Wigger v. State Treasurer (In re Wigger), Case No. DG 17-04014
| Decision Date | 16 April 2019 |
| Docket Number | Adversary Pro. No. 18-80149,Case No. DG 17-04014 |
| Citation | 600 B.R. 777 |
| Parties | IN RE: Kevin M. WIGGER, Debtor. Kevin M. Wigger, Plaintiff, v. State Treasurer, William A. Van Eck, Ada Young and George Wigger, Defendants. |
| Court | U.S. Bankruptcy Court — Western District of Michigan |
Kevin Mark Wigger, St. Louis, MI, pro se.
William A. Van Eck, pro se.
Katherine C. Kerwin, Michigan Attorney General, Detroit, MI, for Defendants.
Kevin M. Wigger stands convicted of criminal sexual conduct in the third degree for crimes he committed before filing his chapter 7 bankruptcy petition, and he is currently incarcerated at the Central Michigan Correctional Facility. According to the Michigan Attorney General, his incarceration will continue until at least October 30, 2021 and possibly until June 10, 2030. To mitigate the costs of incarcerating state prisoners such as Mr. Wigger, the Michigan Legislature has long authorized the State to recover its costs from a prisoner's assets in accordance with the procedures and conditions prescribed in the State Correctional Facility Reimbursement Act, M.C.L. § 800.401 et seq. ("SCFRA").
According to Mr. Wigger's complaint in this adversary proceeding, Michigan's Treasurer (the "Treasurer") commenced a prepetition proceeding under the SCFRA against him in 2015 in Muskegon County Circuit Court, resulting in a judgment (the "SCFRA Judgment") freezing and subjecting to the Treasurer's reimbursement claim a substantial portion of Mr. Wigger's individual retirement account ("IRA") and half of the net proceeds of his recovery of a separate tort judgment against his son, George.1
Mr. Wigger, pro se , later filed a voluntary petition for relief under chapter 7, and then a complaint commencing this adversary proceeding against several entities to discharge all debts and liens against him and his property (ECF No. 1, the "Complaint"), in particular the Treasurer's interest in the IRA and the tort judgment against his son. Mr. Wigger has claimed the IRA and the tort judgment as exempt under § 522 and seeks to avoid the Treasurer's interest in both under 11 U.S.C. § 522(f)(1)(A).
The court previously granted the motions to dismiss of two other defendants, so the Treasurer's Motion is the only one pending at this time.2 See Motion to Dismiss Case Pursuant to Fed. R. Bankr. P. 7012(b) and Fed. R. Civ. P. 12(b)(6) (ECF No. 11, the "Motion"); see also Order dated Feb. 26, 2019 (ECF No. 28) (). And, because the court recently sustained the chapter 7 trustee's objection to Mr. Wigger's exemption in the tort judgment against his son, the IRA is the only currently exempt asset at issue in this adversary proceeding. See Memorandum of Decision and Order dated April 12, 2019 (Base Case 17-04014, ECF No. 96) (sustaining objection to exemption claimed in the tort judgment).
After reviewing the Motion and Mr. Wigger's response, the court directed the parties to file supplemental briefs regarding the nature of the Treasurer's interest under the SCFRA Judgment. Having carefully considered the supplemental briefs, the court will deny the Motion.
The court has jurisdiction over Mr. Wigger's bankruptcy case and this adversary proceeding pursuant to 28 U.S.C. §§ 157(a) and 1334 because the United States District Court has referred all bankruptcy cases and proceedings to the United States Bankruptcy Court, and because the property at issue is included within Mr. Wigger's bankruptcy estate. Because this adversary proceeding requires the court to consider Mr. Wigger's exemptions and the validity, priority, or extent of the Treasurer's interest in property of the bankruptcy estate, it is a "core proceeding" within the meaning of 28 U.S.C. § 157(b)(2)(B) and (K). In short, the court has ample authority to address the Motion and, eventually, to resolve the dispute with a final order.
In order to survive a motion to dismiss, a complaint must "contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ); see also Doe v. Miami University , 882 F.3d 579, 588 (6th Cir. 2018). A claim has "facial plausibility when the plaintiff pleads factual content that allows the court to draw reasonable inferences" in support of the relief requested. Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 ; Miami University , 882 F.3d at 588.
After sorting through a variety of issues the court ultimately rejects as red herrings,3 the principal issue the Motion presents is whether the Treasurer's interest in the IRA is avoidable as a "judicial lien" within the meaning of § 522(f)(1)(A) or protected from avoidance under that section as a "statutory lien." See 11 U.S.C. §§ 101(36) (defining "judicial lien"), 101(37) (defining "lien"), 101(53) (defining "statutory lien"), and § 522(f)(1)(A) (). If the Treasurer's interest is a "judicial lien," the Complaint to avoid it presents a "plausible" claim for relief, particularly given the Treasurer's concession that "Wigger likely meets the second and third element [of § 522(f)(1)(A) ] ..." See State Treasurer's Supplemental Brief Pursuant to the Court's 2/26/19 Order (ECF No. 32) at p. 5. If, on the other hand, the interest is a "statutory lien," then § 522(f)(1)(A) has no role to play and the court should dismiss the Complaint as it pertains to the Treasurer and the IRA.
First, the parties evidently agree that the Treasurer's interest in the IRA is a "lien," because they are only sparring over the classification of the interest as either "judicial" or "statutory." This concession seems sensible given the Code's definition of "lien" as a "charge against or interest in property to secure payment of a debt or performance of an obligation," 11 U.S.C. § 101(37), and the terms of the SCFRA Judgment that simply froze the IRA, rather than directing the outright and immediate transfer of it. Although the Treasurer concedes that she cannot collect her claim against Mr. Wigger through in personam remedies (such as a money judgment), it is quite clear that the Treasurer's "charge" against the IRA secures a "debt," which the Code defines as "liability on a claim." See 11 U.S.C. § 101(5) and (12) (defining "claim" and "debt," respectively); cf. 11 U.S.C. § 102(2) (). A fair reading of the SCFRA suggests that a prisoner in Michigan has a non-recourse obligation to reimburse the State for the cost of incarceration and that the prisoner's "assets" may, depending on the investigation of the Attorney General and the decision of the Michigan Circuit Court, become liable for the costs of incarceration, as occurred in Mr. Wigger's case under the SCFRA Judgment. See M.C.L. §§ 800.403 (attorney general investigation) and 800.404 (decision of the circuit court). The court finds that the Treasurer has a "lien" encumbering the IRA and the judgment against Mr. Wigger's son, and that the lien plausibly impairs the exemption in the IRA to some extent. The next (and dispositive) question, however, is whether the lien is "statutory" or "judicial," within the Bankruptcy Code definitions.
The term " ‘judicial lien’ means lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding." 11 U.S.C. § 101(36). As relevant here, the term "statutory lien," in contrast, "means lien 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." Id. § 101(53) (emphasis added). The italicized text of the statute directs the court to consider the inception or origin of the challenged lien and makes clear that, as between the statutory and judicial categories, a lien must be either a statutory lien, or a judicial lien, but not both.
Although the cases establish that a lien does not become a "judicial lien" simply because perfection or enforcement depends on actions of a court, they also make clear that to qualify as a statutory lien the lien must arise "solely by force of a statute on specified circumstances or conditions." Cf. Yarmouth Commons Association v. Norwood , 299 F.Supp.3d 862, 870 (E.D. Mich. 2017) ; 2 Collier on Bankruptcy ¶ 101.53.
The Treasurer states, without authority, that the State has an inchoate lien under the SCFRA against the IRA. The text of the SCFRA, however, does not support the argument, nor do the Treasurer's cited authorities establish, or even suggest, as much. For example, unlike some mechanics lien statutes that create a lien immediately upon the performance of work or furnishing materials,4 the SCFRA contains no such automatic lien-creating-language upon sentencing (as the Treasurer baldly contends). Rather, it plainly appears under the SCFRA that a prisoner's assets would remain completely unencumbered if either the Director of the Department of Corrections, or the Attorney General, or the State's Circuit Court, failed to act. See M.C.L. §§ 800.402 - 800.404. Indeed, after the Attorney General completes the investigation under M.C.L. § 800.403 and "has good cause to believe that a prisoner has enough assets to recover not less than 10% of the estimated cost of his care or 10% of the estimated cost of care of the prisoner for 2 years, whichever is less," then and only then may the Attorney General "seek to secure reimbursement for the expense." Id. § 800.403. This suggests that the...
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