Court Opinion

ID: 2996604
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:30:09.313847+00
Date Added: 2024-06-11T12:43:00.753171
License: Public Domain

In the
 United States Court of Appeals
              For the Seventh Circuit
                        ____________

No. 02-3595
IN RE AR ACCESSORIES GROUP,
      INCORPORATED,
                                                         Debtor.
APPEAL OF: WISCONSIN DEPARTMENT OF
           WORKFORCE DEVELOPMENT,
                                                    Appellant.
                        ____________
          Appeal from the United States District Court
               for the Eastern District of Wisconsin.
         No. 01 C 944—Rudolph T. Randa, Chief Judge.
                        ____________
        ARGUED MAY 22, 2003—SEPTEMBER 22, 2003
                    ____________

  Before BAUER, KANNE, and ROVNER, Circuit Judges.
  BAUER, Circuit Judge. This interlocutory appeal from
a district court decision reversing an opinion of the bank-
ruptcy court requires us to decide whether a generally
applicable state law providing for the superpriority status
of certain wage liens must contain language expressly
providing for retroactive perfection of the lien interest in
order to trigger an exception to the automatic stay provi-
sion of the Bankruptcy Code. Because we agree with the
bankruptcy court’s determination that the state statute
need not contain such language, we reverse the decision of
the district court holding otherwise, and remand the case
with instructions that the district court affirm the deci-
sion of the bankruptcy court.
2                                                 No. 02-3595

                      BACKGROUND
  After AR Accessories, Inc. (“Debtor”), formerly a distribu-
tor and vendor of leather products in Wisconsin, filed a
bankruptcy petition in March 1998, the auction proceeds
of its liquidated assets totaled approximately $23,000,000.
All of Debtor’s roughly 300 employees had been laid off
by May 1998. In June 1998, the Wisconsin Department of
Workforce Development (“Department”) filed a petition for
a wage earner’s lien pursuant to Wisconsin law on behalf
of Debtor’s former employees seeking to recover unpaid
vacation and severance pay in the amount of $5,270,000.
  Appellee Scott Peltz eventually joined Appellee Bank
One, N.A., as a plaintiff in an adversarial complaint filed
against the Department in the bankruptcy court.1 Bank
One, N.A., and Peltz (collectively, “Appellees”) alleged, inter
alia, that the Department’s wage lien violated a provision
of the automatic stay provision of the Bankruptcy Code,
which creates a statutory injunction—and a private right
of action for violations thereof—against debt-collection
efforts outside of the bankruptcy proceedings. See 11 U.S.C.
§ 362(a). Appellees claimed that the wage lien was void
ab initio because it was created after Debtor had filed its
petition for bankruptcy.
  The Department responded that the wage lien fit with-
in an exception to the automatic stay provision that
makes the stay inapplicable to “any act to perfect, or to
maintain or continue the perfection of, an interest in
property to the extent that the trustee’s rights and powers
are . . . subject to any generally applicable law that permits

1
  Peltz is the named trustee of the AR Accessories Group, Inc.
Liquidating Trust, successor-in-interest to Debtor in these pro-
ceedings. Bank One, N.A., f/k/a Bank One, Wisconsin, a creditor
of Debtor, initially filed the complaint on its own behalf and
as agent for First Bank Milwaukee, N.A., and Harris Bank, also
creditors.
No. 02-3595                                                     3

perfection of an interest in property to be effective against
an entity that acquires rights in such property before
the date of perfection.” 11 U.S.C. §§ 362(b)(3) & 546(b)(1)(A)
(emphasis added). The wage lien, in turn, was created
pursuant, in relevant part, to the following Wisconsin
statutory provisions:
    The [D]epartment . . . shall have a lien upon all prop-
    erty of the employer, real or personal, located in this
    state for the full amount of any wage claim or wage
    deficiency. A lien under this subsection takes effect
    when the [D]epartment . . . file[s] a verified petition
    claiming the lien with the clerk of the circuit court
    of the county in which the services or some part of the
    services were performed [and duly serves notice thereof
    upon the employer] . . . within 2 years after the date
    that the wages were due. . . . The lien shall take prece-
    dence over all other debts, judgments, decrees, liens
    or mortgages against the employer [subject to cer-
    tain enumerated exceptions inapplicable to these facts].
Wis. Stat. § 109.02(2).2 Because the Wisconsin statute was
a generally applicable law, the Department maintained, it
created and perfected a valid lien having superpriority
over the interests of Bank One and other creditors pur-
suant to the Bankruptcy Code’s exception to the auto-
matic stay provision.
  In reply, Appellees argued that the Wisconsin statute
did not trigger the exception provision because it con-
tained no language expressly providing for retroactive
perfection (thereby relating the lien interest back to a
prepetition date), as required under 11 U.S.C. §§ 362(b)(3)
& 546(b)(1)(A).

2
  The Wisconsin wage lien statute has been amended variously
since its adoption in 1975. We refer here and throughout to the
version in effect at the time of the decision of bankruptcy court.
4                                                   No. 02-3595

  The parties filed cross motions for partial summary
judgment on this and other claims unrelated to our dis-
position of the matter on appeal. The bankruptcy court
held that 11 U.S.C. § 546(b)(1)(A) did not require that a
priming statute, in this case the Wisconsin statute, ex-
pressly provide for retroactive perfection in order to trig-
ger the exception to the automatic stay provision, and
granted partial summary judgment in favor of the De-
partment on this claim.
  Appellees subsequently filed an interlocutory appeal
challenging the bankruptcy court’s determination that 11
U.S.C. § 546(b)(1)(A) did not require a priming statute
to contain such express provision for retroactive perfec-
tion. They argued, in the alternative, that the Department
held no prepetition interest in the property as required
under 11 U.S.C. § 546(b)(1)(A). Finding that the language
of 11 U.S.C. § 546(b)(1)(A) was ambiguous, and relying
therefore on that provision’s legislative history, the dis-
trict court concluded that it was intended “to apply only
to statutory liens which allow perfection to ‘relate back’
to a specific date, as opposed to those which are merely
afforded ‘superpriority’ status.”3 Based on this finding,
the district court (i) reversed the portion of the bankrupt-
cy court’s decision holding that Department’s actions to
perfect the wage lien did not violate the automatic stay, (ii)
vacated its grant of partial summary judgment on the
issue, and (iii) granted partial summary judgment in fa-
vor of Appellees.
    This appeal ensued.

3
  Because the court found for the Department on the issue of
retroactive perfection language, it did not reach the issue of the
whether the Department held a prepetition interest in the
property.
No. 02-3595                                                5

                        ANALYSIS
  We review the grants of summary judgment of both the
district court and the bankruptcy court de novo. See, e.g.,
Hoseman v. Weinschneider, 322 F.3d 468, 473 (7th Cir.
2003).
  Whether 11 U.S.C. § 546(b)(1)(A) requires the Wisconsin
statute to provide expressly for retroactive perfection of
the lien interest turns on a construction of the following
language:
    The rights and powers of a trustee . . . are subject
    to any generally applicable law that permits perfec-
    tion of an interest in property to be effective against
    an entity that acquires rights in such property before
    the date of perfection.
(11 U.S.C. § 546(b)(1)(A)). The district court found this
provision to be ambiguous, insofar as the phrase “before
the date of perfection” might modify the language “any
entity that acquires rights in such property”—in which
case perfected interest takes effect (with superpriority)
when it is perfected because any other property interest
acquired pre-perfection is subject to the perfected inter-
est—or it might modify the language “permits perfection
of an interest in property to be effective”—in which case the
exception might be constructed to apply only to laws
containing explicit “relation back” language, because
the effectiveness of the perfected interest would be inde-
pendent of the event of any entity acquiring rights in the
property and would thus require the priming statute to
specify an independent effective date.
  We find no such ambiguity in the text of the statute.
The phrase “before the date of perfection” appears in
immediate proximity to the language, “any entity that
acquires rights in such property,” which language sep-
arates “before the date of perfection” from “permits per-
fection of an interest in property to be effective.” We
6                                               No. 02-3595

therefore find that the text of the statute unambiguously
expresses the former of the two meanings considered by
the district court. Had Congress intended otherwise, we
presume that it would have drafted the provision such
that any alternative meaning might be discerned with-
out resort to the syntactic strain entertained by the dis-
trict court and urged by Appellees. Accordingly, we hold
that a priming statute need not contain language ex-
pressly providing for retroactive perfection in order to
trigger the exception provided in 11 U.S.C. § 546(b)(1)(A)
to the automatic stay of postpetition efforts to perfect a
property interest. The Wisconsin statute therefore fits
within the automatic stay exception, and the Depart-
ment’s lien does not violate the automatic stay provision.
   Appellees urge this court to affirm the decision of the
district court on the alternative grounds, not considered
by the district court, that the Department held no pre-
petition lien interest, as 11 U.S.C. § 546(b)(1)(A) requires.
In other words, the Department’s postpetition perfection
of the wage lien is meaningless, because the Department
had no interest in the unpaid wages of Debtor employees
prior to Debtor’s filing of the bankruptcy petition. The lien
interest did not exist, they contend, until the Department
filed and served notice of the lien petition on Debtor. The
bankruptcy court rejected this argument, finding instead
that the lien interest was created when the last services
were performed for which wages are unpaid and owing.
  Specifically, the bankruptcy court noted that certain
amendments made in 1993 to the Wisconsin law govern-
ing wage liens—including the deletion of language pro-
viding that a lien interest exists “as of the last date on
which services were performed for the employer and for
which wages are due and owing”—were intended to pro-
vide procedures for perfection and enforcement, rather
than creation, of the lien. In support of this assertion, the
bankruptcy court cited portions of a letter written by the
No. 02-3595                                                     7

then general counsel to the Department explaining that,
“[t]hese changes are intended to do no more than allow
wage lien claims to go forward as any other lien claim
does.” The bankruptcy court relied further on the conclu-
sion of the Wisconsin Court of Appeals that “the amend-
ment simply added an enforcement mechanism to a pre-
viously established right, thus producing a procedural
change.” Pfister v. Milwaukee Econ. Dev. Corp., 576 N.W.2d
554, 558 (Wis. App. 1998). We agree with the bankruptcy
court that the 1993 amendment does not substantively
alter the statute to change the effective date of a wage lien
interest from the time that the last unpaid services are
performed to the time of the filing of the lien petition.4
Neither party disputes that unpaid prepetition wages are
due in this case. We therefore decline Appellee’s invita-
tion to affirm the decision of the district court on grounds
properly rejected by the bankruptcy court.

                       CONCLUSION
  For the foregoing reasons, we REVERSE the decision of
the district court and REMAND the case with instructions
to affirm the bankruptcy court’s grant of partial summary
judgment in favor of the Department on the foregoing
issues.

4
  This conclusion is also consistent with Department’s role as
protector and enforcer of the rights of workers in Wisconsin. Once
an employee provides services to an employer, he is entitled to
wages in return. The wage lien is thus a mechanism for the
Department’s enforcement of a preexisting right on behalf of the
employee. The filing of the wage lien petition puts the employer
and others on notice of the existence of a claim to the employer’s
property in exchange for unpaid services. It does not, how-
ever, create any new interest within the meaning of 11 U.S.C.
§ 546(b).
8                                         No. 02-3595

A true Copy:
      Teste:

                    ________________________________
                    Clerk of the United States Court of
                      Appeals for the Seventh Circuit

               USCA-02-C-0072—9-22-03