In re Kavolchyck
| Decision Date | 11 May 1993 |
| Docket Number | Adv. No. 92-1161-BKC-AJC-A.,Bankruptcy No. 92-21031-BKC-AJC |
| Citation | 154 BR 793 |
| Parties | In re Michael KAVOLCHYCK and Jill Kavolchyck, Debtors. Arthur S. WEITZNER, Trustee, Plaintiff, v. Aaron GOLDMAN and Arnold Goldman, Trustees; and Barnett Bank of South Florida, Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of Florida |
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Robert Stok, Gest & Stok, N. Miami Beach, FL, for Goldman.
Arthur S. Weitzner, Weitzner & Co., Miami, FL, for trustee.
This matter comes before the Court on cross-motions for summary judgment filed by defendants Aaron and Arnold Goldman (the "Goldmans") and Barnett Bank of South Florida ("Barnett"), and by plaintiff Arthur Weitzner, who is the trustee for Debtors' Chapter 7 estate. For reasons stated below, the motion of the Goldmans is granted and that of Barnett is denied. Consistent with that result, the Trustee's motion is granted in part and denied in part. Judgment order in accord with this ruling is separately entered.
Debtors Jill and Michael Kavolchyck filed a joint petition for relief pursuant to Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 1101 et seq., on April 2, 1992. On July 15, 1992, their case was converted to one under Chapter 7, and plaintiff Arthur Weitzner was appointed to serve as trustee for Debtors' estate.
On November 9, 1992, the Trustee filed this adversary complaint against Aaron and Arnold Goldman in their capacity as trustees for the Dan, Inc. Employee Pension Trust and against Barnett Bank of South Florida. The complaint alleges that both the Goldmans and Barnett have liens on Debtors' interest in real property located at 2525 Davie Boulevard in Davie, Florida (the "Davie property") that are voidable under 11 U.S.C. §§ 544 and 551. The Trustee requests "an Order declaring the validity, priority, and extent of the respective parties' interest in the subject property, and determination that the claims of the creditor Defendants are inferior to the TRUSTEE's interest." Trustee's Summary Judgment Motion. Both defendants deny that their liens are voidable, and each defendant asserts that its lien is senior to the other defendant's lien.
Through a series of assignments and subleases executed in 1983 or 1984, Mr. Kavolchyck came to be both a lessee and a sublessor on a commercial lease to the Davie property.
On June 23, 1986, the Goldmans lent Mr. Kavolchyck $50,000. Trustee's Ex. 10a (). As security for this loan, Mr. and Mrs. Kavolchyck granted the Goldmans a mortgage in their "Lessee's interest" in the Davie property. Trustee's Ex. 7a. As further security, Mr. Kavolchyck executed a "Conditional Assignment of Rents, Profit, Income and Leases". Trustee's Ex. 7b. This document granted the Goldmans a security interest on Mr. Kavolchyck's "entire interest in and to all rents, income, receipts, and profits under all existing leases on the Davie property due or to become due . . . including all . . . subleases now existing. . . ." Id. Thus, the Goldmans gained a security interest in Mr. Kavolchyck's interest both as lessee and as sublessor of the Davie property.
Both the mortgage and the assignment were recorded in the Official Records Book of the Public Records of Broward County (where the property was located) on June 26, 1986. However, neither document was recorded with the Florida Department of State. Also, neither document purported to secure any future loans made by the Goldmans to Debtors.
By August 20, 1990, the outstanding balance on this loan was $12,357.35. On that date, the Goldmans lent an additional $37,642.65 to both Mr. and Mrs. Kavolchyck. See Trustee's Ex. 7e (). This new loan was secured by a "Renewal of Conditional Assignment of Rents, Profits and Lease", Trustee's Ex. 7c, and a "Mortgage Modification Agreement". Trustee's Ex. 7d. These documents purported to extend and/or modify the security interests granted in 1986 to secure the additional loan made in 1986. Both documents were executed on August 20, 1990 and recorded in the Public Records of Broward County on July 17, 1991.
Meanwhile, on June 6, 1990, Barnett loaned $100,000 to Air Dynamics, Inc., a Florida corporation owned and/or controlled by Debtors. See Affidavit of Janette Davis in Support of Barnett's Motion, Ex. A (promissory note signed by Mr. Kavolchyck as president of Air Dynamics). Debtors signed a "Continuing and Unconditional Guaranty" to back this loan. Davis Aff., Ex.B. As security for this Guaranty, Debtors executed a Security Agreement granting Barnett a "first lien on, and first perfected security interest in" Debtor's lessee and sublessor interests in the Davie property. Davis Aff., Ex. C. Both the Guaranty and the Security Agreement were signed on June 6, 1990. Barnett then filed a standard form UCC-1 Financing Statement with both the Florida Department of State and the Official Records Book of the Public Records of Broward County in June of 1990. Davis Aff., Ex. D.
The documents indicating the Goldmans' security interests in the lease and sublease were filed in the Public Records of Broward County when Barnett and Debtors executed the loan, guarantee, and accompanying security interests. Moreover, the loan application form indicates that Debtors owed $50,000 in "Accounts Payable". However, Debtors listed their interest in the Davie property as being unencumbered by any mortgages. Davis Aff., Ex. E.
This matter is before the Court pursuant to 28 U.S.C. § 157 and the general order of reference issued by the United States District Court for the Southern District of Florida. Subject matter jurisdiction lies under 28 U.S.C. § 1334, and this is a core proceeding under 28 U.S.C. § 157(b)(2)(K).
The parties agree and this Court finds that there are no genuine issues of material fact present in this dispute. Therefore, summary judgment is an appropriate vehicle to dispose of the issues posed by the pleadings. Fed.R.Civ.P. 56 (Fed. R.Bankr.P. 7056).
The Trustee seeks to void one of the defendants' security interests under 11 U.S.C. § 544(a). Once voided, the Trustee would use 11 U.S.C. § 551 to preserve this unperfected interest for the benefit of the estate. Both Barnett and the Goldmans argue that only their security interest is properly perfected.
It is undisputed that the Goldmans recorded their security interests in the Public Records of Broward County in conformity with Fla.Stat. § 695.01 et seq. (), while Barnett filed its interest with the Florida Department of State in conformity with Fla.Stat. § 679.401, et seq. (). The issue is this: Where must a party file a leasehold mortgage or an assignment of rents in order to create a perfected security interest under Florida law? The answer to this question depends on whether Article 9 of the Florida version of the Uniform Commercial Code ("UCC") or Florida's statute providing for recordation of liens on real estate is applicable to the interest involved.
Florida's enactment of UCC § 9-104 provides in pertinent part that "this chapter Article 9 of the UCC does not apply . . . except to the extent that provision is made for fixtures in UCC § 9-313, to the creation or transfer of an interest in or lien on real estate, including a lease or rents thereunder. . . ." Fla.Stat. § 679.104(10) (emphasis supplied). This section is direct and self-explanatory. It provides that Article 9 of the UCC does not cover the perfection of security interests in real property leases or the rents derived therefrom.
The only published Florida case to explicitly interpret this facet of § 679.104(10) is the recent opinion in Aldana v. Colonial Palms Plaza, Ltd., 591 So.2d 953 (Fla. DCA1991). In that case, the tenant assigned its leasehold interest in real property to a third party as security for a loan. The assignee subsequently sued the landlord, who defended arguing that the assignment was void and unenforceable under Fla.Stat. § 679.318(4) (UCC § 9-318(4)). The appellate court relied on § 679.104(10) to hold that, "leases are excluded from the provisions of chapter 679 Article 9 of the UCC . . . and therefore, subsection 679.318(4) does not apply to this case." Id. at 954. See also In re De Rochfort Co., Ltd., 22 B.R. 826, 828 (Bankr.S.D.Fla.1982) ( ).
Barnett and the Trustee argue that Article 9 of the UCC is applicable to liens on leasehold interests based on the 1973 opinion in Gould v. Hydro-Ski International Corp., 287 So.2d 115 (Fla.DCA1973), and three bankruptcy cases following Gould. See In re Air Florida System, Inc., 48 B.R. 437 (Bankr.S.D.Fla.1985); Matter of Associated Air Services, Inc., 42 B.R. 768 (Bankr.S.D.Fla.1984); and In re Boogaart of Florida, Inc., 17 B.R. 480 (Bankr.S.D.Fla.1981). This argument fails for several reasons.
Gould does not support the position that UCC Article 9 applies to liens on leasehold interests.
In Gould, a lender received a security interest in all of the borrower's "contract rights". The lender later sued to foreclose on its security agreement, and in the midst of that proceeding, the borrower sought leave of the court to renegotiate a lease of real property. The lender objected to this motion, claiming that the borrower's leasehold was encumbered by its security agreement. The appellate court held, Id. at 115.
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