Lesli Ann Keith

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE WESTERN DISTRICT OF MISSOURI
In re: )
)
LESLI ANN KEITH ) Case No. 04-31025
)
Debtor. )
MEMORANDUM OPINION
This matter comes before the Court on the motion of Buildings, Inc. (“Buildings”) to prohibit
or condition Lesli Ann Keith’s (“Debtor”) use of Buildings’s purported collateral in the operation of
her poultry farm. Buildings is a $200,000.00 judgment creditor and the alleged collateral at issue is
a poultry check of about $22,000.00, payable to the Debtor, and the Debtor’s bank account, having an
approximate balance of $1,262.00. Buildings caused a writ of garnishment to be served on both items,
but before the garnishment could be fully completed, the Debtor filed a Chapter 11 bankruptcy. The
Debtor contends that Buildings does not have any right to restrict her use of check proceeds or bank
account funds on the basis that Buildings is an unsecured creditor, the Court previously ordered
Buildings to turn over the check and bank account funds inasmuch as its continued collection efforts
violated the automatic stay, and that any purported lien held by Buildings is avoidable under 11 U.S.C.
§ 547.
The Court held a hearing in this matter on September 2, 2004, in Carthage, Missouri, at which
time the Court took the matter under advisement. After considering the arguments of the parties and
the relevant statutory and case law, the Court will allow the Debtor to use the proceeds of her bank
account and poultry check and the Court will grant the Bank a replacement lien on the Debtor’s real
property.
I. BACKGROUND
The Debtor is a chicken farmer. Pre-petition, the Debtor borrowed money to pay for
construction work to be performed by Buildings. Despite taking out a construction loan, the Debtor
never paid Buildings for its work. After the Debtor defaulted on her payments, Buildings filed suit
in state court, obtained a judgment, and sought to execute on that judgment, in part, through a writ of
garnishment on the Debtor’s real property, bank account, and on a poultry check. According to
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Buildings, the writ of garnishment was served against one $22,000.00 poultry check – although
Buildings never received the benefit of those funds – and against the Debtor’s bank account having an
approximate balance of $1,262.00, which had been paid over to the state court registry pursuant to the
garnishment at the time the Debtor filed her Chapter 11 bankruptcy petition, which stopped both of the
garnishments.
In an unopposed motion to this Court, the Debtor requested that Buildings release the Debtor’s
bank account and poultry check inasmuch as those items were property of the estate, and as of the
petition date, the garnishment of those items was still unsatisfied. The Court granted the Debtor’s
motion, finding that Buildings’s continued collection efforts on those items violated the automatic stay.
As of September 2, 2004, the Debtor had spent all or part of the proceeds of the poultry check on
business operations but had not spent the money in her bank account.
II. DISCUSSION
Buildings now seeks to prohibit the use of its “cash collateral” by the Debtor on the grounds
that it has a perfected security interest in the Debtor’s poultry check and bank account by virtue of its
judgment lien and subsequent garnishment proceedings. The determination of whether Buildings had
a perfected judgment lien, and the timing of that perfection, is important because a Chapter 11 debtor-
in-possession is also a lien creditor as of the date of the bankruptcy petition, 11 U.S.C. § 544, Mo.
Rev. Stat. § 400.9-102.52(c), and if the Debtor filed her petition before Buildings perfected its
judgment lien, then the Debtor has priority over Buildings in using property of the estate. United
States v. McDermott, 507 U.S. 447, 449, 113 S. Ct. 1526; 123 L. Ed. 2d 128 (1993) (“[P]riority for
purposes of federal law is governed by the common-law principle that ‘the first in time is the first in
right.’”) (citation omitted). If Buildings has a prior perfected judgment lien against the Debtor’s
poultry check and bank account, then the Debtor may not use those items unless Buildings’s interests
therein are adequately protected. 11 U.S.C. § 363(d).
Under Missouri law, once a party obtains a state court judgment, that judgment becomes a lien
on of the judgment debtor’s real estate that is situated in the county in which the rendering court is
located. Mo. Rev. Stat. § 511.350.1. The judgment lien against the judgment debtor’s real property
is effective as of the date of the judgment. Mo. Rev. Stat. § 511.360; Mo. S.Ct. Rule 74.08.
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In the context of personal property, however, there cannot be any execution of judgment before
the personal property is levied, Mo. Rev. Stat. § 513.085, and it is the levy that creates a lien on the
judgment debtor’s personal property. Mo. S. Ct. Rule 76.07. Perfection of a judgment lien through
garnishment is effectuated differently, depending on whether the personal property is tangible or
intangible. A judgment lien against tangible personal property is not perfected until the sheriff seizes
that tangible item. Jacques v. Goggin, 245 S.W.2d 904, 908 (Mo. 1952) (“No lien exists in favor of
a plaintiff upon property of an attachment or execution defendant in the hands of the garnishee until
such property comes into the hands of the sheriff.”); Rabiste v. Southern, 254 S.W. 166, 169 (Mo.
1923) (same); McGarry v. Lewis Coal Co., 6 S.W. 81, 82 (Mo. 1887) (“Garnishment is ... a warning
to the garnishee not to dispose of the property of the defendant in his hands .... Under the law
applicable to attachments, it is the levy by the officer that creates the lien.”); Mann v. Art Britton
Auction Sales, Ltd. (In re Riverfront Food & Beverage Corp.), 29 B.R. 846, 850 (Bankr. E.D. Mo.
1983) (holding that a garnishment did not create a lien on the inventory held by an auctioneer before
the sheriff seized the property – it only triggered the potential personal liability of the auctioneer if
the auctioneer were to dispose of the property).
When the personal property subject to garnishment is an intangible, however, such as a debt,
or a check payable to order, a judgment lien is effective upon issuance of the writ of garnishment.
Vittert Construction & Investment Co. v. Wall Covering Contractors, Inc., 473 S.W.2d 799, 804
(Mo. Ct. App. 1971) (“[T]he service of the writ of garnishment created a lien upon money garnished
that could not be impaired by subsequent action by others for the same fund. Garnishment on
indebtedness has the effect of seizure.”). See also Dugan v. Missouri Neon & Plastic Advertising
Co., 472 F.2d 944, 950 (8th Cir. 1973) (finding that cash and checks in the hands of an auctioneer were
equivalents to intangible indebtedness owed by the auctioneer to the owner of the property because
even if the sheriff had seized the cash and checks, the sheriff could not endorse the checks and if the
sheriff seized the cash, then the sheriff would be exposed to liability for an illegal seizure inasmuch
as part of the cash proceeds belonged to the auctioneer); In re Collins, 234 B.R. 88, 93 (Bankr. W.D.
Mo. 1999) (“Because ... service of a garnishment in aid of execution creates a perfected lien under
Missouri law upon the indebtedness garnished, [which is] likened ... to a seizure of personal property,
it follows that .... properly levied personal property cannot be reached by a trustee whose claim to that
property arose subsequent to the judgment creditor's lien.”).
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1 The Court notes that under Missouri’s Uniform Commercial Code, the only way to perfect
an interest in money or bank accounts is by possession or control. Mo. Rev. Stat. § 400.9-312(b)
(stating that “[a] security interest in a deposit account may be perfected only by control under
section 400.9-314,” and “[a] security interest in money may be perfected only by the secured
party's taking possession under section 400.9-313.”). The critical distinction between the Uniform
Commercial Code and this case, however, is that the Uniform Commercial Code regulates the
creation and priority of consensual security interests and does not apply to statutory garnishment
actions. See § 400.9-109(c)(2).
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In this case, the property at issue – a bank account and a poultry check – constitute intangible
personal property. A bank account is little more than a debt that the bank owes to its customer, and
as stated in Dugan, 472 F.2d at 950, a check that is payable to order is the equivalent of intangible
personal property. Thus, when service of the writ of garnishment was made on the Debtor’s poultry
check and bank account, Buildings obtained a perfected judgment lien. Because the service of those
writs was made on the Debtor’s bank account and poultry check before the Debtor filed her bankruptcy
petition, Buildings’s judgment lien is superior to the judgment lien of the Debtor in her capacity as the
debtor in possession.1
The Debtor’s other arguments may be quickly disposed of. In an earlier order of this Court,
Bulidings was directed to relinquish the Debtor’s poultry check and bank account funds because the
Debtor still had an interest in those items, they were property of the bankruptcy estate, and Buildings
had not sought relief from the automatic stay to present the check for payment or to collect the bank
account funds from the state court registry. Nothing in the Court’s earlier order determined the relative
priorities of the parties to the check or bank account and the doctrine of law of the case is
inapplicable.
Finally, no evidence was presented to the Court that Buildings’s garnishment actions against
the Debtor’s poultry check and bank account were avoidable preferential transfers. Nothing in this
opinion prejudices the right of the Debtor to bring an adversary proceeding to avoid Buildings’s lien.
III. CONCLUSION
Accordingly, the Court finds that Buildings had a perfected judgment lien on the Debtor’s bank
account and poultry check before the Debtor filed her bankruptcy, and those two items constitute
collateral for Buildings’s judgment lien. In this case, the Debtor stated that she had already spent the
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$22,000.00 poultry check, and Buildings has requested a replacement lien on the Debtor’s upcoming
poultry check. In the Debtor’s Schedule A, however, the Debtor lists 10.7 acres of real property,
poultry houses, and a home as having a value of $700,000.00, which are subject to a lien of only
$258,292.69. Accordingly, the Debtor has sufficient equity in her real property to adequately protect
Buildings. The Court finds it appropriate to allow the Debtor to use the proceeds of her poultry check
and bank account in the reorganization of her business and to give Buildings a replacement lien on the
Debtor’s real property.
This opinion constitutes the Court’s findings of fact and conclusions of law. A separate order
shall be entered pursuant to Fed. R. Bankr. P. 9021.
ENTERED this 10th day of September 2004.
/s/ Jerry W. Venters
United States Bankruptcy Judge
A copy of the foregoing mailed electronically or
conventionally to:
J. Kevin Checkett
Bruce A. Copeland
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