REEDSBURG UTILITY COMMISSION v. GREDE FOUNDRIES (July 13, 2011)

Grede Foundries owned a smelting plant in Reedsburg, Wisconsin. It purchased its electrical utility services from Reedsburg Utility Commission, the local municipal utility. It was a hefty user of those services. It’s monthly bill was usually $600-$700,000, about a third of Reedsburg's operating revenue. When Grede filed for Chapter 11 bankruptcy in June of 2009, it owed Reedsburg in excess of $1.3 million. Wisconsin law dictates how a municipal utility collects arrearages. It must provide notice by October 15 of the October 1 arrearage amount and it submits a list of properties and arrearages to the local government by November 16. The amounts due become a lien on the property serviced and included on property tax bills as a special charge. If it remained unpaid, the County eventually paid the city and assumed responsibility for collection. Reedsburg started that process but it was halted when Grede filed a motion to enforce the bankruptcy stay and hold Reedsburg in contempt for violating the stay. The bankruptcy court did not hold Reedsburg in contempt but ordered it to refrain from taking any further action to collect the bills. The bankruptcy court later found that Reedsburg did violate the stay. Judge Crabb (W.D. Wis.) affirmed. Reedsburg appeals.

In their opinion, Circuit Judges Tinder and Hamilton and District Judge Murphy affirmed. The Court noted that the bankruptcy stay is one of the fundamental protections under the bankruptcy laws. It generally prohibits any act to collect or recover from the bankruptcy estate or to enforce any lien. The parties agree that Reedsburg's actions are covered by the prohibition. Reedsburg, however, argues that its actions fall within one of the exceptions to the stay -- either perfecting a prepetition interest in property, determining tax liability, or perfecting a lien for a special tax or assessment. The Court addressed each in turn, noting that exceptions to the automatic stay should be interpreted narrowly. With respect to the prepetition interest in property, the Court looked to Wisconsin law. All Reedsburg did before the filing of the petition was deliver services and invoice Grede. Undoubtedly, those actions created a debt. But they did not create an interest in property. Since the petition was filed long before the process began in early October, the Court did not have to decide when, during that process, Reedsburg may have obtained a property interest. It certainly did not obtain one before the series of actions even began. The next exception provides that a determination of tax liability, a notice of tax deficiency, and the making of an assessment for a tax does not violate the stay. Although, under the statutory procedure, the Reedsburg charges may appear on Grede's property tax bill, they are not taxes. They are not a source of revenue to pay for public benefits but the recovery of the cost of delivering utility services. The third exception is for "the creation or perfection of a statutory lien for an ad valorem property tax." Again, the Court concluded that Grede's utility charges were not taxes or special taxes or special assessments. None of the automatic stay exceptions apply.