Lenox v. Experian Information Solutions, Inc. et al

Filing 53

MEMORANDUM OPINION AND ORDER: 1. Regions Bank's motion for summary judgment 47 is DENIED. 2. Lenox's motion for summary judgment 49 is DENIED. 3. The matter remains scheduled for a jury trial beginning on June 3, 2019. Signed by Judge Danny C. Reeves on 1/24/2019. (STC)cc: COR

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION
(at Lexington)
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REGIONS BANK,
Counter-Claimant,
V.
STEVEN K. LENOX,
Counter-Defendant.

Civil Action No. 5: 18-014-DCR

MEMORANDUM OPINION
AND ORDER

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Regions Bank (“Regions”) loaned Steven Lenox (“Lenox”) $465,000.00 to buy a
houseboat. After Lenox defaulted on the loan, Regions repossessed the houseboat and sold it
at a private sale for $287,500.00. Regions now seeks $140,682.32, which it claims is the
deficiency Lenox owes under the terms of the loan agreement. Lenox contends that Regions
may not collect the deficiency because the sale of the houseboat was not commercially
reasonable. The parties have filed cross-motions for summary judgment [Record Nos. 47, 49],
which will be denied because the Court cannot determine as a matter of law whether the sale
of collateral was commercially reasonable.
I.
Lenox filed a Complaint in January 2018, alleging that Regions Bank harmed him by
violating provisions of the Fair Credit Reporting Act (“FCRA”), 15 U.S.C. § 1681 et seq.1
Lenox reported that after he fell “one or two payments behind” on his loan from Regions,

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Lenox also brought FCRA claims against Experian Information Solutions, Inc. but the parties
agreed to dismiss those claims with prejudice in June 2018. [Record Nos. 20, 30]
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Regions repossessed the houseboat and sold it. When Lenox subsequently applied for a loan
with a different lender, he learned that Regions had furnished information to credit reporting
agencies indicating that his loan for the houseboat was charged-off and that payment was
$10,942.00 past due. Lenox maintained that, because Regions failed to dispose of the
collateral in a commercially reasonable manner, it forfeited the right to collect a deficiency
balance and violated the FCRA by providing this information to credit reporting agencies.
Regions denied these allegations and filed a Counterclaim against Lenox, alleging that
it sold the houseboat in a commercially reasonable manner on August 27, 2014, and that Lenox
remains indebted to Regions in the amount of $140,682.32. [Record No. 17] In November
2018, the Court granted Lenox’s unopposed motion to dismiss his claims against Regions,
without prejudice. [Record Nos. 44, 45] At that point, Regions’ Counterclaim against Lenox
became the only remaining issues to be resolved.
II.
Summary judgment is appropriate when the moving party demonstrates that there is no
genuine dispute regarding any material fact and the movant is entitled to judgment as a matter
of law. Fed. R. Civ. P. 56(a). See also Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986).
When the moving party will bear the ultimate burden of proof at trial, summary judgment is
appropriate only when it submits evidentiary materials to establish all elements of the claim or
defense. United States v. McCain, No. 06-13830, 2007 WL 2421471, at *3 (E.D. Mich. Aug.
22, 2007) (collecting cases). Put differently, in this situation, the moving party “must satisfy
both the initial burden of production on the summary judgment motion—by showing that no
genuine dispute exists as to any material fact—and the ultimate burden of persuasion on the
claim—by showing that it would be entitled to a directed verdict at trial” Id. (quoting William
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W. Schwarzer, et al., The Analysis and Decision of Summary Judgment Motions, 139 F.R.D.
441, 477-78 (1991)).
Conversely, when the moving party does not bear the ultimate burden of proof, it has
the initial burden of showing the absence of evidence on an essential element of the nonmoving party’s case. Celotex Corp., 477 U.S. at 323. And once the movant satisfies that
burden, the burden shifts to the non-moving party to “set forth specific facts showing a triable
issue.” Matsushita Elec. Indus. Co., Ltd. V. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
The Court ultimately must determine “whether the evidence presents a sufficient disagreement
to require submission to a jury or whether it is so one-sided that one party must prevail as a
matter of law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251–52 (1986). See also
Harrison v. Ash, 539 F.3d 510, 516 (6th Cir. 2008).
The standards for evaluating motions for summary judgment do not change simply
because “both parties seek to resolve [the] case through the vehicle of cross-motions for
summary judgment.” Craig v. Bridges Bros. Trucking LLC, 823 F.3d 382 (6th Cir. 2016)
(quoting Taft Broadcasting Co. v. United States, 929 F.2d 240, 248 (6th Cir. 1991)).
The fact that both parties have moved for summary judgment does not mean
that the court must grant judgment as a matter of law for one side or the other;
summary judgment in favor of either party is not proper if disputes remain as to
material facts. Rather, the court must evaluate each party’s motion on its own
merits, taking care in each instance to draw all reasonable inferences against the
party whose motion is under consideration.
Id. (internal citation omitted).
III.
A secured party may recover a deficiency judgment from a defaulting debtor after
selling the collateral for less than the amount the debtor owes. Rexing v. Doug Evans Auto
Sales, Inc., 703 S.W.2d 491, 493 (Ky. Ct. App. 1986). It typically is required to establish that
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“it acted with commercial reasonableness in the holding and disposition of the collateral in
question.” Bailey v. Navistar Fin. Corp., 709 S.W.2d 841, 842 (Ky. Ct. App. 1986) (quoting
Bank of Josephine v. Conn, 599 S.W.2d 773, 774 (Ky. Ct. App. 1980)). However, Regions
contends that Lenox must prove that Regions’ sale of the houseboat was commercially
unreasonable because he initiated litigation against Regions in the first instance.
Regions’ burden-shifting theory is based largely on the Sixth Circuit’s decision in
Pivnick v. White, Getgey & Meyer Co., LPA, 552 F.3d 479 (6th Cir. 2009). There, a client
brought a legal malpractice claim against a law firm following the firm’s failure to prosecute
the client’s underlying action against a creditor for the allegedly commercially unreasonable
sale of a horse that had been repossessed. The law firm stipulated that it failed to prosecute
the matter, but argued that Pivnick would not have succeeded in the underlying action against
the creditor.
In determining which party bore the burden of proving commercial reasonableness, the
Court noted that the underlying suit was not a typical case in which a creditor brought suit
against a debtor to collect a deficiency judgment. Id. at 487 (citing Bank of Josephine, 599
S.W.2d 773; Bailey v. Navistar Fin. Corp., 709 S.W.2d 841 (Ky. Ct. App. 1986)). Although
the creditor asserted a counterclaim for a deficiency judgment, Pivnick had initiated the action
in an attempt to recover losses allegedly caused by the secured party’s failure to dispose of
property in a commercially reasonable manner. Accordingly, Pivnick bore the burden of
proving that the sale was commercially unreasonable. Id. at 487.
This matter was procedurally similar to Pivnick, but the parties agreed to dismiss
Lenox’s claims against Regions without prejudice. [Record Nos. 44, 45] At that point, this
action became a creditor’s suit to collect a deficiency judgment from a debtor. As a result, the
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typical standard of proof in which the plaintiff (here, Counter-Claimant Regions) bears the
burden of proving each element of its claim applies.
IV.
Lenox obtained a $465,000.00 loan to purchase the subject houseboat in June 2006.
[Record No. 47-2] Lenox granted Regions Bank a security interest in the houseboat. The
parties’ contract required Lenox to make monthly payments to Regions in the amount of
$3,635.91 for 240 months. After Lenox failed to make the required payments, Regions
repossessed the houseboat in July 2014. [Record No. 47-2] Later in July, Regions sent Lenox
a “Notice of Intent to Sell Property,” and the houseboat was sold the following month for
$287,500.00. Id. Regions contends that, following the sale, Lenox remains indebted to
Regions in the amount of $140,682.32, representing the sum of the deficiency balance
($72,675.41), together with unpaid interest ($11,380.10), late fees ($1,053.61) and
repossession expenses ($55,563.20). Id.
Every aspect of a disposition of collateral, including the method, manner, time, place,
and other terms, must be commercially reasonable. Ky. Rev. Stat. § 355.9-610 (2014). A
disposition of collateral is deemed to have been made in a commercially reasonable manner if
the disposition is made: (1) in the usual manner on any recognized market; (2) at the price
current in any recognized market at the time of disposition; or (3) otherwise in conformity with
reasonable commercial practices among dealers in the type of property that was the subject of
the disposition. Ky. Rev. Stat. § 355.9-627 (2014). The fact that a higher price could have
been obtained in a disposition does not, in itself, constitute commercial unreasonableness. Id.
However, “a low price suggests that a court should scrutinize carefully all aspects of a
disposition to ensure that each aspect was commercially reasonable.” U.C.C. § 9-627 cmt. 2.
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Comments to the Uniform Commercial Code define a “recognized market” as “one in
which the items sold are fungible and prices are not subject to individual negotiation. For
example, the New York Stock Exchange is a recognized market.” U.C.C. § 9-610, cmt. 9. “A
market in which prices are individually negotiated or the items are not fungible is not a
recognized market, even if the items are the subject of widely disseminated price guides or are
disposed of through dealer auctions.” Id. Because houseboats are not sold on a “recognized
market,” Regions must demonstrate that its sale of the collateral conformed with reasonable
commercial practices among dealers of houseboats.
Courts have recognized various factors for consideration in determining commercial
reasonableness.

They include: the type and condition of collateral involved; normal

commercial practices in disposing of the type of collateral; the time and place of the sale; the
amount of advertising done; the number of bids solicited and; the purchase price received. See
Raceday Ctr., LLC v. RL BB Fin., LLC, Nos. 2:11-CV-17, 3: 11-CV-49, 2013 WL 11505550
(E.D. Tenn. Aug. 7, 2013) (applying Tennessee law); Connecticut Bank & Trust Co., N.A. v.
Incendy, 540 A.2d 32, 39 (Conn. 1988) (collecting cases). Lenox contends that Regions has
not satisfied the requirements of Ky. Rev. Stat. § 355.9-627 because it did not submit proof
that the sale was advertised, of who or how many people attended the sale, or that the sale was
conducted in a recognized market for the sale of houseboats. [Record No. 48-1, p. 6] Lenox
also argued that there was no pre-sale appraisal and that there was no support for the
“staggering” amount of repossession expenses.
Regions has come forward with some proof to demonstrate that its sale of the houseboat
was commercially reasonable.

Brian Donahue, Regions’ Assistant Vice President of

Consumer Collections, provided a declaration stating that, following Lenox’s default on the
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loan, the collateral was lawfully repossessed. [Record No. 47-2] Regions indicated in answers
to interrogatories that Marina Mile Yacht Sales, Inc. (“Marina Mile”) repossessed the
houseboat on Regions’ behalf and sold it at a commercially reasonable private sale in
Jamestown, Kentucky, on August 27, 2014. [Record No. 50-1, p. 13]
Marina Mile prepared a sales condition report approximately one month prior to the
sale. [Record No. 50-2] The 2006 one-hundred-foot Fantasy houseboat needed some repairs,
but otherwise was in good condition. The appraiser noted that there was a 2007 one-hundredand-five-foot model for sale for $385,000.00, and estimated the collateral’s sale price at
$300,000.00 to $340,000.00. Id. Ale Four, LLC ultimately purchased the houseboat for
$287,500.00. Id. at pp. 16-17. Two other individuals made bids in the amounts of $215,000.00
and $225,000.00. Id. at p. 17.
Regions also seeks to recover its expenses incurred in the repossession and sale of the
houseboat. In support, it has provided a “vehicle accounting transaction summary,” which
contains an itemized list of Marina Mile’s charges. The charges include: a $28,750.00 auction
sale fee; $1,575.00 for repossession; and $25,150.00 for storage. [Record No. 50-4]
As a general rule, the question of what is “commercially reasonable” is a question of
fact. McCoy v. Am. Fidelity Bank & Trust Co., 715 S.W.2d 228, 230 (Ky. 1986). Although
the evidence may be so one-sided that summary judgment is appropriate, a jury issue exists
“when the state of the evidence is such that, although the evidentiary facts are not in dispute,
reasonable minds can differ” regarding commercial reasonableness. Id. at 231. Here, Regions
has failed to provide any specific information regarding reasonable commercial practices
among dealers in houseboats, and whether its conduct conformed to those practices. It also
has failed to provide any information regarding the reasonableness of its charges for storage,
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repossession, and an auction fee. See Fifth Third Bank v. Miller, 767 F. Supp. 2d 735, 738-39
(E.D. Ky. 2011) (Court denied summary judgment when creditor failed to provide evidence
regarding reasonable commercial practices among dealers in horses). And although the sale
proceeds approach the low end of Marina Mile’s estimate, there is no evidence demonstrating
how the estimate was calculated or whether it was reasonable.
Regions’ motion for summary judgment will be denied because the Court cannot
conclude that the sale of collateral conformed with reasonable commercial practices among
houseboat dealers.

However, Regions has offered some evidence of commercial

reasonableness and it is possible that a jury could conclude that the sale was commercially
reasonable. Accordingly, Lenox’s motion for summary judgment must be denied, as well.
V.
Counsel for Lenox reported in his motion for summary judgment that he has had no
contact with Plaintiff Lenox since May 2018, despite numerous attempts to contact him by all
known telephone numbers and by sending letters to his residential and business addresses.
[Record No. 49, pp. 1-2] According to counsel, Lenox’s family member answered Lenox’s
personal cell phone in August 2018 and advised that “Lenox had health issues that were
incapacitating and that he had no ability to participate in this legal action nor was there any
reasonable prospect of his being able to do so in the future.” Id. at p. 2. Without Lenox’s
participation, counsel filed a response/counter-motion to Regions’ motion for summary
judgment, making such good faith arguments as counsel deemed available to Lenox. Id. See
also Ky. S.C.R. 3.130(1.14).
The precise reasons for Lenox’s failure to participate in this litigation since May 2018
are unclear. While the Court must protect the interests of an incompetent defendant, see Fed.
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R. Civ. P. 17(c)(2), there is no indication that a state-court finding of incompetence exists in
this case. See Blackwell v. Capital One Bank, No. 606CV066, 2007 WL 1732192, at *1 (S.D.
Ga. June 13, 2007). Additionally, a competent defendant may not avoid liability by electing
to be absent. See Miller v. Paoli, 188 N.E.2d 730 (Ill. Ct. App. 1963). While an attorney with
sufficient information to reasonably believe his client is incompetent may seek protective
action, Ky. S.C.R. 3.130(1.14), lawyers are not required to continue representation when a
client’s conduct has made doing so unreasonably difficult. See Ky. S.C.R. 3.130(1.14).
Based on the foregoing analysis, it is hereby
ORDERED as follows:
1.

Regions Bank’s motion for summary judgment [Record No. 47] is DENIED.

2.

Lenox’s motion for summary judgment [Record No. 49] is DENIED.

3.

The matter remains scheduled for a jury trial beginning on June 3, 2019.

Dated: January 24, 2019.

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