Innkeepers Lien Act and a boarder’s bankruptcy

While I believe that the Illinois Innkeeper’s Lien Act (Act) provisions for those who board horses (770 ILCS 40/49 and 40/50) are clear that the boarding barn has superior rights, I began to think of several scenarios where a boarding barn could find itself enmeshed in a boarder’s bankruptcy action.

In this article, I will very briefly explore two scenarios from the perspective of the boarding barn: first, where Betty Boarder stops paying board to Boarding Barn on her horse Mr. Ed and files for bankruptcy protection after Mr. Ed has been sold pursuant to the Act, and second, where Betty Boarder stops paying board but files for bankruptcy protection prior to Boarding Barn selling the horse under the Act.

Innkeepers Lien Act

There are two sections of the Innkeepers Lien Act that deal with horses:

770 ILCS 40/49. Stable keepers and any persons shall have a lien upon the horses, carriages and harness kept by them for the proper charges due for the keeping thereof and expenses bestowed thereon at the request of the owner, or the person having the possession thereof.

770 ILCS 40/50. Agisters and persons keeping, yarding, feeding or pasturing domestic animals, shall have a lien upon the animals agistered, kept, yarded or fed, for the proper charges due for the agisting, keeping, yarding or feeding thereof.

In most instances, 770 ILCS 40/49 is used in relation to horse boarding businesses—meaning your typical barn that boards horses and gives horseback riding lessons. 770 ILCS 40/50 is more often used for farm animals, including horses on pasture board or working ranch horses.1

The Sale of Unclaimed Property Act, 770 ILCS 90/3,2 which governs the sale of property pursuant to the Act, states, in part:

Conformity to the requirements of this [The Sale of Unclaimed Property] Act shall be a perpetual bar to any action against such lienor by any person for the recovery of such chattels or the value thereof or any damages growing out of the failure of such person to receive such chattels.

By its plain language, it is clear that if Boarding Barn has perfected its lien and has sold or is in the process of selling Mr. Ed pursuant to the Act, then Boarding Barn’s rights are superior to all others.

Fact Pattern

Your client, Boarding Barn, has a written boarding contract with Betty Boarder, for the boarding of her horse, Mr. Ed. In this contract is a paragraph regarding Boarding Barn’s rights to Betty’s horse, pursuant to 770 ILCS 40/49 and 40/50.3 Betty is fast approaching 45 days past due on her board bill.

Selling a Horse Pursuant to the Innkeepers Lien Act:

In an attempt to collect the debt owed, Boarding Barn makes numerous attempts to contact Betty, but gets no response. Boarding Barn decides to cut its losses.4 What should they do to perfect their lien and sell Mr. Ed?

First, Boarding Barn will need to file a claim of lien in the county court.5 Once the claim of lien has been filed, Boarding Barn should post a notice on Mr. Ed’s stall door stating that a lien has been filed and that the animal is being held pursuant to the Innkeepers Lien Act.6 Boarding Barn must give Betty 30 days written notice, pursuant to the Sale of Unclaimed Property Act,7 that the horse will be auctioned off to pay the arrears plus expenses. Boarding Barn must also place a Notice of Sale in a newspaper that is circulated in the area in which the barn is located, for three consecutive weeks prior to the sale.8 The Notice of Sale should contain the lien amount and, if applicable, a minimum bid.9 The rules for how the sale should be conducted are included in the Sale of Unclaimed Property Act10 and must be followed.

I advise my clients that in order to mitigate their damages, they should let the horse go for a reasonable amount. Particularly in this economic climate where good horses are being given away, it is not a good business decision to keep the horse unless Boarding Barn is willing to forgive the debt in exchange for the horse, or if Boarding Barn is willing to give the horse away.11 In a perfect world, Mr. Ed would sell for enough to cover the past due board, as well as the expenses in perfecting the lien and the sale.12 What happens if the sale comes up short and there is still a balance due? In most instances the best course of action is for Boarding Barn to file a small claims action against Betty for the amount still owed.13

Let’s fast forward—Boarding Barn has won its small claims action against Betty and has a judgment against her. What happens if Betty then files for bankruptcy? Based on the language of the Sale of Unclaimed Property Act,14 Boarding Barn can keep any money it made in the sale of Betty’s horse; however, because the small claims judgment is probably dischargeable in Betty’s bankruptcy, Boarding Barn cannot collect its judgment unless the bankruptcy trustee has property in Betty’s estate to sell that will satisfy her creditors.15 Boarding Barn should consult with a bankruptcy attorney and discuss whether it would be advisable to file an adversary proceeding in Betty’s bankruptcy case.

Boarder Files for Bankruptcy Protection Prior to Sale of the Horse

In an attempt to collect the board owed, Boarding Barn makes numerous attempts to contact Betty, but gets no response. Boarding Barn decides to cut its losses; however, before Boarding Barn can sell Mr. Ed, Betty files for bankruptcy.16 What happens now?

Most trustees do not want to deal with any property that has to be fed and will either allow the debtor to sell the horse (with the money going to the bankruptcy estate—not what you want to have happen) or, assuming the Boarding Barn has been proactive in protecting its rights, allow Boarding Barn to take possession of the horse pursuant to the Act. Sometimes you will come across a trustee who does not know much about horses and knows even less about what they are worth in this market – what happens if the trustee indicates that they want to sell the horse?

Under these circumstances it is very important that Boarding Barn has made clear its rights under the Act; if the trustee allows the debtor to sell the horse it is unlikely any of the funds received will go to the Boarding Barn. If the trustee drags its feet in taking possession of or selling the horse Boarding Barn could well be stuck with paying for the horse until the trustee takes possession or sells the horse. Boarding Barn must be proactive and have its attorney send a letter to the trustee asking that the trustee allow Boarding Barn to take possession of the horse pursuant to the Act.17 If the trustee still drags its feet, Boarding Barn should file a motion to compel abandonment with the bankruptcy court and assert its rights under the Act.

Conclusion:

The main points to take away from this discussion is to encourage your clients that operate boarding barns to include the language of the Innkeepers Lien Act in their boarding agreements,18 to not let any boarder get too far behind in paying their board, and to be very proactive in protecting their rights under the Act.

Bankruptcy filings have skyrocketed20 and will continue to grow for some time. Make sure your clients have protected themselves as best they can so that they are not the ones left with horses they cannot afford to keep. ■

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Ms. McFarland-Taylor practices trademark law and equine law. Ms. McFarland-Taylor attended the John Marshall Law School in Chicago where she earned her JD in 1999, and her LL.M. in Intellectual Property Law in 2000. She may be contacted at: LMcFarland-Taylor@sbcglobal.net

1. I recommend to my clients that they reference both sections in their boarding agreements. See infra note 4.

2. 770 ILCS 90/3. All persons other than common carriers having a lien on personal property, by virtue of the Innkeepers Lien Act (770 ILCS 40/0.01 et seq.) or for more than $ 2,000 by virtue of the Labor and Storage Lien Act (770 ILCS 50/0.01 et seq.) may enforce the lien by a sale of the property, on giving to the owner thereof, if he and his residence be known to the person having such lien, 30 days’ notice by certified mail, in writing of the time and place of such sale, and if the owner or his place of residence be unknown to the person having such lien, then upon his filing his affidavit to that effect with the clerk of the circuit court in the county where such property is situated; notice of the sale may be given by publishing the same once in each week for three successive weeks in some newspaper of general circulation published in the county, and out of the proceeds of the sale all costs and charges for advertising and making the same, and the amount of the lien shall be paid, and the surplus, if any, shall be paid to the owner of the property or, if not claimed by said owner, such surplus, if any, shall be disposed under the Uniform Disposition of Unclaimed Property Act (765 ILCS 1025/0.05 et seq.). All sales pursuant to this Section must be public and conducted in a commercially reasonable manner so as to maximize the net proceeds of the sale. Conformity to the requirements of this Act shall be a perpetual bar to any action against such lienor by any person for the recovery of such chattels or the value thereof or any damages growing out of the failure of such person to receive such chattels.

3. Right of Lien. Boarding Barn has the right of lien as set forth in the Illinois Innkeepers Lien Act, 770 ILCS 40/49 and 40/50, for the amount due for board and any additional agreed upon services and shall have the right, without process of law, to retain Owner’s horse(s) until the indebtedness is satisfactorily paid in full. Should Boarding Barn have to invoke its privileges under the Lien Act, Owner will be required to pay any charges with a cashier’s check or money order. NO PERSONAL CHECKS WILL BE ACCEPTED AT THIS POINT.

4. Never let a boarder get more than 60 days past due. No more than 45 days is even better.

5. Many argue that it is not technically necessary to file a claim of lien. I feel it is better to err on the side of caution and file the lien. If the boarder shows up to collect the horse and you do not have proof of the lien (and the signed boarding contract will not be enough) the police may allow the boarder to remove the horse from the property and you have lost your leverage and possibly your cause of action under the Innkeepers Lien Act.

6. Keep a copy of the lien in a safe place – if the boarder shows up with the police to get her horse, you will need to show the lien to the police to prevent them from allowing the boarder to take the horse off the property. NEVER allow anyone to remove the horse from the property. Boarding Barn must retain possession of the horse.

7. See supra note 3.

8. See supra note 3.

9. I often recommend a minimum bid as a way to keep the “kill buyers” away. Kill buyers generally don’t pay more than 10 cents per pound so the minimum price will still be quite low. I don’t think it would be wise to sell to a known kill buyer – although Boarding Barn has the right to sell the horse, from a public relations perspective I don’t think you want to have to defend a challenge to that type of sale

10. See supra note 3.

11. How to go about doing this, and whether you should do this, is beyond the scope of this article.

12. In the unlikely scenario that the sale nets a profit, any money in excess of that owed to Boarding Barn would have to be paid to Betty Boarder.

13. Remember that in Illinois a business cannot be a pro se plaintiff in a small claims action. Ill. Sup. Ct. R. 282 (2009), so whether it is worth it for Boarding Barn to pursue a small claims action will take some analysis.

14. See supra note 3.

15. If Betty files bankruptcy under Chapter 13, it would be unlikely that the trustee would allow any Plan funds to go to pay for the horse’s board, except under exceptional circumstances.

16. We are assuming that Betty Boarder has listed Boarding Barn as a creditor and has listed Mr. Ed as an asset of the estate.

17. If you represent Betty Boarder in this scenario, the trustee should receive a letter from you asking that trustee either take possession of the horse within 7 days or allow Boarding Barn to take possession of the horse pursuant to the Innkeepers Lien Act, otherwise you will seek an administrative claim for reimbursement of board paid to protect the asset and will file a motion to compel abandonment.

18. See supra note 4.

19. Cat Rabenstine, Bankruptcy Filings on the Rise (Oct. 1, 2009), at <http://news.medill.northwestern.edu/chicago/news.aspx?id=140761> (http://tinyurl.com/yb3xbas)