In re Buel PENNINGTON, Debtor. Michael L. HOLLAND, et al., Plaintiffs, v. Buel PENNINGTON, et al., Defendants. Aldo and Bonnie TERSIGNI, Third-Party Plaintiffs, v., Joseph P. CONNORS, Sr., et al., Third-Party Defendants., United States Bankruptcy Court, E.D. Kentucky, Ashland Division., 224 B.R. 36, Bankruptcy No. 97-1008. Adversary No. 97-1002., August 21, 1998

In re Buel PENNINGTON, Debtor. Michael L. HOLLAND, et al., Plaintiffs, v. Buel PENNINGTON, et al., Defendants. Aldo and Bonnie TERSIGNI, Third-Party Plaintiffs, v.

Joseph P. CONNORS, Sr., et al., Third-Party Defendants.

United States Bankruptcy Court, E.D. Kentucky, Ashland Division.

224 B.R. 36

Bankruptcy No. 97-1008. Adversary No. 97-1002.

August 21, 1998.

Jennifer Ruiz, Washington, DC, Adrienne Berry, Louisville, KY, for Plaintiffs.

Stuart M. Fischbein, Washington, D.C., for I.R.S.

MEMORANDUM OPINION

WILLIAM S. HOWARD, Chief Judge.

This matter is before the Court to resolve the question of the priority of liens as be╜tween the plaintiff UMWA Health and Re╜tirement Funds ("the Funds") and defendant United States Internal Revenue Service ("IRS"). The debtor herein was the sole shareholder, president and director of Jagged Coal, Inc. This Court has previously determined that the debtor wrongfully di╜verted funds from Jagged Coal for his per╜sonal gain by the breach of his fiduciary duty, and concluded that Jagged Coal had an equitable and beneficial interest in the pro╜ceeds from the sale of a condominium in Florida, and a perfected security interest in those proceeds.

Other parties to this action also had per╜fected security interests in the proceeds, however, and the issue of the priority of these competing liens was and is before the Court. This Court has determined that the third-party plaintiffs, Aldo and Bonnie Ter╜signi, had a prior and superior mortgage lien. The remaining lien issue therefore falls be╜tween the Funds and the IRS. It should be noted that both parties made their argu╜ments on the lien priority issue before the Court decided Jagged Coal's interest in the Florida condominium.

Review of the facts pertinent to this issue reveals that the Funds obtained a partial default judgment against Jagged Coal in Jo╜seph P. Connors , et al. v. Jagged Coal, Inc., Civil Action No. 2:91-0684, the United States District Court for the Southern District of West Virginia for delinquent contributions in the principal amount of $70,354.66 ($81,870.52 with interest after August 16, 1991). The judgment was registered in the Eastern Dis╜trict of Kentucky on November 22, 1991.

In McDermott, supra, the Supreme Court ruled that the judgment lien creditor did not have a perfected judgment lien where it had not yet attached to after-acquired property at the time of its filing. The Court stated:

The Bank argues that, as of July 6, 1987, the date it docketed its judgment lien, the lien was "perfected as to all real property then and thereafter owned by" the McDer╜motts, since "[n]othing further was re╜quired of [the Bank] to attach the non╜contingent lien on after-acquired proper╜ty." . . . . That reflects an unusual notion of what it takes to "perfect" a lien. Under the Uniform Commercial Code, for exam╜ple, a security interest in after-acquired property is generally not considered per╜fected when the financing statement is filed, but only when the security interest has attached to particular property upon the debtor's acquisition of that property. . . . . And attachment to particular property was also an element of what we meant by "perfection" in [United States v.] New Britain . . . . . The Bank concedes that its lien did not actually attach to the property at issue here until the McDermotts acquired rights in that property ..... Since that occurred after filing of the fed╜eral tax lien, the state lien was not first in time. (Cites omitted.)

507 U.S. 447, 113 S.Ct. at 1529-30. The I.R.S. argues that this is exactly the case here. The Court must agree. At the time the Funds filed their notice of judgment in Florida, Jagged Coal had not been deter╜mined to be the owner of any property to which their judgment lien could attach. The fact that this Court's determination was that Jagged Coal had an equitable and beneficial interest in the property does not help the Funds.

In United States v. Cohen, 271 F.Supp. 709 (S.D.Fla.1967), the court stated:

[A] judgment at law is not a lien on land to which the judgment debtor has no legal title. Equitable interests in property are ordinarily not subject to levy and sale un╜der writ of execution in Florida; they must either be reached by supplemental proceedings or by creditors suit . . . . . Under federal concepts a lien is not perfected if its existence, amount or enforcement is contingent upon the outcome of a suit . . . . .

State-created liens are perfected or choate for priority purposes when the iden╜tity of the lienor, the property subject to the lien, and the amount of the lien are established. . . . . Whether Fontainebleau's judgment on the note against Cohen constituted a lien on his beneficial interest in said mortgage was not determined under state law until Fontainebleau obtained its decree in its Citrus County creditors suit. It was only when that decree was entered that the property subject to Fontainebleau's judgment lien was determined, and thus it was only when that decree was entered that Fontainebleau's judgment became choate in the Federal sense and Fon╜tainebleau became a judgment creditor for purposes of ╖ 6323. (Cites omitted.)

271 F.Supp. at 716-17. As set out above, the Funds filed suit in Collier County to domesti╜cate their judgment and to set aside the fraudulent transfer of funds from Jagged Coal to the debtor. Apparently the Funds never obtained a decree in their suit in Col╜lier County. Pursuant to the reasoning in Cohen their judgment lien could not attach to Jagged Coal's beneficial interest in the prop╜erty because Florida had not yet determined that Jagged Coal had such an interest. Such determination was made, by this Court, after the I.R.S. had filed its lien. Pursuant to the case law set out above, the I.R.S.'s lien is first in time, and therefore prior and superi╜or.

An order in conformity with this opinion will be entered separately.

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