16 Collier bankr.cas.2d 1509, Bankr. L. Rep. P 71,795 in Re Cascade Hydraulics and Utility Service, Inc. Central Bank of Montana, a Montana Banking Corporation v. Cascade Hydraulics and Utility Service, Inc., Debtor-Appellee16 Collier bankr.cas.2d 1509, Bankr. L. Rep. P 71,795 in Re Cascade Hydraulics and Utility Service, Inc. Central Bank of Montana, a Montana Banking Corporation v. Cascade Hydraulics and Utility Service, Inc., Debtor-Appellee
In re CASCADE HYDRAULICS AND UTILITY SERVICE, INC.
CENTRAL BANK OF MONTANA, a Montana banking corporation,
Respondent-Appellant.
v.
CASCADE HYDRAULICS AND UTILITY SERVICE, INC., Debtor-Appellee.
No. 86-3968.
United States Court of Appeals,
Ninth Circuit.
Submitted April 7, 1987.*
Decided April 20, 1987.
Ward E. Taleff, Great Falls, Mont., for respondent-appellant.
Gregory H. Warner, Great Falls, Mont., for debtor-appellee.
Appeal from the United States District Court for the District of Montana.
Before BROWNING, WRIGHT and HALL, Circuit Judges.
EUGENE A. WRIGHT, Senior Circuit Judge:
Centrаl Bank of Montana appeals a district court decision allowing payment of administrative expenses from the sale of Central's secured collаteral. The district court affirmed the bankruptcy court's award of the expenses. We reverse.
BACKGROUND
Prior to filing its chapter 11 bankruptcy, Cascade Hydraulics and Utility Services, Inc. executed a credit agreement with Central Bank for an on-going line of credit. The agreement was secured by Cascade's goods, merchandise, and inventory.
When Cascade filed its bankruptcy petition, the bank moved for relief from the stay and an order prohibiting use of its cash collateral. While the motion was pending, the bank stipulated to the use of its cash collateral to pay limited administrative expenses. The judge denied the bank's motion for reliеf from the stay, but ordered payments to protect it adequately.
Cascade filed its plan for reorganization five months later. Before it was apprоved, however, Cascade experienced financial difficulties. It then amended its plan with court approval to liquidate its assets at sale.
After the sale, the bankruptcy court ordered the payment of administrative expenses from the proceeds. The administrative expenses allowed included $1,512.68 fоr telephone expenses, $9,690.48 for federal withholding taxes, $8,359.15 for social security taxes, $6,752.67 for attorney fees and $1,750.00 for the president of Cascade. On aрpeal, the district court affirmed.DISCUSSION
Central contends that the two courts erred in awarding payment of administrative expenses from the sale of its secured сollateral.1 We agree.
Cascade argues that the deduction of administrative expenses was correct. It contends that the bank benefited from the operation of its business, warranting an award of administrative expenses. We disagree.
Generally, a debtor's bankruptcy assets are subject to all liens and encumbrances existing when the petition is filed. 3 Collier on Bankruptcy p 507.02(2) (15th ed. 1979). These encumbrances are usually satisfied before disbursement to unsecured creditors. See gеnerally, 3 Collier on Bankruptcy p 507.02(2). Administrative expenses or the general costs of reorganization may not generally be charged against secured collateral. First Western Savings & Loan Association v. Anderson,
Congress codified this equitable exception in
In reviewing the record, we find nothing to indicate that the district and bankruptcy courts considerеd the reasonableness and necessity of Cascade's expenses. It appears that they assumed these elements were satisfied. Even if we assume thе satisfaction of the two elements, we conclude that the third element, benefit, has not been satisfied.
To satisfy the benefit test of
Cascade makes general assertions that the bank benefited from the operation of its businеss. A debtor does not satisfy her burden of proof by suggesting hypothetical benefits. In re Flagstaff Foodservice Corp.,
Mere coоperation with the debtor does not make the secured creditor liable for all expenses of administration. Flagstaff Foodservice Corp.,
Cascade also argues that the bank benefited from the ordering of inventory not in stock and the bi-monthly statements submitted to it. Cascade, however, does not explain how these two alleged benefits helped dispose of or preserve the value of the collateral. These are incidental benefits at most that do not fall within the scope of
Cascade argues further that the bank consented to the deduction of administrative expenses by consenting to the payment of earlier operating expenses. A secured creditor's consent to the payment of designated expenses, limited in amount, is not a blаnket consent to be charged with additional expenses not included in the consent agreement. Flagstaff Foodservice Corp.,
We also reject the argument that deduction of administrative expenses was warranted because the bank's claim is disputed. Under the Code, a prоof of claim is deemed allowed unless a party-in-interest objects.
We reject also Cascаde's argument that the bankruptcy court authorized litigation of the claim in state court. Though Cascade asserted a counterclaim against Central in a state suit brought by Central, there is nothing in the record to demonstrate that the bankruptcy court ordered litigation of the disputed claim in state court. Rather, the language of the disclosure statement and plan contradicts this allegation. Cascade's plan states that "[d]isputes between unsecured creditors and crеditors claiming to be secured shall be resolved by the Court...." The documents state that the bankruptcy court shall "[d]etermine all valid liens and claims (and amount) agаinst the debtor and its property." The documents clearly provide that the bankruptcy court shall retain jurisdiction over all disputed claims. Cascade's claim is not supported by the record. Lacking specific findings of how each expense benefited Central, there is no basis in the record to uphold the awаrd.
REVERSED.