Reedsburg Utility Comm'n. v. Grede Foundries, Inc. (In re Grede Foundries, Inc.)
Decision Date | 13 July 2011 |
Docket Number | No. 10-2509,10-2509 |
Parties | In re: Grede Foundries, Inc. Debtor. Reedsburg Utility Commission, Plaintiff-Appellant, v. Grede Foundries, Inc., Debtor-Appellee. |
Court | U.S. Court of Appeals — Seventh Circuit |
Appeal from the United States District Court
for the Western District of Wisconsin.
No. 10-CV-84—Barbara B. Crabb, Judge.
Before TINDER and HAMILTON, Circuit Judges, and MURPHY, District Judge.*
TINDER, Circuit Judge. When debtor and appellee Grede Foundries, Inc. entered bankruptcy, the Wisconsin smelting plant owed more than $1.3 million in delinquent utility charges to the local municipal utility, appellant Reedsburg Utility Commission. Months after Grede filed for bankruptcy, and despite the automatic stay that accompanied Grede's filing, Reedsburg implemented the process pursuant to state law by which it could collect on Grede's arrearage. Grede sought to enforce the stay. The bankruptcy court and the district court found that none of the exceptions to the automatic stay applied to Reedsburg's efforts to collect on Grede's debt, which is substantial considering that Grede's billings constituted more than one-third of Reedsburg's operating revenue. We are sympathetic to Reedsburg's plight but the exceptions to the automatic stay do not apply to Reedsburg's efforts to collect on Grede's debt. We affirm.
Grede owned properties in Reedsburg, Wisconsin, that received utility services from the Reedsburg utility Commission, a municipal utility. The utility services— primarily electricity—were critical to Grede's operations. The foundry conducted the electricity through rods to heat vats of molten steel to press into parts for the automotive industry. Heating the rods to the appropriate degree to melt steel produced a hefty electric bill; Grede's average monthly utility bill was around $600,000 to $700,000. Reedsburg's billings with Grede were also significant, constituting about 35% of its operatingrevenue in 2008. Reedsburg provides electric, water, telephone, internet, and cable TV service to 4,170 residents and 681 businesses in the Reedsburg area in Sauk County, Wisconsin.
Perhaps triggered by the major downturn in the American automotive industry, Grede voluntarily filed for Chapter 11 bankruptcy on June 30, 2009, with assets between $100 million and $500 million. The filing initiated the automatic stay pursuant to 11 u.s.C. § 362(a)(4) & (6), halting "any act to create, perfect, or enforce any lien against property of the estate" or "any act to collect, assess, or recover a claim." Yet Congress also created several exceptions to the automatic stay, three of which are at issue in this appeal: perfecting prepetition interests in property, id. § 362(b)(3), determining the existence of and providing notice of a tax matter, id. § 362(b)(9), and creating or perfecting a lien for a special tax or special assessment on real property, id. § 362(b)(18). At the time of filing, Grede owed Reedsburg $1,312,314.09 in prepetition unpaid utility charges—or a few months' worth of utility services. Grede continued operating as a debtor in possession pursuant to 11 U.S.C. §§ 1107(a), 1108.
The Wisconsin law governing how municipal utilities collect on an arrearage is fairly straightforward for our purposes. Reedsburg must give delinquent property owners a written notice on October 15 of their pre-October 1 arrearage for the year pursuant to Wis. stat. § 66.0809(3). The notice must state:
Id. (emphases supplied). Thus, pursuant to Wis. Stat. § 66.0809(3), on October 15, 2009, Reedsburg's general manager David Mikonowicz sent Grede nineteen separate notices regarding the unpaid utility charges. The notices stated:
Grede's account balances with Reedsburg ranged from $20.26 to $1,271,649.33. On November 3, Reedsburg reported all delinquent charges, including Grede's, to the City. On November 12, the City reported all delinquent utility charges to the Sauk County Treasurer, including Grede's arrearage. The City typically reimbursed Reedsburg for all arrearages from its general fund, but the size of Grede's delinquency proved too much for the City.
But for Grede's bankruptcy filing, Grede's arrearage would have been included in the following process pursuant to Wisconsin law and Reedsburg's ordinances and practices. The City calculated and reported its mill rate to the County Treasurer in late November or early Decem-ber. Then the County printed and mailed property tax bills during the first two weeks of December. Unpaid utility charges, (such as Grede's but for the bankruptcy filing), appeared on the bills as a "special charge." The City accepted payment for the entire property tax bill including the special charge up to January 31. Pursuant to Wis. Stat. § 74.11(12), money the City received would be applied first to personal property taxes and next to late utility charges. After January 31, the County paid the City for all unpaid property taxes and special charges and assumed responsibility for collecting the unpaid amounts. If an arrearage persisted after the due date, the County sent the property owner a notice, and if the owner still did not pay, the County placed a lien on the property for the amount of the arrearage, including unpaid utility charges.
Yet the process for collecting on Grede's arrearage halted when Grede filed a motion on November 5 to enforce the stay and hold Reedsburg in contempt for violating the stay. The bankruptcy court held on November 12 that Reedsburg was not in contempt and deferred deciding whether Reedsburg violated the stay. But the court ordered Reedsburg, the City, and the County to refrain from taking actions "to create, file, perfect, or enforce any lien against Grede's real property or to place any unpaid utility charges for utility services on the property tax roll. . . ." Thus, Grede's unpaid utility charges were left off Grede's 2009 property tax bill.
The bankruptcy court found on December 21 that Reedsburg violated the automatic stay by sending delin-quency notices to Grede and reporting the delinquencies to the City. The court voided Reedsburg's "actions to perfect a lien against Grede's properties" and found that Reedsburg's actions constituted efforts to create or perfect a lien or collect a debt within the meaning of 11 U.S.C. § 362(a) and that none of the § 362(b) exceptions applied. In re Grede Foundries, Inc., No. 09-14337, 2009 WL 4927491, at *6 (Bankr. W.D. Wis. Dec. 21, 2009). The district court affirmed, Reedsburg Util. Comm'n v. Grede Foundries, Inc., No. 10-cv-84-bbc, 2010 WL 2159358 (W.D. Wis. May 24, 2010), and Reedsburg filed a timely appeal.
The parties do not dispute this case's facts. Their disagreement involves an analysis of state and federal statutes. Thus, we apply de novo review, "which allows us to 'assess the bankruptcy court's judgment anew.'" In re Ingersoll, Inc., 562 F.3d 856, 863 (7th Cir. 2009) (quoting In re Boone Cnty. Utils, LLC, 506 F.3d 541, 542 (7th Cir. 2007)).
The automatic stay generally prohibits, among other actions, "any act to create, perfect, or enforce any lien against property of the estate" or "any act to collect, assess, or recover a claim." 11 U.S.C. § 362(a)(4) & (6). The stay functions as "one of the fundamental protections afforded to debtors by the bankruptcy laws," In re 229 Main St. Ltd. P'ship, 262 F.3d 1, 3 (1st Cir. 2001), as it preserves "what remains of the debtor's insolventestate and [provides] a systematic equitable liquidation procedure for all creditors, secured as well as unsecured, thereby preventing a chaotic and uncontrolled scramble for the debtor's assets in a variety of uncoordinated proceedings in different courts," In re Holtkamp, 669 F.2d 505, 508 (7th Cir. 1982) (quotations and citations omitted). Reedsburg abandoned arguing at the district court that it did not act to perfect or create a lien but maintained that a § 362(b) exception applied to its actions. Courts interpret these exceptions narrowly to give the automatic stay its intended broad application. See In re Stringer, 847 F.2d 549, 552 (9th Cir. 1988) (...
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