In Re: Barnes

Decision Date09 January 2002
Docket NumberNo. 01-1532,01-1532
Citation276 F.3d 927
Parties(7th Cir. 2002) In re Richard C. Barnes, Debtor. Appeal of Thomas J. VanKirk
CourtU.S. Court of Appeals — Seventh Circuit

Ward W. Miller (argued), More & Miller, Fort Wayne, IN, for Appellant.

J. Timothy McCaulay, Helmke, Beams, Boyer & Wagner, Christine M. Stach (argued), Rothberg, Logan & Warsco, Fort Wayne, IN, for Trustee-Appellee R. David Boyer.

James T. Young, Christine M. Stach (argued), Rothberg, Logan & Warsco, Fort Wayne, IN, for Trustee-Appellee Yvette Klevin.

Yvette Klevin, Fort Wayne, IN, Pro se.

Christine M. Stach (argued), Rothberg, Logan & Warsco, Martin E. Seifert, Kos & Associates, Fort Wayne, IN, for Appellees John W. Carroll and M. Sharlene Carroll,

Kim M. Spielman, Blackburn & Green, Christine M. Stach (argued), Rothberg, Logan Warsco, Fort Wayne, IN, for Appellee Denelle M. Barbaro.

Before Posner, Easterbrook, and Kanne, Circuit Judges.

Posner, Circuit Judge.

The question presented by this bankruptcy appeal is whether Indiana permits an involuntary lien to be obtained in a liquor license. The appellant, VanKirk, was an employee of a bar owned by the debtor, Barnes (actually a predecessor of Barnes, but we can ignore that detail). VanKirk had filed a notice of employee's lien on "any and all assets" of Barnes for unpaid wages and later had obtained from an Indiana court a default judgment against Barnes foreclosing his lien. VanKirk asked the court to appoint a receiver to operate the bar for his benefit and that of the bar's other creditors, but before the receiver could be appointed Barnes declared bankruptcy. The trustee in bankruptcy sold the bar's liquor license. VanKirk then brought this adversary proceeding to enforce his lien. He seeks so much of the proceeds of the sale of the license as are necessary to pay his claim, subject to the rights of any lienors who are senior to him. The bankruptcy court, seconded by the district court, ruled that a liquor license is not property under Indiana law and therefore VanKirk could not obtain a lien on it.

Indiana's alcoholic-beverages statute and the cases interpreting it are indeed explicit that liquor licenses are not "property." Ind. Code sec. 7.1-3-1-2; State ex rel. Harris v. Superior Court, 197 N.E.2d 634, 640 (Ind. 1964); Vanek v. Indiana National Bank, 540 N.E.2d 81, 84 (Ind. App. 1989), aff'd, 551 N.E.2d 1134 (Ind. 1990) (per curiam); Dagley v. Incorporated Town of Fairview Park, 371 N.E.2d 1338, 1341 (Ind. App. 1978). Yet Barnes's liquor license was treated as property of his estate by the trustee, who sold the license and is treating the proceeds as property of the estate too. This treatment is clearly correct, as well as not contested by any party. Property is broadly defined by the Bankruptcy Code, see 11 U.S.C. sec. 541(a)(1), and certainly includes a valuable, marketable asset. "[E]very conceivable interest of the debtor, future, nonpossessory, contingent, speculative, and derivative, is within the reach of sec. 541." In re Carousel Int'l Corp., 89 F.3d 359, 362 (7th Cir. 1996); see also Westmoreland Human Opportunities, Inc. v. Walsh, 246 F.3d 233, 241 (3d Cir. 2001). True, a liquor license may not be transferred without the approval of the state's Alcoholic Beverage Commission, Ind. Code sec. 7.1- 3-24-1; 905 Ind. Admin. Code 1-17-4, and can be revoked upon proof of misconduct. Ind. Code sec. 7.1-3-23-2; Indiana Alcoholic Beverage Comm'n v. Dowland, 580 N.E.2d 724, 726 (Ind. App. 1991); Indiana Alcoholic Beverage Comm'n v. State ex rel. Harmon, 355 N.E.2d 450, 454 (Ind. App. 1976). But these are not unusual conditions on property; the sale of many goods require government approval and of course property can be taken away from a person for various reasons, for example because it has become a public or private nuisance. It is no surprise, therefore, that the few cases to address the issue hold that a liquor license, provided it is salable, is indeed property within the meaning of section 541 of the Bankruptcy Code. In re Nejberger, 934 F.2d 1300, 1302 (3d Cir. 1991); In re Terwilliger's Catering Plus, Inc., 911 F.2d 1168, 1171- 72 (6th Cir. 1990); In re Benz, 218 Fed. 50, 54 (3d Cir. 1914); Fisher v. Cushman, 103 Fed. 860, 864-65 (1st Cir. 1900). None is an Indiana case, but the trustee does not argue that Indiana's liquor law is atypical.

Two Indiana cases say that, in addition to requiring approval to transfer and being revocable, liquor licenses may not be used to secure a loan. Cole v. Loman & Gray, Inc., 713 N.E.2d 901, 905 n. 3 (Ind. App. 1999); Vanek v. Indiana National Bank, supra, 540 N.E.2d at 84; see also In re Eagles Nest, Inc., 57 B.R. 337, 340 (Bankr. N.D. Ind. 1986). The only reason given for this conclusion, and it is given only by bankruptcy judges, see id. at 341; In re Ratcliff Enterprises, Inc., 44 B.R. 778, 781 (Bankr. E.D. Mich. 1984), is that the state wants to limit the distribution of liquor (which is in fact a stated policy of Indiana, see Ind. Code sec. 7.1-1-1- 1(b)) by making it more difficult for owners of establishments at which liquor is served to expand their business by borrowing. This would be an exceedingly odd method of regulating the liquor business, especially since the owner of such an establishment is free to pledge his accounts receivable to secure a loan, though there is the difference that the license may capitalize future expected earnings as well as current receivables and so may secure a larger loan. No Indiana court has endorsed the reasoning of the bankruptcy judges, and the Indiana Supreme Court has not endorsed the conclusion (that a voluntary lien cannot be obtained in a liquor license) reached in Cole or Vanek. (Its summary affirmance of Vanek does not necessarily imply adoption of Vanek's dictum.) Nor is there anything in the statute to support such a conclusion.

Moreover, all these are cases about voluntary liens, and there is a difference well recognized in bankruptcy and secured-transactions law between a voluntary and an involuntary lien. The former, sometimes called a consensual lien or a security interest, is the type of lien that you give someone to secure his extension of credit to you; the latter, sometimes called a nonconsensual lien and illustrated by the judicial lien in this case, arises from your having de faulted on an obligation to the tax authorities, employees, or other involuntary creditors. See 11 U.S.C. sec.sec. 101(36), (51), (53); United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 240 (1989); In re Gledhill, 164 F.3d 1338, 1341-42 (10th Cir. 1999); Rankin v. DeSarno, 89 F.3d 1123, 1127 (3d Cir. 1996); In re Brentwood Outpatient, Ltd., 43 F.3d 256, 259 (6th Cir. 1994). As these cases illustrate, they are not identical legal interests. So what this case comes down to is whether Indiana permits an involuntary lien to be obtained in a liquor license. (It may well permit voluntary liens as well, if Vanek and Cole are incorrect, as they may well be; but we need not decide that in this case.) If Indiana does permit an involuntary lien to be obtained in a liquor license, then the trustee in bankruptcy could not avoid the lien by selling his debtor's license, e.g., In re Merchants Grain, Inc., 93 F.3d 1347, 1352-53 (7th Cir. 1996); In re Florline Corp., 190 B.R. 342, 344-46 (Bankr. S.D. Ind. 1996), and VanKirk can, under standard principles of equity, impress a constructive trust on the proceeds of the sale. Melloh v. Gladis, 309 N.E.2d 433, 438-39 (Ind. 1974); Estates of Kalwitz v. Kalwitz, 717 N.E.2d...

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