Briggs Transp. Co., In re

• Decision Date: 07 February 1986
• Docket Number: 84-5197,Nos. 84-5196,s. 84-5196
• Citation: 780 F.2d 1339
• Parties: , 13 Collier Bankr.Cas.2d 1289, 14 Bankr.Ct.Dec. 48, Bankr. L. Rep. P 70,897 In re BRIGGS TRANSPORTATION COMPANY, Debtor. LEND LEASE, a DIVISION OF NATIONAL CAR RENTAL SYSTEMS, INC., Appellee, v. BRIGGS TRANSPORTATION COMPANY, Appellant. In re BRIGGS TRANSPORTATION COMPANY, Debtor. GENERAL MOTORS ACCEPTANCE CORPORATION, Appellee, v. BRIGGS TRANSPORTATION COMPANY, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1339

780 F.2d 1339

54 USLW 2357, 13 Collier Bankr.Cas.2d

1289, 14 Bankr.Ct.Dec. 48,

Bankr. L. Rep. P 70,897

In re BRIGGS TRANSPORTATION COMPANY, Debtor.

LEND LEASE, a DIVISION OF NATIONAL CAR RENTAL SYSTEMS, INC., Appellee, v. BRIGGS TRANSPORTATION COMPANY, Appellant.

In re BRIGGS TRANSPORTATION COMPANY, Debtor.

GENERAL MOTORS ACCEPTANCE CORPORATION, Appellee, v. BRIGGS TRANSPORTATION COMPANY, Appellant.

Nos. 84-5196, 84-5197.

United States Court of Appeals Eighth Circuit.

Submitted Sept. 9, 1985.

Decided Dec. 26, 1985.

Rehearing and Rehearing En Banc Denied Feb. 7, 1986.

Sheridan J. Buckley, St. Paul, Minn., for appellant.

David T. Bennett & Stephen F. Grinnell, Minneapolis, Minn., for appellee.

Before LAY, Chief Judge, HEANEY and JOHN R. GIBSON, Circuit Judges.

LAY, Chief Judge.

Briggs Transportation Company (Briggs), the debtor in this bankruptcy action, appeals from an order of the district court ¹ reversing the bankruptcy court. ² The issue before us is whether the concept of "adequate protection" found in 11 U.S.C. Secs. 361 and 362 (West Supp.1985) entitles undersecured creditors as a matter of law to interest payments from a debtor to compensate the creditors for lost opportunity costs due to the delay in reinvesting the collateral's liquidated value caused by an automatic stay. We reverse, holding that such interest payments are permissible but not required to provide adequate protection, and remand to the bankruptcy court for additional findings.

Background

In January 1983, Briggs filed a voluntary petition under Chapter 11 of the Bankruptcy Code. At that time General Motors Acceptance Corporation (GMAC) held a valid perfected security interest in fifty tandem-axle tractors purchased by Briggs. Lend Lease, a division of National Car Rental System, Inc. (Lend Lease), held a valid perfected security interest in 100 trailers under a secured lease/purchase agreement with Briggs. Both GMAC and Lend Lease were undersecured, and Briggs claimed no equity in the collateral. GMAC and Lend Lease were prevented from foreclosing on their collateral by 11 U.S.C. Sec. 362(a)'s ³ automatic stay.

GMAC and Lend Lease petitioned the bankruptcy court under 11 U.S.C. Sec. 362(d)(1) ⁴ for relief from the stay and permission to foreclose. The parties subsequently stipulated that Briggs could retain the collateral in exchange, inter alia, for monthly cash payments to compensate the creditors for the equipment's depreciation as a component of adequate protection. GMAC and Lend Lease also sought adequate protection in the form of interest payments to compensate for their "lost opportunity costs." The creditors' claims for lost opportunity costs are premised on their inability under the automatic stay to immediately foreclose, liquidate the collateral, and reinvest the liquidation proceeds. Briggs opposed the creditors' claims for interest and the issue was submitted to the bankruptcy court. The bankruptcy court found as a matter of law that adequate protection precludes a debtor from being required to pay opportunity costs caused by the automatic stay. See In re Briggs Transportation Co., 35 B.R. 210, 216-7 (Bankr.D.Minn.1983). The creditors appealed and the district court reversed. Interpreting the Ninth Circuit's adequate protection analysis in In re American Mariner Industries, Inc., 734 F.2d 426 (9th Cir.1984) (American Mariner ), which was filed after the bankruptcy court's decision, the district court concluded that the undersecured creditors were entitled to interest payments as a matter of law to compensate for the delay in enforcing their foreclosure rights. Briggs appeals.

Discussion

As we noted recently in In re Martin, 761 F.2d 472 (8th Cir.1985), adequate protection determinations present a question of fact for the bankruptcy court, and are subject to the clearly erroneous standard of review. Martin, 761 F.2d at 474; see Bankr.R. 7052. However, the issue now before us is a question of law as to what creditor interests are incorporated in the scope of adequate protection and is thus subject to de novo review. See Martin, 761 F.2d at 474-75; In re Comer, 723 F.2d 737, 739 (9th Cir.1984).

The focus of GMAC's and Lend Lease's argument on appeal, similar to the creditor's position before the Ninth Circuit in American Mariner, is not how to provide adequate protection here but what aggregation of creditor interests are entitled to protection when a bankruptcy court has determined that an automatic stay should be retained rather than lifted. The creditors argue that although periodic cash payments by Briggs may protect them against decline in the collateral's recoverable value due to the debtor's continued use and possession of that collateral, those payments do not compensate the creditors for the "benefit of their bargain" and do not leave the creditors adequately protected as required by 11 U.S.C. Sec. 362. Briggs contends that adequate protection focuses on the value of the collateral itself, not the whole economic bargain of the credit agreement.

We turn first to the creditors' constitutional challenge. Lend Lease argues that section 362(a)'s impairment of the right to foreclose constitutes a "taking" and that the Fifth Amendment requires fair compensation, relying on Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 55 S.Ct. 854, 79 L.Ed. 1593 (1935), which held the Bankruptcy Act of 1934, also known as the Frazier-Lemke Act, unconstitutional. However, the Frazier-Lemke Act in the context of farm mortgages essentially "compelled the mortgagee to relinquish the property to the mortgagor free of the lien," Radford, 295 U.S. at 599, 55 S.Ct. at 867, thus permanently transforming the parties' rights regarding the property. The bankruptcy code's automatic stay, however, causes only a temporary delay of a creditor's right to enforce its lien on the collateral. In Continental Illinois National Bank & Trust v. Chicago, Rock Island & Pacific Railway Co., 294 U.S. 648, 55 S.Ct. 595, 79 L.Ed. 1110 (1935), the Supreme Court held that suspension of the right to enforce a lien is within Congress's constitutional bankruptcy powers. See Continental Illinois, 294 U.S. at 675, 55 S.Ct. at 605. Section 362(a)'s temporary stay is thus not a taking of the creditors' substantive rights in specific property acquired before the petition's filing as was true in Radford. See Radford, 295 U.S. at 590, 55 S.Ct. at 863.

In the bankruptcy context, adequate protection is a safeguard which is provided to protect the rights of secured creditors, throughout the proceedings, to the extent of the value of their property, and there is no constitutional claim of the creditor to more than that. Wright v. Union Central Life Insurance Co., 311 U.S. 273, 278, 61 S.Ct. 196, 199, 85 L.Ed. 184 (1940). By providing a creditor with a means of protecting its interest through section 362(d)'s adequate protection requirement, the competing interests of the debtor's need to reorganize and the secured creditor's entitlement to constitutional protection of its bargained-for property interests are reconciled. See, e.g., In re Jug End in the Berkshires, Inc., 46 B.R. 892, 898-9 (Bankr.D.Mass.1985). See also First Bank of Miller, Miller, S.D. v. Wieseler, 45 B.R. 871, 874 n. 1 (D.S.D.1985) (citing Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 55 S.Ct. 854, 79 L.Ed. 1593 (1935); S.Rep. No. 989, 95th Cong., 2d Sess. 49 (1978), reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5835); Matter of Alexander, 48 B.R. 110, 114-18 (Bankr.W.D.Mo.1985). In a constitutional sense, this temporary suspension of lien enforcement breaches no essential property interest of the creditor and is not an unlawful taking under the Fifth Amendment.

We turn now to the undersecured creditors' characterization of section 362's automatic stay as an "extraordinary remedy." Rather, as the report of the Senate Judiciary Committee states, "[t]he automatic stay is one of the fundamental debtor protections provided by the bankruptcy laws." S.Rep. No. 989 at 54, 1978 U.S.Code Cong. & Ad.News at 5840. It is automatic upon a petition's filing and may last at least thirty days without affording creditors any protection. 11 U.S.C. section 362(e). Further, a secured creditor may avoid incurring substantial economic penalties due to undue delay in access to its assets by requesting relief from an automatic stay for cause, including the lack of adequate protection of the creditor's interest in the property. 11 U.S.C. Sec. 362(d).

Essential to any analysis of the meaning of and policy behind any section of the bankruptcy code is the recognition that a bankruptcy court is a court of equity. Bankruptcy courts do not read statutory words with a computer's ease, but operate under the overriding consideration that equitable principles govern the exercise of bankruptcy jurisdiction. In re Williams, 7 B.R. 234, 236 (Bankr.M.D.Ga.1980), (quoting Bank of Marin v. England, 385 U.S. 99, 103, 87 S.Ct. 274, 277, 17 L.Ed.2d 197 (1966)). As we noted in Martin:

Under Chapter 11, the purposes of business reorganization are to "relieve the debtor of its prepetition debts, to free cash flow to meet current operating expenses, and ultimately to permit the debtor 'to restructure a business's finances so that it may continue to operate, provide its employees with jobs, pay its creditors, and produce a return for its stockholders.' " American Mariner, 734 F.2d at 431 (quoting H.R.Rep. No. 595 at 220, 1978 U.S.Code Cong. & Ad.News at 6179). The filing of a Chapter 11 petition operates as an automatic stay, which prevents creditors from enforcing their liens against the property of the bankruptcy estate and removing collateral that may be essential to the reorganization plan. 11 U.S.C. Sec. 362(a).

Martin, 761 F.2d at 475. The automatic stay is clearly designed to afford a debtor a "breathing spell" free from actions by creditors against the petitioner's estate. In re Mellor, 734 F.2d...