possession). The rights of such a lien creditor are determined under state law. Id. Kansas law subordinates an unperfected security interest to the rights of a person who became a lien creditor prior to perfection. Kan. Stat. Ann. § 84-9-317(a) (2006 Cum.Supp.). Thus, if BWCU's security interest was unperfected under state law at the time the debtors filed for bankruptcy, the trustee may exercise his power to avoid BWCU's lien.

b. Perfection by Notation on Certificate of Title

Under Kansas law, a security interest in a vehicle may be perfected only by compliance with that state's certificate-of-title laws. See id. §§ 84-9-311(a)(2), (b) (2006 Cum.Supp.). The Kansas certificate-of-title statute provides that "[a]n application for certificate of title shall be made by the owner or the owner's agent upon a form furnished by the division and shall state all liens or encumbrances thereon, and such other information as the division may require." Id. § 8-135(c)(1) (2006 Cum.Supp.). Once the application is received, "[t]he county treasurer shall use reasonable diligence in ascertaining whether the facts stated in such application...

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