McKeesport Steel Castings Co., In re

• Decision Date: 26 August 1986
• Docket Number: Nos. 86-3055,86-3056,s. 86-3055
• Citation: 799 F.2d 91
• Parties: 15 Collier Bankr.Cas.2d 563, Bankr. L. Rep. P 71,437 In re McKEESPORT STEEL CASTINGS COMPANY. In re McKEESPORT STEEL CASTINGS COMPANY, Debtor. EQUITABLE GAS CO. v. EQUIBANK N.A., Condec Corporation. Appeal of EQUITABLE GAS COMPANY, A DIVISION OF EQUITABLE RESOURCES, INC., Movant.
• Court: U.S. Court of Appeals — Third Circuit

Page 91

799 F.2d 91

15 Collier Bankr.Cas.2d 563, Bankr. L. Rep. P 71,437

In re McKEESPORT STEEL CASTINGS COMPANY In re McKEESPORT STEEL CASTINGS COMPANY, Debtor EQUITABLE GAS CO. v. EQUIBANK N.A., Condec Corporation Appeal of EQUITABLE GAS COMPANY, A DIVISION OF EQUITABLE RESOURCES, INC., Movant.

Nos. 86-3055, 86-3056.

United States Court of Appeals Third Circuit.

Argued July 30, 1986.

Decided Aug. 26, 1986.

John P. Edgar (argued), Gary J. Gaertner, Berkman, Ruslander, Pohl, Lieber and Engel, Pittsburgh, Pa., for appellant.

David F. Luvara, Meyer, Darragh, Buckler, Bebenek and Eck, Pittsburgh, Pa., for appellee Condec Corp.

Dennis J. O'Brien (argued), David V. Radack, Eckert, Seamans, Cherin and Mellott, Pittsburgh, Pa., for appellee Equibank, N.A.

Before HIGGINBOTHAM and GARTH, Circuit Judges, and RE, Judge. ^*

OPINION OF THE COURT

A. LEON HIGGINBOTHAM, Jr., Circuit Judge.

This appeal requires us to determine whether the bankruptcy court correctly ordered that payments be made to a utility for providing post-petition service. Because we hold that the bankruptcy court correctly ordered payment, based on Sec. 506(c) of the Bankruptcy Code, we will reverse the district court, thereby affirming the action of the bankruptcy court.

I.

In September 1983, McKeesport Steel Castings Co., the debtor in possession, voluntarily instituted Chapter 11 (reorganization) proceedings, pursuant to the Bankruptcy Code. The bankruptcy court ordered the debtor to stay current in its post-petition utility bills. Appellant, Equitable Gas Co., as it was required to do under 11 U.S.C. Sec. 366(b), accepted a cash deposit as "adequate assurance" of payment and continued to provide gas service. App. at 119.

Appellees, Equibank and Condec Corporation (hereinafter referred to as Equibank), the largest of McKeesport's secured creditors, ¹ moved in bankruptcy court to enter consent orders restricting the debtor's use of its cash collateral. The first two orders (November 2, 1983 and January 30, 1984) permitted McKeesport to use its cash collateral to pay for raw materials, supplies and utility bills, app. at 130; the third granted a superpriority to entities providing raw materials, utilities and supplies to be used in McKeesport's manufacturing process, app. at 141.

During the period in which the parties negotiated and the bankruptcy court entered these orders, the debtor stopped paying Equitable Gas. Equitable promptly petitioned for permission to terminate service. In April 1984, the bankruptcy court approved a payment timetable, but denied Equitable's right to terminate service, app. at 20-21. The court also denied Equitable permission to terminate service automatically upon noncompliance with the payment schedule. Although the debtor subsequently breached the payment agreement, Equitable Gas continued to provide natural gas pursuant to the bankruptcy court's order. On May 31, 1984, Equitable notified the bankruptcy court that debtor had not made the first required payment, and that it desired a prompt hearing on its motion to terminate service. A hearing was held June 20, 1984. At that time another payment schedule was arranged, and Equitable was again denied permission to terminate without leave of court in the event of noncompliance. The court made it clear that it was seeking to protect the lienholders by assuring that the business could be sold as a going concern on July 10, 1984. The court did grant Equitable a superpriority for the period from the hearing until July 9. App. at 25-33. Because of misunderstandings, the sale was not held on July 10, but was continued until July 26, 1984, at which time McKeesport was sold as a going concern for $500,000. At that time it was stipulated that the debtor was $57,261.16 in arrears for post-petition gas service. The distribution to creditors, however, was subject to future claims approved by the court. App. at 85.

In December 1984, Equitable moved for payment for post-petition gas service, and the bankruptcy court granted payment in May 1985. Equibank then appealed this order to the district court, which reversed the bankruptcy court. Equitable Gas now appeals the order of the district court.

II.

Equitable Gas contends that the bankruptcy court's order granting payment was justified on a number of bases. Equitable argues that we may sustain the payment under 11 U.S.C. Sec. 506(c), as a necessary cost or expense of preserving or disposing of the debtor's property, or pursuant to Sec. 366(b), which provides that a utility may discontinue service if it is not furnished adequate assurance of payment for that service. Additionally, Equitable maintains that pursuant to paragraph 4 of the third cash collateral order, app. at 141, it has a superpriority claim mandating payment for gas service it provided. Finally, Equitable alleges that failure to affirm the bankruptcy court's order will result in a violation of the fifth amendment--the taking of private property for a public use, without just compensation.

The standards of review applicable when the Court of Appeals reviews a decision of the district court on appeal from the bankruptcy court are set forth in Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98 (3d Cir.1981).

As an appellate court twice removed from the primary tribunal, we review both the factual and the legal determinations of the district court for error. The district court does not sit as a finder of facts in evaluating them as a court of review, and therefore its evaluation of the evidence is not shielded by the "clearly erroneous" standard of Fed.R.Civ.P. 52(a), which applies only to a trial court sitting as a fact finder. We are in as good a position as the district court to review the findings of the bankruptcy court, so we review the bankruptcy court's findings by the standards the district court should employ, to determine whether the district court erred in its review. To the extent the parties challenge the choice, interpretation, or application of legal precepts, we always employ the fullest scope of review: we examine the decision of the court from which the appeal is taken for error, and the legal determinations of the district court as a reviewing tribunal are not shielded by any presumption of correctness.

Id. at 101-02. We now turn to a discussion of appellant's contentions.

III.

Section 506(c) of the Bankruptcy Code 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." 11 U.S.C. Sec. 506(c). The bankruptcy court's decision to award payment to Equitable Gas was based primarily on this section. App. at 118-22. The district court found this section inapplicable for a number of reasons, including concern over Equitable's standing to recover under Sec. 506(c) and Equitable's failure to benefit the secured creditors by continuing to provide gas service to the debtor. App. at 273-83. The district court's conclusions, however, are incorrect.

A number of courts have held that parties other than the trustee have standing to recover under provisions stipulating that only the trustee may act. In In re Philadelphia Light Supply Co., 39 B.R. 51 (Bankr.E.D.Pa.1984), the court permitted the creditors committee to bring a section 547 preference action where the trustee/debtor in possession refused to act and the creditors had a colorable claim. Accord In re Monsour Medical Center, 5 B.R. 715 (Bankr.W.D.Pa.1980). A landlord recovered his expenses, pursuant to Sec. 506(c), in In re Isaac Cohen Clothing Corp., 39 B.R. 199 (Bankr.S.D.N.Y.1984). Finally, in In re T.P. Long Chemical, Inc., 45 B.R. 278 (N.D. Ohio 1985), the court permitted the Environmental Protection Agency (EPA) to bring a section 506(c) suit because it found that the EPA had assumed the trustee's duty to remove hazardous waste. But see In re Fabian, 46 B.R. 139 (Bankr.E.D.Pa.1985) (reliance on In re Codesco ); In re Codesco, Inc., 18 B.R. 225 (Bankr.S.D.N.Y.1982) (strict interpretation of Sec. 506(c) permitting only trustee to recover).

Based on the above cases, we hold that Equitable Gas has standing to recover. 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 Equitable, 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 Equitable Gas had a colorable claim for expenses and was the only creditor that would zealously pursue that claim, it has standing to bring a Sec. 506(c) action. See In...