Hartford Underwriters Insurance Co. v. Union Planters Bank, N. A.
530 U.S. 1 (2000)
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Rule of Law:
Under § 506(c) of the Bankruptcy Code, only the bankruptcy trustee, not an administrative claimant, possesses an independent right to seek recovery of administrative expenses from property securing an allowed secured claim.
Facts:
- Hen House Interstate, Inc. was indebted to its primary lender, Union Planters Bank, for over $4 million, with the debt secured by a lien on essentially all of Hen House's property.
- On September 5, 1991, Hen House filed for Chapter 11 bankruptcy protection.
- Post-petition, Union Planters agreed to lend Hen House an additional $300,000 to finance its reorganization.
- During the reorganization attempt, Hen House obtained workers' compensation insurance from Hartford Underwriters.
- Hen House repeatedly failed to make its monthly premium payments to Hartford but Hartford continued to provide coverage.
- When the reorganization ultimately failed, Hen House owed Hartford more than $50,000 in unpaid premiums, and the bankruptcy estate had no unencumbered funds to pay this administrative expense.
Procedural Posture:
- Hen House Interstate, Inc. filed a voluntary Chapter 11 petition in the U.S. Bankruptcy Court for the Eastern District of Missouri.
- The Bankruptcy Court converted the case to a Chapter 7 liquidation and appointed a trustee.
- Hartford Underwriters filed an application in the Bankruptcy Court to charge its unpaid insurance premiums against Union Planters Bank's collateral pursuant to § 506(c).
- The Bankruptcy Court ruled in favor of Hartford.
- Union Planters appealed to the U.S. District Court, which affirmed the Bankruptcy Court's decision.
- Union Planters, the appellant, then appealed to the U.S. Court of Appeals for the Eighth Circuit, where a three-judge panel affirmed in favor of Hartford, the appellee.
- The Eighth Circuit granted en banc review and reversed the panel's decision, holding that Hartford lacked standing to invoke § 506(c).
- The U.S. Supreme Court granted certiorari to resolve the circuit split on the issue.
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Issue:
Does 11 U.S.C. § 506(c) grant an administrative claimant an independent right to recover post-petition expenses from property encumbered by a secured creditor's lien?
Opinions:
Majority - Justice Scalia
No. Section 506(c) of the Bankruptcy Code does not grant an administrative claimant an independent right to seek payment from a secured creditor's collateral; this power is exclusively granted to the trustee. The plain language of the statute states that '[t]he trustee may recover' such expenses, and this specific grant of authority implies that other parties may not. This interpretation is supported by statutory context, as other Code provisions use broader language like 'a party in interest' when intending to grant wider standing. While some pre-Code practice allowed non-trustees to pursue such claims, that practice was not sufficiently established to overcome the clear text enacted by Congress. Finally, policy arguments for allowing claimants to sue are unpersuasive, as limiting this power to the trustee promotes orderly administration of the estate and avoids a multiplicity of suits against secured creditors.
Analysis:
This decision resolved a significant circuit split regarding standing under § 506(c) and solidified a textualist approach to interpreting the Bankruptcy Code. By holding that 'the trustee' means only the trustee, the Court reinforced the trustee's central and unique role as the representative of the bankruptcy estate. The ruling clarifies that administrative claimants cannot independently seek to surcharge a secured creditor's collateral. This forces such creditors to be more diligent in protecting their interests, for example by demanding cash payments, obtaining a security interest, or seeking a court-ordered superpriority administrative expense status under § 364.
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