In re Interstate Motor Freight System IMFS, Inc.

• Decision Date: 03 April 1987
• Docket Number: Bankruptcy No. HG 84 00880,HG 84 00881,Adv. No. 85 215.
• Citation: 71 BR 741
• Parties: In re INTERSTATE MOTOR FREIGHT SYSTEM IMFS, INC., Debtors. CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND, Central States, Southeast and Southwest Areas Health and Welfare Fund, an employee benefit plan, and Howard McDougall, Trustee, Plaintiffs, v. James ROBBINS, Trustee, National Acceptance Company of America, First National Bank of Boston, Toronto Dominion Bank, Continental Illinois National Bank and Trust Co., Old Kent Bank and Trust Co., Comerica Bank, the Indiana National Bank, Marine Midland Bank, Central National Bank of Chicago, Pittsburgh National Bank, the Colorado National Bank of Denver, the First National Bank of Louisville, The Travelers Insurance Company, Congen Five and Co., and Connecticut General Life Insurance Co., Defendants.
• Court: U.S. Bankruptcy Court — Western District of Michigan

71 B.R. 741 (1987)

In re INTERSTATE MOTOR FREIGHT SYSTEM IMFS, INC., Debtors CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND, Central States, Southeast and Southwest Areas Health and Welfare Fund, an employee benefit plan, and Howard McDougall, Trustee, Plaintiffs, v. James ROBBINS, Trustee, National Acceptance Company of America, First National Bank of Boston, Toronto Dominion Bank, Continental Illinois National Bank and Trust Co., Old Kent Bank and Trust Co., Comerica Bank, the Indiana National Bank, Marine Midland Bank, Central National Bank of Chicago, Pittsburgh National Bank, the Colorado National Bank of Denver, the First National Bank of Louisville, The Travelers Insurance Company, Congen Five and Co., and Connecticut General Life Insurance Co., Defendants.

Bankruptcy Nos. HG 84 00880, HG 84 00881, Adv. No. 85 215.

United States Bankruptcy Court, W.D. Michigan.

April 3, 1987.

Elizabeth Roberto, Douglas A. Firth, Rusell N. Luplow P.C., Bloomfield Hills, Mich., for plaintiffs.

Thomas W. Schouten, Dunn, Schouten and Snoap, Wyoming, Mich., for the Trustee.

James B. Frakie, Day, Sawdey, Flaggert and Porter, Grand Rapids, Mich., for Nat. Acceptance Co. of America.

C. Beth DunCombe, Joseph A. Fink, Dickinson, Wright, Moon, Van Dusen and Freeman, Detroit, Mich., for defendant Ins. Companies.

David Murphy, Hertzberg, Jacob and Weingarten, Detroit, Mich., for defendant Banks.

OPINION

LAURENCE E. HOWARD, Bankruptcy Judge.

STANDING TO BRING A CLAIM UNDER 11 U.S.C. § 506(c)

The defendants have brought a motion to dismiss Count I of the plaintiffs' complaint on the grounds that the plaintiffs have no standing to bring a motion pursuant to 11 U.S.C. § 506(c).

The plaintiffs are employee benefits funds that covered the debtors' employees. The defendant banks and insurance companies were the debtors' secured lenders. The plaintiffs allege that during the debtors' Chapter 11 proceeding the debtors executed certain actions (e.g. marshalling of collateral, etc.) which benefited the secured creditors alone. In utilizing its employees' services to accomplish these ends the debtors incurred obligations to the benefit plans. Upon the conversion of these cases to Chapter 7 these obligations were still unpaid. The Trustee, James Robbins, has no unencumbered funds with which to pay these benefit obligations. He has also declined to attempt to recover the value of these services from the secured lenders under 11 U.S.C. § 506(c). The plans have therefore brought a two count complaint against the secured lenders to recover the amount of the unpaid contributions. Count I is predicated upon § 506(c), and Count II is predicated upon 11 U.S.C. § 105 and general principles of equity. The Trustee has been named a defendant as a necessary and indispensable party to a proceeding under § 506(c). The plaintiffs allege that without him complete relief cannot be afforded to the parties as he is the proper party plaintiff under § 506(c), and will be realigned as such under Federal Rule of Civil Procedure 19, as incorporated by Bankruptcy Rule 7019. (Amended Complaint, paragraphs 12-16.) The Secured Lenders have moved to dismiss Count I, arguing that as administrative claimants the funds lack the requisite standing to bring a proceeding under § 506(c), and that the funds may not remedy this lack of standing by making the Trustee an involuntary plaintiff.

As the fundamental issue is the standing of the plaintiffs to bring an action under § 506(c), this Court is guided by the principle that it "must accept as true all material allegations of the complaint, and must construe the complaint in favor of the complaining party." Warth v. Seldin, 422 U.S. 490, 501, 95 S.Ct. 2197, 2206, 45 L.Ed.2d 343 (1975). Therefore, the Court shall assume, for the purposes of this opinion only, that these unpaid benefit obligations were incurred when the debtors directed their employees to perform various services of use only to the secured lenders.

DISCUSSION

The primary issue before the Court is whether the plaintiffs have the requisite standing to bring a motion under § 506(c). If the Court determines that they do, it need not proceed any further. However, if the plaintiffs lack the necessary standing, the Court must then consider whether the plaintiffs may remedy this deficiency by adding the Trustee as an involuntary plaintiff. Should the Court determine that the plaintiffs do not have standing and may not add the Trustee as an involuntary plaintiff, then Count I must be dismissed.

Section 506(c) provides as follows:

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 explains § 506(c) as follows:

Any time the trustee or debtor in possession expends money to provide for the reasonable and necessary cost and expenses of preserving or disposing of a secured creditor\'s collateral, the trustee or debtor in possession is entitled to recover such expenses from the secured party or from the property securing an allowed secured claim held by such party.

124 Cong.Rec. H32,398 (daily ed. Sept. 28, 1978) (Statement of Rep. Don Edwards). The plain language of § 506(c) and its corresponding explanation would appear to restrict a recovery under § 506(c) to the trustee and the debtor in possession, under 11 U.S.C. § 1107(a), which gives the debtor in possession almost all of the powers of a trustee. A number of courts have held recovery under § 506(c) is in fact so limited, and have accordingly barred other parties from recovering under § 506(c).¹ In re Codesco, 18 B.R. 225, 230 (Bankr.S.D.N.Y. 1982) (debtor's counsel); In re Fabian, 46 B.R. 139, 141 (Bankr.E.D.Pa.1985) (debtor's lessor); In re J.R. Research, 65 B.R. 747, 15 B.C.D. 29 (Bankr.D.Utah 1986) (former Chapter 11 trustee); In re Proto-Specialties, Inc., 43 B.R. 81 (Bankr.D.Ariz.1984) (debtor's lessor); In the Matter of S & S Industries, Inc., 30 B.R. 395 (Bankr.E.D. Mich.1983) (creditors' committee); Thomas v. Ralston Purina Company (In the Matter of Thomas), 43 B.R. 201, 208 (Bankr.M. D.Ga.1984) (Chapter 7 Debtor); In re New England Carpet, 28 B.R. 766, 771 (Bankr. D.Vt.), aff'd on other grounds 38 B.R. 703 (D.Vt.1983), 744 F.2d 16 (2nd Cir.1984) (debtor's attorneys); In re Manchester Hides, 32 B.R. 629, 633 (Bankr.N.D.Iowa 1983) (debtor's attorneys); and In re Wyckoff, 52 B.R. 164 (Bankr.W.D.Mich 1985) (debtor's lessor).²

Despite the precedents cited above, some courts have indeed allowed administrative expense claimants to proceed under § 506(c). National Bank of North America v. Isaac Cohen Clothing Corp. (In re Isaac Cohen Clothing Corp.), 39 B.R. 199 (Bankr.S.D.N.Y.1984), permitted the debtor's landlord to recover rents from a secured creditor that had clearly benefited from the storage of the collateral. However the standing question was never raised in Isaac Cohen, let alone commented on by way of an explicit holding or by dicta. In re T.P. Long Chemical, Inc., 45 B.R. 278, 11 C.B.C.2d 1246 (Bankr.N.D. Ohio 1985) would have permitted the administrative claimant standing under § 506(c), but in the light of the Court's eventual determination that the administrative claimant did not otherwise meet the criteria under § 506(c), the resolution of the standing question is merely dicta. In Ka-Be Investment Company v. Noland (In the Matter of King Aluminum Corporation), 30 B.R. 335 (Bankr.S.D.Ohio 1983), the Court declined to dismiss an administrative claimant's complaint under § 506(c) on the grounds that although the claimant may lack standing under § 506(c) it might be able to proceed under another theory.³In re Loop Hospital Partnership, 50 B.R. 565 (Bankr.N.D.Ill.1985) permitted attorneys to petition for fees under § 506(c) in the mistaken belief that the strict interpretation of § 506(c) standing was the "minority viewpoint." 50 B.R. at 571.

The only Court of Appeals case to discuss the question is Equitable Gas Co. v. Equibank N.A. (In re McKeesport Steel Castings Company), 799 F.2d 91 (3rd Cir. 1986). In McKeesport the Third Circuit permitted a utility which had furnished postpetition gas service to a liquidating Chapter 11 debtor in possession to recover the unpaid gas charges from the secured creditors. Although the Third Circuit made note of two of the cases in favor of a strict standing requirement, Fabian and Codesco, it did not analyze them, nor even explain them. Instead, the Third Circuit relied upon Isaac Cohen and T.P. Long, criticized above. The Third Circuit also relied upon two cases which permitted creditors' committees to bring preference actions despite the fact that the relevant Bankruptcy Code section, § 547, confers the right to bring such actions upon the Trustee.

Of course, it is true that in a statute or code every section must be construed in connection with every other part so as to yield a harmonious whole. Sutherland Stat. Const. § 46.05 (4th ed. 1984). The Supreme Court has held that in interpreting a section of a statute a court should not be guided by a single sentence or clause, but rather it should look to the provisions of the whole statute and to its object and policy. Richards v. United States, 369 U.S. 1, 11, 82 S.Ct. 585, 592, 7 L.Ed.2d 492 (1962). Therefore, it is legitimate to look to other sections of the Bankruptcy Code in order to interpret § 506(c). However, § 547 is not the place to look. In the scheme of the Bankruptcy Code there are no close ties between § 547 and § 506(c). The operation of § 547 bears no intrinsic relationship to § 506(c). The word "trustee" could be construed differently in these two sections without causing any contradiction or conflict between them or within the Bankruptcy Code as a whole. Rather than a comparison of words, a court must look to the object and policy of the entire Code. One overarching object of the ...