Opinion
2023-CA-0440-MR
08-09-2024
GARY D. ROLAND; LELANTOS HOLDINGS, LLC; AND RENEE A. ROLAND APPELLANTS v. ALEXANDER A. FERRARA, ESQ., WARNING ORDER FOR KONNER WOODS HOMEOWNERS ASSOCIATION, INC.; DEUTSCHE BANK NATIONAL TRUST COMPANY, AS TRUSTEE FOR AMERICAN HOME MORTGAGE ASSETS TRUST 2007-2, MORTGAGE-BACKED PASSTHROUGH CERTIFICATES SERIES 2007-2; KONNER WOODS HOMEOWNERS ASSOCIATION, INC.; LEXINGTON-FAYETTE URBAN COUNTY GOVERNMENT; AND UNITED STATES OF AMERICA APPELLEES
BRIEFS FOR APPELLANT: Michael J. Gartland Lexington, Kentucky. BRIEF FOR APPELLEE: Reid S. Manley Birmingham, Alabama.
NOT TO BE PUBLISHED
APPEAL FROM FAYETTE CIRCUIT COURT ACTION NO. 21-CI-00198, HONORABLE THOMAS L. TRAVIS, JUDGE.
BRIEFS FOR APPELLANT: Michael J. Gartland Lexington, Kentucky.
BRIEF FOR APPELLEE: Reid S. Manley Birmingham, Alabama.
BEFORE: COMBS, LAMBERT, AND MCNEILL, JUDGES.
OPINION
MCNEILL, JUDGE:
This appeal concerns which statute of limitations applies to Deutsche Bank's foreclosure action, the six-year statute of limitations under KRS 355.3-118, Article 3 of Kentucky's Uniform Commercial Code (“UCC”), or the five-year statute of limitations under KRS 413.120(7) for promissory notes placed on the footing of a bill of exchange. The trial court entered summary judgment in favor of Deutsche Bank, finding its claim was timely under the UCC's six-year statute of limitation. Finding no error, we affirm.
Deutsche Bank National Trust Company, as Trustee for American Home Mortgage Assets Trust 2007-2, Mortgage-Backed Pass-Through Certificates Series 2007-2.
Kentucky Revised Statutes.
BACKGROUND
In 2007, Gary and Renee Roland ("Rolands") executed a promissory note in favor of American Home Mortgage in the amount of $123,300. The note was secured by a mortgage on real property at 1669 Konner Woods Drive in Lexington, Kentucky. Pursuant to the note, the Rolands would make monthly payments to American Home Mortgage or "anyone who takes th[e] Note by transfer and who is entitled to receive payments under th[e] Note" beginning March 1, 2007, until the note reached maturity on February 1, 2047. The Rolands stopped making payments on the note after October 1, 2009.
At some point Deutsche Bank became holder of the note. On April 8, 2010, it filed a foreclosure action against the Rolands seeking to foreclose on the property. The complaint alleged Deutsche Bank was the "holder and payee of the Note," that the Rolands had defaulted, and that Deutsche Bank had "accelerated the Note and declared the debt evidenced by it due and owing." While the foreclosure action was pending, the Rolands filed a Chapter 11 Bankruptcy petition on November 1, 2012, which was dismissed on December 7, 2012. Two months later, Deutsche Bank moved to voluntarily dismiss its complaint; the case was dismissed without prejudice on February 18, 2013.
It is unclear from the record when Deutsche Bank became the note holder; however, a copy of the note was attached to the complaint in its foreclosure action filed against the Rolands on April 8, 2010.
The Rolands filed for bankruptcy a second time on September 29, 2014. That bankruptcy case ended on November 27, 2017, with the bankruptcy court approving a plan of reorganization. On January 19, 2021, Deutsche Bank filed a second foreclosure action against the Rolands seeking an in-rem foreclosure judgment and order of sale of the property. Deutsche Bank moved for summary judgment and the Rolands responded by asserting its claim was barred by KRS 355.3-118's six-year statute of limitations. The Rolands then filed a crossmotion for summary judgment on that issue.
The complaint also named Lelantos Holdings, LLC, an entity owned by the Rolands, as a defendant because the Rolands had transferred the property to Lelantos Holdings, LLC by quit claim deed dated June 28, 2019.
Before the hearing on the summary judgment motions, the Rolands argued for the first time the five-year statute of limitations in KRS 413.120(7) for promissory notes placed upon the footing of a bill of exchange applied to Deutsche Bank's claim. Citing Haeberle v. St. Paul Fire and Marine Insurance Co., 769 S.W.2d 64 (Ky. App. 1989) and Southern National Bank v. Schimpeler, 170 S.W. 178 (Ky. 1914), the Rolands asserted a promissory note is placed upon the footing of a bill of exchange when it is assigned before maturity. Because the note was assigned to Deutsche Bank (on April 23, 2010) before its maturity date (February 1, 2047), the Rolands claimed KRS 413.120(7) barred the complaint.
The circuit court ruled KRS 355.3-118's six-year statute of limitations, not KRS 413.120(7)'s five-year statute of limitations, applied and granted summary judgment to Deutsche Bank. The court disagreed the note was assigned before maturity, finding the maturity date was April 8, 2010, when Deutsche Bank filed its foreclosure action and accelerated the balance due on the note. Because the note was not assigned until April 23, 2010, KRS 413.120(7) was inapplicable. Under the six-year statute of limitations, the Court ruled Deutsche Bank's claim was timely. This appeal followed.
The Rolands do not dispute the circuit court's calculations as to when the statute of limitations would have expired, only its determination that KRS 355.3-118's six-year statute of limitations applies, rather than KRS 413.120(7)'s five-year statute of limitations.
STANDARD OF REVIEW "The standard of review on appeal of a summary judgment is whether the circuit judge correctly found that there were no issues as to any material fact and that the moving party was entitled to a judgment as a matter of law." Pearson ex rel. Trent v. Nat'l Feeding Systems, Inc., 90 S.W.3d 46, 49 (Ky. 2002). "Appellate review of a summary judgment involves only legal questions and a determination of whether a disputed material issue of fact exists. So, we operate under a de novo standard of review ...." Phelps v. Bluegrass Hosp. Management, LLC, 630 S.W.3d 623, 627 (Ky. 2021) (citation omitted). Finally, whether an action is barred by statute of limitations is a question of law which we review de novo. Estate of Wittich By and Through Wittich v. Flick, 519 S.W.3d 774, 776 (Ky. 2017).
ANALYSIS
The sole issue on appeal is which statute of limitations applies to Deutsche Bank's foreclosure claim. The circuit court found KRS 355.3-118's six-year statute of limitation applied and granted summary judgment to Deutsche Bank. The Rolands argue Deutsche Bank's claim is barred by KRS 413.120(7)'s five-year statute of limitations; therefore, the circuit court erred in granting summary judgment. We will analyze both statutes in turn.
KRS 355.3-118(1) states:
Except as provided in subsection (5) of this section, an action to enforce the obligation of a party to pay a note payable at a definite time must be commenced within six (6) years after the due date or dates stated in the note or, if a due date is accelerated, within six (6) years after the accelerated due date.
Whether KRS 355.3-118 is the applicable statute of limitations turns on "whether the Note is a negotiable instrument that would be governed by Article 3 of Kentucky's UCC." Community Financial Services Bank v. Stamper, 586 S.W.3d 737, 741 (Ky. 2019). KRS 355.3-104 defines a negotiable instrument as follows:
(1) Except as provided in subsections (3) and (4) of this section, "negotiable instrument" means an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it:
(a) Is payable to bearer or to order at the time it is issued or first comes into possession of a holder;
(b) Is payable on demand or at a definite time; and
(c) Does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain:
1. An undertaking or power to give, maintain, or protect collateral to secure payment;
2. An authorization or power to the holder to confess judgment or realize on or dispose of collateral; or 3. A waiver of the benefit of any law intended for the advantage or protection of an obligor.
Here, the note was a negotiable instrument because it was an unconditional promise to pay a fixed amount ($154,125.00), "to the order of the Lender" (or "anyone who takes the Note by transfer"), at a definite time (February 1, 2047). Therefore, it was subject to the statute of limitations in KRS 355.3-118. The Rolands do not contest KRS 355.3-118's applicability on appeal; they simply claim KRS 413.120 is the more recent statute and "controls here."
KRS 413.120(7), relied upon by the Rolands, provides: "The following actions shall be commenced within five (5) years after the cause of action accrued: . . . An action upon a bill of exchange, check, draft or order, or any endorsement thereof, or upon a promissory note, placed upon the footing of a bill of exchange." (Emphasis added.) We assume for purposes of appeal that KRS 413.120(7) applies to the note at issue here. Thus, we are left with a situation where two statutes of limitation are seemingly applicable. "The applicable rule of statutory construction where there is both a specific statute and a general statute seemingly applicable to the same subject is that the specific statute controls." Abel v. Austin, 411 S.W.3d 728, 738 (Ky. 2013) (citation omitted). KRS 355.3-118(1) relates exclusively to actions upon promissory notes payable at a definite time and is more specific than the general statute of limitation set forth in KRS 413.120(7) relating to actions upon bills of exchange, checks, drafts, or promissory notes placed upon the footing of a bill of exchange.
The circuit court ruled KRS 413.120(7) was inapplicable to Deutsche Bank's claim, finding the note was not placed upon the footing of a bill of exchange because it was not assigned before maturity. On appeal, the Rolands raise an issue of fact relative to this finding, arguing there is no evidence Deutsche Bank possessed the note at the time the complaint was filed. Therefore, they argue it lacked standing to bring the suit and could not accelerate the maturity date. Without the court's finding concerning acceleration, the note would have been assigned before its original maturity date of February 2, 2047, and KRS 413.120(7) would apply. Because the record is unclear on this point, we make this assumption to facilitate our review.
"Additionally, where an apparent conflict in statutes exists, the later statute is given effect over an earlier statute." Abel, 411 S.W.3d at 738 (internal quotation marks and citation omitted). Contrary to the Rolands' assertion, KRS 355.3-118 is the more recently enacted statute. KRS 355.3-118 became effective January 1, 1997. KRS 413.120 was previously Section 2515 of the Kentucky Statutes, re-enacted in 1942 as part of the Kentucky Revised Statutes. And while KRS 413.120 was amended in 2015, the language of KRS 413.120(7) has not changed in over 100 years.
See Southern Nat'l Bank v. Schimpler, 159 Ky. 372, 167 S.W. 148, 149 (1914), opinion modified on denial of reh'g sub nom. Southern Nat'l Bank v. Schimpeler, 160 Ky. 813, 170 S.W. 178 (1914) (quoting Section 2515, the predecessor to KRS 413.120(7), with identical language).
Finally, "because statutes of limitation are in derogation of a presumptively valid claim, a longer period of limitations should prevail where two statutes are arguably applicable." Troxell v. Trammell, 730 S.W.2d 525, 528 (Ky. 1987). Thus, we conclude KRS 355.3-118's six-year statute of limitations, not KRS 413.120(7)'s five-year statute of limitations, governs Deutsche Bank's foreclosure claim and the circuit court did not err in granting summary judgment in its favor.
The Rolands' only challenge on appeal to the circuit court's grant of summary judgment in favor of Deutsche Bank was the statute of limitations issue. Therefore, we limit our review accordingly. Our holding is not affected by the Rolands' argument that Deutsche Bank lacked standing to initiate the 2010 foreclosure action. Assuming that is true, Deutsche Bank would have also lacked authority to accelerate the note in 2010. Thus, the six-year statute of limitations would run from the filing of the 2021 complaint, and still be timely. There is no dispute that, at the latest, the note and mortgage were assigned to Deutsche Bank on April 23, 2010.
The Rolands also argue the circuit court erred in denying their motion for CR 60.02 relief. The Rolands essentially reassert that KRS 413.120(7) is the applicable statute of limitations. Because we hold otherwise, we find no error.
Kentucky Rules of Civil Procedure.
CONCLUSION
The orders of the Fayette Circuit Court are affirmed.
ALL CONCUR.