Gracy v. Ark Valley Credit Union

FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
FOR THE TENTH CIRCUIT May 24, 2017
_________________________________
Elisabeth A. Shumaker
Clerk of Court
In re: JEFFREY KENT GRACY,
Debtor.
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J. MICHAEL MORRIS,
Plaintiff - Appellee,
v. No. 16-3281
(D.C. No. 6:15-CV-01306-JTM)
ARK VALLEY CREDIT UNION, (D. Kan.)
Defendant - Appellant.
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ORDER AND JUDGMENT*
_________________________________
Before BRISCOE, HOLMES, and PHILLIPS, Circuit Judges.
_________________________________
Appellant Ark Valley Credit Union (“AVCU”) appeals the judgment entered
against it and in favor of Appellee J. Michael Morris (“Trustee”) in an adversary
proceeding in a Chapter 7 bankruptcy case. The primary issue in this appeal is
whether § 58-4214 of the Kansas Manufactured Home Act (“KMHA”) is the
*
After examining the briefs and appellate record, this panel has determined
unanimously to honor the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore
submitted without oral argument. This order and judgment is not binding precedent,
except under the doctrines of law of the case, res judicata, and collateral estoppel. It
may be cited, however, for its persuasive value consistent with Fed. R. App. P. 32.1
and 10th Cir. R. 32.1.
exclusive means for determining whether a mobile home is a fixture for purposes of
the attachment of a security interest or whether a court may also look to Kansas
common law to make that determination, as the district court and bankruptcy court
did in this case. Exercising our jurisdiction pursuant to 28 U.S.C. § 158(d), we
affirm the judgment in favor of the Trustee.
I.
The parties are familiar with the facts and procedural background, so we will
limit our recitation of the background to that which is necessary for the analysis.
In the mid-1990s, Jeffrey Kent Gracy (“Debtor”) bought land in Caldwell,
Kansas, and moved a manufactured home (also known as a mobile home) onto the
property. Debtor and his wife lived in the home together until his wife passed away.
Debtor continued to live there after his wife’s death.
In 2009, Debtor borrowed $21,000 on a home equity line of credit. To secure
the loan, Debtor granted AVCU a mortgage on his Caldwell property. The mortgage
did not note the presence of the manufactured home on the property.
A year later, Debtor obtained a second line of credit in the amount of $26,000.
He used this money to build a detached garage on the property. Like the first
mortgage, the second mortgage did not reference the manufactured home, but Debtor
believed that both mortgages had granted a lien on the land, the manufactured home,
and the detached garage.
2
Debtor filed a Chapter 7 bankruptcy petition in July 2013. He claimed the
Caldwell property as his homestead and did not list the manufactured home as
personal property.
The Trustee filed an adversary proceeding to avoid AVCU’s alleged lien in the
manufactured home as unperfected under 11 U.S.C. § 544(a) because the lien was not
noted on the home’s certificate of title as required by state statute.1 AVCU asserted
that it had not taken a lien in the home and therefore there was nothing for the
Trustee to avoid. The bankruptcy court agreed with AVCU, concluding that no liens
had attached to the mobile home because the mortgage did not sufficiently describe
it. The Trustee appealed that decision to the district court.
On appeal, the district court vacated the bankruptcy court’s decision,
concluding that the mortgage’s property description included all fixtures, which
would include affixed mobile homes. The court therefore remanded for the
bankruptcy court to consider whether the mobile home could be considered a fixture
under Kansas common law. In doing so, the district court rejected AVCU’s
1
“The so-called ‘strong arm’ powers of 11 U.S.C. § 544(a)(1) grant the trustee
the status of a hypothetical lien creditor once the bankruptcy petition has been filed.”
Morris v. Hicks (In re Hicks), 491 F.3d 1136, 1140 (10th Cir. 2007). “The rights of
such a lien creditor are determined under state law.” Id. “Kansas law subordinates
an unperfected security interest to the rights of a person who became a lien creditor
prior to perfection. Thus, if [a creditor’s] security interest was unperfected under
state law at the time [the debtor] filed for bankruptcy, the trustee may exercise his
power to avoid [the] lien.” Id. (citation omitted). Avoided liens are automatically
“preserved for the benefit of the estate.” 11 U.S.C. § 551.
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contention that the KMHA was the exclusive means for determining whether a
mobile home could be considered a fixture in these circumstances.
On remand, the bankruptcy court concluded that the mobile home was a
fixture under Kansas common law and that it was subject to AVCU’s mortgages.
The bankruptcy court further concluded that because AVCU had not properly
perfected its security interests in the mobile home, the trustee could avoid AVCU’s
mortgage liens and preserve them for the benefit of the estate. AVCU appealed the
bankruptcy court’s decision to the district court and that court affirmed. AVCU now
appeals from the judgment entered in favor of the Trustee.
II.
When a district court acts in its capacity as a bankruptcy appellate court, as the
district court did in this case, “we review the bankruptcy court’s decision
independently.” Paul v. Iglehart (In re Paul), 534 F.3d 1303, 1310 (10th Cir. 2008).
We review de novo the bankruptcy court’s legal conclusions and we review for clear
error its factual findings. Id. Although “[w]e do not defer to the district court’s
intermediate appellate analysis, . . . we may look to it to inform our review of the
result reached by the bankruptcy court.” Id.
A.
AVCU’s primary argument on appeal is that compliance with the KMHA is the
exclusive way to change the status of a manufactured home from personal property to
a fixture. Under the KMHA, a mobile home is considered a fixture if it is
permanently affixed to the real property and its title has been eliminated. See
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Kan. Stat. Ann. § 58-4214. Because it is undisputed that Debtor did not eliminate the
title to his mobile home, AVCU asserts that the home could not be considered a
fixture.
In support of its argument that § 58-4214 provides the sole means of
converting a manufactured home from personal property to a fixture, AVCU relies on
Wachovia Bank, N.A. v. Morris (In re Thomas), 362 B.R. 478 (B.A.P. 10th Cir.
2007). In that decision, the Bankruptcy Appellate Panel (“BAP”) concluded that the
“Kansas common law of fixtures” could not “apply to manufactured homes in
harmony with § 58-214.” Id. at 486-87. The BAP explained:
The clarity of the process outlined in § 58-4214 plainly protects parties
holding, or seeking to acquire, interests in manufactured homes. If the
common law were also applicable to determine the fixture status of a
manufactured home, that high degree of certainty would be ineffective
absent a subsequent judicial determination that a given manufactured home
had, or had not, become a fixture under the common law standard.
Id. at 487.
Although the BAP focused on the certainty of the process for determining whether
a mobile home is a fixture under § 58-4214 versus the uncertainty of the process for
making that same determination under the common law, the BAP did not undertake an
analysis of the statutory language to determine whether the legislature intended
§ 58-4214 to provide the exclusive means for making the fixture determination. In
contrast, the district court rejected AVCU’s position that § 58-4214 provides the
exclusive means for determining whether a mobile home is a fixture after analyzing the
statutory language consistent with principles of statutory interpretation.
5
In its appellate brief, AVCU argues that “[t]he BAP decided that simplicity
was paramount. And that should be the rule.” Aplt. Br. at 11. AVCU further argues
that “[t]o adopt a rule that requires a complex determination when a simple one is
available causes many problems for those that are simply trying to move through
transactions.” Id. And then AVCU asks the rhetorical question: “Is it a stretch to
assume that the Kansas Legislature intended the simple over the complex?” Id. at
11-12. AVCU fails, however, to explain how the district court erred in its analysis of
the statutory text. We are not persuaded by AVCU’s argument that the simplicity of
the process outlined in § 58-4214 demonstrates that the legislature intended for it to
be the exclusive means to make the fixture determination. Instead, we agree with the
district court’s analysis of the statutory text, which led it to conclude that the Kansas
legislature did not intend for § 58-4214 to exclude common law as a means for
making the fixture determination.2
The district court first noted that the Kansas Supreme Court has not ruled on
this issue, so it proceeded to interpret § 58-4214 according to state rules of statutory
construction, see Finstuen v. Crutcher, 496 F.3d 1139, 1148 (10th Cir. 2007). The
Kansas Supreme Court has indicated that “statutory interpretation begins with the
language selected by the legislature.” Moser v. Kan. Dep’t of Revenue, 213 P.3d
2
After the district court reached this conclusion, it remanded for the
bankruptcy court to consider whether Debtor’s manufactured home had become a
fixture under Kansas common law. Because the bankruptcy court did not
independently decide the legal issue, but instead followed the district court’s
direction on remand, we look to the district court’s analysis of this issue as it
“inform[s] our review of the result reached by the bankruptcy court,” In re Paul,
534 F.3d at 1310.
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1061, 1064 (Kan. 2009) (brackets and internal quotation marks omitted). The
relevant statutory provision states:
Whenever a manufactured home or mobile home is permanently affixed to
real property, by placement upon a permanent foundation of a type not
removable intact from such real property, the manufactured home or mobile
home shall be considered for all purposes an improvement to real property,
if the certificate of title which has been issued or is required to be issued for
such manufactured home or mobile home pursuant to K.S.A. 58-4204, and
amendments thereto, is eliminated pursuant to this section. If the certificate
of title has been eliminated pursuant to this section, the ownership of the
manufactured home or mobile home shall be an incident of ownership of
the real property where it is located under governing real property law. If
the certificate of title has been eliminated pursuant to this section, a
separate security interest in the manufactured home or mobile home shall
not exist, and the manufactured home or mobile home shall only be subject
to a lien as part of the real property where it is located.
Kan. Stat. Ann. § 58-4214(a).
The district court began with the first sentence of the statutory provision,
explaining that “the word ‘whenever’ indicates the timing or frequency of the
creation of a fixture under the statute.”3 Morris v. Ark Valley Credit, 536 B.R. 887,
894 (D. Kan. 2015). The district court next looked to the definition of “whenever,”
which means “at any or every time that” and the definition of “shall,” which
“indicates a mandatory conclusion.” Id. (citations and internal quotation marks
omitted). Read in conjunction with the rest of the provision, the court concluded that
this language means that “at any time or every time that a manufactured home is
permanently affixed to realty and the title is eliminated, it must be treated as a
3
The statute uses the term “improvement” but, as the district court noted,
“fixture” and “improvement” are interchangeable terms in the context of Kansas
property law, see City of Wichita v. Denton, 294 P.3d 207, 258 (Kan. 2013).
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fixture.” Id. But the court noted that “whenever” is not exclusive language, and “the
[l]egislature could have employed other simple combinations of words instead of
‘whenever’ to indicate exclusivity, such as ‘only when’ or ‘only if.’” Id. The district
court therefore concluded that “[a] plain reading of K.S.A. § 58-4214 thus indicates
that every time the conditions are met, the home is a fixture; it does not plainly read
that a manufactured home can only become a fixture if the conditions are met.” Id.
We agree with the district court that the statute’s plain language “does not
exclude common law as a means of converting a manufactured home into a fixture; it
merely provides a set of conditions under which one can guarantee that a mobile
home will be treated as a fixture.” Id.4 We therefore see no reversible error in the
district court’s determination that § 58-4214 of the KMHA does not exclude the
application of common law to determine whether a manufactured home is a fixture.
B.
AVCU appears to argue in the alternative that the bankruptcy court erred in
finding that Debtor’s manufactured home was a fixture under the common law test.
See Aplt. Br. at 17-18. “[W]hether a piece of property is a fixture is a question of
4
This conclusion is consistent with other bankruptcy court decisions.
See, e.g., Moore v. Morris (In re Moore), No. 09-11051, 2011 WL 1100072, at *4
(Bankr. D. Kan. Mar. 23, 2011) (“[Section 58-4214] neither addresses nor precludes
reliance on the Kansas common law of fixtures for determining whether a mortgage
lien attaches to the [manufactured] home.”); id. at *4 n. 9 (“The Court considers that
Thomas’ statement concerning the Act’s blanket displacement of fixture law dicta.
The Act supplies the two means of perfecting a lien in a manufactured home, but
does not purport to displace other property law concepts.”).
8
fact,” City of Wichita v. Eisenring, 7 P.3d 1248, 1259 (Kan. 2000), and we review the
bankruptcy court’s factual findings for clear error, In re Paul, 534 F.3d at 1310.
The factors for determining whether a manufactured home is personal property
or a fixture are: “(1) annexation to the realty; (2) adaptation to the use of that part of
the realty with which it is attached; and (3) the intention of the party making the
annexation.” Stalcup v. Detrich, 10 P.3d 3, 8 (Kan. App. 2000). The bankruptcy
court found that all of these factors were shown.
AVCU argues solely that the manufactured home was not permanently affixed
to the realty, which relates to the first factor. AVCU does not address the other two
factors.
With respect to the first factor, the bankruptcy court noted that the
manufactured home was set on piers that are set on concrete slabs and that the home
was anchored to the piers and slabs with straps but was not otherwise attached.
Although the court recognized that it was plausible that the home could be removed
from the ground, it also recognized that courts assess less importance to the
annexation factor than they do to the other two factors. The court explained that
“when there is persuasive evidence that the property has been adapted to the land’s
use and that the annexor intended it to become part of the land, those latter proofs
make up for a lesser degree of the permanence of the attachment.” Aplt. App. at 46.
The bankruptcy court found that the land at Caldwell was Debtor’s homestead
and that he placed his manufactured home on that land to inhabit as his homestead,
which he has done for twenty years. The court noted that Debtor “surrounded the
9
home with brick skirting, built a porch and a back patio adjacent to it, and erected a
large garage just by it.” Id. at 47. The court concluded that “[a]dding these
amenities and living in the home suggest [Debtor’s] efforts to adapt it to the use of
the land as his homestead.” Id. The court also noted testimony from a realtor about
the value that the manufactured home added to the land if the two were sold together,
which also supported the court’s conclusion “that the home has been successfully
adapted to the use of the realty.” Id.
As for intent, the court concluded that it was clear that Debtor “intended to
make the property as a whole his homestead when he moved the manufactured home
onto the realty and subsequently made further improvements to it while he
continuously lived there over the next 20 years.” Id. at 48. And the court noted that
AVCU “presented no evidence to the contrary.” Id. The court also cited to Debtor’s
testimony that he “considered it his permanent home” and that “he intended to
encumber it along with his homestead real estate.” Id.
After considering all three factors, the bankruptcy court found that Debtor’s
manufactured home was a fixture. AVCU has failed to show that the bankruptcy
court clearly erred in making this factual finding.
III.
For the foregoing reasons, we affirm the judgment.
Entered for the Court
Jerome A. Holmes
Circuit Judge
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