Stephen Barnes, Chapter 7 Trustee v. UB II (Lyons), LLC

Summary

The United States Bankruptcy Court for the Western District of Kentucky denied Chapter 7 Trustee Stephen Barnes’s motion for summary judgment and granted UB II (Lyons), LLC’s cross-motion. The court held that UB II maintained a perfected possessory lien in the debtor’s commercial real estate security deposit without filing a UCC financing statement. The court further held that the debtor’s settlement with Simmons Bank did not release or impair UB II’s lien, and that the trustee could not avoid it under 11 U.S.C. § 544.

Holdings

1. UB II perfected its security interest in the security deposit by maintaining possession of the collateral and was not required to file a UCC-1 financing statement to preserve perfection.
2. The security deposit was not an account requiring perfection by filing under Kentucky's UCC provisions.
3. Neither the Landlord Agreement nor the settlement agreement released or waived UB II's possessory lien because UB II did not clearly and unambiguously agree to relinquish it and did not sign the settlement agreement.
4. The Trustee could not avoid UB II's lien under 11 U.S.C. § 544(a) because the Trustee did not possess an interest in the security deposit superior to UB II's perfected possessory lien.
5. A party seeking to contest or obtain a declaration concerning the validity, priority, or extent of a lien must proceed by adversary proceeding.

Questions Presented

1. Whether UB II perfected its security interest in the lease security deposit by possession without filing a UCC-1 financing statement.
2. Whether the security deposit constituted an account requiring perfection by filing under Kentucky's Uniform Commercial Code.
3. Whether the Landlord Agreement and the later settlement agreement released or otherwise eliminated UB II's possessory lien without UB II's consent.
4. Whether the Chapter 7 Trustee could avoid UB II's lien under the strong-arm powers of 11 U.S.C. § 544(a).
5. Whether the Trustee could determine the validity, priority, or extent of UB II's lien without commencing an adversary proceeding.

Disposition

other