Kelley v. First Cmty. Bank (In re Brownlee)

• Decision Date: 03 December 2018
• Docket Number: Bankruptcy Case No. 17-70283-JTL,Adversary Proceeding No. 18-07005
• Citation: 593 B.R. 916
• Parties: IN RE: Kenneth E. BROWNLEE, and Janice J. Brownlee, Debtors. Walter W. Kelley, Trustee, Plaintiff, v. First Community Bank, a Division of Synovus Bank, Defendant.
• Court: U.S. Bankruptcy Court — Middle District of Georgia

593 B.R. 916

IN RE: Kenneth E. BROWNLEE, and Janice J. Brownlee, Debtors.

Walter W. Kelley, Trustee, Plaintiff,
v.
First Community Bank, a Division of Synovus Bank, Defendant.

Bankruptcy Case No. 17-70283-JTL
Adversary Proceeding No. 18-07005

United States Bankruptcy Court, M.D. Georgia, Valdosta Division.

Signed December 3, 2018

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Thomas D. Lovett, Kelley, Lovett, Blakey and Sanders, P.C., Valdosta, GA, for Plaintiff.

David A. Garland, Moore, Clarke, DuVall and Rodgers, PC, Albany, GA, for Defendant.

MEMORANDUM OPINION GRANTING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT AND DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

John T. Laney, III, United States Bankruptcy Judge

The above styled case came before the Court on cross-motions for summary judgment. (Pl.'s Mot. for Summ. J., A.P. No. 10; Def.'s Mot. for Summ. J., A.P. No. 9). In this case, the Chapter 7 Trustee, Walter Kelley, asserts an action under 11 U.S.C. § 547 to avoid a transfer made from the Debtors to the Defendant, First Community Bank ("First Community"). First Community's primary defense is that the alleged transfer occurred outside of the ninety (90) day look-back period of 11 U.S.C. § 547(b)(4). The parties choose to address this dispositive issue with motions for summary judgment before conducting discovery. (See Sched. Order, A.P. No. 8).

Specifically, the parties seek summary judgment on whether First Community's acquisition of a judgment lien on the Debtors' real property occurred within 11 U.S.C. § 547(b)(4)'s look-back period. The Court can answer this question by addressing a question of Georgia law: whether an unrecorded judgment issued by a Georgia court transfers a lien on the judgment debtor's real property.

The parties briefed the issue and made oral arguments at a hearing on the motions. The Court took this matter under advisement. Having carefully considered the arguments and reviewed the applicable law, the Court determines that under Georgia law the entry of a judgment does not transfer a lien on a judgment debtors' real estate; rather, a judgment lien encumbering real property is only created upon recording the judgment in the applicable county's real estate records. Accordingly, the Trustee is entitled to summary judgment on whether the transfer occurred within 11 U.S.C. § 547(b)(4)'s look-back period.

I. SUMMARY JUDGMENT STANDARD

Federal Rule of Civil Procedure 56, made applicable to this proceeding by Federal Rule of Bankruptcy Procedure 7056, states a court may grant summary judgment

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"if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Where "there are no disputed facts and the only issue is the application of law to the undisputed facts, a court may decide at the Rule 56 stage that one side or the other is entitled to judgment." Harris v. Liberty Cmty. Mgmt. , 702 F.3d 1298, 1303 (11th Cir. 2012) (citing Celotex Corp. v. Catrett , 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ).

This is the circumstance here. The parties have stipulated all of the facts relevant to the issue before the Court. (See Joint Stipulation of Fact, A.P. No. 6 [herein "Joint Stipulation"] ). The application of the law to those stipulated facts is the only remaining dispute between the parties. Therefore, this issue is well suited for disposition by summary judgment.

II. STIPULATED FACTS

The Debtors filed a Chapter 11 petition on March 21, 2017. (Pet., Bankr. Doc. No. 1). This Court entered an order converting the case to a Chapter 7 proceeding on March 7, 2018. (Order Granting Mot. to Convert Case, Bankr. Doc. No. 125). Prior to filing this case, the Debtors owned real estate in two Georgia counties, Worth and Tift.

On December 7, 2016, the Superior Court of Tift County entered a Consent Order and Final Judgment in favor of First Community Bank against the Debtors. (Joint Stipulation, ¶ 1). The Judgment was entered one-hundred four (104) days before the petition date.

On December 22, 2016, the Clerk of the Superior Court of Tift County recorded a Writ of Fieri Facias (" the Fi. Fa.") in Tift County's General Execution Docket. (Joint Stipulation, ¶ 4). This Fi. Fa. was recorded fifteen (15) days after the entry of the judgment and eighty-nine (89) days before the petition date.

On January 3, 2017, the Clerk of the Superior Court of Tift County re-recorded the Fi. Fa. to correct the spelling of the Debtors' last name. (Joint Stipulation, ¶ 7). The Fi. Fa. was recorded twenty-seven (27) days after the entry of the judgment and seventy-seven (77) days before the petition date.

On January 25, 2017, the Clerk of the Superior Court of Worth County recorded the Fi. Fa. in its General Execution Docket. (Joint Stipulation, ¶ 11). The Fi. Fa. was recorded four-nine (49) days after the entry of the judgment and fifty-five (55) days before the petition date.

III. CONCLUSIONS OF LAW

The timing of the judgment's entry and its recording is important in an avoidance action because "[w]hen a transfer is ‘made’ for § 547(b)(4)(A) purposes depends on when it is perfected." Gordon v. Novastar Mortg., Inc. (In re Hedrick) , 524 F.3d 1175, 1180 (11th Cir. 2008). Generally, a transfer occurs "at the time such transfer takes effect between the transferor and the transferee." 11 U.S.C. § 547(e)(2)(A). If the transfer is not perfected within thirty (30) days of taking effect, however, the Code considers the point of perfection as the time the transfer takes place. Id. § 547(e)(2)(B). For transfers pertaining to real property, 11 U.S.C. § 547 defines perfection as the point at which a bona fide purchaser could not take an interest in the property that is superior to the transferee's interest. Id. § 547(e)(1)(A). Under Georgia law, a bona fide purchaser cannot take an interest superior to a prior recorded security interest. See Williams v. Smith , 128 Ga. 306, 314, 57 S.E. 801 (1907).

Having framed the basic workings of 11 U.S.C. § 547 and the stipulated facts, the Court can address the issue in this case. Ultimately, resolution depends on when

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the judicial lien encumbering the Debtors' real property "took effect" between First Community and the Debtors under Georgia law.¹ Regarding the real estate in Tift County, if the judicial lien "took effect" when the Tift County Superior Court entered the judgment then, because the judgment was recorded within 30 days, the date of the transfer for the purposes of the preference action is December 7, 2016. This would place the transfer outside the ninety (90) day look-back period and the First Community would be entitled to summary judgment on the claim. If, however, the entry of the judgment did not create a judicial lien encumbering the Debtors' real property, but rather the recording of the Fi. Fa. created the lien, the transfer occurred within the applicable look-back period and the Trustee is entitled to summary judgment on the issue. First Community concedes that even under its interpretation of the law the attachment of the judicial lien on the real property in Worth County, Georgia occurred within the applicable look-back period.²

The interest in property conveyed by a Georgia court's entry of judgment is a matter governed by Georgia law and primarily involves two Georgia statutes. O.C.G.A. § 9-12-80 states: "[a]ll judgments obtained in superior courts... shall bind all the property of the defendant in judgment, both real and personal, from the date of such judgment except as provided in this Code." O.C.G.A. § 9-12-86(b) states: "No judgment... shall in any way affect or become a lien upon the title to real property until the judgment, decree, or writ of fieri facias is recorded in the office of the clerk of the superior court of the county in which the real property is located." At first glance, interpreting these two statutes creates some friction. On one hand, O.C.G.A. § 9-12-80 clearly states that the entry of a judgment "binds" the judgment debtor's real property; but on the other, O.C.G.A. § 9-12-86(b) states the judgment does not "in any way affect or become a lien" on real property without recording.

Although case law interpreting these statutes does little to address this ambiguity, two Georgia appellate decisions provide some direction. In Morris-Weathers the Georgia Supreme Court was tasked with determining the priority between three competing judgment creditors,...