Reedsburg Utility Commission v. Grede Foundries, Inc. (In Re Grede Foundries, Inc.)

In the

United States Court of Appeals

For the Seventh Circuit

No. 10-2509

IN RE:

G REDE F OUNDRIES, INC.

Debtor.

R EEDSBURG U TILITY C OMMISSION,

Plaintiff-Appellant,

v.

G REDE F OUNDRIES, INC.,

Debtor-Appellee.

Appeal from the United States District Court

for the Western District of Wisconsin.

No. 10-CV-84—Barbara B. Crabb, Judge.

A RGUED JANUARY 18, 2011—D ECIDED JULY 13, 2011

Before T INDER and H AMILTON, Circuit Judges, and

M URPHY, District Judge. Œ

Œ

The Honorable G. Patrick Murphy of the Southern District

of Illinois, sitting by designation.

2 No. 10-2509

T INDER, Circuit Judge. When debtor and appellee

Grede Foundries, Inc. entered bankruptcy, the Wisconsin

smelting plant owed more than $1.3 million in delinquent

utility charges to the local municipal utility, appellant

Reedsburg Utility Commission. Months after Grede

filed for bankruptcy, and despite the automatic stay

that accompanied Grede’s filing, Reedsburg implemented

the process pursuant to state law by which it could

collect on Grede’s arrearage. Grede sought to enforce

the stay. The bankruptcy court and the district court

found that none of the exceptions to the automatic stay

applied to Reedsburg’s efforts to collect on Grede’s debt,

which is substantial considering that Grede’s billings

constituted more than one-third of Reedsburg’s operating

revenue. We are sympathetic to Reedsburg’s plight but

the exceptions to the automatic stay do not apply to

Reedsburg’s efforts to collect on Grede’s debt. We affirm.

I. Background

Grede owned properties in Reedsburg, Wisconsin,

that received utility services from the Reedsburg Utility

Commission, a municipal utility. The utility services—

primarily electricity—were critical to Grede’s operations.

The foundry conducted the electricity through rods to

heat vats of molten steel to press into parts for the auto-

motive industry. Heating the rods to the appropriate

degree to melt steel produced a hefty electric bill;

Grede’s average monthly utility bill was around $600,000

to $700,000. Reedsburg’s billings with Grede were also

significant, constituting about 35% of its operating

No. 10-2509 3

revenue in 2008. Reedsburg provides electric, water,

telephone, internet, and cable TV service to 4,170 residents

and 681 businesses in the Reedsburg area in Sauk County,

Wisconsin.

Perhaps triggered by the major downturn in the Ameri-

can automotive industry, Grede voluntarily filed for

Chapter 11 bankruptcy on June 30, 2009, with assets

between $100 million and $500 million. The filing

initiated the automatic stay pursuant to 11 U.S.C.

§ 362(a)(4) & (6), halting “any act to create, perfect, or

enforce any lien against property of the estate” or “any

act to collect, assess, or recover a claim.” Yet Congress

also created several exceptions to the automatic stay,

three of which are at issue in this appeal: perfecting

prepetition interests in property, id. § 362(b)(3), deter-

mining the existence of and providing notice of a tax

matter, id. § 362(b)(9), and creating or perfecting a lien

for a special tax or special assessment on real property,

id. § 362(b)(18). At the time of filing, Grede owed

Reedsburg $1,312,314.09 in prepetition unpaid utility

charges—or a few months’ worth of utility services. Grede

continued operating as a debtor in possession pursuant

to 11 U.S.C. §§ 1107(a), 1108.

The Wisconsin law governing how municipal utilities

collect on an arrearage is fairly straightforward for

our purposes. Reedsburg must give delinquent

property owners a written notice on October 15 of their

pre-October 1 arrearage for the year pursuant to Wis.

Stat. § 66.0809(3). The notice must state:

that unless the amount is paid by November 1 a

penalty of 10 percent of the amount of arrears will

4 No. 10-2509

be added; and that unless the arrears, with any

added penalty, are paid by November 15, the

arrears and penalty will be levied as a tax against

the lot or parcel of real estate to which utility

service was furnished and for which payment

is delinquent.

Id. (emphasis supplied). On November 16 of each year,

Reedsburg must submit to local government officials

a certified list of the properties in arrears and the

amounts due so that

[e]ach delinquent amount, including the penalty,

becomes a lien upon the lot or parcel of real estate

to which the utility service was furnished and

payment for which is delinquent, and the clerk

shall insert the delinquent amount and penalty

as a tax against the lot or parcel of real estate.

All proceedings in relation to the collection of

general property taxes and to the return and sale

of property for delinquent taxes apply to the tax

if it is not paid within the time required by law

for payment of taxes upon real estate.

Id. (emphases supplied). Thus, pursuant to Wis. Stat.

§ 66.0809(3), on October 15, 2009, Reedsburg’s general

manager David Mikonowicz sent Grede nineteen

separate notices regarding the unpaid utility charges. The

notices stated:

Our records indicate a current balance in the

amount of $[amount] for the account of GREDE

FOUNDRY at [location].

No. 10-2509 5

As provided for in sections 66.0809 and 66.0627 of

the Wisconsin Statutes and Reedsburg City Ordi-

nance No. 1083 Section 3.08, unpaid electric, water

and sewer bills become a lien against the property

if they remain uncollected after October 30, 2009.

***

We are aware that Grede Foundry is a debtor in

a currently pending Chapter 11 bankruptcy pro-

ceeding. . . . This letter constitutes notice of the

Reedsburg Utility Commission’s right under

municipal ordinance and state law to place

amounts due on this account on the property

tax roll. This notice does not constitute the

filing of a lien. This notice is provided pursuant to

and in compliance with 11 U.S.C. § 362(b)(3) and

546(b)(1)(A).

Grede’s account balances with Reedsburg ranged from

$20.26 to $1,271,649.33. On November 3, Reedsburg

reported all delinquent charges, including Grede’s, to

the City. On November 12, the City reported all

delinquent utility charges to the Sauk County Treasurer,

including Grede’s arrearage. The City typically reimbursed

Reedsburg for all arrearages from its general fund, but

the size of Grede’s delinquency proved too much for

the City.

But for Grede’s bankruptcy filing, Grede’s arrearage

would have been included in the following process pursu-

ant to Wisconsin law and Reedsburg’s ordinances and

practices. The City calculated and reported its mill rate

to the County Treasurer in late November or early Decem-

6 No. 10-2509

ber. Then the County printed and mailed property tax

bills during the first two weeks of December. Unpaid

utility charges, (such as Grede’s but for the bankruptcy

filing), appeared on the bills as a “special charge.” The

City accepted payment for the entire property tax bill

including the special charge up to January 31. Pursuant

to Wis. Stat. § 74.11(12), money the City received would

be applied first to personal property taxes and next to

late utility charges. After January 31, the County paid

the City for all unpaid property taxes and special

charges and assumed responsibility for collecting the

unpaid amounts. If an arrearage persisted after the

due date, the County sent the property owner a notice,

and if the owner still did not pay, the County placed a

lien on the property for the amount of the arrearage,

including unpaid utility charges.

Yet the process for collecting on Grede’s arrearage

halted when Grede filed a motion on November 5 to

enforce the stay and hold Reedsburg in contempt for

violating the stay. The bankruptcy court held on

November 12 that Reedsburg was not in contempt and

deferred deciding whether Reedsburg violated the stay.

But the court ordered Reedsburg, the City, and the

County to refrain from taking actions “to create, file,

perfect, or enforce any lien against Grede’s real property

or to place any unpaid utility charges for utility services

on the property tax roll. . . .” Thus, Grede’s unpaid

utility charges were left off Grede’s 2009 property tax bill.

The bankruptcy court found on December 21 that

Reedsburg violated the automatic stay by sending delin-

No. 10-2509 7

quency notices to Grede and reporting the delinquencies

to the City. The court voided Reedsburg’s “actions to

perfect a lien against Grede’s properties” and found

that Reedsburg’s actions constituted efforts to create or

perfect a lien or collect a debt within the meaning of 11

U.S.C. § 362(a) and that none of the § 362(b) exceptions

applied. In re Grede Foundries, Inc., No. 09-14337, 2009

WL 4927491, at *6 (Bankr. W.D. Wis. Dec. 21, 2009). The

district court affirmed, Reedsburg Util. Comm’n v. Grede

Foundries, Inc., No. 10-cv-84-bbc, 2010 WL 2159358

(W.D. Wis. May 24, 2010), and Reedsburg filed a timely

appeal.

II. Analysis

The parties do not dispute this case’s facts. Their dis-

agreement involves an analysis of state and federal stat-

utes. Thus, we apply de novo review, “which allows us

to ‘assess the bankruptcy court’s judgment anew.’ ” In re

Ingersoll, Inc., 562 F.3d 856, 863 (7th Cir. 2009) (quoting

In re Boone Cnty. Utils., LLC, 506 F.3d 541, 542 (7th Cir.

2007)).

The automatic stay generally prohibits, among other

actions, “any act to create, perfect, or enforce any lien

against property of the estate” or “any act to collect,

assess, or recover a claim.” 11 U.S.C. § 362(a)(4) & (6). The

stay functions as “one of the fundamental protections

afforded to debtors by the bankruptcy laws,” In re 229

Main St. Ltd. P’ship, 262 F.3d 1, 3 (1st Cir. 2001), as it

preserves “what remains of the debtor’s insolvent

8 No. 10-2509

estate and [provides] a systematic equitable liquidation

procedure for all creditors, secured as well as unsecured,

thereby preventing a chaotic and uncontrolled scramble

for the debtor’s assets in a variety of uncoordinated

proceedings in different courts,” In re Holtkamp, 669

F.2d 505, 508 (7th Cir. 1982) (quotations and citations

omitted). Reedsburg abandoned arguing at the district

court that it did not act to perfect or create a lien

but maintained that a § 362(b) exception applied to its

actions. Courts interpret these exceptions narrowly to

give the automatic stay its intended broad application.

See In re Stringer, 847 F.2d 549, 552 (9th Cir. 1988) (“Con-

gress clearly intended the automatic stay to be quite

broad. Exemptions to the stay, on the other hand, should

be read narrowly to secure the broad grant of relief to

the debtor.” (footnotes omitted)). Reedsburg argues that

at least one of three exceptions applied to its efforts to

collect on Grede’s unpaid utility charges: perfecting a

prepetition interest in property, id. § 362(b)(3), determining

the existence of a tax liability and providing notice of

the tax liability, id. § 362(b)(9), and creating or perfecting

a lien for a special tax or a special assessment on real

property, id. § 362(b)(18). We will examine in turn

whether any one of those exceptions applied to Reeds-

burg’s actions.

A. Section 362(b)(3) exception

Reedsburg argues that the exception for perfection of

a prepetition interest pursuant to 11 U.S.C. § 362(b)(3)

No. 10-2509 9

applied to its actions. Section § 362(b)(3) provides that

the automatic stay does not halt:

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

such perfection under section 546(b) of [the

Code] . . . .

Id. (emphasis supplied). Section 546(b)(1)(A) in turn

subjects the trustee’s avoidance powers to any generally

applicable law that (emphasis supplied):

(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 narrow purpose of this “exception is to ‘protect,

in spite of the surprise intervention of [the] bankruptcy

petition, those whom State law protects’ by allowing

[creditors] to perfect an interest they obtained be-

fore the bankruptcy proceedings began.” In re Parr Mead-

ows Racing Ass’n, Inc., 880 F.2d 1540, 1546 (2d Cir. 1989)

(quoting legislative reports). Stated otherwise, “ ‘if an

interest holder against whom the trustee would have rights

still has, under applicable nonbankruptcy law, and as of

the date of the petition, the opportunity to perfect his

lien against an intervening interest holder, then he

may perfect his interest against the trustee.’ ” Makoroff v.

City of Lockport, N.Y., 916 F.2d 890, 891-92 (3d Cir.

10 No. 10-2509

1990) (quoting legislative reports).1 As the Third Circuit

explained in Makoroff, the paradigm § 546(b) case

arises under the Uniform Commercial Code, where a

perfected security interest relates back to either the

filing of a financing statement or the date that the

security interest attaches. See id. at 892 (citing legislative

history). If the creditor has a prepetition unperfected

interest in the debtor’s property, this exception allows

the creditor to take the steps necessary to perfect that

interest because “[s]uch a perfection of a lien is not con-

sidered the creation of a lien.” Id. at 892 n.1. Without

§ 546(b), creditors could not perfect their interests

without violating the automatic stay “even if all that

remained was a ministerial act” to achieve perfection. Id.

at 892. The § 546(b) exception permits “a creditor to

snatch victory from the jaws of defeat . . . when the

debtor files bankruptcy before a security interest” is

perfected. Ginsberg & Martin on Bankr. § 3.02[F].

The baseline issue is whether Reedsburg acquired

prepetition “an interest in property” within the meaning

of § 362(b)(3) and § 546(b)(1)(A), see 229 Main St., 262

F.3d at 5; Makoroff, 916 F.2d at 893; Parr Meadows, 880

F.2d at 1546; see also In re AR Accessories Grp., Inc., 345

1

Congress rendered the specific holdings in Makoroff and Parr

Meadows moot by enacting the 11 U.S.C. § 362(b)(18) exception,

noted infra n.4, see H.R. Rep. No. 103-835, at 58-590 n.20 (1994),

reprinted in 140 Cong. Rec. 27,698 (1994), 1994 U.S.C.C.A.N.

3340, 3367-68 n.20, but their reasoning remains instructive.

See 229 Main St., 262 F.3d at 6 n.4.

No. 10-2509 11

F.3d 454, 458 (7th Cir. 2003) (addressing the “interest in

property” provision as an alternative grounds for

affirmance). If Reedsburg acquired an interest in Grede’s

property, Reedsburg would also have to show that Wis.

Stat. § 66.0809(3) allows that interest “to be effective

against an entity that acquires rights in such property

before the date of perfection.” See 11 U.S.C. § 546(b)(1)(A);

229 Main St., 262 F.3d at 10.2 But we do not need to

address whether Reedsburg’s interest would be effec-

tive against an entity that acquired rights in the prop-

erty before the date of perfection because our analysis

begins and ends with whether Wis. Stat. § 66.0809(3)

granted Reedsburg “an interest in property” for purposes

of § 362(b)(3) and § 546(b)(1)(A). Reedsburg argues that

it acquired an interest in Grede’s property by sending

Grede utility bills or alternatively when it provided

Grede with utility services 3 because these actions set

in motion a process by which Reedsburg could have

2

Creditors must also act pursuant to a law of general applica-

bility, § 546(b)(1), but the parties do not dispute that Wis. Stat.

§ 66.0809(3) applies generally. See 229 Main St., 262 F.3d at 10

(noting that for a law to be “generally applicable,” it must

apply to cases regardless of a bankruptcy (citing Makoroff,

916 F.2d at 892)).

3

At oral argument, Reedsburg’s counsel suggested that the

interest in Grede’s property arose when a bill came due—twenty

or thirty days after mailing. This argument is not developed

in Reedsburg’s briefs, but we note that our holding applies to

all three proposed dates.

12 No. 10-2509

obtained a perfected tax lien. We disagree with

Reedsburg’s broad reading of the exception. Although

Congress did not limit the exception to formal liens, see

229 Main St., 262 F.3d at 5-7, Reedsburg only had the

possibility of an interest in Grede’s property when Grede

filed its bankruptcy petition on June 30—not an interest

in Grede’s property.

We have no doubt that Reedsburg’s action of delivering

services to Grede or mailing Grede utility bills created

a debt or an account. But unless and until Reedsburg

performed the requirements of Wis. Stat. § 66.0809(3),

Reedsburg could not claim any interest in Grede’s prop-

erty. Reedsburg’s interest at the time of service and

billing amounted to accounts for services rendered or

energy provided, see, e.g., U.C.C. § 9-102(2)(ii) & (v).

Holding that Reedsburg’s prepetition actions of delivering

services or mailing utility bills gave Reedsburg an interest

in Grede’s property would functionally give Wisconsin

municipal utilities an ever-present interest in their cus-

tomers’ property to the extent of the monthly utility bill.

We do not believe Congress intended the § 362(b)(3)

exception to stretch that far, particularly when the state

statutory scheme limits the municipal utility’s ability

to acquire an interest in a debtor’s property to particular

dates. Cf. In re Glasply Marine Indus., Inc., 971 F.2d 391,

395 (9th Cir. 1992) (rejecting the proposition that

Congress intended to create an “ever-present interest”

for the § 546(b) exception); Equibank, N.A. v. Wheeling-

Pittsburgh Steel Corp., 884 F.2d 80, 86 (3d Cir. 1989) (same);

Parr Meadows, 880 F.2d at 1547 (same). But cf. Md. Nat’l

Bank v. Mayor of Baltimore, 723 F.2d 1138, 1141-44 (4th

No. 10-2509 13

Cir. 1983) (holding that pursuant to Maryland law, the

government maintains an “ever-present” interest in

property owners’ land for tax purposes). The statutory

mechanism giving Reedsburg an interest in Grede’s

property does not even apply if Grede pays its past

due balances by October 1; Reedsburg’s mailing of the

October 15 notices served as the first of a series of

actions that would give Reedsburg an interest in Grede’s

property. See Wis. Stat. § 66.0809(3). We would have a

closer case if Grede’s bankruptcy filing occurred after

October 15 or even October 1, but we will not

speculate when a municipal utility acquires an interest

in its customers’ property pursuant to Wis. Stat.

§ 66.0809(3) because such hypothesizing is unnecessary

for our holding that Reedsburg did not obtain an interest

in Grede’s property at the time of service or billing.

Reedsburg argues that the Second Circuit’s analysis

in Parr Meadows suggests that its mailing of utility

bills gave Reedsburg a prepetition interest in Grede’s

property. In Parr Meadows, the court found that a

county obtains a § 546(b) interest in property on a statuto-

rily established “tax status date” when all properties

are assessed. 880 F.2d at 1546-47. Upon the tax status

date, the county received “a real and identifiable interest

in the property which cannot be erased or altered by

subsequent events.” Id. at 1548. Although adjustments

could be made, clerical mistakes could be corrected,

and the actual property taxes were not levied until at

least six months later, the tax status date gave the

county an interest in a property because the county

(1) determined the property was taxable and (2) fixed

the value of the property. See id. at 1547. The actions

14 No. 10-2509

subsequent to the tax status date constituted “merely

further steps towards the completion of the taxation

process and the perfection of the county’s interest in

the property.” Id.

Here, Reedsburg’s actions of sending Grede utility

bills or providing utility services did not fix “a real and

identifiable interest” in Grede’s property which could

not “be erased or altered by subsequent events.” Id. at

1548. Grede’s payment of its utility bills pre-October 1

would have wiped out Reedsburg’s ability to attach

any interest in Grede’s property. In Parr Meadows, the

persistent nature of property taxes kept the property

owners from ducking the state’s ability to acquire an

interest in their property after the assessment on the

tax status date. If the provision of utility services or the

mailing of a bill triggered the creation of “an interest

in property,” any number of debts that could potentially

attach to the debtor’s property would be drawn into

the exception’s orbit even though at the time of the bank-

ruptcy filing the debts were mere accounts due for

services rendered.

AR Accessories illustrates how a state law gives an

entity an interest in property for the § 546(b) exception, 345

F.3d at 458, and contrary to Reedsburg’s arguments,

why Wis. Stat. § 66.0809(3) does not perform the same

function. The AR Accessories statute provided that Wis-

consin’s Department of Workforce Development:

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. A

No. 10-2509 15

lien under this subsection takes effect when the

Department files 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 within 2 years after the date

that the wages were due. . . .

Id. at 456-57 (brackets and alterations omitted) (quoting

Wis. Stat. § 109.09(2) in its form at the time of the bank-

ruptcy court’s decision). Despite the Wisconsin legisla-

ture’s deletion of language in this statute that explicitly

stated that the lien interest existed as of the date of the

last unpaid services, the bankruptcy court found that

the legislative history and a Wisconsin state court case

justified finding that the department’s wage lien arose

when the last unpaid services were performed by the

debtor’s employees. See id. at 458-59 (citing Pfister v.

Milwaukee Econ. Dev. Corp., 576 N.W.2d 554, 558 (Wis.

Ct. App. 1998)). We agreed and held that the effective

date of the lien in the debtor’s property was when the

debtor’s employees performed the last unpaid services.

The filing of the petition with a county clerk merely

provided notice of the claim and did not create “any

new interest within the meaning” of § 546(b). Id. at 459 n.4.

We cannot find and Reedsburg does not point to any

Wisconsin authority or legislative history suggesting

that Wis. Stat. § 66.0809(3), like the wage lien statute,

gives a municipal utility an interest in a delinquents’

property by merely providing utility services or mailing

utility bills. Although the statute in AR Accessories did

not expressly state that the wage lien came into

16 No. 10-2509

existence when the employee performed services, it did

state that the department “shall have a lien.” By

contrast, Wis. Stat. § 66.0809(3) states that the “delinquent

amount . . . becomes a lien” not when services are

rendered or bills delivered, but after (1) notice is pro-

vided on October 15; (2) a list of properties in arrears

is furnished to municipal officials; (3) the arrearage re-

mains unpaid by November 15; and (4) the municipal

officials file a list with the county clerk on November 16.

Only then, and assuming Grede did not meanwhile pay

its utility bill, could the “delinquent amount . . . become[]

a lien” on Grede’s property. Thus, because Reedsburg

did not have a prepetition interest in Grede’s property,

the § 362(b)(3) exception did not apply to Reedsburg’s

actions.

B. Section 362(b)(9) exception

Reedsburg next argues that one of the exceptions in 11

U.S.C. § 362(b)(9) applied to its actions. Section 362(b)(9)

provides that a filing does not stay:

(A) an audit by a governmental unit to determine

tax liability;

(B) the issuance to the debtor by a governmental

unit of a notice of tax deficiency;

***

(D) the making of an assessment for any tax and

issuance of a notice and demand for payment

of such an assessment . . . .

No. 10-2509 17

This exception allows government entities to determine

the amount of tax due and send the bill to the tax-

payer/debtor without violating the automatic stay. See

In re Innovation Instruments, Inc., 228 B.R. 313, 314-15

(Bankr. N.D. Fla. 1998) (citing lawmaker’s statement).

The exception’s legislative history suggests Congress

wanted to expand the IRS’s ability to assess tax liability

but not actually collect on the taxes. See id.

Although there is room for debate in some cases what

constitutes a tax, compare Empress Casino Joliet Corp. v.

Balmoral Racing Club, Inc., No. 09-3975, 2011 WL 2652201, at

*1-11 (7th Cir. July 8, 2011) (en banc), with id. at *11-18

(Sykes, J., dissenting), Reedsburg’s utility charges in

no sense constitute a tax despite the fact that they po-

tentially end up on a property tax bill among

genuine taxes, see Wis. Stat. § 74.11(12) (distinguishing

“delinquent utility charges” from other taxes). We note

that Wis. Stat. § 66.0809(3) states that arrears for

utility services “will be levied as a tax.” But the

phrase “as a tax” simply gives a municipality the

ability to collect the unpaid charge as if the charges were

a tax, or “in the same way or manner” of a tax. See,

e.g., Webster’s Third New Int’l Dictionary 125 (1986)

(defining “as”).

Even if the phrase “as a tax” somehow transformed

the utility charges into a tax, state law terms are not

dispositive in bankruptcy law. See United States v. Reorga-

nized CF & I Fabricators of Utah, Inc., 518 U.S. 213, 220-

21 (1996) (noting that the Court places “no weight on the

‘tax’ label in the” state law). Instead, we look to the

18 No. 10-2509

state statute merely to determine whether “its incidents

are such as to constitute a tax within the meaning” of the

Code provision. Id. (quoting City of New York v. Feiring,

313 U.S. 283, 285 (1941)). A tax is generally defined as a

source of revenue that provides general benefits to the

public. See, e.g., Hager v. City of W. Peoria, 84 F.3d 865,

870 (7th Cir. 1996); Diginet, Inc. v. W. Union ATS, Inc., 958

F.2d 1388, 1399 (7th Cir. 1992) (holding that the test for

identifying a tax, regardless of “its nominal designation,”

is whether “it is calculated not just to recover a cost

imposed on the municipality or its residents but to gen-

erate revenues that the municipality can use to offset

unrelated costs or confer unrelated benefits”); Black’s

Law Dictionary 1594 (9th ed. 2009) (defining “tax” as a

“charge, usu. monetary, imposed by the government on

persons, entities, transactions, or property to yield

public revenue”); Webster’s Third New Int’l Dictionary

2345 (1986) (defining “tax” usually as a “pecuniary charge

imposed by legislative or other public authority upon

persons or property for public purposes”). The utility

charges in this case do nothing more than recover

Reedsburg’s costs of delivering utility services. Because

the utility charges are not taxes, the § 362(b)(9) exception

does not apply to Reedsburg’s actions.

C. Section 362(b)(18) exception

Reedsburg’s final argument—that the 11 U.S.C.

§ 362(b)(18) exception applied to its actions—also fails.

Section 362(b)(18) provides that the automatic stay

does not apply to:

No. 10-2509 19

the creation or perfection of a statutory lien for an

ad valorem property tax, or a special tax or special

assessment on real property whether or not ad

valorem, imposed by a governmental unit, if

such tax or assessment comes due after the date

of the filing of the petition[.]

The exception’s intent was to reverse decisions that had

held that the automatic stay blocked local governments

from attaching statutory liens for property taxes that

accrued subsequent to a bankruptcy filing. See H.R. Rep.

No. 103-835, at 58-59 (1994), reprinted in 140 Cong. Rec.

27,698 (1994), 1994 U.S.C.C.A.N. 3340, 3367-68. Because

local governments rely on such taxes as “one of their

principal sources of revenue” usually secured via statutory

liens, certain court decisions4 created “a windfall for

secured lenders, who would otherwise be subordinated

to such tax liens,” and significantly impaired revenue

collection. Id. at 58. Congress intended this section to

overrule such cases and allow local municipalities to use

their property tax liens to secure “payment of property

taxes.” Id. at 59.

Reedsburg argues that the unpaid utility charges are

either a special tax or special assessment. We disagree. As

we held above, the unpaid utility charges are not taxes.

The charges do not raise revenue; they pay for utility

services Reedsburg provided Grede. And there is

4

Namely, Parr Meadows, 880 F.2d 1540, and Makoroff, 916

F.2d 890; see supra n.1.

20 No. 10-2509

nothing “special” about them. They are regular, run-of-the-

mill delinquent charges (although quite large) for

routine everyday utility services.

Our exclusion of municipal utility charges from the

terms “special tax” and “special assessment” is sup-

ported by a variety of authorities. In Illinois Central R.R.

v. City of Decatur, 147 U.S. 190, 197-98 (1893), the

Supreme Court defined the terms “special assessments”

and “special taxes” as charges “imposed upon property

within a limited area for the payment for a local improve-

ment” that is “supposed to enhance the value of all prop-

erty within that area.” More recently, the Court of

Federal Claims held, relying on Illinois Central Railroad

Co., 147 U.S. at 197-98, that a “special assessment” is

defined as a one-time charge levied exclusively against

properties “specially” benefiting from a particular im-

provement. Wright Runstad Props. Ltd. P’ship v. United

States, 40 Fed. Cl. 820, 826 (1998). Similarly, Chapter 9 of

the Bankruptcy Code defines “special tax payer” as the

owner of “property against which a special assessment

or special tax has been levied the proceeds of which are

the sole source of payment of an obligation issued by

the debtor to defray the cost of an improvement relating

to such real property.” 11 U.S.C. § 902(3); see also Carl M.

Jenks, The Bankruptcy Abuse Prevention and Consumer

Protection Act of 2005: Summary of Tax Provisions, 79 Am.

Bankr. L.J. 893, 896 n.19 (2005) (noting that the terms

“special tax” and “special assessment” in 11 U.S.C.

§ 362(b)(18) “refer to charges that relate to specific

projects that a jurisdiction undertakes to benefit a par-

ticular area and that are funded in whole or in part

No. 10-2509 21

from taxes imposed on properties in the area receiving

the benefit”).

The utility charges do not defray the cost of improving

Grede’s property or benefit Grede’s property in any

particular way; Reedsburg’s provision of electricity

(along with providing water and sewer services) allowed

Grede to heat vats of molten steel. Stretching the

defraying of real property improvement costs to include

the provision of utility services is not a plausible inter-

pretation of this exception. We appreciate that Congress

wanted to reverse decisions holding that the automatic

stay prevented municipalities from attaching liens for

property taxes accruing after a bankruptcy filing, but

if Congress wanted to sweep prepetition utility charges

into this exception, it would have done so using more

explicit language. Because Reedsburg’s utility charges

do not qualify as special taxes or special assessments, the

§ 362(b)(18) exception does not apply to Reedsburg’s

actions.

III. Conclusion

Reedsburg was in a tough spot when its largest

customer filed for bankruptcy protection with more

than $1.3 million in unpaid utility charges. But we

cannot ignore the automatic stay’s broad purpose or

the narrow purposes to which the exceptions apply.

A FFIRMED.

7-13-11