Source: https://law.justia.com/cases/federal/appellate-courts/F2/718/1446/417280/
Timestamp: 2019-08-25 11:05:23
Document Index: 153480198

Matched Legal Cases: ['§ 47', '§ 110', '§ 107', '§ 1', '§ 101', '§ 107', '§ 107', '§ 107', '§ 107', '§ 1', '§ 107', '§ 107']

In Re Anchorage International Inn, Inc., et al., Bankrupts.mary Beth Artus, Trustee, Plaintiff-appellee, v. Alaska Department of Labor, Employment Security Division,and Alaska Hotel & Restaurant Employees Health Andwelfare Trust and Pension Trust,defendants- Appellants, 718 F.2d 1446 (9th Cir. 1983) :: Justia
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In Re Anchorage International Inn, Inc., et al., Bankrupts.mary Beth Artus, Trustee, Plaintiff-appellee, v. Alaska Department of Labor, Employment Security Division,and Alaska Hotel & Restaurant Employees Health Andwelfare Trust and Pension Trust,defendants- Appellants, 718 F.2d 1446 (9th Cir. 1983)
U.S. Court of Appeals for the Ninth Circuit - 718 F.2d 1446 (9th Cir. 1983)
Argued and Submitted June 7, 1983. Decided Sept. 15, 1983
This appeal is from the bankruptcy court's ruling (affirmed by the district court) that the provisions of an Alaska statute requiring payment of creditors of a liquor establishment before transfer of a liquor license are preempted by federal bankruptcy law. We have jurisdiction under 11 U.S.C. § 47(a) (1976) (repealed 1978) and reverse.1 I
Alaska Stat. Sec. 04.11.360(4) (A) (1982) (emphasis added).
Relying on section 04.11.360(4) (A), the ABC Board initially denied the trustee's request for a license transfer because no arrangement had been made to pay the creditors of the liquor-related portion of the business. In order to facilitate sale of the assets of the Inn on the favorable terms arranged, the Trust Funds, the State, and the trustee entered into a stipulation under which the trustee promised to hold the proceeds from the sale of the license pending a judicial determination of their proper distribution. This stipulation constituted "security ... satisfactory to the creditors" as required under section 04.11.360(4) (A), permitting the ABC Board to approve transfer of the license to the purchaser. The proceeds are presently held by the trustee, to abide the result of this appeal.
As to the claims of the Trust Funds, however, the court ruled that the requirement of section 04.11.360(4) "that all general debts of the business be paid before a license may be transferred ... interfere [s] with the Bankruptcy Act's priority distribution scheme." The court concluded that under the Supremacy Clause, the Alaska statute "may not be enforced where the transferor has initiated bankruptcy proceedings." The court ruled that application of the statute "in bankruptcy situations would frustrate the Bankruptcy Act's purpose of providing an equitable distribution of the bankrupt's non-exempt property to all creditors of the same class" and "would also frustrate the purpose of Congress to establish unified federal priorities."
The trustee, in defense of the judgment, argues that the state cannot substitute its distribution scheme for that established under the Bankruptcy Act. According to the trustee, permitting payment of the claims related to the liquor business prior to payment of other claims would unconstitutionally frustrate the "primary" objective of the Bankruptcy Act: to provide for an equitable distribution of assets among all creditors. See, e.g., Hassen v. Jonas, 373 F.2d 880, 881, 884 (9th Cir. 1967). She decries the notion of permitting some creditors of the bankrupt (e.g., persons earning wages in the operation of the tavern) to be paid ahead of other creditors (e.g., bedding manufacturers). She relies on In re Leslie, 520 F.2d 761 (9th Cir. 1975).
For its rationale, the bankruptcy court relied heavily on In re Leslie, in which we stated in broad terms that " [c]onflicting priorities established by state law must yield upon the intervention of bankruptcy to superior federal law" and ruled that a California statute regulating the transfer of California liquor licenses "creates statutory priorities, not statutory liens." 520 F.2d 761, 762 (9th Cir. 1975). We directed that the proceeds of the sale of a liquor business (the assets of which included a liquor license) be paid according to the distribution scheme for general unsecured claims established by the Bankruptcy Act and not according to the California statutory scheme for allocation of proceeds among creditors when a California liquor business is sold. Id. See also In re Professional Bar Co., 537 F.2d 339, 340 (9th Cir. 1976).
Although Leslie and this case seem similar, there are significant differences. In Leslie, at the time the petition in bankruptcy was filed, the liquor license (as well as the related business assets of the debtor) had already been sold and the proceeds placed in an escrow account. See 520 F.2d at 762. Under California law, consent to the sale of the license by the liquor-related creditors is not required. Thus, what the trustee received in Leslie was the cash proceeds from a sale of a liquor business, not a license transferable only on the approval of creditors. Since, at the time of filing, creditors of the debtor were free to attach or levy against the proceeds, see id. at 763, the Leslie court correctly concluded that the trustee took unencumbered title to the proceeds, id. at 762; see 11 U.S.C. § 110(a) (5).
Given the significant differences in scope and effect between the California and Alaska statutes, we do not find the holding in Leslie controlling.3 See In re Professional Bar Co., 537 F.2d 339, 340 (9th Cir. 1976) (creditor that state authorizes to prevent license transfer has valid preferred right in bankruptcy). Nothing in Leslie compels us to strike down the Alaska statute simply because it attempts to give certain creditors a preferred right in a particular asset.4
Perez v. Campbell, 402 U.S. 637, 649, 91 S. Ct. 1704, 1711, 29 L. Ed. 2d 233 (1971), which holds that a state statute is invalid if it "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress," does not contradict our conclusion. In Perez, an Arizona statute, which conditioned the issuance of a driver's license to a discharged debtor on the payment of pre-bankruptcy debts, was held to be preempted. Id. at 652, 91 S. Ct. at 1712. The Arizona statute directly conflicted with the discharge provisions of federal bankruptcy law. Id. at 648, 652, 91 S. Ct. at 1710, 1713.
Since federal bankruptcy law does override state-created priorities that apply only in the event of bankruptcy, we must examine the statute to determine whether it in fact has force and effect independent of the bankruptcy proceeding.7 See 11 U.S.C. § 107(c) (1) (A). We conclude that the creditors' rights created by the Alaska statute exist independent of the debtor's insolvency and accordingly should be recognized by the trustee.8
This case is governed by and all citations are to the Bankruptcy Act of 1898 (the "Bankruptcy Act"), ch. 541, 30 Stat. 544 (codified as amended at 11 U.S.C. §§ 1-1103 (1976). Although the Act was repealed by the Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, 92 Stat. 2549, codified at 11 U.S.C. §§ 101-1330 (Supp. V. 1981), the Act remains applicable to cases in which the original petition was filed prior to October 1, 1979, see Pub. L. No. 95-598, title IV, Sec. 402(a), 92 Stat. 2682 (1978)
What is essential in determining whether a prior right to proceeds of an asset is valid in bankruptcy is not whether it has been labeled as a "lien" by the state statute, but whether it has any purpose or effect independent of bankruptcy. See 11 U.S.C. § 107(c) (1) (A) (1976); Jackson, Bankruptcy and the Creditors' Bargain, 91 Yale L.J. 857, 905-06 (1982). As Professor Jackson states, when a state-created entitlement is enforceable inside and outside bankruptcy, "there is no reason stemming from the justifications underlying condemnation of state-created priorities ... to refuse recognition of the entitlement" in the bankruptcy situation. Id. The problem with the dictum in Leslie that would strike down all state-created entitlements is that it "misperceive [s] the nature of the inquiry," since " [a]ll state-created entitlements act in favor of some group of creditors, but bankruptcy law generally recognizes them nonetheless." Id. at 906 n. 228.
The Ninth Circuit recognized as much a year after Leslie in In re Professional Bar Co., 537 F.2d 339 (9th Cir. 1976). There, the court evaluated the contention of general creditors of an estate, one asset of which was a California liquor license, that a California statute requiring payment of California tax claims prior to license transfer was invalid since it overrode the priority federal bankruptcy law gave to wage claimants over tax claimants. 537 F.2d at 340. The court, upholding the priority of the tax claims, responded:
Neither of the two cases relied on by the Leslie court in support of the proposition that state-created priorities must yield to "superior federal law" actually hold anything of the sort. In the first, the court simply struck down a statutory lien on the basis of a then applicable bankruptcy act provision invalidating all non-possessory, unexecuted statutory liens, a provision that was completely revised in 1966 and is no longer in effect. See Elliott v. Bumb, 356 F.2d 749, 755 (9th Cir. 1966); 11 U.S.C. § 107(c) (a) (1964) (repealed 1966). In the second, the preferred interest was invalid in bankruptcy, because it came into effect only upon the debtor's insolvency. See In re Crosstown Motors, Inc., 272 F.2d 224, 226-27 (7th Cir. 1959); 11 U.S.C. § 107(c) (1) (A)
In re Petite Auberge Village, Inc., 650 F.2d 192 (9th Cir. 1981), in which the court denied California's claim of a superior right to the proceeds of the sale of a liquor license for post-petition interest and tax penalties, does not compel a contrary result. The court explicitly denied the former claim on the ground that "interest on a debt stops when the bankruptcy petition is filed," id. at 194, and the latter on the basis of the bankruptcy law's strong policy against enforcing penalties unrelated to pecuniary loss since such claims penalize creditors not delinquent taxpayers, id. at 194, 196. See State Board of Equalization v. Stodd, 500 F.2d 1208, 1210 (9th Cir. 1974). The court did state in passing that the liquor license was an "asset [ ] of the estate even before the sale of the license" and hence its proceeds, as "part of the bankrupt's estate ... could not be used to pay tax penalties and post-petition interest." 630 F.2d at 195. The court did not, however, gainsay the general rule of bankruptcy that where a pre-bankruptcy entitlement encumbers an asset, only the residual value of the asset passes into the estate. In fact, this was precisely the basis on which Petite Auberge acknowledged the prior right of the state to payment of its taxes. See id. at 194
Because we conclude that Alaska Stat. Sec. 04.11.360(4) does not conflict with federal bankruptcy law, we need not address the question whether a state statute regulating liquor and liquor traffic which does conflict with federal bankruptcy law would or would not be preempted by the Bankruptcy Act under the Supremacy Clause by virtue of the power preserved by the twenty-first amendment to the States to regulate " [t]he transportation or importation into any State ... for delivery or use ... of intoxicating liquors." See, e.g., Ziffrin Inc. v. Reeves, 308 U.S. 132, 138, 60 S. Ct. 163, 167, 84 L. Ed. 128 (1939); Washington Brewers Assoc. v. United States, 137 F.2d 964, 966 (9th Cir.), cert. denied, 320 U.S. 776, 64 S. Ct. 89, 88 L. Ed. 465 (1943)
Section 67c(1) (A) of the Bankruptcy Act, 11 U.S.C. § 107(c) (1) (A) (1976), states:
The prior right to payment from the proceeds of sale of the Alaska license constitutes a "statutory lien" within the ambit of Sec. 67c(1) of the Bankruptcy Act. 11 U.S.C. § 1(29a) (1976) (" [s]tatutory lien shall mean a lien arising solely by force of statute upon specified circumstances or conditions")
Neither of two other provisions of the Bankruptcy Act governing statutory liens operates to invalidate the rights of the liquor-related claimants, considered as "statutory liens." Section 67c(1) (B) invalidates a lien only if it is "not enforceable" against a bona fide purchaser from the debtor on the date of bankruptcy. 11 U.S.C. § 107(c) (1) (B) (1976). Since under Alaska law a person attempting to purchase the license cannot do so without the liquor-related creditors' consent, see Alaska Stat. Sec. 04.11.360(4), the "lien" is enforceable against any purchaser, bona fide or not. Section 67c(1) (C) applies only to rent liens. See 11 U.S.C. § 107(c) (1) (C) (1976)