us reports 2d vols - university of...

[530 US 1]

HARTFORD UNDERWRITERS INSURANCE COMPANY, Petitioner

vUNION PLANTERS BANK, N. A.

530 US 1, 147 L Ed 2d 1, 120 S Ct 1942

[No. 99-409]

Argued March 20, 2000. Decided May 30, 2000.

Decision: 11 USCS § 506(c) held not to empower administrative claimant ofbankruptcy estate to seek payment of claim from estate propertyencumbered by secured creditor’s lien.

SUMMARY

A corporation which operated restaurants and other businesses filed avoluntary petition for reorganization under Chapter 11 of the BankruptcyCode (11 USCS §§ 1101 et seq.) in the United States Bankruptcy Court forthe Eastern District of Missouri. During the reorganization attempt, thecorporation obtained workers’ compensation insurance from an underwritingcompany, but repeatedly failed to pay the premiums. When the reorganiza-tion failed, the Bankruptcy Court converted the case into a liquidation underChapter 7 of the Bankruptcy Code (11 USCS §§ 701 et seq.). The underwrit-ing company, learning of the bankruptcy proceedings, sought to recover itspremiums as an administrative expense under 11 USCS § 503. Since es-sentially all of the corporation’s assets were subject to a bank’s securityinterest, which would ordinarily have priority over administrative expenses,the underwriting company sought to invoke 11 USCS § 506(c), whichprovides that ‘‘[t]he trustee may recover’’ from property subject to an al-lowed secured claim the reasonable and necessary costs of preserving ordisposing of such property. The Bankruptcy Court ruled in favor of theunderwriting company. This ruling was affirmed (1) by the United StatesDistrict Court for the Eastern District of Missouri, and (2) subsequently, bya panel of the United States Court of Appeals for the Eighth Circuit (150F3d 868). However, the Court of Appeals granted rehearing en banc andreversed, on the ground that § 506(c) could not be invoked by an administra-tive claimant (177 F3d 719).

On certiorari, the United States Supreme Court affirmed. In an opinion bySCALIA, J., expressing the unanimous view of the court, it was held that§ 506(c) did not provide administrative claimants—such as the underwriting

Summaries of Briefs; Names of Participating Attorneys, p 1057, infra.

1

company in the case at hand—with an independent right to seek payment oftheir claims from property subject to secured claims.

HEADNOTES

Classified to United States Supreme Court Digest, Lawyers’ Edition

Bankruptcy §§ 340, 341 — recov-ery of costs — trustee — ad-ministrative claimant

1a-1h. For purposes of bankruptcyproceedings, 11 USCS § 506(c)—which provides that ‘‘[t]he trusteemay recover’’ from property subjectto an allowed secured claim the rea-sonable and necessary costs of pre-serving or disposing of such prop-erty—does not provide admin-istrative claimants with an indepen-dent right to seek payment of theirclaims from property encumbered bya secured creditor’s lien, because (1)the statute appears quite plain inspecifying who can use § 506(c),namely the trustee, (2) it is reason-able to conclude that § 506(c) exclu-sively empowers the trustee, giventhat party’s unique role in bank-ruptcy proceedings, (3) if § 506(c)were intended only to establish thatcertain costs could be recovered fromcollateral, rather than who couldrecover them, then § 506(c) couldeasily have said so, (4) if § 506(c)were intended to be broadly avail-able, then § 506(c) could easily havebeen phrased more broadly, (5) sincethe most natural reading of § 506(c)is that it extends only to the trustee,the burden of persuading otherwiseis exceptionally heavy, (6) the lan-guage of § 506(c) leaves no room forclarification by pre-Bankruptcy-Codepractice which assertedly allowednontrustees to pursue such charges,and (7) even if the results of a con-trary rule would be better as a mat-ter of policy, that is a matter forCongress to address rather than thecourts; thus, an underwriting com-pany which provided workers’ com-pensation insurance to a corporationattempting an ultimately unsuccess-

ful reorganization under Chapter 11of the Bankruptcy Code (11 USCS§§ 1101 et seq.) cannot invoke§ 506(c) to recover the company’sunpaid premiums from the corpora-tion’s assets, essentially all of whichare subject to a bank’s security inter-est, after the reorganization is con-verted into a liquidation under Chap-ter 7 of the Bankruptcy Code (11USCS §§ 701 et seq.).

Statutes § 83 — lack of ambiguity2. Congress says in a statute what

it means and means in a statutewhat it says there; when a statute’slanguage is plain, the sole functionof the courts—at least where thedisposition required by the text isnot absurd—is to enforce it accord-ing to its terms.

Bankruptcy § 340 — trustee —debtor in possession

3a, 3b. For purposes of bankruptcyproceedings, a debtor in possessionmay use the provisions of 11 USCS§ 506(c)—which provides that ‘‘[t]hetrustee may recover’’ from propertysubject to an allowed secured claimthe reasonable and necessary costsof preserving or disposing of suchproperty—because under 11 USCS§ 1107, debtors in possession areexpressly given the rights and pow-ers of a trustee.

Statutes § 174 — terminology —presumption

4. A situation in which a statuteauthorizes specific action and desig-nates a particular party empoweredto take it is among the least appropri-ate situations in which to presumethat the designation is nonexclusive.

U.S. SUPREME COURT REPORTS 147 L Ed 2d

2

Bankruptcy §§ 332, 340 — corpo-rate reorganization — rightto be heard — trustee

5. For purposes of bankruptcy pro-ceedings, 11 USCS § 1109(b)—whichallows a party in interest to raise, toappear, and to be heard on any issuein a case under Chapter 11 of theBankruptcy Code (11 USCS §§ 1101et seq.)—does not broadly allowcreditors to pursue substantive rem-edies which other Bankruptcy Codeprovisions make available to onlyother specific parties, such as thepower conferred on trustees by 11USCS § 506(c) to recover from prop-erty subject to an allowed securedclaim the reasonable and necessarycosts of preserving or disposing ofsuch property; also, an underwritingcompany seeking to invoke § 506(c)to recover unpaid premiums forworkers’ compensation insurancefrom a corporate debtor’s encum-bered property cannot rely on§ 1109(b), where the company’s at-tempt to use § 506(c) came after thecorporation’s bankruptcy proceedingswere converted from a Chapter 11reorganization to a liquidation underChapter 7 of the Bankruptcy Code(11 USCS §§ 701 et seq.), because§ 1109(b) is, by its terms, inappli-cable to such a case.

Bankruptcy § 16 — construction— past practice

6. While bankruptcy practice priorto the adoption of the BankruptcyCode of 1978 (11 USCS §§ 101 etseq.) informs the courts’ understand-

ing of the language of the Bank-ruptcy Code, such practice cannotovercome that language; where themeaning of the Bankruptcy Code’stext is itself clear, its operation isunimpeded by contrary prior prac-tice.

Appeal § 1339.5 — what review-able on certiorari

7a, 7b. The United States SupremeCourt—in reviewing on certiorari aFederal Court of Appeals’ decisionthat in a bankruptcy proceeding, anunderwriting company could not ex-ercise the power conferred on trust-ees by 11 USCS § 506(c) in order torecover unpaid premiums for work-ers’ compensation insurance from acorporate debtor’s encumbered prop-erty—will not address the questionof who ultimately receives the recov-ery obtained by a trustee under§ 506(c), nor the related questionwhether the trustee may use § 506(c)prior to paying the expenses forwhich reimbursement is sought,since the case does not involve atrustee’s recovery under § 506(c).

Bankruptcy § 168 — trustee’sduty

8. A trustee in bankruptcy isobliged to seek recovery under 11USCS § 506(c)—which provides that‘‘[t]he trustee may recover’’ fromproperty subject to an allowed se-cured claim the reasonable and nec-essary costs of preserving or dispos-ing of such property—whenever thetrustee’s fiduciary duties so require.

RESEARCH REFERENCES9A Am Jur 2d, Bankruptcy § 141711 USCS § 506(c)L Ed Digest, Bankruptcy §§ 340, 341L Ed Index, Bankruptcy

HARTFORD U. INS. v UNION PL. BANK(2000) 530 US 1, 147 L Ed 2d 1, 120 S Ct 1942

3

SHEPARD’S® Citations Service. For further research of authoritiesreferenced here, use SHEPARD’S to be sure your case or statute is stillgood law and to find additional authorities that support your position.SHEPARD’S is available exclusively from LexisNexis™.

APPEARANCES OF COUNSEL ARGUING CASE

G. Eric Brunstad, Jr. argued the cause for petitioner.Robert H. Brownlee argued the cause for respondent.Summaries of Briefs; Names of Participating Attorneys, p 1057,

infra.

SYLLABUS BY REPORTER OF DECISIONS

During attempted reorganizationunder Chapter 11 of the BankruptcyCode, debtor Hen House Interstate,Inc., obtained workers’ compensationinsurance from petitioner HartfordUnderwriters. Although Hen Houserepeatedly failed to make themonthly premium payments requiredby the policy, Hartford continued toprovide insurance. The reorganiza-tion ultimately failed, and the courtconverted the case to a Chapter 7liquidation proceeding and appointeda trustee. Learning of the bank-ruptcy proceedings after the conver-sion, and recognizing that the estatelacked unencumbered funds to paythe premiums owed, Hartford at-tempted to charge the premiums torespondent bank, a secured creditor,pursuant to 11 USC § 506(c) [11USCS § 506(c)]. The BankruptcyCourt ruled for Hartford, and theDistrict Court affirmed, but the enbanc Eighth Circuit reversed, con-cluding that § 506(c) could not beinvoked by an administrative claim-ant.

Held: Section 506(c) does not pro-vide an administrative claimant of abankruptcy estate an independentright to seek payment of its claimfrom property encumbered by a se-cured creditor’s lien.

(a) As an administrative claimant,petitioner is not a proper party toseek recovery under § 506(c), whichprovides: ‘‘The trustee may recover

from property securing an allowedsecured claim the . . . costs andexpenses of preserving, or disposingof, such property . . . .’’ The statuteappears quite plain in specifying whomay use § 506(c)—‘‘[t]he trustee.’’Although the statutory text does notactually say that persons other thanthe trustee may not seek recoveryunder § 506(c), several contextualfeatures support that conclusion.First, a situation in which a statuteauthorizes specific action and desig-nates a particular party empoweredto take it is surely among the leastappropriate in which to presumenonexclusivity. Second, the fact thatthe sole party named—the trustee—has a unique role in bankruptcyproceedings makes it entirely plau-sible that Congress would provide apower to him and not to others. Fur-ther, had Congress intended theprovision to be broadly available, itcould simply have said so, as it hasin describing the parties who couldact under other sections of the Code.The Court rejects as unpersuasivepetitioner’s arguments from§ 506(c)’s text: that the use in otherCode provisions of ‘‘only’’ or otherexpressly restrictive language inspecifying the parties at issue meansthat no party in interest is excludedfrom § 506(c), and that the right of anontrustee to recover under § 506(c)is evidenced by § 1109.


4

(b) The Court also rejects argu-ments based on pre-Code practiceand policy considerations that peti-tioner advances in support of its as-sertion that § 506(c) is available toparties other than the trustee. It isquestionable whether the pre-Codeprecedents relied on by petitionerestablish a bankruptcy practice suf-ficiently widespread and well recog-nized to justify the conclusion ofimplicit adoption by Congress inenacting the Code. In any event,where, as here, the meaning of theCode’s text is itself clear, its opera-

tion is unimpeded by contrary priorpractice. Also unavailing is petition-er’s argument that its reading isnecessary as a matter of policy, sincein some cases the trustee may lackan incentive to pursue payment. It isfar from clear that the relevantpolicy implications favor petitioner’sposition, and, in any event, achiev-ing a better policy outcome—if whatpetitioner urges is that—is a task forCongress, not the courts.

177 F3d 719, affirmed.Scalia, J., delivered the opinion for

a unanimous Court.

OPINION OF THE COURT

[530 US 3]

Justice Scalia delivered the opin-ion of the Court.

[1a] In this case, we considerwhether 11 USC § 506(c) [11 USCS§ 506(c)] allows an administrativeclaimant of a bankruptcy estate toseek payment of its claim from prop-erty encumbered by a secured credi-tor’s lien.

IThis case arises out of the bank-

ruptcy proceedings of Hen HouseInterstate, Inc., which at one timeowned or operated several restau-rants and service stations, as well asan outdoor-advertising firm. On Sep-tember 5, 1991, Hen House filed avoluntary petition under Chapter 11of the Bankruptcy Code in theUnited States Bankruptcy Court forthe Eastern District of Missouri. Asa Chapter 11 debtor-in-possession,Hen House retained possession of itsassets and continued operating itsbusiness.

Respondent had been Hen House’sprimary lender.1 At the time theChapter 11 petition was filed, it held

a security interest in essentially allof Hen House’s real and personalproperty, securing an indebtednessof over $4 million. After the Chapter11 proceedings were commenced, itagreed to lend Hen House an ad-ditional $300,000 to help finance thereorganization. The BankruptcyCourt entered a financing order ap-proving the loan agreement and au-thorizing

[530 US 4]Hen House to use loan pro-

ceeds and cash collateral to pay ex-penses, including workers’ compensa-tion expenses.

During the attempted reorganiza-tion, Hen House obtained workers’compensation insurance from peti-tioner Hartford Underwriters (whichwas unaware of the bankruptcy pro-ceedings). Although the policy re-quired monthly premium payments,Hen House repeatedly failed to makethem; Hartford continued to provideinsurance nonetheless. The reorgani-zation ultimately failed, and on Janu-ary 20, 1993, the Bankruptcy Courtconverted the case to a liquidation

1. Respondent Union Planters Bank is the successor of Magna Bank, which is in turn thesuccessor of Landmark Bank of Illinois. Hen House was originally indebted to Landmark Bank.For simplicity, we will not distinguish between the various entities.


5

proceeding under Chapter 7 and ap-pointed a trustee. At the time of theconversion, Hen House owed Hart-ford more than $50,000 in unpaidpremiums. Hartford learned of HenHouse’s bankruptcy proceedings af-ter the conversion, in March 1993.

Recognizing that the estate lackedunencumbered funds to pay the pre-miums, Hartford attempted to chargethe premiums to respondent, thesecured creditor, by filing with theBankruptcy Court an ‘‘Applicationfor Allowance of Administrative Ex-pense, Pursuant to 11 USC § 503 [11USCS § 503] and Charge AgainstCollateral, Pursuant to 11 USC§ 506(c) [11 USCS § 506(c)].’’ TheBankruptcy Court ruled in favor ofHartford, and the District Court andan Eighth Circuit panel affirmed, Inre Hen House Interstate, Inc., 150F3d 868 (CA8 1998). The EighthCircuit subsequently granted en bancreview, however, and reversed, con-cluding that § 506(c) could not beinvoked by an administrative claim-ant. In re Hen House Interstate, Inc.,177 F3d 719 (1999). We granted cer-tiorari. 528 US 985, 145 L Ed 2d 361,120 S Ct 444 (2000).

II[1b] Petitioner’s effort to recover

the unpaid premiums involves twoprovisions, 11 USC §§ 503(b) and506(c) [11 USCS §§ 503(b) and506(c)]. Section 503(b) provides that‘‘the actual, necessary costs and ex-penses of preserving the estate, in-cluding wages, salaries, or commis-sions for services rendered after thecommencement

[530 US 5]of the case,’’ are

treated as administrative expenses,which are, as a rule, entitled to prior-ity over prepetition unsecuredclaims, see §§ 507(a)(1), 726(a)(1),1129(a)(9)(A). Respondent does not

dispute that the cost of the workers’compensation insurance Hen Housepurchased from petitioner is an ad-ministrative expense within themeaning of this provision. Adminis-trative expenses, however, do nothave priority over secured claims,see §§ 506, 725-726, 1129(b)(2)(A);United Sav. Assn. of Tex. v Timbersof Inwood Forest Associates, Ltd.,484 US 365, 378-379, 98 L Ed 2d740, 108 S Ct 626 (1988), and be-cause respondent held a securityinterest in essentially all of the es-tate’s assets, there were no unen-cumbered funds available to payeven administrative claimants.

Petitioner therefore looked to§ 506(c), which constitutes an impor-tant exception to the rule that se-cured claims are superior to adminis-trative claims. That section providesas follows:

‘‘The trustee may recover fromproperty securing an allowed se-cured claim the reasonable, neces-sary costs and expenses of preserv-ing, or disposing of, such propertyto the extent of any benefit to theholder of such claim.’’ § 506(c).

Petitioner argued that this provisionentitled it to recover from the prop-erty subject to respondent’s securityinterest the unpaid premiums owedby Hen House, since its furnishing ofworkers’ compensation insurancebenefited respondent by allowingcontinued operation of Hen House’sbusiness, thereby preserving thevalue of respondent’s collateral; oralternatively, that such benefit couldbe presumed from respondent’s con-sent to the postpetition financingorder. Although it was contestedbelow whether, under either theory,the workers’ compensation insuranceconstituted a ‘‘benefit to the holder’’within the meaning of § 506(c), that


6

issue is not before us here; we as-sume for purposes of this decisionthat it did, and consider onlywhether petitioner—an

[530 US 6]administra-

tive claimant—is a proper party toseek recovery under § 506(c).2

[1c, 2, 3a] In answering this ques-tion, we begin with the understand-ing that Congress ‘‘says in a statutewhat it means and means in a stat-ute what it says there,’’ ConnecticutNat. Bank v Germain, 503 US 249,254, 117 L Ed 2d 391, 112 S Ct 1146(1992). As we have previously notedin construing another provision of§ 506, when ‘‘the statute’s languageis plain, ‘the sole function of thecourts’ ’’—at least where the disposi-tion required by the text is not ab-surd—‘‘ ‘is to enforce it according toits terms.’ ’’ United States v Ron PairEnterprises, Inc., 489 US 235, 241,103 L Ed 2d 290, 109 S Ct 1026(1989) (quoting Caminetti v UnitedStates, 242 US 470, 485, 61 L Ed442, 37 S Ct 192 (1917)). Here, thestatute appears quite plain in speci-fying who may use § 506(c)—‘‘[t]hetrustee.’’ It is true, however, as peti-tioner notes, that all this actually‘‘says’’ is that the trustee may seekrecovery under the section, not thatothers may not. The question thusbecomes whether it is a proper infer-ence that the trustee is the onlyparty empowered to invoke the provi-sion.3 We have little difficulty an-swering yes.

[1d, 4] Several contextual featureshere support the conclusion that

exclusivity is intended. First, a situ-ation in which a statute authorizesspecific action and designates a par-ticular party empowered to take it issurely among the least appropriatein which to presume nonexclusivity.‘‘Where a

[530 US 7]statute . . . names the

parties granted [the] right to invokeits provisions, . . . such parties onlymay act.’’ 2A N. Singer, Sutherlandon Statutory Construction § 47.23, p217 (5th ed. 1992) (internal quota-tion marks omitted); see also FederalElection Comm’n v National Conser-vative Political Action Comm., 470US 480, 486, 84 L Ed 2d 455, 105 SCt 1459 (1985). Second, the fact thatthe sole party named—the trustee—has a unique role in bankruptcyproceedings makes it entirely plau-sible that Congress would provide apower to him and not to others. In-deed, had no particular parties beenspecified—had § 506(c) read simply‘‘[t]here may be recovered from prop-erty securing an allowed securedclaim the reasonable, necessary costsand expenses, etc.’’—the trustee isthe most obvious party who wouldhave been thought empowered to usethe provision. It is thus far moresensible to view the provision asanswering the question ‘‘Who mayuse the provision?’’ with ‘‘only thetrustee’’ than to view it as simplyanswering the question ‘‘May thetrustee use the provision?’’ with‘‘yes.’’

[1e] Nor can it be argued that the

2. In addition to seeking recovery under § 506(c), petitioner argued to the Eighth Circuit enbanc that it was entitled to recover under the terms of the postpetition financing order itself.Petitioner sought to enforce that order under Federal Rule of Bankruptcy Procedure 7071,which incorporates Federal Rule of Civil Procedure 71 (‘‘When an order is made in favor of aperson who is not a party to the action, that person may enforce obedience to the order by thesame process as if a party . . .’’). The Eighth Circuit declined to address this issue, since it hadnot been raised until the rehearing en banc, In re Hen House Interstate, Inc., 177 F3d 719, 724(1999). We similarly do not reach the issue here.

3. [3b] Debtors-in-possession may also use the section, as they are expressly given the rightsand powers of a trustee by 11 USC § 1107 [11 USCS § 1107].


7

point of the provision was simply toestablish that certain costs may berecovered from collateral, and not tosay anything about who may recoverthem. Had that been Congress’s in-tention, it could easily have used theformulation just suggested. Simi-larly, had Congress intended theprovision to be broadly available, itcould simply have said so, as it didin describing the parties who couldact under other sections of the Code.Section 502(a), for example, providesthat a claim is allowed unless ‘‘aparty in interest’’ objects, and§ 503(b)(4) allows ‘‘an entity’’ to file arequest for payment of an adminis-trative expense. The broad phrasingof these sections, when contrastedwith the use of ‘‘the trustee’’ in§ 506(c), supports the conclusion thatentities other than the trustee arenot entitled to use § 506(c). Russellov United States, 464 US 16, 23, 78 LEd 2d 17, 104 S Ct 296 (1983).

Petitioner’s primary argumentfrom the text of § 506(c) is that ‘‘whatmatters is that section 506(c) doesnot say that

[530 US 8]‘only’ a trustee may en-

force its provisions.’’ Brief for Peti-tioner 29. To bolster this argument,petitioner cites other provisions ofthe Bankruptcy Code that do use‘‘only’’ or other expressly restrictivelanguage in specifying the parties atissue. See, e.g., § 109(a) (‘‘[O]nly aperson that resides or has a domicile,a place of business, or property inthe United States, or a municipality,may be a debtor under this title’’);§ 707(b) (providing that a case maybe dismissed for substantial abuse by‘‘the court, on its own motion or on amotion by the United States trustee,but not at the request or suggestionof any party in interest’’). Petitionerargues that in the absence of suchrestrictive language, no party ininterest is excluded. This theory—

that the expression of one thing indi-cates the inclusion of others unlessexclusion is made explicit—is con-trary to common sense and commonusage. Many provisions of the Bank-ruptcy Code that do not contain anexpress exclusion cannot sensibly beread to extend to all parties in inter-est. See, e.g., § 363(b)(1) (providingthat ‘‘[t]he trustee, after notice and ahearing, may use, sell, or lease . . .property of the estate’’); § 364(a)(providing that ‘‘the trustee’’ mayincur debt on behalf of the bank-ruptcy estate); § 554(a) (giving ‘‘thetrustee’’ power to abandon propertyof the bankruptcy estate).

[5] fPetitioner further argues that§ 1109 evidences the right of a non-trustee to recover under § 506(c). Weare not persuaded. That section,which provides that a ‘‘party in inter-est’’ ‘‘may raise and may appear andbe heard on any issue in a case under[Chapter 11],’’ is by its terms inap-plicable here, since petitioner’s at-tempt to use § 506(c) came after thebankruptcy proceeding was con-verted from Chapter 11 to Chapter7. In any event, we do not read§ 1109(b)’s general provision of aright to be heard as broadly allowinga creditor to pursue substantive rem-edies that other Code provisionsmake available only to other specificparties. Cf. 7 L. King, Collier onBankruptcy ¶ 1109.05 (rev. 15th ed.1999) (‘‘In general, section 1109 doesnot bestow any right to usurp the

[530 US 9]

trustee’s role as representative of theestate with respect to the initiationof certain types of litigation thatbelong exclusively to the estate’’).

III

[1f] Because we believe that by farthe most natural reading of § 506(c)is that it extends only to the trustee,


8

petitioner’s burden of persuading usthat the section must be read to al-low its use by other parties is ‘‘ ‘ex-ceptionally heavy.’ ’’ Patterson v Shu-mate, 504 US 753, 760, 119 L Ed 2d519, 112 S Ct 2242 (1992) (quotingUnion Bank v Wolas, 502 US 151,156, 116 L Ed 2d 514, 112 S Ct 527(1991)). To support its proffered read-ing, petitioner advances argumentsbased on pre-Code practice andpolicy considerations. We addressthese arguments in turn.

A

Section 506(c)’s provision for thecharge of certain administrative ex-penses against lienholders continuesa practice that existed under theBankruptcy Act of 1898, see, e.g., Inre Tyne, 257 F2d 310, 312 (CA71958); 4 Collier on Bankruptcy, su-pra, ¶ 506.05[1]. It was not to befound in the text of the Act, buttraced its origin to early cases estab-lishing an equitable principle thatwhere a court has custody of prop-erty, costs of administering and pre-serving the property are a dominantcharge, see, e.g., Bronson v La Crosse& Milwaukee R. Co., 1 Wall 405, 410,17 L Ed 616 (1864); Atlantic TrustCo. v Chapman, 208 US 360, 376, 52L Ed 528, 28 S Ct 406 (1908). It wasthe norm that recovery of costs froma secured creditor would be soughtby the trustee, see, e.g., Textile Bank-ing Co. v Widener, 265 F2d 446, 453-454 (CA4 1959); Tyne, supra, at 312.Petitioner cites a number of lowercourt cases, however, in which—without meaningful discussion of thepoint—parties other than the trusteewere permitted to pursue suchcharges under the Act, sometimessimultaneously with the trustee’spursuit of his own expenses, see, e.g.,First Western Savings and LoanAssn. v Anderson, 252 F2d 544, 547-548 (CA9 1958); In re Louisville Stor-

age Co., 21 F Supp 897, 898[530 US 10]

(WDKy. 1936), aff’d, 93 F2d 1008 (CA61938), but sometimes independently,see In re Chapman Coal Co., 196 F2d779, 780 (CA7 1952); In re RotaryTire & Rubber Co., 2 F2d 364 (CA61924). Petitioner also relies on earlydecisions of this Court allowing indi-vidual claimants to seek recoveryfrom secured assets, see Louisville,E. & St. L. R. Co. v Wilson, 138 US501, 506, 34 L Ed 1023, 11 S Ct 405(1891); Burnham v Bowen, 111 US776, 779, 783, 28 L Ed 596, 4 S Ct675 (1884); New York Dock Co. v S.S. Poznan, 274 US 117, 121, 71 L Ed955, 47 S Ct 482 (1927). Wilson andBurnham involved equity receiver-ships, and were not only pre-Code,but predate the Bankruptcy Act of1898 that the Code replaced; whileNew York Dock was a case arising inadmiralty.

[6] It is questionable whether theseprecedents establish a bankruptcypractice sufficiently widespread andwell recognized to justify the conclu-sion of implicit adoption by the Code.We have no confidence that the al-lowance of recovery from collateralby nontrustees is ‘‘the type of ‘rule’that . . . Congress was aware ofwhen enacting the Code.’’ UnitedStates v Ron Pair Enterprises, Inc.,489 US, at 246, 103 L Ed 2d 290, 109S Ct 1026. Cf. Dewsnup v Timm, 502US 410, 418, 116 L Ed 2d 903, 112 SCt 773 (1992) (relying on ‘‘clearlyestablished’’ pre-Code practice); Kellyv Robinson, 479 US 36, 46, 93 L Ed2d 216, 107 S Ct 353 (1986) (givingweight to pre-Code practice that was‘‘widely accepted’’ and ‘‘established’’).In any event, while pre-Code practice‘‘informs our understanding of thelanguage of the Code,’’ id., at 44, 93L Ed 2d 216, 107 S Ct 353, it cannotovercome that language. It is a tool


9

of construction, not an extratextualsupplement. We have applied it tothe construction of provisions whichwere ‘‘subject to interpretation,’’ id.,at 50, 93 L Ed 2d 216, 107 S Ct 353,or contained ‘‘ambiguity in the text,’’Dewsnup, supra, at 417, 116 L Ed 2d903, 112 S Ct 773. ‘‘[W]here themeaning of the Bankruptcy Code’stext is itself clear . . . its operationis unimpeded by contrary . . . priorpractice,’’ BFP v Resolution TrustCorporation, 511 US 531, 546, 128 LEd 2d 556, 114 S Ct 1757 (1994)(internal quotation marks omitted).See, e.g., Pennsylvania Dept. of Pub-lic Welfare v Davenport, 495 US 552,563, 109 L Ed 2d 588, 110 S Ct 2126(1990); United States v Ron PairEnterprises, Inc., supra, at 245-246,103 L Ed 2d 290, 109 S Ct 1026.

[530 US 11]

[1g] In this case, we think thelanguage of the Code leaves no roomfor clarification by pre-Code practice.If § 506(c) provided only that certaincosts and expenses could be recov-ered from property securing a se-cured claim, without specifying anyparticular party by whom the recov-ery could be pursued, the case wouldbe akin to those in which we usedprior practice to fill in the details ofa pre-Code concept that the Codehad adopted without elaboration.See, e.g., United States v Noland,517 US 535, 539, 134 L Ed 2d 748,116 S Ct 1524 (1996) (looking to pre-Code practice in interpreting Code’s

reference to ‘‘principles of equitablesubordination’’); Midlantic Nat. Bankv New Jersey Dept. of EnvironmentalProtection, 474 US 494, 501, 88 L Ed2d 859, 106 S Ct 755 (1986) (codifica-tion of trustee’s abandonment powerheld to incorporate established ex-ceptions). Here, however, it is not theunelaborated concept but only a spe-cifically narrowed one that has beenadopted: a rule allowing the chargeof costs to secured assets by thetrustee. Pre-Code practice cannottransform § 506(c)’s reference to ‘‘thetrustee’’ to ‘‘the trustee and otherparties in interest.’’

B

[7a] Finally, petitioner argues thatits reading is necessary as a matterof policy, since in some cases thetrustee may lack an incentive topursue payment. Section 506(c) mustbe open to nontrustees, petitioner as-serts, lest secured creditors enjoy thebenefit of services without paying forthem. Moreover, ensuring that ad-ministrative claimants are compen-sated may also serve purposes be-yond the avoidance of unjustenrichment. To the extent that thereare circumstances in which thetrustee will not use the section al-though an individual creditor would,4

allowing suits by nontrustees[530 US 12]

couldencourage the provision of postpeti-

4. [7b] The frequency with which such circumstances arise may depend in part on whoultimately receives the recovery obtained by a trustee under § 506(c). Petitioner argues that itgoes to the party who provided the services that benefited collateral (assuming that party hasnot already been compensated by the estate). Respondent argues that this reading, like a read-ing that allows creditors themselves to use § 506(c), upsets the Code’s priority scheme by givingadministrative claimants who benefit collateral an effective priority over others—allowing, forexample, a Chapter 11 administrative creditor (like petitioner) to obtain payment via § 506(c)while Chapter 7 administrative creditors remain unpaid, despite § 726(b)’s provision thatChapter 7 administrative claims have priority over Chapter 11 administrative claims. Thus,respondent asserts that a trustee’s recovery under § 506(c) simply goes into the estate to bedistributed according to the Code’s priority provisions. Since this case does not involve atrustee’s recovery under § 506(c), we do not address this question, or the related questionwhether the trustee may use the provision prior to paying the expenses for which reimburse-ment is sought, see In re K & L Lakeland, Inc., 128 F3d 203, 207, 212 (CA4 1997).


10

tion services to debtors on more fa-vorable terms, which would in turnfurther bankruptcy’s goals.

[8] Although these concerns maybe valid, it is far from clear that thepolicy implications favor petitioner’sposition. The class of cases in which§ 506(c) would lie dormant withoutnontrustee use is limited by the factthat the trustee is obliged to seekrecovery under the section wheneverhis fiduciary duties so require. Andlimiting § 506(c) to the trustee doesnot leave those who provide goods orservices that benefit secured inter-ests without other means of protect-ing themselves as against othercreditors: They may insist on cashpayment, or contract directly withthe secured creditor, and may beable to obtain superpriority under§ 364(c)(1) or a security interestunder §§ 364(c)(2), (3), or § 364(d).And of course postpetition creditorscan avoid unnecessary losses simplyby paying attention to the status oftheir accounts, a protection which,by all appearances, petitioner ne-glected here.

On the other side of the ledger,petitioner’s reading would itself leadto results that seem undesirable as amatter of policy. In particular, ex-panding the number of parties whocould use § 506(c) would create thepossibility of multiple administrativeclaimants seeking recovery under thesection.

[530 US 13]Each such claim would re-

quire inquiry into the necessity of

the services at issue and the degreeof benefit to the secured creditor. Al-lowing recovery to be sought at thebehest of parties other than thetrustee could therefore impair theability of the bankruptcy court tocoordinate proceedings, as well asthe ability of the trustee to managethe estate. Indeed, if administrativeclaimants were free to seek recoveryon their own, they could proceedeven where the trustee himselfplanned to do so. See, e.g., In reBluffton Castings Corp., 224 BR 902,904 (Bkrtcy. Ct. ND Ind. 1998).5

Further, where unencumbered assetswere scarce, creditors might attemptto use § 506(c) even though theirclaim to have benefited the securedcreditor was quite weak. The pos-sibility of being targeted for suchclaims by various administrativeclaimants could make secured credi-tors less willing to provide postpeti-tion financing.

[1h] In any event, we do not sit toassess the relative merits of differ-ent approaches to various bank-ruptcy problems. It suffices that thenatural reading of the text producesthe result we announce. Achievinga better policy outcome—if whatpetitioner urges is that—is a taskfor Congress, not

[530 US 14]the courts.

Kawaauhau v Geiger, 523 US 57,64, 140 L Ed 2d 90, 118 S Ct974 (1998); Noland, 517 US, at 541-542, n 3, 134 L Ed 2d 748, 116 S

5. We do not address whether a bankruptcy court can allow other interested parties to act inthe trustee’s stead in pursuing recovery under § 506(c). Amici American Insurance Associationand National Union Fire Insurance Co. draw our attention to the practice of some courts of al-lowing creditors or creditors’ committees a derivative right to bring avoidance actions when thetrustee refuses to do so, even though the applicable Code provisions, see 11 USC §§ 544, 545,547(b), 548(a), 549(a) [11 USCS §§ 544, 545, 547(b), 548(a), 549(a)], mention only the trustee.See, e.g., In re Gibson Group, Inc., 66 F3d 1436, 1438 (CA6 1995). Whatever the validity of thatpractice, it has no analogous application here, since petitioner did not ask the trustee to pursuepayment under § 506(c) and did not seek permission from the Bankruptcy Court to take suchaction in the trustee’s stead. Petitioner asserted an independent right to use § 506(c), which iswhat we reject today. Cf. In re Xonics Photochemical, Inc., 841 F2d 198, 202-203 (CA7 1988)(holding that creditor had no right to bring avoidance action independently, but noting that itmight have been able to seek to bring derivative suit).


11

Ct 1524; Wolas, 502 US, at 162, 116L Ed 2d 514, 112 S Ct 527.

* * *We have considered the other

points urged by petitioner and findthem to be without merit. We con-clude that 11 USC § 506(c) [11 USCS

§ 506(c)] does not provide an admin-istrative claimant an independentright to use the section to seek pay-ment of its claim. The judgment ofthe Eighth Circuit is affirmed.

It is so ordered.


12

us reports 2d vols - university of...

Documents