Court Opinion

ID: 2999641
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:56:16.636103+00
Date Added: 2024-06-11T12:45:29.990163
License: Public Domain

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

No. 05-3738
IN RE:
  GLOBE BUILDING MATERIALS, INCORPORATED,
                                                          Debtor.
APPEAL OF:
  STATE OF WISCONSIN AND PEGGY LAUTENSCHLAGER
                        ____________
           Appeal from the United States District Court
     for the Northern District of Indiana, Hammond Division.
               No. 04 C 481—Rudy Lozano, Judge.
                        ____________
    ARGUED MAY 10, 2006—DECIDED SEPTEMBER 8, 2006
                     ____________

  Before FLAUM, Chief Judge, and BAUER and EVANS,
Circuit Judges.
  BAUER, Circuit Judge. After an unsuccessful attempt to
restructure, Globe Building Materials, Incorporated (Globe)
was liquidated under Chapter 7 of the Bankruptcy Code.
Peggy Lautenschlager, the Attorney General for the State
of Wisconsin, sought to recover wages owed to former Globe
employees in her state through a statutory lien. The trustee
brought this adversary proceeding, and argued that the lien
was avoidable under 11 U.S.C. § 545(2). Both the bank-
ruptcy and district courts found for the trustee. We affirm.

  The facts of this case are not in dispute. On January 19,
2001, Globe filed a voluntary petition for relief under
2                                                No. 05-3738

Chapter 11 of the Bankruptcy Code. Before ceasing opera-
tions, Globe manufactured, sold, and distributed residential
roofing materials. The company’s primary assets consisted
of three manufacturing plants (one located in Wisconsin),
machinery, equipment, inventory, and receivables. On April
4, 2001, the case was converted to Chapter 7, and Gordon E.
Gouveia was appointed Trustee for the Debtor’s estate.
  On or about July 24, 2001, the State of Wisconsin’s (the
State) Department of Workforce Development filed a Notice
of Lien with the State Department of Financial Institutions
and the Office of the Chippewa Wisconsin County Clerk.
The State asserted a wage lien under Wis. Stat. 109.09(2)
against all real and personal property then owned or
thereafter acquired by Globe within its boundaries. The lien
was properly perfected by its filing.
  Around February 22, 2002, the bankruptcy court ap-
proved the trustee’s sale of Globe’s Wisconsin manufactur-
ing facility. The proceeds of the sale were paid to the
trustee. On the basis of Wis. Stat. 109.09, the State claimed
a first priority lien on the net sale proceeds. On January 17,
2003, the trustee brought this adversary proceeding to set
aside the wage lien.
  On September 13, 2004, the bankruptcy court found that
there was no genuine issue of material fact and granted
summary judgment to the trustee. The bankruptcy
court held that 11 U.S.C. § 545(2) allowed the trustee to
avoid the wage lien because Wis. Stat. 109.09 delineates the
conditions under which the lien takes precedence, and the
statutory language does not account for the trustee’s
hypothetical bona fide purchaser status. The district court
affirmed, and this appeal followed. Both parties agree
that this discrete legal issue represents the entirety of the
case.
  We review the decisions of the bankruptcy and district
court to grant summary judgment on this matter de novo.
No. 05-3738                                                3

In re AR Accessories Group, Inc., 345 F.3d 454, 457 (7th Cir.
2003).
  Whether 11 U.S.C. § 545(2) allows the trustee to avoid the
State’s wage lien turns on the construction and interaction
of three separate statutory sections. Sections 545 and 546
of the Bankruptcy Code set forth the extent of the trustee’s
power to avoid statutory liens. The relevant language of
§ 545(2) provides:
    The trustee may avoid the fixing of a statutory lien on
    property of the debtor to the extent that such lien—
    ...
    (2) is not perfected or enforceable at the time of the
    commencement of the case against a bona fide pur-
    chaser that purchases such property at the time of the
    commencement of the case, whether or not such a
    purchaser exists.
But this power is not absolute, 11 U.S.C. § 546 states, in
relevant part:
    (b)(1) The rights and powers of a trustee under sections
    544, 545, and 549 of this title are subject to any gener-
    ally applicable law that—
    (A) permits perfection of an interest in property to
    be effective against an entity that acquires rights in
    such property before the date of perfection[.]
  The question before us, then, is whether Wis. Stat. 109.09
is such a “generally applicable law,” and if so, how is it
applied? The statutory language provides that:
    (1) The department shall investigate and attempt
    equitably to adjust controversies between employers
    and employees as to alleged wage claims . . . .
    (2)(a) The department of workforce development, under
    its authority under sub. (1) to maintain actions for the
4                                               No. 05-3738

    benefit of employees, or an employee who brings an
    action under s. 109.03 (5) shall have a lien upon all
    property of the employer, real or personal, located in
    this state for the full amount of any wage claim or wage
    deficiency.
    ...
    (c) A lien under par. (a) takes precedence over all other
    debts, judgments, decrees, liens or mortgages against the
    employer, except a lien of a financial institution, as
    defined in s. 69.30(1)(b), that originates before the
    lien under par. (a) takes effect or a lien under
    s. 292.31(8)(I) or 292.81 . . . .
(Emphasis added.)
  At the outset, we must dispose of the State’s preliminary
argument that the absence of an actual bona fide purchaser
has some bearing on this matter. The express purpose of the
§ 545(2) language is not to affirm the rights of an actual
bona fide purchaser, but to vest the trustee with those
rights were such an entity to exist. This is a simple, but
possibly deceptive, statutory mechanism designed to access
a legal concept without establishing the traditional ele-
ments necessary to do so. The trustee’s hypothetical status
is therefore of no dispositive value to our analysis.
  Turning back to the interaction of these three statutory
subsections, we consider first the State’s argument. The
Attorney General submits that Wisconsin’s wage lien
statute “[meets] the requirements” of § 546(b)(1)(A), and
thus completely forecloses all of the trustee’s powers under
§§ 544, 545, and 549, specifically those as a bona fide
purchaser. To support this claim, the State relies heavily on
our holding in AR Accessories, 345 F.3d at 454.
 In AR Accessories, we addressed the initial question of
whether a Wis. Stat. 109.09 wage lien was void ab initio
when created after the debtor had filed its petition for
No. 05-3738                                                5

bankruptcy. 345 F.3d at 456. We held that a priming
statute, such as 109.09, “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 protect a
property interest.” Id. at 458. Thus, the wage lien did not
violate the Bankruptcy Code’s automatic stay, and was
generally valid. Additionally, in rejecting an alternative
argument, we noted that the Wis. Stat. 109.09 lien interest
was created when the last services were rendered for which
wages went unpaid. Id. at 459. We agreed with
the bankruptcy court that the Department’s filing did
not create a new interest under § 546(b), it merely put other
claimants on notice of the pre-existing claim. But this
analysis was the extent of our Wis. Stat. 109.09 review. AR
Accessories did not address, as we do today, the internal
operation of the Wisconsin statute and its interaction with
the various powers of the trustee. This is because the debtor
there did not assert that the wage lien could have been
avoided under §§ 544 or 545, a legal question distinct from
whether the lien’s prescribed operation was generally void.
The challenge in AR Accessories was primarily facial, and,
as such, our review was, too.
  Despite having acknowledged these legal and factual
differences, the State argues here that our analysis in
AR Accessories informs and controls the instant matter.
This argument turns on a broad interpretation of the
§ 546(b)(1) language that subjects the trustee’s power to
“any generally applicable law. . . .” Specifically, the State
claims that because we held Wis. Stat. 109.09 generally
applies under § 546(b)(1)(A), the wage lien automatically
forecloses all of the trustee’s powers under §§ 544, 545, and
549. But this interpretation reads § 546(b)(1)(A) as if the
wage lien itself was the direct object of the “subject to”
language, and turns a blind eye to the internal structure of
Wis. Stat. 109.09.
6                                                 No. 05-3738

  In drafting §§ 545(2) and 546(b)(1)(A) as it did, Congress
largely left the avoidability of statutory liens to state law.
See Stanford v. Butler (In re Stanford), 826 F.2d 353, 355-56
(5th Cir. 1987). Where the applicable state statute permits
the lien in question to defeat the rights of a bona fide
purchaser, the Bankruptcy Code will adopt that state policy
choice and grant secured status to the lien. Limperis v. First
Nat’l Bank of Geneva (In re Phillips Constr. Co., Inc.), 579
F.2d 431, 432 (7th Cir. 1978). Further, where the state law
denies enforcement of a statutory lien against a bona fide
purchaser, the lien is avoidable pursuant to § 545(2). See El
Paso v. Am. W. Airlines, Inc. (In re Am. W. Airlines, Inc.),
217 F.3d 1161, 1164 (9th Cir. 2000); City of Boerne v. Boerne
Hills Leasing Corp. (In re Boerne Hills Leasing Corp.), 15
F.3d 57, 59 (5th Cir. 1994). We must, therefore, examine
Wis. Stat. 109.09 to determine if the Wisconsin legislature
intended for the wage lien to defeat the rights of a bona fide
purchaser.
  Our analysis of the wage lien statute’s interaction with
§ 546 is a two-step process, and tracks the analysis con-
ducted by both the bankruptcy and district courts.
       First, is the statutory lien protected under nonbank-
    ruptcy law against . . . a bona fide purchaser under
    Code § 545 . . . arising as of the date of the filing of the
    bankruptcy petition? If the answer is “yes,” the analysis
    need proceed no further. Unless avoided as a disguised
    priority or a landlord’s lien under Code § 545, the
    statutory lien is valid in bankruptcy . . . . If the answer
    to . . . this first question is “no,” then a second question
    must be asked. Under applicable nonbankruptcy law,
    does there remain a procedure by which the statutory
    lien claimant can still perfect the lien as against . . .
    bona fide purchasers whose interest arose as of the date
    of bankruptcy? If such a procedure exists and applies to
    the type of claimant against whom the statutory lien
No. 05-3738                                                   7

    was not previously protected, the holder of the statutory
    lien may still protect his interest.
2 WILLIAM L. NORTON, JR., NORTON BANKRUPTCY LAW &
PRACTICE 2d § 55:3 (2003).
  Upon subjecting Wis. Stat. 109.09 to this analysis, we
hold that the State’s argument fails. The express statutory
language states that the lien “takes precedence over all
other debts, judgments, decrees, liens or mortgages against
the employer, except a lien of a financial institution . . . .”
Wis. Stat. 109.09(1)(c). The bona fide purchaser is con-
spicuously absent from this list. By specifying with such
precision the claims over which the lien takes precedence,
the Wisconsin legislature implicitly established the outer
boundaries of Wis. Stat. 109.09. This is a straightfor-
ward application of the concept expressio unius est exlusio
alterius, “to express or include the one thing implies the
exclusion of the other . . . .” BLACK’S LAW DICTIONARY 620
(8th ed. 2004); see also Dersch Energies, Inc. v. Shell Oil Co.,
314 F.3d 846, 861 (7th Cir. 2002) (citing Freightliner Corp.
v. Myrick, 514 U.S. 280, 288 (1995). In interpreting the
statute we will not invent missing language. In re Kmart
Corp., 359 F.3d 866, 869 (7th Cir. 2004).
   The State, however, argues that because the lien interest
was created on the last date unpaid services were rendered,
it defeats a bona fide purchaser under nonbankruptcy law.
Again, its sole support for this argument is our reasoning in
AR Accessories. But as we noted above, the ultimate issue
before this court in AR Accessories was whether Wis. Stat.
109.09 violated the Bankruptcy Code’s automatic stay. Our
adoption of the statute’s implied retroactive perfection was
limited to that single legal question. We did not, as we have
today, examine the specific workings of the statute itself.
And nothing within Wis. Stat. 109.09 expressly provides for
the wage lien’s retroactive perfection or makes it enforce-
able against the rights of a bona fide purchaser under
§ 545(2).
8                                              No. 05-3738

   Should the State feel this holding does not reflect their
intended meaning of Wis. Stat. 109.09, the legislature
need only amend the statutory language to provide for the
lien’s express precedence over the rights of bona fide
purchasers in addition to “all other debts, judgments,
decrees, liens, or mortgages . . . .”
  For the abovementioned reasons, the decision of the
district court is AFFIRMED.

A true Copy:
      Teste:

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

                   USCA-02-C-0072—9-8-06