569 B.R. 733
Bankr. N.D. Ill.2017Background
- Glenn and Catherine Haynes filed Chapter 13 on Nov. 23, 2015; plan confirmed Mar. 18, 2016. Confirmation order kept estate property (including their car) in the estate post-confirmation.
- The City of Chicago filed a prepetition claim for earlier parking tickets and, while the case was pending, issued two expired-meter tickets and one automated red-light ticket to the registered owner of the car.
- The City moved for administrative-expense priority under 11 U.S.C. § 503(b)(1)(A) for the three postpetition tickets.
- The City did not produce the ticket copies or evidence identifying who was driving when violations occurred or evidence of monetary loss to the City.
- The City argued Reading (and related cases) support administrative priority for involuntary postpetition creditors and invoked 28 U.S.C. § 959(b); Hayneses argued Chapter 13 differs from Chapter 11 and Chicago’s ordinances make the registered owner, not the estate, prima facie liable.
- The court denied the City’s motion: tickets were not transactions with the estate (ordinance imposes liability on the person in whose name the vehicle is registered), City failed to prove benefit to the estate, and Reading does not extend to this Chapter 13 context under these facts.
Issues
| Issue | Plaintiff's Argument (City) | Defendant's Argument (Hayneses) | Held |
|---|---|---|---|
| Whether postpetition parking/red-light fines are administrative expenses under § 503(b)(1)(A) | Reading and related authority justify treating involuntary postpetition claims as administrative expenses; estate owned the car post-confirmation so tickets are estate liabilities | Chapter 13 differs from Chapter 11; City’s own ordinances impose liability on the registered owner (a person), not the estate; City offered no evidence of who was driving or of injury/benefit to estate | Denied — City did not meet burden to show administrative-expense priority |
| Whether the debt "arose from a transaction with the estate" | Car was estate property after filing & confirmation, so violations were transactions with the estate | Municipal Code makes the "person in whose name the vehicle is registered" prima facie liable; estate is owner but not the registered owner | Denied — ordinances show liability attaches to registered owner, not the bankruptcy estate |
| Whether the fines provided a benefit to the estate (Jartran second prong) | Continued use of vehicle postpetition benefited estate operations; fundamental fairness supports priority for deliberate violations | City produced no facts showing use benefited the estate or that violations were deliberate; administrative expenses are narrowly construed | Denied — no preponderance evidence that fines benefited estate or that fairness required priority |
| Whether 28 U.S.C. § 959(b) creates administrative-expense priority for state-law violations | § 959(b) requires compliance with state law and supports administrative treatment for penalties incurred postpetition | § 959(b) does not set claim priority; priority is governed by Bankruptcy Code; N.P. Mining creates a narrow category not applicable here | Denied — § 959(b) does not itself convert these claims into administrative expenses |
Key Cases Cited
- Reading Co. v. Brown, 391 U.S. 471 (Sup. Ct.) (held negligent acts by receiver within scope of authority may be administrative expenses)
- Matter of Jartran, Inc., 732 F.2d 584 (7th Cir.) (two-part test for administrative expense: transaction with debtor-in-possession and benefit to estate)
- In re Resource Technology Corp., 662 F.3d 472 (7th Cir.) (discussing Reading policy and limits regarding tort liabilities of bankrupt operators)
- Yorke v. N.L.R.B., 709 F.2d 1138 (7th Cir.) (permitting administrative treatment for costs tied to trustee’s actions when injuries were an effect of preservation efforts)
- In re Charlesbank Laundry, Inc., 755 F.2d 200 (1st Cir.) (supporting priority where business deliberately flouted law and unfairness required priority)
- Cumberland Farms, Inc. v. Florida Dep’t of Envtl. Prot., 116 F.3d 16 (1st Cir.) (refusing to allow a debtor to escape environmental penalties; fairness can justify priority)