In re Leaks

• Decision Date: 08 July 2016
• Docket Number: CASE NO.: 5:15–bk–15772
• Citation: 552 B.R. 741
• Parties: In re: Tilda Marie Chambers Leaks, Debtor
• Court: U.S. Bankruptcy Court — Eastern District of Arkansas

552 B.R. 741

In re: Tilda Marie Chambers Leaks, Debtor

CASE NO.: 5:15–bk–15772

United States Bankruptcy Court, E.D. Arkansas, Pine Bluff Division.

Signed July 8, 2016

Ben D. Perry, Dickerson Law Firm, PA, Pine Bluff, AR, for Debtor.

MEMORANDUM OPINION

RICHARD D. TAYLOR, UNITED STATES BANKRUPTCY JUDGE

Before the court is a Motion for Avoidance of Lien of Department of Workforce Services (“Motion”) filed by the debtor, Tilda Marie Chambers Leaks (“debtor”), on April 7, 2016. Jack W. Gooding, the Chapter 13 Standing Trustee, filed his Trustee's Response to Motion for Avoidance of Lien of Department of Workforce Services as did Daryl E. Bassett, the Director (“Director”) of the Arkansas Department of Workforce Services (“Workforce Services”), by his Creditor's Response to Debtor's Motion to Avoid Lien of the Arkansas Department of Workforce Services (collectively, the “Responses”). The Responses sought to deny the debtor's requested relief. The court heard the Motion and Responses on May 24, 2016, and took the matter under advisement. For the reasons stated herein, the relief requested in the Motion is granted.

I. Jurisdiction

This court has jurisdiction over this matter under 28 U.S.C. §§ 1334 and 157. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B), (K), and (O). The following opinion constitutes findings of fact and conclusions of law in accordance with Federal Rules of Bankruptcy Procedure 7052 and 9014.

II. Findings of Fact

The debtor filed for Chapter 13 relief on November 13, 2015. She claimed all of her real and personal property as exempt. In her Motion, the debtor describes a “pre-petition judgment” against her obtained by Workforce Services in the amount of $2314.98. (Mot. for Avoidance of Lien of Dept. of Workforce Serv. ¶ 3, Apr. 7, 2016, ECF No. 35.) The debtor seeks to avoid the “above-described judicial lien” pursuant to 11 U.S.C. § 522(f) as one impairing her exemptions. (Mot. ¶ 6, ECF No. 35.) Although described in the Motion as a “pre-petition judgment,” the lien is actually represented not by a traditional court-generated judgment but rather by two Certificates of Overpayment of Unemployment Insurance Benefits Levied by the Department of Workforce Services Act (the “Certificate” or “Certificates”). (Creditor Exs. 1, 2.) The underlying indebtedness represents the debtor's receipt of unemployment compensation benefits to which she was not entitled. The Certificates are dated March 5, 2012, and February 27, 2015. (Creditor Exs. 1, 2.) The clerk of the circuit court recorded them on March 6, 2012, and March 2, 2015, respectively. (Creditor Exs. 1, 2.)

The debtor testified that prior to the issuance and recording of the Certificates, in November 2011, she received a letter from Workforce Services concerning overpayment due to her alleged failure to accurately report her income. The debtor recalled that she appealed that determination and engaged in a hearing—possibly by phone. The debtor received a similar letter in 2012.

Each Certificate is styled “In the Circuit Court of Calhoun County, Arkansas” and lists the Director as “Plaintiff” and the debtor as “Defendant.” (Creditor Exs. 1, 2.) In substance, each Certificate is a certification by the Director that a “final notification was made to the defendant of the assessment of delinquent overpayments levied by the Department of Workforce Services Act, past due and unpaid by said defendant, and on the same date, a copy of said overpayment was delivered to said defendant.” (Creditor Exs. 1, 2.) The Director further certified “that all appeal rights have been exhausted pursuant to A.C.A. § 11–10–532(d), and [he] now certif[ies] to you, as Clerk of the said Circuit Court, the amount of said delinquent overpayment due by the said defendant is [a sum certain] plus court costs.” (Creditor Exs. 1, 2.) Thereafter, the Certificates provide a “Notice of Lien” that, pursuant to Arkansas Code Annotated § 11–10–532(d), a lien is created “upon all real and personal property owned by the above-named defendant to secure payment of the amount shown above.” (Creditor Exs. 1, 2.) At the bottom of each Certificate is a “Note to Clerk” instructing the clerk to file the Certificate “in the records of the Circuit Court for judgments and decrees under the procedure prescribed for filing transcripts of judgment by Arkansas Code Annotated § 16–19–1011, as provided by Arkansas Code Annotated § 11–10–532(d), as amended.” (Creditor Exs. 1, 2.)

III. Discussion

A. Case Law

The debtor seeks to characterize the Certificates as judicial liens that are amenable to avoidance under section 522(f). Workforce Services contends that its liens are statutory liens and, as such, are not avoidable. The Chapter 13 Standing Trustee concurs. All parties concede that the only issue before this court is whether the Certificates represent avoidable judicial liens or unavoidable statutory liens. An analysis of the facts and appropriate law compels the conclusion that the Certificates represent avoidable judicial liens as they do not “aris[e] solely by force of a statute on specified circumstances or conditions,” but rather as a result of “other legal or equitable process or proceeding.” 11 U.S.C. § 101(53), (36) (2016).

Section 522(f)(1) of the Code provides:

Notwithstanding any waiver of exemptions but subject to paragraph (3), the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is—

(A) a judicial lien, other than a judicial lien that secures a debt of a kind that is specified in section 523(a)(5)[.]

11 U.S.C. § 522(f) (2016).

The Code defines a judicial lien as one “obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding.” 11 U.S.C. § 101(36). Conversely, a statutory lien is one “arising solely by force of a statute on specified circumstances or conditions, ... but does not include security interest or judicial lien, whether or not such interest or lien is provided by or is dependent on a statute and whether or not such interest or lien is made fully effective by statute.” 11 U.S.C. § 101(53).

In support of her argument, the debtor relies principally on Arkansas Code Annotated § 11–10–532(d)(3), which provides: “[a]fter entry by the circuit clerk, the [C]ertificate of overpayment shall have the force of a judgment of the circuit court and shall bear interest at the rate of ten percent (10%) annually.” Ark. Code Ann . § 11–10–532(d)(3) (2016) (emphasis added). Reliance on that singular provision, however, is not sufficient to conclusively characterize the Certificate as a judicial lien.

The Third Circuit reached that conclusion in In re Schick, 418 F.3d 321 (3rd Cir.2005). Schick presented the court with the issue of whether a lien held by the New Jersey Motor Vehicles Commission was a statutory or judicial lien for purposes of lien avoidance under section 522(f). 418 F.3d at 322. The New Jersey statutory scheme that imposed the lien contained a provision similar to the one in Arkansas whereby the docketing of the certificate would have the same force and effect as a civil judgment and would be amenable to collection accordingly. Schick, 418 F.3d at 325. In analyzing “whether it arises solely by force of statute, or whether it results from some type of judicial process or proceeding,” the Third Circuit analogized to an earlier decision involving unpaid water bills. Id. at 324–25. Discussing that case, where the debtor argued that the lien statute created a judicial lien, the Schick court stated:

We disagreed, finding that the lien was statutory because it was not obtained by any “legal process or proceeding” within the meaning of the definition of a judicial lien, 11 U.S.C. § 101(36). We explained that these terms “inherently relate to court procedures or perhaps similar administrative proceedings.” Although we recognized that in some circumstances a judicial proceeding may be ex parte, we concluded that where the Water Department administratively determined the amount of the lien, and the prothonotary's sole responsibility was to docket the lien as delivered, the lien fell within the Code's definition of a statutory lien as it arose “solely by force of statute.” In addition, we rejected the argument that the act of docketing the City's lien in the judgment index by the prothonotary rendered the lien a judicial lien:

[D]ocketing simply would be a specified condition for creation of the statutory lien as defined in 11 U.S.C. § 101(53). The legislative history of the Bankruptcy Code, which demonstrates that mechanics' liens can be statutory, supports this conclusion. Inasmuch as at least in some states public filing is required to preserve mechanics' liens, there is no reason why the requirement that a water lien be docketed means that it cannot be statutory.

We find Graffen to be persuasive in this case based on the similarities between the Pennsylvania water lien statute and the New Jersey surcharge statute. For instance, as with the water lien statute in Graffen, the amount of the debt here is determined either as a matter of statute or administrative regulation, as noted above. Moreover, like the prothonotary in Graffen, the only duty of the Clerk of the Superior Court, with respect to the lien, is to docket the certificates of debt as delivered in “the amount of the debt so certified.” As we made clear in Graffen, the mere act of docketing a debt by the Clerk of the Superior Court as part of his ministerial duties is insufficient to render the MVC's lien a judicial lien. Nor is there is any “legal process or proceeding” here within the meaning of the definition of a judicial lien, 11 U.S.C. § 101(36), nor any other type of “court procedures or perhaps similar administrative proceedings.” Rather, the requirement that the certificates of debt be docketed is one of the specified conditions for

...