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In Kentwood, the landlord argued that it had a
possessory landlord's lien on the debtor's assets that was
senior to a secured bank claim, arguing that a Michigan Supreme
Court case declining to determine whether there was a common law
landlord's lien before adoption of the UCC meant that "the
only 'legitimate conclusion' is that a common law
landlord's lien exists." The landlord's arguments
appear to have exasperated the court, leading to a detailed
discussion of the value of the court's time (which it concluded
was $1,400 per hour) in the context of considering sanctions.
The simple question in this case was whether a common law
landlord's lien exists in Michigan. The bankruptcy trustee had
sold the debtor's assets free and clear of all liens, with
liens transferring to the sale proceeds. When the trustee proposed
to distribute the proceeds (less an agreed upon surcharge) to the
debtor's secured lender, the landlord objected, asserting that
it had a senior landlord's lien under Michigan law.
In responding to the objection, the lender relied primarily
on:
a 1952 federal district court case holding that Michigan law
does not create a landlord's lien for payment of rent "in
every situation," and
a statement in a treatise on Michigan real property law that
"no Michigan cases have been discovered that consider whether
a common-law landlord's lien for unpaid rent exists in
Michigan."
The landlord relied primarily on two cases:
The first was an 1683 decision (characterized as
"ancient" by the court), which the Kentwood
court found stood for the proposition that in appropriate
circumstances a subtenant may be liable to pay rent to the prime
landlord under equitable principles even though there is no privity
between the two parties.
The second was a 1935 case that similarly dealt with whether a
subtenant should pay the prime landlord or its creditors. The
Kentwood court found that the case stood for the
proposition that a landlord has an equitable lien on rent owing by
a subtenant where the tenant is insolvent.
The Kentwood court agreed with the 1952 case cited by
the lender that the cases giving a landlord an equitable lien in
the special circumstance of rent owed by a subtenant did not lead
to the conclusion that there was a general landlord's lien on
all assets of the tenant.
Accordingly, on the substance of the issues before the court, it
ruled that the landlord did not have a lien and the bank was
entitled to the sale proceeds. The court was emphatic in its
conclusion that "no such landlord's lien exists. Indeed,
the court further holds that no such landlord's lien has ever
existed under Michigan law."
The court went on to state (emphasis in original):
This court has also spent many hours
to attempt to find any authority that
even marginally supports the Landlord's asserted
"legitimate conclusion" that a broad common law (or
equitable) lien covering a lessee's personalty is recognized in
Michigan.
Nothing has been found that supports the Landlord's vacuous
assertion. The court believes no authority exists. Further, no
statutory landlord's lien has been adopted in Michigan. This
court's independent research can be characterized as
"chasing an apparition."
After venting its frustration, the court proceeded to discuss
the possibility of sanctions under Bankruptcy Rule 9011
(counterpart to FRCP Rule 11). In considering how to determine the
amount of monetary sanctions, the court included an extended
discussion of the cost of a federal judge's time. Beginning
with $600 per hour in 1982, and indications that this had inflated
to $900 by 1998, the court adjusted the original $600 per hour
based on the consumer price index and concluded that its time was
worth $1,400 per hour.
Surprisingly (given the tenor of its discussion), the court
decided not to issue an order to show cause why sanctions should
not be imposed, indicating that it hoped a stern warning would
suffice (emphasis in original):
Notice is given to [landlord's] attorney: if you make this
court chase a legal apparition again, whether in this adversary
proceeding or in some future case or adversary proceeding,
bring your checkbook. The going
rate for waste of this court's time will be $1,400 per
hour.
If asked, most Michigan attorneys would probably respond that
there is no common law landlord's lien in Michigan. However,
the court did not find this position to be a slam dunk, instead
finding itself "called upon to predict what the Michigan
Supreme Court would decide if presented with this issue."
On the one hand, it sounds like the arguments made by the
landlord's attorney were very weak. On the other hand, the
attorney was not arguing in the face of clearly established
precedent. This case signals a warning that there may be bounds to
advocacy that are far short of a blatant disregard for existing
law.
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