Reedsburg Utility Commission v. Grede Foundries, Inc. (In re Grede Foundries, Inc.)

Summarized by Paul Lucey , Leverson Lucey & Metz, S.C.
14 years 7 months ago

Citation:

____ F.3d ____, (7th Cir. 2011); Case No. 10-2509 (July 13, 2011)

Tag(s):

7th Circuit

Ruling:

A municipal utility violated the automatic stay imposed by 11 U.S.C. §362(a)(4) and (a)(6) when it took steps authorized by state law to turn its claim for unpaid utility charges into a lien on the debtor’s real property. The 7th Circuit rejected the utility’s arguments that its action fell within any of three exceptions to the automatic stay. The utility’s actions did not fall within the §362(b)(2) exception which allows a creditor having an interest in a debtor’s property to perfect or maintain perfection of its interest against the trustee’s strong-arm powers under §546(b) or within the relation-back period under §547(e)(2)(A). The utility did not acquire a prepetition interest in the debtor’s property simply by delivering services to the debtor or mailing a bill. Pre-petition, the utility merely held a claim against the debtor. The possibility of turning its claim into an interest in the debtor’s property was not the same as having such an interest. The 7th Circuit also ruled that the §362(b)(9) exception which allows a governmental entity post-petition to determine the amount of tax due and to send a tax bill to the debtor did not apply. Utility charges, themselves, are not taxes within the meaning of the Bankruptcy Code. A tax, generally, provides a source of revenue for the provision of general benefits to the public. The fact that the utility charges can be added to a property tax bill under state law, as a collection mechanism, does not make them taxes. Lastly, the 7th Circuit declined to apply in the utility’s favor the § 362(b)(18) exception which allows local municipalities to create or perfect liens for ad valorem taxes or special assessments. The unpaid utility charges are not such taxes or special charges. They do not raise revenue; they are “regular,” “run-of-the mill” charges for “routine” “everyday” services; and they do not defray the cost of improving the debtor’s property.

Procedural context:

Appeal from the United States District Court for the Western District of Wisconsin affirming the findings of the Bankruptcy Court for the Western District of Wisconsin that (i) a municipal utility violated the automatic stay by sending delinquency notices and reporting delinquencies to the municipality because such actions were for the purpose of creating or perfecting a lien and collecting a debt within the meaning of 11 U.S.C. § 362(a)(4) and (6), and (ii) no exceptions under 11 U.S.C. § 362(b) applied. Reviewed de novo.

Facts:

At the time the debtor filed it voluntarily petition under Chapter 11, it owed more than $1.3 million in delinquent utility charges. Under municipal ordinance and state law, unpaid utility charges may be added to the customer’s property tax bill for collection. After the debtor filed its Chapter 11 petition, the utility implemented the process to place the amount owed by the debtor on the property tax roll. The debtor moved to enforce the stay.

Judge(s):

The Honorable John Daniel Tinder, The Honorable David F. Hamilton, and The Honorable G. Patrick Murphy of the Southern District of Illinois, sitting by designation.

ABI Membership is required to access the full summary. Please Sign In using your ABI Member credentials. Not a Member yet? Join ABI now - it is absolutely worth it!