No Rescue For Chicago From U.S. Supreme Court—This Time (In re Mance)

Chicago (photo by Marilyn Swanson)

By: Donald L Swanson

Poor Chicago. 

Unlike the result for Chicago’s traffic ticket income in Fulton v. Chicago, the U.S. Supreme Court refuses to rescue Chicago in City of Chicago v. Mance (Case No. 22-268; Cert. denied, 11/21/2022).[Fn. 1]

Chicago’s Traffic Ticket Income

Here’s the deal:

  • Chicago issues three million traffic tickets a year;
  • Outstanding debt for Chicago’s traffic ticket fines and fees surpasses $1.8 billion (yes, with a “b”);
  • Revenue from Chicago’s traffic tickets program exceeds a quarter of a billion dollars and constitutes 7% of Chicago’s operating budget;
  • From 2011 to 2019, Chicago impounds and sells 50,000 vehicles under its traffic ticket program; and
  • Chicago’s aggressive ticketing practices push many drivers into bankruptcy—e.g., Chicago led the nation in non-business Chapter 13 filings, with 15,851 cases in 2019.

–The program

Here’s how Chicago’s traffic ticketing/enforcement program works:

  • Once a driver incurs two or three outstanding tickets, and once final liability thereon is determined, Chicago can impound the driver’s vehicle and attach a possessory lien; 
  • The amount of the lien is computed as the violation fines plus impounding and other fees—such amount can escalate quickly and dramatically; and
  • Many drivers need their impounded vehicles but cannot afford to pay the outstanding tickets and fees—so, some of them file bankruptcy and try to avoid Chicago’s impound lien under § 522(f)(1)(A).

–The process

More specifically, Chicago’s process for determining liability on a traffic violation goes like this:

  1. A vehicle 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.
  2. The “final determinations” happen like this:
    • An official observes and records a traffic or parking violation;
    • The official gives notice of the violation to the vehicle’s owner (e.g., by placing it on the vehicle or by mail);
    • The owner can contest the charge in person or by writing;
    • If the owner loses or fails to contest the violation, a determination of liability is entered;
    • The owner can then appeal under Illinois’s Administrative Review Law; and
    • If the owner loses on appeal or fails to contest the liability determination, Chicago obtains a “final determination” that is, under Illinois law, a “money judgment”;   
  3. Now, the owner must pay the fine for the violations, or face quickly-escalating fees;
  4. Next, Chicago provides notice to the owner of (i) impending vehicle immobilization, and (ii) a 21-days deadline to either pay the fines or petition for a hearing on liability;  
  5. Only then can eligibility for impoundment be established; and
  6. Only then can a lien be imposed on the vehicle by immobilization (e.g., with a boot) or impoundment.

Debtor’s Facts

In this case, Debtor incurs several parking tickets and then loses the car to impoundment through the process outlined above.  During that process, the amount of Debtor’s balance for fees and fines escalates to $12,245—at which time, the value of Debtor’s car is only $3,000.

In response, Debtor files Chapter 7 and moves to avoid Chicago’s lien under § 522(f)(1)(A), which provides (emphasis added):

  • “debtor may avoid the fixing of a lien . . . to the extent that such lien impairs an exemption to which the debtor would have been entitled . . . if such lien is—(A) a judicial lien.”

Chicago, of course, counters with something like, “No, no, no . . . you can’t do that because this is a statutory lien that can’t be avoided under § 522(f)(1)(A)—not a judicial lien that can.”

The responding courts—all of them—disagree.  They find Chicago’s lien to be judicial and avoidable, not statutory.  Here’s why:

  • Chicago’s lien on Debtor’s car is tied inextricably to prior adjudications of Debtor’s traffic infractions;
  • There is no way to disaggregate the final determination of Debtor’s traffic violations liability from Chicago’s resulting lien; and
  • Therefore, the lien did not arise “solely” by statute, as the Bankruptcy Code requires for a statutory lien.

Lien Definitions

The Bankruptcy Code sorts liens into three mutually exclusive categories:

  • statutory liens;
  • judicial liens; and
  • security interests.

Only the first two are relevant here.

Everyone agrees, in the Mance case, that Debtor is entitled to lien avoidance, if Chicago’s lien is considered judicial—so, the judicial v. statutory classification is decisive.

The Bankruptcy Code defines judicial and statutory liens in 11 U.S.C. § 101(36)&(53) like this (emphasis added):

  • “judicial lien” means lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding; and
  • “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 events (or lack thereof) preceding creation of the lien:

  • “arising solely” signals that legal proceedings leading to a lien will prevent the resulting lien from being statutory; and
  • “obtained by” has an element of causation.

Accordingly, the relevant inquiry is whether the lien arises solely by force of statute or requires some type of judicial involvement.   

Two Easy Illustrations

The Seventh Circuit opinion offers two contrasting liens as “easy illustrations.”

  1. A mechanics’ lien is a statutory lien: as soon as payment for the mechanic’s work on the property is due and goes unpaid, the lien comes into existence without further action—perfection is accomplished by filing with a government office, but such filing is not a “legal or equitable process or proceeding.”
  2. A money judgment lien is a judicial lien: before the lien can arise at all, a court must enter judgment for the winning creditor—the lien is “obtained by” a court proceeding.

The Ruling

The Bankruptcy, District and Seventh Circuit courts in this case all agree that Chicago’s lien on a traffic violator’s vehicle is a money judgment: 

  • “We find decisive” the fact that quasi-judicial proceedings are needed before Chicago can obtain a traffic violation lien on the violator’s vehicle—therefore, Chicago’s lien does not arise “solely” by statute;
  • Such lien is “obtained by … legal or equitable process or proceeding”—namely, by the prior quasi-judicial adjudications and money judgments that determine the lien’s validity and amount; and
  • Such lien is, therefore, both judicial and avoidable under § 522(f)(1)(A).

The U.S. Supreme Court also seems to agree, or at least refuses to intervene, because on November 21, 2022, it denies Chicago’s Petition for a writ of certiorari in this case.

Conclusion

One thing Chicago can count on is this: traffic violations (and lots of them) will occur within its city limits.

That is reality.  It also provides a budget opportunity—as long as people pay the fines and fees for traffic violations.  Enforcing payment of those fines and fees (when violators can’t or won’t pay), through impoundment and vehicle sales, is important to Chicago’s financial well being. 

Unfortunately for Chicago, it loses a bankruptcy issue (in the Mance case) that impairs its enforcement powers.  And the U.S. Supreme Court won’t provide a helping hand—this time.

———————

Footnote 1.  Information in this article is from the Seventh Circuit’s opinion in the case of City of Chicago v. Mance (In re Mance), Case No. 21-1355 in the Seventh Circuit Court of Appeals (issued April 21, 2022), upon which the U.S. Supreme Court denied certiorari on November 21, 2022.

** If you find this article of value, please feel free to share. If you’d like to discuss, let me know.

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