441 B.R. 841
Bankr. W.D. Ky.2011Background
- Mr. Helmick controls the Dynamis Defendants and also held senior roles at WPB and Road Ranger, a competitor.
- The Asset Purchase Agreement (July 12, 2004) structure used Dynamis, Molly, and Helmick Oil to purchase assets with a Jack's Company promissory note of $1.8 million.
- Jack's Company provided the Jack's Note as an allegedly unsecured payment vehicle; the other Helmick entities funded the purchase and loan payments.
- The transaction was designed to meet USDA loan guarantees, requiring 20% equity and resulting in a complex multi-entity structure to satisfy conditions.
- Jack's Company eventually defaulted on the Jack's Note; Plaintiff NAJA filed state court suit and then lis pendens in public records.
- Debtors filed Chapter 11; NAJA filed this adversary proceeding seeking a first-priority equitable lien on real estate transferred under the Asset Purchase Agreement.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether NAJA has an equitable lien on the real estate. | NAJA never received full payment; Bolen supports an equitable vendor lien. | Jack's Note constitutes full consideration; Bolen does not apply because vendee-notice distinctions. | Plaintiff has a first-priority equitable lien on the real estate. |
| Whether NAJA's equitable lien has priority over PBI's lien. | Equitable lien is superior; actual notice to PBI defeats its priority. | PBI's lien should be senior or co-equal absent notice. | NAJA's equitable lien is superior to PBI's lien. |
| Whether NAJA's lien is avoidable under 11 U.S.C. § 544. | Lis pendens gives constructive notice against bona fide purchasers; § 544 unavailable. | Trustee could avoid under § 544(a)(3) or other grounds. | NAJA's lien is not avoidable; lis pendens pre-petition perfection prevents § 544 avoidance. |
| Does the lis pendens filing affect the lien status against subsequent encumbrancers? | Lis pendens perfects the property interest against later encumbrancers. | Not explicitly contested; implies no effect beyond notice. | Filing of lis pendens perfects the encumbrance against subsequent creditors and purchasers. |
Key Cases Cited
- Bolen v. Bolen, 169 S.W.3d 59 (Ky.App. 2005) (vendor lien for unpaid purchase money when not expressly reserved)
- Tile House, Inc. v. Cumberland Federal Savings Bank, 942 S.W.2d 904 (Ky.1997) (equitable lien priority depends on actual notice to subsequent lienholders)
- Commonwealth Life Ins. Co. v. Eline, 274 Ky. 539, 119 S.W.2d 637 (Ky.1938) (historical basis for vendor liens and notices)
- Starbird v. Blair, 227 Ky. 258, 12 S.W.2d 693 (Ky.1928) (early authority on liens and vendor rights)
- Commercial Transp. Corp. v. Robinson Grain Co., 345 F. Supp. 342 (W.D. Ky. 1972) (lis pendens as notice and encumbrancer concept in Kentucky law)