Court Opinion

ID: 2995452
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:20:23.492919+00
Date Added: 2024-06-11T11:45:25.513222
License: Public Domain

In the
United States Court of Appeals
For the Seventh Circuit

No. 01-1532

In re Richard C. Barnes,

Debtor.

Appeal of Thomas J. VanKirk

Appeal from the United States District Court for the
Northern District of Indiana, Fort Wayne Division.
No. 00 C 453--William C. Lee, Chief Judge.

Argued September 28, 2001--Decided January 9, 2002

  Before Posner, Easterbrook, and Kanne,
Circuit Judges.

  Posner, Circuit Judge. The question
presented by this bankruptcy appeal is
whether Indiana permits an involuntary
lien to be obtained in a liquor license.
The appellant, VanKirk, was an employee
of a bar owned by the debtor, Barnes
(actually a predecessor of Barnes, but we
can ignore that detail). VanKirk had
filed a notice of employee’s lien on "any
and all assets" of Barnes for unpaid
wages and later had obtained from an
Indiana court a default judgment against
Barnes foreclosing his lien. VanKirk
asked the court to appoint a receiver to
operate the bar for his benefit and that
of the bar’s other creditors, but before
the receiver could be appointed Barnes
declared bankruptcy. The trustee in
bankruptcy sold the bar’s liquor license.
VanKirk then brought this adversary
proceeding to enforce his lien. He seeks
so much of the proceeds of the sale of
the license as are necessary to pay his
claim, subject to the rights of any
lienors who are senior to him. The
bankruptcy court, seconded by the
district court, ruled that a liquor
license is not property under Indiana law
and therefore VanKirk could not obtain a
lien on it.
  Indiana’s alcoholic-beverages statute
and the cases interpreting it are indeed
explicit that liquor licenses are not
"property." Ind. Code sec. 7.1-3-1-2;
State ex rel. Harris v. Superior Court,
197 N.E.2d 634, 640 (Ind. 1964); Vanek v.
Indiana National Bank, 540 N.E.2d 81, 84
(Ind. App. 1989), aff’d, 551 N.E.2d 1134
(Ind. 1990) (per curiam); Dagley v.
Incorporated Town of Fairview Park, 371
N.E.2d 1338, 1341 (Ind. App. 1978). Yet
Barnes’s liquor license was treated as
property of his estate by the trustee,
who sold the license and is treating the
proceeds as property of the estate too.
This treatment is clearly correct, as
well as not contested by any party.
Property is broadly defined by the
Bankruptcy Code, see 11 U.S.C. sec.
541(a)(1), and certainly includes a
valuable, marketable asset. "[E]very
conceivable interest of the debtor,
future, nonpossessory, contingent,
speculative, and derivative, is within
the reach of sec. 541." In re Carousel
Int’l Corp., 89 F.3d 359, 362 (7th Cir.
1996); see also Westmoreland Human
Opportunities, Inc. v. Walsh, 246 F.3d
233, 241 (3d Cir. 2001). True, a liquor
license may not be transferred without
the approval of the state’s Alcoholic
Beverage Commission, Ind. Code sec. 7.1-
3-24-1; 905 Ind. Admin. Code 1-17-4, and
can be revoked upon proof of misconduct.
Ind. Code sec. 7.1-3-23-2; Indiana
Alcoholic Beverage Comm’n v. Dowland, 580
N.E.2d 724, 726 (Ind. App. 1991); Indiana
Alcoholic Beverage Comm’n v. State ex
rel. Harmon, 355 N.E.2d 450, 454 (Ind.
App. 1976). But these are not unusual
conditions on property; the sale of many
goods require government approval and of
course property can be taken away from a
person for various reasons, for example
because it has become a public or private
nuisance. It is no surprise, therefore,
that the few cases to address the issue
hold that a liquor license, provided it
is salable, is indeed property within the
meaning of section 541 of the Bankruptcy
Code. In re Nejberger, 934 F.2d 1300,
1302 (3d Cir. 1991); In re Terwilliger’s
Catering Plus, Inc., 911 F.2d 1168, 1171-
72 (6th Cir. 1990); In re Benz, 218 Fed.
50, 54 (3d Cir. 1914); Fisher v. Cushman,
103 Fed. 860, 864-65 (1st Cir. 1900).
None is an Indiana case, but the trustee
does not argue that Indiana’s liquor law
is atypical.

  Two Indiana cases say that, in addition
to requiring approval to transfer and
being revocable, liquor licenses may not
be used to secure a loan. Cole v. Loman
& Gray, Inc., 713 N.E.2d 901, 905 n. 3
(Ind. App. 1999); Vanek v. Indiana
National Bank, supra, 540 N.E.2d at 84;
see also In re Eagles Nest, Inc., 57 B.R.
337, 340 (Bankr. N.D. Ind. 1986). The
only reason given for this conclusion,
and it is given only by bankruptcy
judges, see id. at 341; In re Ratcliff
Enterprises, Inc., 44 B.R. 778, 781
(Bankr. E.D. Mich. 1984), is that the
state wants to limit the distribution of
liquor (which is in fact a stated policy
of Indiana, see Ind. Code sec. 7.1-1-1-
1(b)) by making it more difficult for
owners of establishments at which liquor
is served to expand their business by
borrowing. This would be an exceedingly
odd method of regulating the liquor
business, especially since the owner of
such an establishment is free to pledge
his accounts receivable to secure a loan,
though there is the difference that the
license may capitalize future expected
earnings as well as current receivables
and so may secure a larger loan. No
Indiana court has endorsed the reasoning
of the bankruptcy judges, and the Indiana
Supreme Court has not endorsed the
conclusion (that a voluntary lien cannot
be obtained in a liquor license) reached
in Cole or Vanek. (Its summary affirmance
of Vanek does not necessarily imply
adoption of Vanek’s dictum.) Nor is there
anything in the statute to support such a
conclusion.

  Moreover, all these are cases about
voluntary liens, and there is a
difference well recognized in bankruptcy
and secured-transactions law between a
voluntary and an involuntary lien. The
former, sometimes called a consensual
lien or a security interest, is the type
of lien that you give someone to secure
his extension of credit to you; the
latter, sometimes called a nonconsensual
lien and illustrated by the judicial lien
in this case, arises from your having de
faulted on an obligation to the tax
authorities, employees, or other
involuntary creditors. See 11 U.S.C.
sec.sec. 101(36), (51), (53); United
States v. Ron Pair Enterprises, Inc., 489
U.S. 235, 240 (1989); In re Gledhill, 164
F.3d 1338, 1341-42 (10th Cir. 1999);
Rankin v. DeSarno, 89 F.3d 1123, 1127 (3d
Cir. 1996); In re Brentwood Outpatient,
Ltd., 43 F.3d 256, 259 (6th Cir. 1994).
As these cases illustrate, they are not
identical legal interests. So what this
case comes down to is whether Indiana
permits an involuntary lien to be
obtained in a liquor license. (It may
well permit voluntary liens as well, if
Vanek and Cole are incorrect, as they may
well be; but we need not decide that in
this case.) If Indiana does permit an
involuntary lien to be obtained in a
liquor license, then the trustee in
bankruptcy could not avoid the lien by
selling his debtor’s license, e.g., In re
Merchants Grain, Inc., 93 F.3d 1347,
1352-53 (7th Cir. 1996); In re Florline
Corp., 190 B.R. 342, 344-46 (Bankr. S.D.
Ind. 1996), and VanKirk can, under
standard principles of equity, impress a
constructive trust on the proceeds of the
sale. Melloh v. Gladis, 309 N.E.2d 433,
438-39 (Ind. 1974); Estates of Kalwitz v.
Kalwitz, 717 N.E.2d 904, 912 (Ind. App.
1999); Rollins v. Metropolitan Life Ins.
Co., 912 F.2d 911, 914 (7th Cir. 1990)
(Indiana law); see also Harris Trust &
Savings Bank v. Salomon Smith Barney
Inc., 530 U.S. 238, 250-51 (2000); Wal-
Mart Stores, Inc. Associates’ Health &
Welfare Plan v. Wells, 213 F.3d 398, 401
(7th Cir. 2000); Beatty v. Guggenheim
Exploration Co., 122 N.E. 378, 386 (N.Y.
1919) (Cardozo, J.).

  There are no cases on whether Indiana
permits an involuntary lien to be
obtained in a liquor license, and the
trustee’s lawyer was unable to give us
any reason why Indiana would not permit
this. The only rationale that has been
offered for not permitting voluntary
liens on liquor licenses (and that a
feeble one) is inapplicable, as it is
hardly plausible that immunity from
involuntary liens would significantly
increase liquor licensees’ access to
capital markets; and none other has been
suggested. Not to permit involuntary
liens in liquor licenses, rather than
discouraging liquor licensees from
borrowing, would give them a privileged
status; it would be harder, for example,
to collect taxes or enforce judgments
against them than against other
businessmen. Cf. In re Brentwood
Outpatient, Ltd., supra, 43 F.3d at 259-
60.

  It would be illuminating to know whether
Indiana permits involuntary liens on
other licenses, but neither the
bankruptcy judge nor the district judge,
nor the parties, address the question,
and our own research has disclosed no
applicable statutes or cases. The closest
is a case that declined to decide whether
a mechanic’s lien could be imposed on a
permit issued by the Indiana Department
of Transportation to operate a natural-
gas storage field. McCartin McAuliffe
Mechanical Contractor, Inc. v. Midwest
Gas Storage, Inc., 685 N.E.2d 165, 168 n.
6 (Ind. App. 1997). The case law of other
states allows the imposition of
involuntary liens or lien-like interests
on liquor licenses (we have found no
cases involving other types of government
permit), under statutes similar to
Indiana’s. See Dodds v. Shamer, 663 A.2d
1318, 1326 (Md. 1995); In re What D’Ya
Call It, Inc., 730 P.2d 467, 468 (N.M.
1986); In re Kimura, 969 F.2d 806, 813
(9th Cir. 1992); In re Stone, 6 F.3d 581,
583-84 (9th Cir. 1993); In re Farmers
Markets Inc., 792 F.2d 1400, 1403 (9th
Cir. 1986); 632 Metacom Associates v. Pub
Dennis of Warren, Inc., 591 A.2d 379,
383-84 (R.I. 1991); P.M.D. Corp., Inc. v.
Hyland-Helstrom Enterprises, Inc., 579
N.E.2d 779, 781 (Ohio App. 1990). These
cases are not elaborately reasoned, but
maybe that is because no one can think of
a good reason why, given that liquor
licenses are salable, they can’t be used
as security, especially for satisfying
the claims of involuntary creditors. If
the Indiana statute forbade such use,
well and good; but to interpolate such a
prohibition with no reason to do so and
no support in case law (apart from an
unelaborated assertion in the pair of
Indiana intermediate appellate opinions
that we cited, and a couple of bankruptcy
opinions--all distinguishable as
involving voluntary liens) for doing so
would make no sense that we can see.

Reversed.