Badger Mountain Irrigation District Secured Bondholders' Committee v. Badger Mountain Irrigation District (In re Badger Mountain Irrigation District)

The Badger Mountain Irrigation District (the “District”) is in chapter 9 bankruptcy. Its Secured Bondholders’ Committee (the “Bondholders”) has certain lien rights on property in the District’s possession. The Bondholders claim that, notwithstanding bankruptcy, they have the power to enforce those lien rights. Specifically, the appeal and cross-appeal require us to decide whether the lien rights of the Bondholders extend to the District’s power to levy assessments, and whether the Bondholders’ lien is avoidable by the District as a municipal debtor.

I. FACTUAL AND PROCEDURAL BACKGROUND

The facts underlying this appeal are not disputed. The District was formed in the mid-70s pursuant to chapter 87.03 of the Washington Code. Wash.Rev.Code Ann. [hereinafter RCWA] ch. 87.03 (1962 & Supp.1989). It was formed to facilitate development of approximately 5,000 acres, 4,000 of which were irrigable, into “gentleman farmer” tracts. At that time, the area was enjoying a period of rapid expansion as a hub for nuclear power and related industries. The local economy declined in the early 80s and has remained depressed.

Under chapter 87.03, property owners within an irrigation district can…