Opinion ID: 524104
Heading Depth: 2
Heading Rank: 2

Heading: The Modern Statutory Framework

Text: 20 Applicability of section 108(c) in this case hinges on the applicability of another section of the Bankruptcy Code, the automatic stay provisions of 11 U.S.C. Sec. 362. Section 362(a)(4) provides in relevant part: 21 (a) except as provided by subsection (b) of this section, a petition filed under ... this title ... operates as a stay, applicable to all entities, of-- 22    23 (4) any act to create, perfect, or enforce any lien against property of the estate. 24 11 U.S.C. Sec. 362(a)(4) (1982). Hand argues that section 362(a)(4) automatically stayed his ability to bring a foreclosure suit under RCW 60.04.100, and that section 108(c), which works in tandem with section 362, served to toll the eight-month enforcement period found in RCW 60.04.100. 25 A foreclosure suit brought pursuant to RCW 60.04.100 is an act to ... enforce [a] lien against property of the estate under section 362(a)(4). Hunters Run argues, however, that section 362(a)(4) did not apply to Hand, because section 362(b)(3) exempts Hand's foreclosure action from the automatic stay. We disagree. Section 362(b)(3) modifies section 362(a) as follows: 26 (b) the filing of a petition under ... this title, ... does not operate as a stay-- 27    28 (3) under subsection (a) of this section, of 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 ... 29 11 U.S.C. Sec. 362(b)(3) (Supp. V 1987). In other words, act[s] to perfect an interest in property as defined by 11 U.S.C. Sec. 546(b) are exempted from the automatic stay. The question, therefore, is whether section 546(b) would have permitted Hand to commence his foreclosure suit against Hunters Run as an act to perfect an interest in property for the purposes of section 546). If it would have, then neither section 362(a)(4) nor section 108(c) could have applied. Section 546(b) provides: 30 The rights and powers of a trustee under section 544, 545, and 549 of this title 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. If such law requires seizure of such property or commencement of an action to accomplish such perfection, and such property has not been seized or such action has not been commenced before the date of the filing of the petition, such interest in such property shall be perfected by notice within the time fixed by such law for such seizure or commencement. 31 11 U.S.C. Sec. 546(b) (Supp. V 1987). This section allows creditors with certain types of liens to avoid the potential prejudice of section 362's automatic stay by allowing for post-bankruptcy-petition perfection of these liens. In re Electric City, Inc., 43 B.R. 336, 340 (Bankr.W.D.Wash.1984). Thus, as Hand points out, if Hand had not recorded his lien under RCW 60.04.060 before the bankruptcy petition was filed, then in spite of section 362(a)(4)'s language staying perfection of liens he could have filed notice of his lien with the bankruptcy court after the petition was filed because section 546(b) permits him to do so. But here, Hand had already perfected his lien by recording it under RCW 60.04.060 before Hunters Run filed its bankruptcy court petition. Hand had not commenced an action to enforce his lien under RCW 60.04.100, but RCW 60.04.100 is a statute which deals with enforcement, not perfection, of liens. 32 In essence, Hunters Run argues that Washington law requires a two-step perfection process: recording the lien and commencing an action to enforce it. Hunters Run cites no authority for the proposition that a lien recorded pursuant to RCW 60.04.060 is somehow not perfected. Indeed, even the In re Warren court acknowledged that a Washington lien is perfected once the claim has been properly recorded. In re Warren, 192 F.Supp. at 802 and at 803. Commencement of foreclosure proceedings under RCW 60.04.100 is not an element of perfection exempted from section 362's stay by section 546(b); rather, it is enforcement which remains stayed by section 362. Consequently, section 108(c) applies to toll the enforcement period of RCW 60.04.100. 5 33 Hunters Run also argues that Hand could have commenced his action to enforce his lien if he had only applied for relief from the automatic stay. This argument, however, assumes relief from the stay would have been granted. Moreover, it would require Hand to do something to perfect his lien which the Bankruptcy Code does not require. Hunters Run cites no authority for this argument and we reject it. 34 Our view of section 108(c)'s tolling effect is wholly consistent with that enunciated by courts in other states. For example, in a factually similar situation involving Idaho's mechanic's lien statute (which, like the Washington statute, employs the term duration), the bankruptcy court held that section 108(c) applied to toll Idaho's requirement that enforcement of the lien be commenced within six months. In re Design Builders, Inc., 18 B.R. 392, 394-95 (Bankr.D.Idaho 1981). See also Garbe Iron Works, Inc. v. Priester, 99 Ill.2d 84, 75 Ill.Dec. 428, 431, 457 N.E.2d 422, 425 (1983) (section 108(c) tolls Illinois mechanic's lien enforcement period even though statute involved not an ordinary statute of limitations since it conditions the right to enforce a mechanic's lien and not just the remedy); In re Houts, 23 B.R. 705, 707 (Bankr.W.D.Mo.1982) (section 108(c) applies and section 546(b) does not because [t]he courts distinguish, and properly so, between the act of perfecting the lien and the act of attempting to enforce it.); In re New England Carpet Co., Inc., 26 B.R. 934, 939 (Bankr.D.Vt.1983) (section 546(b) applies to perfection of lien only; enforcement is stayed by section 362); In re Victoria Grain Co. of Minneapolis, 45 B.R. 2, 6 (Bankr.D.Minn.1984) (... filing of mechanic's lien statement is perfection of a lien as that term is used in 11 U.S.C. Sec. 546(b). However, clearly, the commencement of foreclosure proceedings is something other than perfection of a lien [and is therefore stayed by section 362(a) ]). 35 Finally, our approach here corresponds with that recently announced by the Second Circuit addressing the question whether section 108(c) tolls the expiration of periods governing the life of statutory liens. In re Morton, 866 F.2d 561, 566 (2d Cir.1989). In that case, the Second Circuit held that section 108(c) operated to toll New York's ten-year period governing judgment liens on real property. Id. In so doing, the Second Circuit expressly rejected the approach of the bankruptcy court's opinion in this case. Id. As do we, the In re Morton court based its conclusion on statutory language. Id. In addition, the Second Circuit demonstrated persuasively that adherence to congressional purpose also required its result. See id. at 566-67 (tolling ensures that debtor cannot take unfair advantage simply by filing bankruptcy petition and allowing the limitations period to run). Cf. In re Phillips Construction Co., Inc., 579 F.2d 431, 432-33 (7th Cir.1978) (similar position taken by Seventh Circuit but noting that facts of In re Warren arguably distinguishable). C. Attorney Fees 36 Hand has requested attorney fees based on a Washington statute (RCW 60.04.130) allowing the prevailing party reasonable attorney fees on appeal from a lien foreclosure action. The trial court can determine whether attorney fees are warranted under this statute on remand. See Structurals Northwest, Ltd. v. Fifth & Park Place, 658 P.2d 679, 684 (Wash.App.1983).