City of Chicago v. Marcella M. ManceCity of Chicago v. Marcella M. Mance
Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 1:20-cv-01266 — Andrea R. Wood, Judge.
Before SYKES, Chief Judge, and KANNE and HAMILTON, Circuit Judges.
The issue in this appeal is whether the City‘s possessory lien on a vehicle that it impounds due to unpaid tickets should be deemed a “judicial lien” or a “statutory lien” under the Bankruptcy Code. If the lien is judicial, all parties agree, it is avoidable in bankruptcy under
We agree with the bankruptcy and district courts that the City‘s possessory lien on impounded vehicles is properly classified as judicial and therefore avoidable. Part I lays out the stakes of this particular issue. Part II explains how judicial and statutory liens are defined in the Bankruptcy Code. Part III outlines the specific
I. The Stakes
This case may appear to be a technical dispute with modest stakes, but it‘s a test case that is important to the City and will affect many drivers. Outstanding debt for Chicago traffic tickets surpassed $1.8 billion last year.1 On average, the City issues around three million tickets a year, and by one recent estimate, revenue from those tickets in 2016 exceeded a quarter of a billion dollars and constituted seven percent of the City‘s operating budget. Melissa Sanchez & Sandhya Kambhampati, Driven into Debt: How Chicago Ticket Debt Sends Black Motorists into Bankruptcy, ProPublica Ill. (Feb. 27, 2018), https://features.propublica.org/driven-into-debt/chicago-ticket-debt-bankruptcy.
As the dockets in this court and the Northern District of Illinois show, aggressive ticketing practices may help push many drivers into bankruptcy. Id. (explaining that “[p]arking, traffic and vehicle compliance tickets prompt so many bankruptcies the court [in Chicago] [led] the nation in Chapter 13 filings” at the time); see also Table F-2 — Bankruptcy Filings (December 31, 2019), U.S. Courts, https://www.uscourts.gov/statistics/table/f-2/bankruptcy-filings/2019/12/31 (last visited Apr. 21, 2022) (Northern District of Illinois led nation in non-business Chapter 13 filings with 15,851 cases in 2019). Even with recent reforms to ticketing practices, bankruptcy filings remain high by comparison to other districts. Table F-2 — Bankruptcy Filings (December 31, 2021), U.S. Courts, https://www.uscourts.gov/statistics/table/f-2/bankruptcy-filings/2021/12/31 (last
When a vehicle owner‘s parking-ticket debt accumulates, the City has the legal right to impound the vehicle and can eventually sell the vehicle to help pay off the debt. If the impoundment lien can be discharged in bankruptcy, however, the owner may be able to recover her vehicle through the bankruptcy court. Classifying an impoundment lien as judicial or statutory can make the difference between, on one hand, allowing drivers to avoid a debt and denying the City the sums owed, and on the other hand the owner permanently losing the vehicle and putting more money in the hands of the City.
The foundation for this particular issue was laid in 2016. See Fulton, 926 F.3d at 920. The City Council passed a new ordinance that granted the City a lien on impounded vehicles for ticket debts.
Many drivers cannot afford to pay their outstanding tickets and fees, let alone the liens imposed on their cars through this process. As a result, some drivers declare bankruptcy and seek to avoid them. Debtor-appellee Marcella Mance, for instance, incurred several unpaid parking tickets and saw her car impounded and subject to a possessory lien that totaled $12,245, more than four times her car‘s value. Facing this liability with a monthly income of $197 in food stamps, Mance filed for bankruptcy under Chapter 7 and sought to avoid the lien under
The bankruptcy and district courts concluded that the lien was judicial and avoidable. Both courts reasoned that the lien was tied inextricably to the prior adjudications of Mance‘s parking and other infractions, so it did not arise solely by statute, as the Bankruptcy Code requires for a statutory lien. As the district court explained in its opinion in this case: “There is simply no way to disaggregate the final determinations of liability from the lien resulting from immobilization. ... Without the requisite number of judgments, the City would have no right to immobilize the vehicles and no liens could arise.” City of Chicago v. Howard, 625 B.R. 384, 390 (N.D. Ill. 2021).3
II. Lien Definitions in the Bankruptcy Code
The classification of a lien under the Bankruptcy Code is a question of law that we review de novo. In re Willett, 544 F.3d 787, 790 (7th Cir. 2008). The Code sorts liens into three mutually exclusive categories—statutory liens, judicial liens, and security interests. In re Financial Oversight & Management Board for Puerto Rico, 899 F.3d 1, 10 (1st Cir. 2018); In re Wigfall, 606 B.R. 784, 786-87 (Bankr. N.D. Ill. 2019); see also S. Rep. No. 95-989, at 25 (1978), as reprinted in 1978 U.S.C.C.A.N. 5787, 5811 (“Those three categories are mutually exclusive and are [exhaustive] except for certain common law liens.“). Only the first two are relevant here. The parties agree that Mance satisfies all the requirements for discharge under
A. The Statutory Text
We begin our analysis with the statutory text. The Bankruptcy Code defines judicial and statutory liens in
(36) The term “judicial lien” means lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding.
...
(53) The term “statutory lien” means lien arising solely by force of a statute on specified circumstances or conditions, or lien of distress for rent, whether or not statutory, but does not include security interest or judicial lien, whether or not such interest or lien is provided by or is dependent on a statute and whether or not such interest or lien is made fully effective by statute.
Both definitions focus on the events (or the lack thereof) that precede creation of the lien. The two definitions use distinct language to describe how the two different types of liens arise. We see this in the use of “arising solely” for statutory liens versus “obtained by” for judicial liens. “Solely” seems clear enough and signals that prior legal proceedings leading to a lien would exclude the lien from the category of statutory liens. The definition of a judicial lien—“obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding,”
Under these definitions, classification of a lien depends on the events, if any, that must occur before the lien attaches. In re Schick, 418 F.3d 321, 324 (3d Cir. 2005) (“The relevant inquiry is to determine the nature of the [] lien, i.e., whether it arises solely by force of statute, or whether it results from some type of judicial process or proceeding.“); see also 2 Collier on Bankruptcy ¶ 101.53 (“[A] judicial lien arises only by virtue of judicial proceedings in the absence of which there would not be such a lien. The statutory lien by definition arises without any judicial proceeding.” (footnote omitted)).
B. Illustrations
Common examples of statutory and judicial liens are generally consistent with this focus on the prior events needed for the lien to arise and attach to property. Take mechanics’ liens first, often cited as an example of a statutory lien. See, e.g., Schick, 418 F.3d at 324; In re Cunningham, 478 B.R. 346, 350 (Bankr. N.D. Ind. 2012) (“Case law throughout the country has routinely determined that a mechanic‘s lien, or similar liens arising by means of a state‘s statutory enactment, are at their base statutory liens.“); see also id. at 351 (collecting cases); H.R. Rep. No. 95-595, at 314, as reprinted in 1978 U.S.C.C.A.N. at 6271 (listing mechanics’ liens in the examples of statutory liens, as well as materialmen‘s liens, warehousemen‘s liens, and tax liens). In simple terms, a statute provides a mechanic a lien on improved property as soon as payment for the mechanic‘s work on the property is due and goes unpaid. The mechanic need not go to a judge to secure a lien; rather, the lien arises solely by statute once the condition—a lack of payment—occurs. A mechanic‘s lien may be perfected by filing the lien with a county clerk or similar official, but that filing is not considered a “legal or equitable process or proceeding” within the definition of a judicial lien.
Contrast this example of a statutory lien with the textbook judicial lien: a court-ordered money judgment. There are several ways a dispute could make its way into a court and result in a money judgment. But before the lien can arise at all, a court must enter judgment for the winning creditor. That party then records it as a lien on the losing party‘s property. Because the lien is “obtained by” a court proceeding, it is considered judicial. 2 Collier on Bankruptcy ¶ 101.36; see also Schick, 418 F.3d at 328 (“[F]or a lien to be judicial, there must be some judicial or administrative process or proceeding that ultimately results in the obtaining of the lien.“).
As we will see next, Chicago‘s impoundment lien in this case lies somewhere in between these easy illustrations. We find decisive the substantial quasi-judicial proceedings needed for the City to obtain an impoundment lien. The City‘s possessory lien thus did not arise “solely” by statute.
III. The City‘s Lien Program
To classify the City‘s impoundment lien, we examine how it arises or is obtained, beginning with unpaid tickets and continuing through the process of impoundment and attachment of the lien.
First, the owner must accrue the required number of traffic violations and final determinations. A car may be impounded only after an owner has three or more “final determinations of liability,” or two final determinations that have been outstanding for more than a year, “for parking, standing, compliance, automated traffic law enforcement system, or automated speed enforcement system violation[s].”
The owner can contest the charged violation in an in-person proceeding or by writing.
At that point, the owner must pay the fine for the violation.
If the fines go unpaid, the next enforcement step for the City is impoundment. That step requires more legal process. The City must issue notice of the impending vehicle immobilization to the owner.
After such a determination of liability and eligibility for impoundment, the City may physically immobilize the car (with a “boot,” for example).
Turning to the details of this case, at the time of appellee Mance‘s bankruptcy filing, the City‘s lien on her vehicle totaled $12,245 on a car allegedly worth $3,000. The amount of the lien is based on the amount of the outstanding tickets, the fees accumulated from storage and towing costs, and even attorney fees incurred by
IV. Classification of the City‘s Lien
A. The Lien Is “Obtained by” Adjudicating the Traffic Violations
The very last step of the lien attachment is automatic. Under the terms of the city ordinance, the lien arises upon impoundment, without further action by a judge or quasi-judicial official. On that basis, the City contends the impoundment lien is a statutory lien, asserting that it arises “solely” by statute. Like our colleagues on the bankruptcy and district courts, however, we see the issue differently. Under the statutory definitions of the two types of liens, we do not think we can ignore all the prior legal process that must occur before the City‘s possessory lien arises. The lien is “obtained by ... other legal or equitable process or proceeding,”
The City‘s narrow focus on only the very last step leading to attachment of an impoundment lien is not consistent with the statutory definition of a judicial lien. A judicial lien is not a statutory lien, “whether or not such interest or lien is provided by or is dependent on a statute and whether or not such interest or lien is made fully effective by statute.”
Under both definitions, the relevant inquiry is not whether a statute authorizes or governs the lien but what is necessary for the lien to arise. If the lien requires a “judgment, levy, sequestration, or other legal or equitable process or proceeding,” the lien is judicial. If the lien arises “solely” by statute once specific conditions are met, the lien is statutory. In the case of a Chicago impoundment lien, without the judicial or quasi-judicial procedures needed for final determinations for each traffic violation and without the quasi-judicial impoundment procedures, the City could not impose a lien on the indebted driver‘s vehicle. While the lien is authorized by and defined by statute, the City‘s possessory lien does not arise “solely” by statute.
That automatic process is quite different from what happened here. For Mance, several legal proceedings had to be completed before impoundment. Vehicle owners who incur liens like Mance‘s therefore face judicial liens and can avoid them under
Next, the City argues that if we agree with appellee Mance, we will create a circuit split with the Third Circuit‘s decision in In re Schick, 418 F.3d 321 (3d Cir. 2005). We are not convinced. There is a critical difference between the processes leading to the liens in the two cases.
Schick concluded that a lien held by the New Jersey Motor Vehicles Commission was a statutory lien. Under New Jersey law, a vehicle owner who committed a traffic violation faces potential surcharges in various situations, such as reaching a certain number of violation points or having been convicted of refusing to take a breathalyzer test, among other examples. The amount of the surcharges was dictated by “statute and administrative regulations.” 418 F.3d at 324. If a driver failed to pay the surcharges, the Commission was entitled to a lien on the driver‘s property in the amount of the surcharges and interest. The Third Circuit concluded that such a lien held by the Commission was statutory and therefore not avoidable under
Here, by contrast, the statutory structure does not separate the underlying vehicle violation and any fees imposed after the final determinations of the tickets, let alone the impoundment process. These steps are all tied together. Unlike the situation in Schick, Chicago‘s administrative structures for challenging tickets and pending impoundments are not too far removed from the impoundment lien. They are essential prerequisites for a valid impoundment lien, and they determine the amount of the lien.
In Schick the amount of the surcharge—and therefore the amount of the lien—was “set forth either in the statute or administrative regulation and [was] not determined by the underlying proceeding against the driver.” 418 F.3d at 326 (emphasis added). The opposite is true here. The amount of the Chicago impoundment lien is determined precisely in and by the underlying proceedings. Indeed, to secure release, the driver must pay immobilization and impoundment costs, as well as “all amounts, including any fines, penalties, administrative fees ..., if any, and related collection costs and attorney‘s fees ... remaining due on each final determination for liability issued to the owner.”
B. Tax Liens
The City also argues that adopting Mance‘s position will call the classification of tax liens into question. Congress included tax liens in its examples of statutory liens in the legislative history of the Bankruptcy Code. H.R. Rep. No. 95-595, at 314, as reprinted in 1978 U.S.C.C.A.N. at 6271 (“Tax liens are also included in the definition of statutory lien.“). The City contends, however, that federal tax liens result from judicial and quasi-judicial processes (under
Tax liens are unquestionably statutory. E.g., Financial Oversight & Management Board, 899 F.3d at 11; Schick, 418 F.3d at 324; IRS v. Diperna, 195 B.R. 358, 360 (E.D.N.C. 1996); In re O‘Neil, 177 B.R. 809, 811 (Bankr. S.D.N.Y. 1995). Our decision does not call this classification into question. We are merely evaluating the text of statutory provisions also provided by Congress to determine where the City‘s lien best fits under those definitions. Classifying the City‘s lien as judicial flows directly from the text. Congress is entitled to single out a particular category of liens and classify it accordingly. We do not disturb that prerogative or conclusion with this opinion.
Because Chicago‘s impoundment lien on Mance‘s vehicle did not arise solely by
AFFIRMED.