In re Schick, 04-2611.

• Decision Date: 09 August 2005
• Docket Number: No. 04-2611.,04-2611.
• Citation: 418 F.3d 321
• Parties: In re: Tracey L. SCHICK.
• Court: U.S. Court of Appeals — Third Circuit

Page 321

418 F.3d 321

In re: Tracey L. SCHICK.

No. 04-2611.

United States Court of Appeals, Third Circuit.

Argued April 18, 2005.

August 9, 2005.

Eric J. Clayman (Argued), John A. Gagliardi, Jenkins & Clayman, Audubon, New Jersey, for Appellant.

Peter C. Harvey, Attorney General of New Jersey, Patrick DeAlmeida, Assistant Attorney General, Tracy E. Richardson (Argued), Deputy Attorney General, Margaret A. Holland, Deputy Attorney General, R.J. Hughes Justice Complex, Trenton, New Jersey, for Appellee.

Before ROTH, FUENTES, and BECKER, Circuit Judges.

OPINION OF THE COURT

FUENTES, Circuit Judge.

This matter requires us to determine whether a lien held by the New Jersey Motor Vehicles Commission ("MVC") for unpaid motor vehicle surcharges and interest constitutes a judicial lien or a statutory lien as those terms are defined in the U.S. Bankruptcy Code (the "Code"). If it is a judicial lien, it may be avoided by the Debtor-Appellant, Tracey L. Schick, under 11 U.S.C. § 522(f) to the extent that it impairs her entitlement to a homestead exemption under 11 U.S.C. § 522(d)(1). However, if statutory, the lien may not be avoided by the Debtor. At least three bankruptcy courts within our jurisdiction have concluded that the MVC's lien is judicial, while two district courts have reached the opposite conclusion. For the reasons discussed below, we find that the MVC's lien is statutory. Accordingly, we will affirm the decision of the District Court.

I. Background

The essential facts in this matter are not in dispute. In April 2001 and February 2002, the MVC issued certificates of debt to the Clerk of the Superior Court of New Jersey against Tracey L. Schick for unpaid motor vehicle surcharges and interest.¹ Subsequently, on October 1, 2002, Schick filed a voluntary petition for bankruptcy under Chapter 13 of the Code. The Debtor's residence was listed with a value of $100,000, against which a secured proof of claim in the amount of $91,660 was filed by the first mortgagee. Schick also listed the MVC as an unsecured creditor.

Schick's Chapter 13 plan provided for the curing of arrears on her mortgage and on a car loan but included no provision for dividends to unsecured creditors. After the Bankruptcy Court confirmed the plan on February 28, 2003, the MVC filed a secured claim for $3,610, plus interest, based on motor vehicle surcharges assessed against Schick. In response, Schick moved to reclassify the MVC's secured claim as a general unsecured claim and to avoid its lien as impairing her homestead exemption. In particular, Schick argued that the MVC's claim was a judicial lien as that term is defined in the Code and could be avoided under 11 U.S.C. § 522(f) to the extent it impaired her homestead exemption arising in 11 U.S.C. § 522(d)(1).² In opposition, the MVC argued that its claim against Schick was a statutory lien, as that term is defined in the Code, and thus could not be avoided by the Debtor.

The Bankruptcy Court agreed with Schick, finding that the MVC's claim for unpaid surcharges and interest, which arose pursuant to New Jersey's surcharge statute, N.J. Stat. Ann. § 17:29A-35(b)(2), was a judicial lien, not a statutory lien. See In re Schick, 301 B.R. 170, 175 (Bankr.D.N.J.2003). On appeal, the District Court reversed, finding that the MVC had a statutory lien, not a judicial lien, that could not be avoided by the Debtor. See In re Schick, 308 B.R. 189, 194-95 (D.N.J.2004).

Schick now brings this timely appeal, contending that the District Court's decision was in error.

II. Jurisdiction and Standard of Review

This Court has jurisdiction over the final order of the District Court, entered in a bankruptcy proceeding, pursuant to 28 U.S.C. §§ 158(d) and 1291. Our standard of review is the same as that exercised by the District Court over the decision of the Bankruptcy Court. See In re Zinchiak, 406 F.3d 214, 221-22 (3d Cir.2005) (citing In re Pillowtex, Inc., 349 F.3d 711, 716 (3d Cir.2003)). Accordingly, we review findings of fact for clear error and exercise plenary review over questions of law. Id. (citation omitted).

III. Discussion

As we noted in Graffen v. City of Philadelphia, the Bankruptcy Code recognizes three types of liens: judicial, statutory, and consensual. 984 F.2d 91, 96 (3d Cir.1992) (citing H.R.Rep. No. 95-595, 95th Cong., 312 (1977), reprinted in 1978 U.S.C.C.A.N. 6269). As the MVC's lien for unpaid motor vehicle surcharges was not created by consent, it must either be statutory or judicial. We look to the Code for definitions of both terms. A judicial lien is defined as a lien "obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding." 11 U.S.C. § 101(36). By contrast, a statutory lien arises "solely by force of a statute on specified circumstances or conditions ... but does not include ... [a] judicial lien, whether or not such ... lien is made fully effective by statute." 11 U.S.C. § 101(53). This distinction is amplified in the legislative history, which indicates that "[a] statutory lien is only one that arises automatically and is not based on an agreement to give a lien or on judicial action." H.R.Rep. No. 595, 95th Cong., 314 (1977); S.Rep. No. 95-989, 95th Cong., 27 (1978); 1978 U.S.C.C.A.N. 6271, 5811; see also Gardner v. Pa., Dep't of Public Welfare, 685 F.2d 106, 109 (3d Cir.1982) (finding that statutory lien "must be a lien arising automatically by operation of a statute, not one requiring subsequent judicial action").

In many cases, the distinction between a statutory lien and a judicial lien will be straightforward. For instance, the legislative history indicates that mechanics' liens, materialmen's liens, and warehousemen's liens, as well as tax liens, are types of statutory liens. See S. Rep. 95-989 at 27; H.R.Rep. No. 95-595 at 314 (1977), reprinted in 1978 U.S.C.C.A.N. 5787, 5813, 6271; see also In re Sullivan, 254 B.R. 661, 664-65 (Bankr.D.N.J.2000) (finding that a tax lien is a statutory lien); In re Concrete Structures, Inc., 261 B.R. 627, 633-34 (E.D.Va.2001) (finding that a mechanics' lien is a statutory lien); APC Constr., Inc.; Glinka v. Hinesburg Sand & Gravel, Inc., 132 B.R. 690, 693-94 (D.Vt.1991) (finding that a contractor's lien is a statutory lien). However, in other contexts, the distinction between statutory and judicial liens has proven more troublesome, and some courts have remarked that the Code provides little assistance in resolving such disputes. See, e.g., In re A & R Wholesale Distrib., Inc., 232 B.R. 616, 620 (Bankr.D.N.J.1999) (noting that the Code provides "very little guidance for distinguishing a judicial lien from a statutory lien") (citation omitted). The issue, raised here, of whether the MVC's claim for unpaid surcharges is a judicial lien or statutory lien is one example where courts have reached conflicting results. Compare In re James, 304 B.R. 131, 136 (Bankr.D.N.J.2004) (finding the New Jersey MVC surcharge lien to be judicial), with In re Fennelly, 212 B.R. 61, 66 (D.N.J.1997) (finding the New Jersey MVC surcharge lien to be statutory). The relevant inquiry is to determine the nature of the MVC's lien, i.e., whether it arises solely by force of statute, or whether it results from some type of judicial process or proceeding.

We will first briefly consider the statutory scheme in New Jersey which gives rise to the MVC's claim for unpaid motor vehicle surcharges and interest. We then consider our decision in Graffen to determine whether the lien in favor of the MVC is judicial or statutory. Finally, we explain why we are unpersuaded by the arguments as well as the theories advanced by Schick, and relied upon by the In re Schick and In re James bankruptcy courts, that the MVC's lien is judicial.

A.

One of the collateral consequences for the violation of motor vehicle laws in New Jersey is the imposition of surcharges against the driver. In particular, N.J. Stat. Ann. § 17:29A-35(b) (the "surcharge statute") establishes a rating plan under which the MVC levies surcharges on drivers in one of several different situations. See generally 25 Robert Ramsey, New Jersey Practice Series § 13.1-.6 (3d ed.2001). For instance, surcharges may be levied against a driver who is assessed too many violation points, or who has been convicted of drunk driving or refusing to take a breathalyzer test. See N.J. Stat. Ann. § 17:29A-35(b)(1)(a), (b)(2). The amount of the surcharges is set forth in the statute and administrative regulations. See id.; N.J. Admin. Code tit. 13, § 19-13.1(a).

The MVC has several collection methods available to ensure payment of surcharges in the event of non-payment. At issue in this case is the ability of the MVC to file a certificate of debt with the Clerk of the Superior Court in the amount of the past due surcharge. See N.J. Stat. Ann. § 17:29A-35(b)(2); see also N.J. Admin. Code tit. 13, § 19-12.12(a). The surcharge statute states in pertinent part:

As an additional remedy, the director may issue a certificate to the Clerk of the Superior Court stating that the person identified in the certificate is indebted under this surcharge law in such amount as shall be stated in the certificate. The certificate shall reference the statute under which the indebtedness arises. Thereupon the clerk ... shall immediately enter upon the record of docketed judgments the name of such person as debtor; the State as creditor; the address of such person, if shown in the certificate; the amount of the debt so certified; ... and the date of making such entries. The docketing of the entries shall have the same force and effect as a civil judgment docketed in the Superior Court, and the director shall have all the remedies and may take all of the proceedings for collection thereof which may be had or taken upon the recovery of a judgment in an action, but without prejudice to any right of appeal.

N.J. Stat. Ann. § 17:29A-35(b)(2). Accordingly, the surcharge statute directs the MVC to file...