In re International Club Enterprises, Inc., Bankruptcy No. 8800828

• Decision Date: 19 September 1989
• Docket Number: Adv. No. 891023.,Bankruptcy No. 8800828
• Citation: 105 BR 190
• Parties: In re INTERNATIONAL CLUB ENTERPRISES, INC., Debtor. Gertrude GELLER, Jerome A. Geller, Plaintiffs, v. INTERNATIONAL CLUB ENTERPRISES, INC., Defendant.
• Court: U.S. Bankruptcy Court — District of Rhode Island

105 B.R. 190 (1989)

In re INTERNATIONAL CLUB ENTERPRISES, INC., Debtor Gertrude GELLER, Jerome A. Geller, Plaintiffs, v. INTERNATIONAL CLUB ENTERPRISES, INC., Defendant.

Bankruptcy No. 8800828, Adv. No. 891023.

United States Bankruptcy Court, D. Rhode Island.

September 19, 1989.

COPYRIGHT MATERIAL OMITTED

Andrew Richardson, Boyajian, Harrington & Richardson, Providence, R.I., for debtor.

Ira Schreiber, Schreiber & Schreiber, Cranston, R.I., for Gertrude and Jerome A. Geller.

Richard Nadeau, Jr., Providence, R.I., for Business Development Co. of Rhode Island.

DECISION AND ORDER

ARTHUR N. VOTOLATO, Jr., Bankruptcy Judge.

Heard on May 16 and 17, 1989, on: (1) the Complaint of Jerome and Gertrude Geller ("the lessor") for possession of their business premises, and for compensation for use and occupancy by Business Development Company of Rhode Island ("BDC"), the secured creditor in the personal property; and (2) the Motion of BDC for Relief from Stay. On May 30, 1989, we granted Geller's request for possession of his building located at 1500 Oaklawn Avenue, Cranston, Rhode Island and also granted BDC's motion for relief from stay. Additionally, in that Order we held under advisement the lessor's claim for storing personal property held by BDC as collateral under a December, 1987 secured loan agreement. It is the lessor's claim for payment for storage of said personal property, with which we deal below.

BACKGROUND

The following facts are relevant to this discussion: On November 1, 1987, the debtor, International Club Enterprises, Inc. ("ICE"), entered into a lease agreement with the Gellers for the subject premises, for use as a restaurant/nightclub, at a weekly rental of $1700. The personal property used in the debtor's business was pledged to BDC as collateral, pursuant to a December 23, 1987, secured loan agreement.¹ In less than one year of operation, ICE filed a Chapter 11 petition, on November 30, 1988. On January 24, 1989, ICE converted its Chapter 11 proceeding to a Chapter 7 case, and Louis Geremia, Esq. was appointed Trustee.

At the May 16 hearing, the Trustee gave uncontradicted testimony that on February 8, 1989, he informed BDC, through its attorney, Richard Nadeau, Esq., that the debtor had no equity in the collateral, and that he (the Trustee) was therefore abandoning said personal property. On February 22, 1989, BDC filed its Motion for Relief from Stay. With the premises still burdened by the personal property in question, the lessor, on March 7, 1989, filed the instant complaint seeking possession of the premises, and recovery for use and occupancy from the time of the Trustee's abandonment of the personal property. Numerous pretrial conferences were held to address these and other related matters, during which the lessor emphatically and persistently was demanding possession of the premises, and which demand was consistently opposed by BDC.²

DISCUSSION

The lessor seeks to recover from BDC, pursuant to 11 U.S.C. § 506(c), the costs of storing and preserving the collateral for the period February 8 through June 20, 1989, when the personal property was eventually sold at public auction. BDC opposes this request, arguing that the Trustee's failure to observe the formal notice and hearing requirements for abandoning property under 11 U.S.C. § 554, prevented it from removing the property in conformity with statutory procedures.

1. Abandonment.

We first address the question whether the Trustee effectively abandoned the property on February 8, 1989. 11 U.S.C. § 554(a) provides that "after notice and a hearing the trustee may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate." The phrase "after notice and a hearing," as interpreted in Section 102(1), provides that "such notice as is appropriate in the particular circumstances" 11 U.S.C. § 102(l)(A), and "authorizes an act without an actual hearing if such notice is properly given and if such a hearing is not requested by a party in interest." 11 U.S.C. § 102(l)(B). In light of this interpretation, it has been held that "a trustee may abandon property without the involvement of the court if no party in interest objects to the action." In the Matter of Trim-X, Inc., 695 F.2d 296, 300 (7th Cir.1982); see also In re Motley, 10 B.R. 141, 146 (Bankr.M.D.Ga.1981) ("absent objection, the trustee may abandon property of the estate without any order or approval of the court").

Based upon the testimony of the Trustee, and under the circumstances of this case, we conclude that BDC received sufficient and adequate notice of the Trustee's intention, and actual abandonment of the subject collateral. As previously stated, the Trustee telephoned BDC's counsel on February 8, 1989, and informed him specifically and clearly that because of the lack of equity, the estate had no interest in the property, and it was therefore being abandoned. In the absence of objection to the Trustee's February 8, 1989 informal but clear notice of abandonment, judicial involvement was not required to constitute an abandonment. Accordingly, we conclude that the Trustee acted within his authority, and that an effective abandonment was accomplished at least as early as February 8, 1989.

2. Standing.

We have been asked to consider next the lessor's standing to recover the costs incurred in preserving the collateral for BDC. Geller relies on 11 U.S.C. § 506(c) which provides that, "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," and argues that his right to recover such preservation costs are derivative of those of the Trustee.

BDC argues that a lessor has no standing to assert a Section 506(c) claim. Although some holdings limit recovery under § 506(c) to a trustee or debtor in possession, upon review of the relevant case law, only a handful of courts interpret § 506(c) so narrowly. See, e.g., In re Interstate Motor Freight Systems IMFS, Inc., 71 B.R. 741 (Bankr.W.D.Mich.1987). The majority view, which we choose to follow, holds that "the better rule is to allow the claimant to directly apply for administrative expenses under 11 U.S.C. § 506(c) where the claimant can demonstrate that the debtor in possession or trustee will not proceed with the application itself." In re DLS Industries, Inc., 71 B.R. 679, 681 (Bankr.D.Minn.1987); In the Matter of Reda, Inc., 54 B.R. 871, 881 (Bankr.N.D.Ill. 1985); In re Wyckoff, 52 B.R. 164, 167 (Bankr.W.D.Mich.1985); In re World Wines, Ltd., 77 B.R. 653, 658 (Bankr.N.D. Ill.1987) ("The better view is that a secured creditor who received a direct benefit from the rendition of services or provision of goods by an administrative claimant of the estate should have the collateral charged for such benefit . . ." Id. at 658 n. 4 (citing 3 Collier on Bankruptcy ¶ 506.06 at 56)).

Here, the Trustee's abandonment of the collateral extinguished any interest the estate may have had in the personal property. As a result, we rule that Geller does have derivative standing to bring a direct claim against BDC for the costs incurred in preserving and storing the property in which BDC held a security interest.

3. Recovery Under § 506(c).

Having cleared the "standing" hurdle, Geller must next show, in order to recover under § 506(c), that the expenses incurred were: (1) necessary, (2) beneficial to the secured creditor, and (3) reasonable. In the Matter of Trim-X, Inc., 695 F.2d 296, 299 (7th Cir.1982). In applying these factors, the court in In re World Wines, Ltd., 77 B.R. 653 (Bankr.N.D.Ill.1987) found that the lessor was entitled to use and occupancy reimbursement for storing the secured creditor's...