Makoroff v. City of Lockport, N.Y.
| Decision Date | 19 October 1990 |
| Docket Number | 90-3159,Nos. 90-3158,s. 90-3158 |
| Citation | 916 F.2d 890 |
| Parties | 23 Collier Bankr.Cas.2d 1566, 20 Bankr.Ct.Dec. 1884, Bankr. L. Rep. P 73,665 Stanley G. MAKOROFF, Trustee for Guterl Special Steel Corporation v. The CITY OF LOCKPORT, NEW YORK, The School District of Lockport, New York and County of Niagara, New York. Appeal of COUNTY OF NIAGARA, NEW YORK. |
| Court | U.S. Court of Appeals — Third Circuit |
David R. Wendt (argued), John F. Batt (argued), Allen D. Miskell and Thomas H. Brandt, City of Lockport Corp. Counsel, Lockport, N.Y., for appellant.
James K. White (argued), Charles A. Moster, Gene V. Del Tredici, U.S. Dept. of Commerce, Office of Gen. Counsel, Washington, D.C., for appellee.
Before STAPLETON, COWEN and WEIS, Circuit Judges.
This bankruptcy appeal raises the question whether the creation of post-petition liens for unpaid city and county real property taxes on a bankrupt estate violates the automatic stay provision of 11 U.S.C. Sec. 362(a)(4) (1979). The district court held it does because the automatic stay prohibits the creation of a lien after the bankruptcy petition, and there was no exception which took this case outside the application of the automatic stay. 111 B.R. 107. We have jurisdiction pursuant to 28 U.S.C. Sec. 1291. Because we agree with the district court's conclusion that the liens in question were created after the bankruptcy petition, and the city and county liens do not relate back to a pre-petition interest in the debtor's property, we will affirm.
Debtor, Guterl Special Steel Corporation ("Guterl"), owned property in the City of Lockport (the "City"), County of Niagara (the "County"), in the State of New York. In 1981, Guterl gave mortgages to two banks each in the amount of $7.5 million. Both mortgages were duly recorded. The mortgages were guaranteed by economic development agencies of the United States for 90% of the outstanding principal and interest; one by the Economic Development Administration of the United States ("EDA"), and the other by the Farmers Home Administration ("FmHA"), both of whom are represented by the United States, the Appellee in this case.
On August 9, 1982, Guterl filed a Chapter 11 petition in bankruptcy in the Western District of Pennsylvania. At filing, Guterl was current on all taxes. After filing, however, Guterl failed to pay certain city, school and county taxes on its real property. The City and County, Appellants in this case, have asserted liens on Guterl's property superior to the recorded mortgages in order to secure payment of the taxes owed to them.
On August 26, 1983, EDA paid 90% of the balance due on the outstanding note it had guaranteed and was assigned all of the bank's right, title and interest in Guterl's collateral. While the record does not indicate what occurred to the note that FmHA guaranteed, we may assume for the purpose of this appeal that at some point, FmHA paid 90% of the balance due on the note it had guaranteed in return for an assignment of the bank's right, title and interest in the collateral. In November, 1983, the bankruptcy court ordered Guterl to liquidate the collateral securing the EDA and FmHA mortgages. In March, 1984, the land was sold in a public sale for $9.5 million, $549,550 of which Guterl has deposited in an escrow account pending resolution of this dispute. This appeal concerns the right to the money in that escrow account.
The United States, representing the EDA and the FmHA, claims that it has a first priority security interest in the proceeds from the sale of Guterl's property (and therefore is entitled to the money in the escrow account) because the EDA and FmHA hold notes secured by duly recorded mortgages on the property. On the other hand, the City and County of Niagara claim that they are entitled to the proceeds because they hold super-priority tax liens on the property for unpaid city, school and county taxes.
The trustee in bankruptcy initiated this proceeding under Rule 7001 of the Bankruptcy Rules to determine priority of liens on the debtor's property in order to adjudicate the competing rights to the proceeds in the escrow account. The bankruptcy court held that the city and county tax liens were null and void because the liens had been created after Guterl's petition in bankruptcy, in violation of the automatic stay, 11 U.S.C. Sec. 362(a)(4). The district court affirmed the holding of the bankruptcy court and this appeal followed.
The automatic stay provision of the bankruptcy code, 11 U.S.C. Sec. 362, is "one of the fundamental debtor protections provided by the bankruptcy laws." H.R.Rep. No. 595, 95th Cong., 1st Sess. 340 (1977), reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 5963, 6296. It protects creditors by giving them equal treatment and is an aid to debtors by giving them a "breathing spell." See H & H Beverage Distribs. v. Department of Revenue, 850 F.2d 165, 166 (3d Cir.), cert. denied, 488 U.S. 994, 109 S.Ct. 560, 102 L.Ed.2d 586 (1988).
Unless an exception applies, the automatic stay prohibits "any act to create, perfect, or enforce any lien against the property of an estate." 11 U.S.C. Sec. 362(a)(4). Section 362(b)(3) creates an exception to the automatic stay and allows "any act to perfect an interest in property to the extent that the trustee's rights and powers are subject to such perfection under section 546(b) of this title." 11 U.S.C. Sec. 362(b)(3) (1979). Section 546(b), in turn, provides that the rights and powers of the trustee under section 545 to avoid statutory liens, see sections 545(1)(A) and 545(2), are subject to "any generally applicable law that permits perfection of an interest in property to be effective against an entity that acquires rights in such property before the date of such perfection." 11 U.S.C. Sec. 546(b) (1979).
The legislative history of this provision explains, "if an interest holder against whom the trustee would have rights still has, under applicable nonbankruptcy law, and as of the date of the petition, the opportunity to perfect his lien against an intervening interest holder, then he may perfect his interest against the trustee." H.R.Rep. No. 595, 95th Cong., 1st Sess. 371 (1977), reprinted in 1978 U.S.Code Cong. & Admin.News 5963, 6327; S.Rep. No. 989, 95th Cong., 2d Sess. 86 (1978), reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 5872. The legislative history also indicates that "generally applicable law" means "provisions of applicable law that apply both in bankruptcy cases and outside bankruptcy cases," and warns that "[the phrase] is not designed too [sic] give the States an opportunity to enact disguised priorities in the form of liens that apply only in bankruptcy cases." Id.
In essence, these provisions establish an exception to the bar of the automatic stay where a creditor has a pre-petition interest in property that can be perfected under state law within a given time. The creditor, in that circumstance, does not lose his preferred status merely because he does not perfect his interest until after the debtor has filed for bankruptcy. See In re Parr Meadows Racing Assoc., Inc., 880 F.2d 1540, 1546 (2d Cir.1989), cert. denied, --- U.S. ----, 110 S.Ct. 869, 107 L.Ed.2d 953 (1990).
The paradigm section 546(b) case would arise in a state which has adopted the Uniform Commercial Code ("U.C.C."). Under various sections of the U.C.C., a perfected security interest relates back to either the filing of a financing statement or the date that the security interest attaches. See, e.g., H.R.Rep. No. 595, 95th Cong., 1st Sess. 371-72 (1977), reprinted in 1978 U.S.Code Cong. & Admin.News 5963, 6327-28; S.Rep. No. 989, 95th Cong., 2d Sess. 86-87 (1978), reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 5872-73. 1 Where a state law allows a creditor to perfect his security interest within a certain period of time after the security interest attaches, section 546(b) allows the creditor to complete the steps required under state law for perfection. Without section 546(b), a creditor could not perfect his security interest without violating the automatic stay, even if all that remained was a ministerial act.
The purpose of this exception to the rule of the automatic stay is to "protect, in spite of the surprise intervention of [the] bankruptcy petition, those whom State law protects" by allowing them to perfect an interest they obtained before the bankruptcy proceedings began. H.R.Rep. No. 595, 95th Cong., 1st Sess. 371 (1977), reprinted in 1978 U.S.Code Cong. & Admin.News 5963, 6327; S.Rep. No. 989, 95th Cong., 2d Sess. 86 (1978), reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 5872; see also Parr Meadows, 880 F.2d at 1546.
The question which we must consider is whether the city and county real estate taxes are analogous to liens that can be perfected post-petition and relate back to a pre-petition period. If the city and county tax liens date back to a pre-petition interest in debtor's property, there would be no violation of the automatic stay in this case, even if the tax liens were perfected post-petition. The statutory liens of the City and County would therefore "trump" even the prior recorded mortgages of the EDA and the FmHA.
We begin our analysis by examining the taxing statutes which give rise to the city and county liens.
Section 271 of Lockport's City Charter provides:
All general city taxes hereinafter levied in said city shall be a lien upon the lands on which they are assessed, for ten years from the first publication of the notice of such tax or assessment by the treasurer, and shall have priority in the order of time in which they become liens.... Such liens shall be superior to any mortgage, judgment or other lien of any nature affecting said premises except state and county taxes and liens in favor of the United States.
On January 4, 1983, the City published the notice for the 1983 City...
To continue reading
Request your trial
-
In re LTV Steel Co., Inc., No. 00-43866.
...Racing Assn., 880 F.2d 1540 (2d Cir.1989), cert. denied, 493 U.S. 1058, 110 S.Ct. 869, 107 L.Ed.2d 953 (1990); Makoroff v. City of Lockport, 916 F.2d 890 (3d Cir.1990). These decisions create a windfall for secured lenders, who would otherwise be subordinated to such tax liens, and signific......
-
In re Peake
...651 F.3d at 791 (citing In re Parr Meadows Racing Ass'n, Inc. , 880 F.2d 1540, 1546 (2d Cir. 1989) ; Makoroff v. City of Lockport, N.Y. , 916 F.2d 890, 891–92 (3d Cir. 1990) ). The subsection was amended in 1994 to add the phrase "or to maintain or to continue the perfection of," which is t......
-
In re United Const. and Development Co., Bankruptcy No. 85C-03657
...880 F.2d 1540 (2d Cir.1989); Makoroff v. City of Lockport (In re Guterl Special Steel Corp.), 111 B.R. 107 (W.D.Pa.1990), aff'd 916 F.2d 890 (3d Cir.1990); Erie Hilton Joint Venture v. Prudential Insurance Co. (In re Erie Hilton Joint Venture), 125 B.R. 140 (Bankr.W.D.Pa.1991); Watervliet P......
-
In re Sean Doolan And Nicole Doolan
...In re Parr Meadows, 880 F.2d 1540 (2d Cir.1989), cert. denied, 493 U.S. 1058, 110 S.Ct. 869, 107 L.Ed.2d 953 (1990); Makoroff v. City of Lockport, 916 F.2d 890 (3d Cir.1990). These decisions create a windfall for secured lenders, who would otherwise be subordinated to such tax liens, and si......