In re McNeely
| Decision Date | 19 July 1985 |
| Docket Number | Bankruptcy No. 83C-02990. |
| Citation | 51 BR 816 |
| Parties | In re Max McNEELY, Debtor. |
| Court | U.S. Bankruptcy Court — District of Utah |
Robert L. Neeley, Campbell & Neeley, Ogden, Utah, for debtor.
James Z. Davis, Ray, Quinney & Nebeker, Ogden, Utah, for Western States Petroleum, Inc.
Steven R. Bailey, Ogden, Utah, trustee.
This matter comes before the Court on the motion of Western States Petroleum, Inc. for relief from the automatic stay. For the reasons set forth herein, the Court determines that the creditor's prejudgment writs and garnishments created liens valid against the trustee and the creditor is entitled to relief from the stay.
The following facts were stipulated to by the parties to this matter:
Prior to filing of his bankruptcy petition, the debtor held one-half ownership interest in real property in Box Elder County, Utah. Western States Petroleum, Inc. (hereinafter the "creditor" or "movant") commenced an action against the debtor in state court in order to collect a debt of $130,605.27, plus attorney's fees. On April 29, 1983, the creditor caused to be issued a prejudgment writ of attachment, attaching the debtor's real property in Box Elder County, Utah. On that same date, the creditor caused to be issued a prejudgment writ of garnishment directed to the Bear River State Bank, ordering said bank to freeze the funds in the debtor's accounts there pending resolution of the dispute. On May 10, 1983, the creditor caused to be served upon the debtor a prejudgment writ of attachment, attaching the debtor's personal property. On May 10, 1983, the state court entered an order extending the aforesaid writs during the pendency of the lawsuit.
The real and personal property of the debtor, which is the subject of the writs, have a value of less than $75,000. In the state court, the creditor made a motion for summary judgment against the debtor. On November 8, 1983, the debtor filed a petition for voluntary relief under Chapter 7 of the Bankruptcy Code. On or about that date, the state court ruled on the summary judgment motion and entered judgment in favor of the creditor and against the debtor;1 it is unclear whether the order for relief entered upon the filing of the Chapter 7 petition or the judgment was entered first. The trustee and the creditor have stipulated that the creditor's interest in the property subject to the prejudgment writs can attach to the proceeds of any of such property that has been sold by the trustee.
In addition to the stipulated facts above, this Court also finds:
On May 10, 1984, the creditor moved this Court for (1) an order terminating the automatic stay as to the property subject to the state court's writs on the ground that the writs created a valid lien against said property, thereby giving the creditor a security interest in such property to the extent of the judgment obtained in state court, and (2) an order transferring its lien on any such property sold by the bankruptcy trustee to the proceeds thereof. On May 18, 1984, the creditor gave notice of the hearing on its motion for relief from stay scheduled for June 14, 1984. On June 4, 1984, the debtor filed his answer pursuant to Local Rule 27, objecting to the creditor's motion and arguing that the state court's prejudgment writs did not create a valid lien in favor of the creditor. On June 14, 1984, the trustee filed a response, arguing that the creditor's summary judgment in state court superseded the prejudgment writs of attachment, and because the creditor failed to perfect its judgment lien, it has only a general unsecured claim without priority against the assets of the bankruptcy estate. On June 14, 1984, the parties filed their stipulation of facts to which the Court has already made reference in these findings.
On June 14, 1984, at 11:00 a.m., the Court held a preliminary hearing on the creditor's motion. Robert Neeley appeared for the debtor, James Davis appeared for the creditor, and Steven Bailey appeared in his capacity as trustee. The Court heard arguments and ordered the parties to file additional memoranda within 15 days, by June 29, 1984. The trustee and the debtor filed their memoranda on July 6. The creditor filed its memorandum on July 11. No party scheduled a final hearing on this motion within 30 days of the date of the preliminary hearing held June 14, 1984, nor did any of the parties make any effort to bring this matter to the Court's attention for final resolution.
The matter remained under advisement until now.
An attachment is a provisional remedy granted to the plaintiff in an action, which enables him to have property of the defendant seized by an officer and held in the custody of the law as security for the satisfaction of any judgment that he may recover. Bristol v. Brent, 36 Utah 108, 103 P. 1076, 1079 (1909); Jesse v. Birchell, 198 Or. 393, 257 P.2d 255, 257, 37 A.L.R.2d 952 (1953). When the court determines that the plaintiff is entitled to judgment, "then, and only then, can the property that has been seized be applied to payment of the judgment." Bristol v. Brent, supra, 103 P. at 1079. The property attached constitutes security for payment of the debt, if the debt is found to exist. An attachment proceeding is essentially a proceeding for the purpose of establishing a lien to aid in the collection of an unsecured debt, and the only way this lien can be established is by strictly adhering to every requirement of the rule. Bank of Ephraim v. Davis, 581 P.2d 1001 (Utah 1978). See Rule 64C, Utah R.Civ.P. Cf. Hilton Brothers Motor Co. v. District Court, 82 Utah 372, 25 P.2d 595 (1933). When property is levied upon pursuant to a writ of attachment, the plaintiff acquires an inchoate or contingent lien in the property attached. Jensen v. Eames, 30 Utah 2d 423, 519 P.2d 236, 238 (1974); Hilton Brothers Motor Co. v. District Court, supra, 25 P.2d at 596. The lien acquired by attachment is a vested interest of the attaching creditor, which affords specific security for the satisfaction of the debt. McGaffey Canning Co. v. Bank of America, 109 Cal.App. 415, 294 P. 45, 48 (1930). So long as it exists it is a charge on the assets and is not subject to being divested except by order of the court or payment of the judgment sought to be obtained in the underlying action.
It is true that upon the rendition and docketing of a judgment in favor of the plaintiff in an action in which a prejudgment writ of attachment has been issued and levied upon real property, the attachment lien merges with the judgment lien in the sense and to the extent that there cannot be two separate and distinct liens subsisting against the same property — one arising out of the attachment, and the other arising out of the judgment. Brun v. Evans, 197 Cal. 439, 241 P. 86, 87 (1925). But notwithstanding the merger, the attachment lien continues in existence for the purpose and with the effect of preserving the priority thereby established. Id. Or, stated differently, entry of judgment will perfect the inchoate lien and the perfected lien will relate back to the date the writ was levied upon. See Morris W. Haft & Brothers v. Wells, 93 F.2d 991, 995 (10th Cir.1937). An attachment lien continues after the rendition of the judgment until the debt is paid or the property is sold under a writ of execution issued on the judgment, or until the judgment is satisfied, or the attachment discharged or vacated in some manner provided by law. Katz v. Obenchain, 48 Or. 352, 85 P. 617, 619 (1906).
The drafters of the Bankruptcy Code were concerned with the problem of liens created by state law frustrating the policy of equality of distribution among unsecured creditors. See 4 COLLIER ON BANKRUPTCY ¶ 545.013, at 545-6 through 545-7 (15th ed. 1985). Section 545 of the Code specifies six alternative grounds upon which the trustee can avoid the fixing of a statutory lien. It must, of course, be recognized that Section 545 deals only with statutory liens and does not include judicial liens or security interests.
A "judicial lien" is defined in Section 101(30) (formerly Section 101(27)) as a "lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding." The term encompasses a lien established by attachment or garnishment. See In re Rand Mining Co., 71 F.Supp. 724 (S.D.Cal.1947); In re Minton Group, Inc., 28 B.R. 774 (Bkrtcy.S.D.N.Y. 1983).2 A judicial lien, while not subject to avoidance under Section 545, may be assailed as a preference. See 4 COLLIER ON BANKRUPTCY, supra, ¶ 547.121, at 547-48. In the present case, however, the writs were issued and the debtor's property levied upon outside of the preference period. Where a writ of attachment is issued and the debtor's property is levied upon prior to the 90-day preference period, a lien is created in favor of the creditor which cannot be avoided by the trustee. McIntosh v. Bank of Salt Lake, 24 Utah 2d 245, 469 P.2d 1016, 1018 (1970). See Walutes v. Baltimore Rigging Company, 390 F.2d 350, 352 (4th Cir.1968); Bass v. Stodd, 357 F.2d 458, 465-66 (9th Cir.1966); In re TMIC Industrial Cleaning Co., 19 B.R. 397, 400 (Bkrtcy.W.D.Mo.1982). A judgment perfecting the lien may be rendered within the preference period or even after the filing of the bankruptcy petition. Metcalf Brothers & Co. v. Barker, 187 U.S. 165, 23 S.Ct. 67, 47 L.Ed. 122 (1902); Morris W. Haft & Brothers v. Wells, supra, 93 F.2d at 995.
The property which is the subject of the writs is property of the debtor's estate. 11 U.S.C. § 541. See United States v. Whiting Pools, 462 U.S. 198, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983). However, turnover of such property is proper only where the creditor's interest can be adequately protected. 11 U.S.C. §§ 363(e), 542. See In re Riding, 44 B.R. 846, 848-49, 12 B.C.D. 635, 11...
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