Opinion
NO. 2012-CA-000363-MR
10-31-2014
JOSHUA M. CHAPMAN APPELLANT v. FIRST FARMERS BANK & TRUST COMPANY APPELLEE
BRIEFS AND ORAL ARGUMENT FOR APPELLANT: Marcus S. Carey Erlanger, Kentucky BRIEF AND ORAL ARGUMENT FOR APPELLEE: Ruth H. Baxter Carrollton, Kentucky
NOT TO BE PUBLISHED APPEAL FROM GALLATIN CIRCUIT COURT
HONORABLE JAMES R. SCHRAND, JUDGE
ACTION NO. 10-CI-00132
OPINION
AFFIRMING
BEFORE: MOORE, NICKELL, AND TAYLOR, JUDGES. TAYLOR, JUDGE: Joshua M. Chapman brings this appeal from an Order entered January 23, 2012, denying Chapman's motion to vacate judgment entered November 21, 2011, by the Gallatin Circuit Court, in favor of First Farmers Bank & Trust Company (Farmers). The judgment dismissed Chapman's counterclaim against Farmers. For the reasons stated, we affirm.
The counterclaim asserted by Chapman against Farmers in this action arose in response to an action filed by Farmers to enforce its lien claim in certain collateral pledged by Chapman to secure two separate loans made by Farmers to Chapman. The loans were cross-collateralized and are not in dispute. To fully grasp the issues raised in this appeal, a thorough review of the convoluted facts of this case is warranted.
BACKGROUND
On March 3, 2007, Chapman and his girlfriend, Rhonda Haddix, jointly obtained a loan from Farmers in the principal amount of $16,585. Chapman and Haddix executed a note and security agreement granting a lien to Farmers in a Yamaha four-wheeler to secure the loan. The loan agreement also contained a standard future advance clause and after acquired property clause. On March 5, 2008, Chapman individually obtained a loan from Farmers in the amount of $3,145.28, which was secured by a motor vehicle lien against a 1995 Toyota Tacoma pickup truck owned by Chapman. The loan agreement for the second loan contained virtually the same identical loan provisions as set out in the earlier or first loan documents. Farmers took the position that both loans were cross-collateralized and the pickup truck had been pledged to secure the repayment of both loans.
Joshua M. Chapman acknowledged in his brief and at oral argument that the two loans were cross-collateralized and that the pickup truck secured both loans. Thus, this opinion will not address the validity of the lien claim asserted by First Farmers Bank & Trust Company against the 1995 Toyota Tacoma pickup truck.
On October 30, 2009, Chapman filed a Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the Eastern District of Kentucky. Accompanying his petition, he filed a Statement of Intention to surrender all collateral securing the Farmers' loans including the pickup truck. No reaffirmation or redemption agreement was entered into between Farmers and Chapman in the bankruptcy proceeding. Farmers filed a secured claim in the bankruptcy asserting that $8,105.94 was owed by Chapman on the first loan and $713.69 was owed on the second loan. The bank further asserted that the loans were secured and cross-collateralized by various collateral including the pickup truck. Chapman did not object to the Proof of Claim filed by Farmers in the bankruptcy proceeding and the Trustee abandoned any interest of the estate in the property.
Around the time of the filing of the bankruptcy, Chapman contacted Tina Sanders, an assistant Branch Manager and Loan Officer at Farmers to ascertain whether his former guardian, Jayne Smith and her husband Dennis, could continue making payments on the truck. Dennis Smith is Tina Sanders' brother. Sanders testified that the bank acquiesced in the Smiths' continuing to make payments on the truck loan indebtedness.
Chapman refers to Jayne Smith as his mother and Dennis Smith as his father. The Smiths raised Chapman as legal guardians but otherwise are not legally related to Chapman.
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However, no written agreements were entered into between Chapman or the Smiths and Farmers regarding the payment terms, including duration of payments. Sanders testified that she had no discussions with Chapman or the Smiths regarding the transfer of title to the truck to the Smiths upon payment of the second loan indebtedness in full. The actual payments made by the Smiths are in dispute. Farmers asserts that the Smiths made two payments after the filing of the bankruptcy, while the Smiths assert that five payments were made, paying in full the balance owed on the second loan indebtedness. The Smiths made no payments on the first loan indebtedness, which as noted, was also secured in part by the pickup truck by virtue of the cross-collateralization agreement. Additionally, the Smiths retained possession of the pickup truck after the filing of the bankruptcy in October 2009 until the truck was repossessed in July 2010.
Chapman's bankruptcy discharge was granted by the bankruptcy court on February 11, 2010, pursuant to 11 U.S.C. § 727 of the United States Bankruptcy Code. On May 27, 2010, Farmers initiated this action in the Gallatin Circuit Court to enforce its lien claim against the pickup truck. The complaint against Chapman was filed in rem and the bank otherwise did not seek a monetary judgment against Chapman for the discharged indebtedness. The bank asserted in its complaint that the balance owed by Chapman on the indebtedness secured by the lien against the truck was $8,943.43, which appears to be equivalent to the balance owed on the first loan indebtedness incurred by Chapman in 2007. Again, we emphasize that it is undisputed that this loan was cross-collateralized with the second loan and thus was also secured by the pickup truck.
In conjunction with its in rem complaint, Farmers sought a writ of possession to obtain immediate possession of the truck. On July 1, 2010, the circuit court granted the writ and ordered the sheriff of Gallatin County to seize and deliver the collateral to Farmers. Upon receipt, Farmers subsequently disposed of the pickup truck as a secured creditor in accordance with the Kentucky Uniform Commercial Code. On November 1, 2010, after disposing of the collateral for approximately $1,500, Farmers moved to dismiss its complaint in this action, as no further relief could be obtained against Chapman, given the underlying indebtedness had been discharged in bankruptcy. In response, Chapman moved the circuit court for permission to file a counterclaim against Farmers which the circuit court granted. The counterclaim asserted various claims against Farmers, including violation of the Kentucky Consumer Protection Act, breach of contract, breach of fiduciary duty, conversion, malicious prosecution, and fraud. After the parties had taken discovery regarding the counterclaim, the bank filed a motion for summary judgment thereon.
By judgment entered November 21, 2011, the Gallatin Circuit Court granted summary judgment to Farmers on all claims asserted by Chapman in his counterclaim and dismissed the counterclaim in its entirety. This appeal follows.
STANDARD OF REVIEW
The standard of review on appeal of a summary judgment is whether the trial court correctly found that there was no genuine issue as to any material fact and that the moving party was entitled to judgment as a matter of law. Scifres v. Kraft, 916 S.W.2d 779 (Ky. App. 1996); Kentucky Rules of Civil Procedure (CR) 56.03. Upon review of a motion for summary judgment, all facts and inferences are to be viewed in a light most favorable to the nonmoving party. Steelvest, Inc. v. Scansteel Service Center, Inc., 807 S.W.2d 476 (Ky. 1991). Since summary judgment involves only legal questions and the existence of any disputed material issues of fact, an appellate court is not required to defer to the trial court's decision and will review the issue de novo. Scifres, 916 S.W.2d 779. Our review in this case proceeds accordingly.
ANALYSIS
The genesis of the counterclaim filed by Chapman against Farmers in this action is a purported oral agreement that Chapman entered into with Farmers after filing bankruptcy in October 2009, as concerns the second loan and the pickup truck. Essentially, Chapman argues that this new agreement superseded the two original loan agreements between Chapman and Farmers. Chapman alleges that Farmers agreed for Jayne Smith to continue making monthly payments on the second loan only until paid whereupon Jayne and Dennis Smith would acquire title to the pickup truck free and clear of Farmers' motor vehicle lien claim. The record in this case is simply devoid of sufficient facts to support any allegations regarding a binding oral contract between the parties. We also observe that the allegations in the counterclaim are totally inconsistent with Chapman's acknowledgment that Farmers' lien claim against the pickup truck was cross-collateralized by the first loan, as documented in Farmers unrefuted Proof of Claim filed in Chapman's bankruptcy proceeding.
In this appeal, Chapman relies exclusively on the testimony of Tina Sanders, a loan officer with Farmers, who is also Jayne Smith's sister-in-law. Sanders acknowledged in her deposition, at the request of Chapman, that the Farmers' loan committee approved the Smiths continuing to make payments on Chapman's second loan after Chapman had filed bankruptcy. This loan had a balance of $713.69 at the time that Chapman filed bankruptcy on October 30, 2009. However, Sanders only testified that Farmers permitted Jayne and Dennis to make payments on the truck loan for Chapman. Sanders further testified that she had no discussions or negotiations with Chapman that Farmers would release its lien on the pickup truck upon the Smiths paying off the second loan only. Sanders testimony clearly verifies that no new agreement or new loan terms were discussed by Sanders and Chapman. The acquiescence by Farmers in accepting voluntary payments on the second loan did not create a new agreement as a matter of law.
Chapman also alleged that the Smiths made five monthly payments on the second loan after he filed bankruptcy. The last payment was made on or about February 25, 2010. However, the Smiths retained possession of the truck from November 2009 until the truck was repossessed by Farmers in July 2010, for a period longer than they made payments. There exists no dispute in this case that the Smiths did not make any payments on Chapman's behalf on the first loan debt that was also secured by the truck lien. And importantly, there is no evidence in the record that Chapman or the Smiths sought to enter into any agreement to make payments to Farmers for the first loan debt.
In Kentucky, the first and foremost essential element of a contractual agreement is the mutual assent of the parties. There must be a meeting of the minds by the parties regarding their intentions for a contract to be formed. Tucker v. Pete Sheeran Bro. & Co., 155 Ky. 670, 160 S.W. 176 (1913). There is simply no evidence in the record to reflect that the parties entered into a new agreement that superseded the underlying loan agreements that Chapman had previously entered into with Farmers. Chapman's argument that Farmers accepted payments to which Farmers was not entitled is simply without merit and contrary to the terms of the security agreement he signed for the cross-collateralized loans. Had Chapman surrendered the pickup truck after filing bankruptcy and Farmers continued to pursue payments, then Chapman could have pursued alleged violations of the bankruptcy code in the bankruptcy court. Accordingly, there being no new contract between Chapman and Farmers, any claims asserted in the counterclaim as concerns breach of contract, breach of duty to act in good faith, breach of fiduciary duty, fraud, oppression, malice or intentional misrepresentation, regarding this purported contract are simply without merit and summary judgment was properly granted thereon.
However, our analysis does not end here. Jayne Smith testified that she also had discussions with Tina Sanders on behalf of Farmers regarding her making payments on the pickup truck and obtaining a transfer of title to her husband Dennis upon payment of the second loan. Smith testified at her deposition that when the last payment was made, that Sanders stated Farmers would transfer title of the truck to Dennis Smith. The problem we are faced with regarding a purported contractual agreement between the Smiths and Farmers is that Jayne and Dennis Smith are not parties to this litigation. The counterclaim only asserts claims on behalf of Chapman, not the Smiths, nor were the Smiths named parties in the original complaint. Accordingly, this Court will not address any claims asserted against Farmers by the Smiths as they are not parties to this action nor were such claims properly presented to the circuit court below.
Finally, we would be remiss if this Court did not address the total inconsistency of the counterclaim with Chapman's actions in his bankruptcy. Upon the filing of a voluntary petition for relief under the United States Bankruptcy Code (U.S.C.), creditors are stayed from enforcement of their claims, including lien claims, against the debtor and the debtor's property. 11 U.S.C. § 362(a). As concerns creditors' claims against a debtor, the automatic stay continues in effect until a discharge is granted. 11 U.S.C. § 362(c)(2)(C). Unless an objection to discharge is granted by the bankruptcy court, all claims against the debtor are discharged pursuant to 11 U.S.C. § 727. When the discharge is entered by the court, creditors holding unsecured claims are permanently enjoined from attempting to collect their claims as personal obligations of the debtor or from property acquired by the debtor after the bankruptcy. 11 U.S.C. § 524(a). However, in regards to creditors holding claims secured by a lien, as in this case, a creditor's only remedy after entry of discharge is to file an in rem proceeding against the property to which the lien is affixed. See In re Lynch, 187 B.R. 536 (Bankr. E.D. Ky. 1995). Thus, a secured creditor's exclusive remedy after discharge is restricted to foreclosure proceedings against the property only encumbered by the lien. Id. See also 11 U.S.C. § 522(c)(2).
In Chapman's bankruptcy petition and schedules, he duly noted the two loans owed to Farmers at the time of the filing of the bankruptcy. The debts were listed as "secured." Additionally, in Chapman's Debtor's Statement of Intention, which is required to be filed by each individual debtor in a Chapter 7 bankruptcy proceeding, Chapman clearly and conspicuously noted that the property securing the loan indebtedness, including the pickup truck, would be surrendered to Farmers. This statement was signed by Chapman on October 30, 2009, under penalty of perjury. The surrender of the pickup truck to Farmers did not occur. Farmers then filed a Proof of Claim with the bankruptcy court, detailing the loan indebtedness owed for both loans and specifically stating that the loans were cross-collateralized against Chapman's pickup truck. Chapman did not object to this Proof of Claim in his bankruptcy proceeding prior to receiving his discharge on February 11, 2010. Had Chapman intended to retain the truck, he could have sought redemption of the vehicle at its fair market value, which he listed at $800 in his petition, and obtained an unencumbered title to the vehicle through the bankruptcy court, notwithstanding that the vehicle was cross-collateralized with the first loan. See 11 U.S.C. § 722. However, Chapman took none of these steps to protect the vehicle in the bankruptcy and simply acknowledged to the bankruptcy court that he intended to surrender the vehicle to the secured creditor, Farmers, which he failed to do.
Chapman's actions and sworn statements in the bankruptcy are totally inconsistent with the allegations set forth in the counterclaim filed in this action. Similarly, the actions taken by Farmers after the discharge was granted by the bankruptcy court are totally consistent with permissible actions that may be taken by creditors holding secured claims against a bankrupt debtor. As previously noted, the complaint initiated in this action was filed in rem only, seeking to enforce Farmers' lien claim against its the collateral, Chapman's pickup truck. Upon disposition of the pickup truck, Farmers promptly sought to dismiss this action which triggered the filing of the counterclaim now on appeal to this Court. The actions taken by Farmers, including repossession of the pickup truck, were totally consistent and in compliance with applicable Kentucky law as well as applicable provisions of the United States Bankruptcy Code. To the extent that Farmers' actions after the bankruptcy have allegedly violated the permanent injunction of 11 U.S.C. § 727, Chapman's exclusive remedy lies within the jurisdiction of the bankruptcy court under the bankruptcy code. See 11 U.S.C. § 105.
We also note that Chapman insinuates in his brief that somehow the actions of Farmers after the bankruptcy proceeding constitute a violation of the Kentucky Consumer Protection Act. Based on our review of the facts and analysis of the law, Chapman's counterclaim fails to set forth any cause of action under the Kentucky Consumer Protection Act as concerns Farmers' conduct both before and after the bankruptcy proceeding. We further reiterate that Chapman has failed to set forth any facts to support a claim against Farmers for breach of contract, breach of fiduciary duty, conversion, malicious prosecution, or fraud, as concerns Farmers' conduct in dealing with its collateral after Chapman's bankruptcy.
For the foregoing reasons, the judgment of the Gallatin Circuit Court dismissing the counterclaim asserted by Joshua M. Chapman in this action is affirmed.
ALL CONCUR. BRIEFS AND ORAL ARGUMENT
FOR APPELLANT:
Marcus S. Carey
Erlanger, Kentucky
BRIEF AND ORAL ARGUMENT
FOR APPELLEE:
Ruth H. Baxter
Carrollton, Kentucky