Matter of Bluffton Castings Corp.

224 B.R. 902, 1998 Bankr. LEXIS 1210, 33 Bankr. Ct. Dec. (CRR) 231, 1998 WL 661370
CourtUnited States Bankruptcy Court, N.D. Indiana
DecidedSeptember 14, 1998
Docket19-10056
StatusPublished
Cited by1 cases

This text of 224 B.R. 902 (Matter of Bluffton Castings Corp.) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, N.D. Indiana primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Matter of Bluffton Castings Corp., 224 B.R. 902, 1998 Bankr. LEXIS 1210, 33 Bankr. Ct. Dec. (CRR) 231, 1998 WL 661370 (Ind. 1998).

Opinion

DECISION

ROBERT E. GRANT, Bankruptcy Judge.

On January 27, 1997 the debtor filed a voluntary petition for relief under Chapter 11. The case was subsequently converted to' Chapter 7 and a trustee appointed. While the case was in Chapter 11, Barrett & McNagny was employed as attorney for the debtor in possession and Warsco, Brogan & Strunk (“Warsco, Brogan”) was employed as attorney for the Unsecured Creditors Committee. During that time, certain assets of the debtor were sold, generating $846,947.00. Both Warsco, Brogan and Barrett & McNag-ny have filed motions, pursuant to § 506(c) of the Bankruptcy Code, seeking payment of their fees from the sale proceeds. Norwest Business Credit, Inc. (“Norwest”), which holds a lien on those proceeds, has filed an objection.

The matter is presently before the court on Norwest’s motion for summary judgment. The basis for the motion is that Warsco, Brogan and Barrett & McNagny lack standing under § 506(e). Section 506(c) states:

The Trustee may recover from property securing an allowed secured claim, the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim. 11 U.S.C. § 506(c).

Based on the language of the statute, Nor-west argues that only the Trustee may seek to surcharge a secured creditor’s collateral.

A split of authority exists regarding who has standing under § 506(c). Compare In re JKJ Chevrolet, Inc., 26 F.3d 481 (4th Cir.1994) (only trustee and debtor in possession have standing to seek recovery of administrative expenses from secured creditor’s collateral); In re Groves Farms, Inc., 64 B.R. 276 (Bankr.S.D.Ind.1986) (§ 506(c) may only be invoked by trustee or by debtor in possession who has the powers of a trustee pursuant to § 1107); Matter of Great Northern Forest Products, Inc., 135 B.R. 46 (Bankr.W.D.Mich.1991) (allowing parties other than trustee or debtor in possession standing under § 506 would violate statute and bankruptcy policy) with United States v. Boatmen’s First National Bank, 5 F.3d 1157 (8th Cir.1993) (IRS has standing to bring a § 506(c) claim); In re McKeesport Steel Castings Co., 799 F.2d 91 (3rd Cir.1986) (utility company with colorable claim for expenses has standing to bring § 506(c) claim); In re Palomar Truck Corp., 951 F.2d 229 (9th Cir.1991) (administrative claimant has § 506(c) standing, at least in Chapter 11). Nonetheless, the statute plainly states that “The Trustee may recover_” Given the Supreme Court’s preference for adhering to the plain and unambiguous language of the Bankruptcy Code, see, e.g., United States v. Ron Pair Enterprises, 489 U.S. 235, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989); Robinson v. Shell Oil Co., 519 U.S. 337, 117 S.Ct. 843, 136 L.Ed.2d 808 (1997); Connecticut Nat’l Bank v. Germain, 503 U.S. 249, 112 S.Ct. 1146, 117 L.Ed.2d 391 (1992), this court is not inclined to go beyond that language and allow parties other than the trustee (and those who exercise the powers of a trustee, see e.g. 11 U.S.C. § 1107(a)) to take advantage of the opportunity that § 506(e) provides.

In an effort to justify going beyond the plain language of the statute, some courts have suggested that the trustee may not always have an incentive to seek a surcharge under § 506(c); thus, giving standing to other parties is necessary in order to avoid inequitable results. See In re Chicago Lutheran Hospital Assn., 89 B.R. 719, 726 n. 9 (Bankr.N.D.Ill.1988); In re Palomar Truck Corp., 951 F.2d 229, 232 (9th Cir.1991); In re McKeesport Steel Castings Co., 799 F.2d 91 (3rd Cir.1986). Yet, an expansive reading of the statute is not necessary to achieve that end. A better alternative exists. If a trust *904 ee unjustifiably refuses to pursue a colorable claim, a creditor may seek the bankruptcy court’s permission to prosecute that claim for the benefit of the estate. Matter of Perkins, 902 F.2d 1254, 1254 (7th Cir.1990). When a mechanism which allows interested parties to obtain the authority to prosecute actions otherwise vested in the trustee already exists, one should not torture the plain language of the statute in an effort to achieve the same result. Doing so is not only unnecessary but also tends to undermine the orderly process that has been developed for that purpose.

“The limits on standing are vital in bankruptcy....” Matter of Deist Forest Products, 850 F.2d 340, 341 (7th Cir.1988). Indeed, a primary means of achieving the swift and efficient administration of the bankruptcy estate is “by narrowly defining who has standing....” Matter of Rickman, 104 F.3d 654, 656-57 (4th Cir.1997). Lax rules, which liberally allow parties with some interest in the proceeding to raise issues, are “too likely to generate ‘protracted litigation’ .... ” Id. Thus, courts should be chary about granting dispensations from the rule that only the trustee has standing to raise certain issues. Id. Instead, “[w]hen a third party tries to assert an action still vested in the trustee, the court should dismiss the action.” Perkins, 902 F.2d at 1258.

The court acknowledges that, after Norwest filed its motion for summary judgment, the Trustee sought to join in the motions that Warseo, Brogan and Barrett & MeNagny had filed. It also recognizes that Bankruptcy Rule 7017 provides that an action should not be dismissed because it has not been brought by the real party in interest, until that party has been given an opportunity to ratify the action, by seeking joinder or substitution. Furthermore, Bankruptcy Rule 7024 provides a mechanism by which third parties may intervene in pending litigation which affects their interests. Nonetheless, these rules apply only in adversary proceedings — not to contested matters. Fed. R.Bankr.P. Rule 9014.

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224 B.R. 902, 1998 Bankr. LEXIS 1210, 33 Bankr. Ct. Dec. (CRR) 231, 1998 WL 661370, Counsel Stack Legal Research, https://law.counselstack.com/opinion/matter-of-bluffton-castings-corp-innb-1998.