In re PALOMAR TRUCK CORPORATION, dba Palomar R.V., Debtor.
NORTH COUNTY JEEP AND RENAULT, INC., Appellant,
v.
GENERAL ELECTRIC CAPITAL CORPORATION, Appellee.
No. 90-56112.
United States Court of Appeals,
Ninth Circuit.
Submitted Oct. 8, 1991*.
Decided Dec. 16, 1991.
Alan L. Williams, San Diego, Cal., for appellant.
Gregory B. Beam and Sam M. Muriella, Hart, King and Coldren, Santa Ana, Cal., for appellee.
Appeal from the Ninth Circuit Bankruptcy Appellate Panel.
Before BROWNING, ALARCON and T.G. NELSON, Circuit Judges.
PER CURIAM:
Palomar Truck Corporation, which operated a motor vehicle dealership, filed a voluntary Chapter 11 petition. A trustee was appointed. The Trustee met with a representative of North County Jeep and Renault, Inc. ("North County"), and agreed to sell the dealership to North County for $150,000. The trustee and North County agreed the dealership must remain open to preserve the new car franchises pending court approval of the sale. Palomar lacked the money to continue operating the business. North County agreed to operate the dealership while the Trustee obtained court approval of the sale. In return, the Trustee promised that the sale would not be subject to overbid.
The bankruptcy court decided to entertain overbids despite the trustee's agreement to the contrary. The successful bidder, Sunroad Capital Corp., bid $495,000, and assumed operating responsibility for the dealership.
It is not disputed that if North County had not intervened the business would have closed, the franchise agreements would have been terminated and "presumably the value of the business would have been significantly reduced." In re Palomar Truck Corp.,
North County petitioned the bankruptcy court to allow $66,601.79, North County's loss during the period of interim operation of the dealership, as an administrative expense and to pay this expense from properties securing the claim of General Electric Capital Corporation (GECC),1 pursuant to 11 U.S.C. § 506(c). The motion to allow the claim as an administrative expense was granted. The motion to order payment from property securing GECC's claim was denied on the ground North County lacked standing to assert a right for repayment under § 506(c). The Bankruptcy Appellate Panel affirmed, agreeing that North County lacked standing. Palomar,
Section 506(c) provides: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.
The legislative history extends standing to assert a claim under § 506(c) to debtors in possession as well as trustees. 124 Cong.Rec. H11095 (daily ed. Sept. 28, 1978) (statement of Rep. Edwards); S17411 (daily ed. Oct. 6, 1978) (statement of Sen. DeConcini). See also 11 U.S.C. § 1107(a) providing that in a proceeding under Chapter 11, a debtor in possession shall have the rights and powers of a trustee.
Bankruptcy court decisions are divided as to whether § 506(c) may also be invoked by third party claimants. Some bankruptcy courts have adopted a strict view, holding the section available only to trustees and debtors in possession.3 Others have adopted a more expansive reading, extending standing to third parties.4 A number of bankruptcy courts have adopted the expansive reading only upon a showing that the Trustee refused a request by the claimant to pursue the claim.5
The Court of Appeals for the Third Circuit addressed the issue In re McKeesport Steel Castings Co.,
The rule that individual creditors cannot act in lieu of the trustee is often breached when sufficient reason exists to permit the breach. In this case, neither the debtor in possession nor a creditors committee had reason to make a claim on behalf of [the gas company], when the debtor thereby would be required to pay for utilities it had received without charge following the date that its petition was filed. Thus, because [the gas company] had a colorable claim for expenses and was the only creditor that would zealously pursue that claim, it has standing to bring a § 506(c) action.
Id. at 94.
The BAP distinguished McKeesport on two grounds. The BAP noted that in McKeesport the bankruptcy court was significantly involved in and had approved the arrangement that caused the administrative expense claim to accrue. In this case, there was no such involvement or approval.
Like the trustee in McKeesport, the trustee here had no economic incentive to seek recovery under § 506(c), since the recovery would pass to the claimant with no gain to the estate. As in McKeesport, if only the trustee were allowed standing, the result would be a windfall for the secured creditor at the expense of the unpaid claimant. 3 Collier on Bankruptcy, p 506.06, at 506-57 to 506-58 n. 7a (15th ed. 1990).
No compelling policies are served by a restrictive reading of § 506(c) in the circumstances of this case. GECC argues that restricting standing to the trustee enables the trustee to maintain control of the liquidation of an estate, citing In re Dakota Lay'd Eggs,
We agree with the Third Circuit that standing need not be limited to trustees and debtors in possession. We do not decide whether a third party claimant should have standing only in those cases in which the trustee or debtor in possession has refused the third party's request to recover the property.7
REVERSED and REMANDED.
Notes
The panel finds this case appropriate for submission without oral argument pursuant to Ninth Circuit Rule 34-4 and Fed.R.App.P. 34(a)
The new car inventory and assets of the dealership were subject to security interests in favor of General Motor Acceptance Corp. (GMAC) and Chrysler Credit Corp. (CCC). General Electric Capital Corp. (GECC), holds a blanket security interest in all Palomar assets, subject only to the superior claims of GMAC and CCC
North County argued, alternatively, the court should order payment of the operating loss under its equitable powers to subordinate claims under § 510(c), citing In re Loop Hospital Partnership,
See e.g., In re Interstate Motor Freight Sys. IMFS, Inc.,
See e.g., In re World Wines, Ltd.,
See, e.g. In re So Good South Potato Chip Co.,
Since this case does not present the issue, we do not decide whether these policies would dictate a narrow standing rule in Chapter 7 cases
See Footnote 5