CASES ADJUDGED
IN THE
SUPREME COURT OF THE UNITED STATES
AT
OCTOBER TERM, 1999
Syllabus
HARTFORD UNDERWRITERS INSURANCE
CO. v.
UNION PLANTERS BANK, N. A.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE EIGHTH
CIRCUIT
No. 99-409. Argued March 20, 2000-Decided May 30, 2000
During attempted reorganization under Chapter 11 of the
Bankruptcy Code, debtor Hen House Interstate, Inc., obtained
workers' compensation insurance from petitioner Hartford
Underwriters. Although Hen House repeatedly failed to make the
monthly premium payments required by the policy, Hartford continued
to provide insurance. The reorganization ultimately failed, and the
court converted the case to a Chapter 7 liquidation proceeding and
appointed a trustee. Learning of the bankruptcy proceedings after
the conversion, and recognizing that the estate lacked unencumbered
funds to pay the premiums owed, Hartford attempted to charge the
premiums to respondent bank, a secured creditor, pursuant to 11 U.
S. C. § 506(c). The Bankruptcy Court ruled for Hartford, and the
District Court affirmed, but the en bane Eighth Circuit reversed,
concluding that § 506(c) could not be invoked by an administrative
claimant.
Held: Section 506(c) does not provide an administrative
claimant of a bankruptcy estate an independent right to seek
payment of its claim from property encumbered by a secured
creditor's lien. Pp.4-14.
(a) As an administrative claimant, petitioner is not a proper
party to seek recovery under § 506(c), which provides: "The trustee
may recover from property securing an allowed secured claim the ...
costs 1
2
Syllabus
and expenses of preserving, or disposing of, such property ....
" The statute appears quite plain in specifying who may use §
506(c)-"[t]he trustee." Although the statutory text does not
actually say that persons other than the trustee may not seek
recovery under § 506(c), several contextual features support that
conclusion. First, a situation in which a statute authorizes
specific action and designates a particular party empowered to take
it is surely among the least appropriate in which to presume
nonexclusivity. Second, the fact that the sole party named-the
trustee-has a unique role in bankruptcy proceedings makes it
entirely plausible that Congress would provide a power to him and
not to others. Further, had Congress intended the provision to be
broadly available, it could simply have said so, as it has in
describing the parties who could act under other sections of the
Code. The Court rejects as unpersuasive petitioner's arguments from
§ 506(c)'s text: that the use in other Code provisions of "only" or
other expressly restrictive language in specifying the parties at
issue means that no party in interest is excluded from § 506(c),
and that the right of a nontrustee to recover under § 506(c) is
evidenced by § 1109. pp. 4-9.
(b) The Court also rejects arguments based on pre-Code practice
and policy considerations that petitioner advances in support of
its assertion that § 506(c) is available to parties other than the
trustee. It is questionable whether the pre-Code precedents relied
on by petitioner establish a bankruptcy practice sufficiently
widespread and well recognized to justify the conclusion of
implicit adoption by Congress in enacting the Code. In any event,
where, as here, the meaning of the Code's text is itself clear, its
operation is unimpeded by contrary prior practice. Also unavailing
is petitioner's argument that its reading is necessary as a matter
of policy, since in some cases the trustee may lack an incentive to
pursue payment. It is far from clear that the relevant policy
implications favor petitioner's position, and, in any event,
achieving a better policy outcome-if what petitioner urges is
that-is a task for Congress, not the courts. Pp. 9-14.
177 F.3d
719, affirmed.
SCALIA, J., delivered the opinion for a unanimous Court.
G.
Eric Brunstad, Jr., argued the cause for
petitioner.
With him on the briefs were Patrick
J. Trostle and Wendi
Alper-Pressman.
3
Robert H. Brownlee argued the cause for respondent.
With him on the brief was
David D. Farrell. *
JUSTICE SCALIA delivered the opinion of the Court.
In this case, we consider whether 11 U. S. C. § 506(c) allows an
administrative claimant of a bankruptcy estate to seek payment of
its claim from property encumbered by a secured creditor's
lien.
I
This case arises out of the bankruptcy proceedings of Hen House
Interstate, Inc., which at one time owned or operated several
restaurants and service stations, as well as an outdoor-advertising
firm. On September 5, 1991, Hen House filed a voluntary petition
under Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for the Eastern District of Missouri. As a Chapter
11 debtorin-possession, Hen House retained possession of its assets
and continued operating its business.
Respondent had been Hen House's primary lender.1 At the time the
Chapter 11 petition was filed, it held a security interest in
essentially all of Hen House's real and personal property, securing
an indebtedness of over $4 million. After the Chapter 11
proceedings were commenced, it agreed to lend Hen House an
additional $300,000 to help finance the reorganization. The
Bankruptcy Court entered a financing order approving the loan
agreement and author-
*Mark F. Horning, Sidney P. Levinson, Craig A. Berrington, and
Phillip L. Schwartz filed a brief for the American Insurance
Association et al. as amici curiae urging reversal.
Carter G.
Phillips and
Shalom L. Kohn filed
a brief for the Commercial Finance Association as
amicus
curiae urging affirmance.
1 Respondent Union Planters Bank is the successor of Magna Bank,
which is in turn the successor of Landmark Bank of Illinois. Hen
House was originally indebted to Landmark Bank. For simplicity, we
will not distinguish between the various entities.
4
izing Hen House to use loan proceeds and cash collateral to pay
expenses, including workers' compensation expenses.
During the attempted reorganization, Hen House obtained workers'
compensation insurance from petitioner Hartford Underwriters (which
was unaware of the bankruptcy proceedings). Although the policy
required monthly premium payments, Hen House repeatedly failed to
make them; Hartford continued to provide insurance nonetheless. The
reorganization ultimately failed, and on January 20, 1993, the
Bankruptcy Court converted the case to a liquidation proceeding
under Chapter 7 and appointed a trustee. At the time of the
conversion, Hen House owed Hartford more than $50,000 in unpaid
premiums. Hartford learned of Hen House's bankruptcy proceedings
after the conversion, in March 1993.
Recognizing that the estate lacked unencumbered funds to pay the
premiums, Hartford attempted to charge the premiums to respondent,
the secured creditor, by filing with the Bankruptcy Court an
"Application for Allowance of Administrative Expense, Pursuant to
11 U. S. C. § 503 and Charge Against Collateral, Pursuant to 11 U.
S. C. § 506(c)." The Bankruptcy Court ruled in favor of Hartford,
and the District Court and an Eighth Circuit panel affirmed,
In
re Hen House Interstate, Inc., 150 F.3d
868 (CA8 1998). The Eighth Circuit subsequently granted
en banc review, however, and reversed, concluding that § 506(c)
could not be invoked by an administrative claimant.
In re Hen
House Interstate, Inc., 177 F.3d
719 (1999). We granted certiorari. 528 U. S. 985 (2000).
II
Petitioner's effort to recover the unpaid premiums involves two
provisions, 11 U. S. C. §§ 503(b) and 506(c). Section 503(b)
provides that "the actual, necessary costs and expenses of
preserving the estate, including wages, salaries, or commissions
for services rendered after the commence-
5
ment of the case," are treated as administrative expenses, which
are, as a rule, entitled to priority over prepetition unsecured
claims, see §§ 507(a)(1), 726(a)(1), 1129(a)(9)(A). Respondent does
not dispute that the cost of the workers' compensation insurance
Hen House purchased from petitioner is an administrative expense
within the meaning of this provision. Administrative expenses,
however, do not have priority over secured claims, see §§ 506,
725-726, 1129(b)(2)(A);
United Sav. Assn. of Tex. v.
Timbers of Inwood Forest Associates, Ltd., 484 U. S. 365, 378-379
(1988), and because respondent held a security interest in
essentially all of the estate's assets, there were no unencumbered
funds available to pay even administrative claimants.
Petitioner therefore looked to § 506(c), which constitutes an
important exception to the rule that secured claims are superior to
administrative claims. That section 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." § 506(c).
Petitioner argued that this provision entitled it to recover
from the property subject to respondent's security interest the
unpaid premiums owed by Hen House, since its furnishing of workers'
compensation insurance benefited respondent by allowing continued
operation of Hen House's business, thereby preserving the value of
respondent's collateral; or alternatively, that such benefit could
be presumed from respondent's consent to the postpetition financing
order. Although it was contested below whether, under either
theory, the workers' compensation insurance constituted a "benefit
to the holder" within the meaning of § 506(c), that issue is not
before us here; we assume for purposes of this decision that it
did, and consider only whether peti-
6
tioner-an administrative claimant-is a proper party to seek
recovery under § 506(c).2
In answering this question, we begin with the understanding that
Congress "says in a statute what it means and means in a statute
what it says there,"
Connecticut Nat. Bank v.
Germain, 503
U. S. 249, 254 (1992). As we have previously noted in
construing another provision of § 506, when "the statute's language
is plain, 'the sole function of the courts' "-at least where the
disposition required by the text is not absurd-" 'is to enforce it
according to its terms.'"
United States v.
Ron Pair
Enterprises, Inc., 489 U. S. 235, 241 (1989) (quoting
Caminetti v.
United States, 242 U. S. 470, 485
(1917)). Here, the statute appears quite plain in specifying who
may use § 506(c)-"[t]he trustee." It is true, however, as
petitioner notes, that all this actually "says" is that the trustee
may seek recovery under the section, not that others may not. The
question thus becomes whether it is a proper inference that the
trustee is the only party empowered to invoke the provision.3 We
have little difficulty answering yes.
Several contextual features here support the conclusion that
exclusivity is intended. First, a situation in which a statute
authorizes specific action and designates a particular party
empowered to take it is surely among the least appropriate in which
to presume nonexclusivity. "Where a
2 In addition to seeking recovery under § 506(c), petitioner
argued to the Eighth Circuit en bane that it was entitled to
recover under the terms of the postpetition financing order itself.
Petitioner sought to enforce that order under Federal Rule of
Bankruptcy Procedure 7071, which incorporates Federal Rule of Civil
Procedure 71 ("When an order is made in favor of a person who is
not a party to the action, that person may enforce obedience to the
order by the same process as if a party ... "). The Eighth Circuit
declined to address this issue, since it had not been raised until
the rehearing en bane,
In re Hen House Interstate, Inc.,
177
3 Debtors-in-possession may also use the section, as they are
expressly given the rights and powers of a trustee by 11 U. S. C. §
1107.
7
statute ... names the parties granted [the] right to invoke its
provisions, ... such parties only may act." 2A N. Singer,
Sutherland on Statutory Construction § 47.23, p. 217 (5th ed. 1992)
(internal quotation marks omitted); see also
Federal Election
Comm'n v.
National Conservative Political Action Comm.,
470 U. S. 480,
486 (1985). Second, the fact that the sole party named-the
trustee-has a unique role in bankruptcy proceedings makes it
entirely plausible that Congress would provide a power to him and
not to others. Indeed, had no particular parties been specified-had
§ 506(c) read simply "[t]here may be recovered from property
securing an allowed secured claim the reasonable, necessary costs
and expenses, etc."-the trustee is the most obvious party who would
have been thought empowered to use the provision. It is thus far
more sensible to view the provision as answering the question "Who
may use the provision?" with "only the trustee" than to view it as
simply answering the question "May the trustee use the provision?"
with "yes."
Nor can it be argued that the point of the provision was simply
to establish that certain costs may be recovered from collateral,
and not to say anything about who may recover them. Had that been
Congress's intention, it could easily have used the formulation
just suggested. Similarly, had Congress intended the provision to
be broadly available, it could simply have said so, as it did in
describing the parties who could act under other sections of the
Code. Section 502(a), for example, provides that a claim is allowed
unless "a party in interest" objects, and § 503(b)(4) allows "an
entity" to file a request for payment of an administrative expense.
The broad phrasing of these sections, when contrasted with the use
of "the trustee" in § 506(c), supports the conclusion that entities
other than the trustee are not entitled to use § 506(c).
Russello v.
United States, 464 U. S. 16, 23
(1983).
Petitioner's primary argument from the text of § 506(c) is that
"what matters is that section 506(c) does not say that
8
'only' a trustee may enforce its provisions." Brief for
Petitioner 29. To bolster this argument, petitioner cites other
provisions of the Bankruptcy Code that do use "only" or other
expressly restrictive language in specifying the parties at issue.
See,
e. g., § 109(a) ("[O]nly a person that resides
or has a domicile, a place of business, or property in the United
States, or a municipality, may be a debtor under this title"); §
707(b) (providing that a case may be dismissed for substantial
abuse by "the court, on its own motion or on a motion by the United
States trustee, but not at the request or suggestion of any party
in interest"). Petitioner argues that in the absence of such
restrictive language, no party in interest is excluded. This
theory-that the expression of one thing indicates the inclusion of
others unless exclusion is made explicit-is contrary to common
sense and common usage. Many provisions of the Bankruptcy Code that
do not contain an express exclusion cannot sensibly be read to
extend to all parties in interest. See,
e. g., §
363(b)(1) (providing that "[t]he trustee, after notice and a
hearing, may use, sell, or lease ... property of the estate"); §
364(a) (providing that "the trustee" may incur debt on behalf of
the bankruptcy estate); § 554(a) (giving "the trustee" power to
abandon property of the bankruptcy estate).
Petitioner further argues that § 1109 evidences the right of a
nontrustee to recover under § 506(c). We are not persuaded. That
section, which provides that a "party in interest" "may raise and
may appear and be heard on any issue in a case under [Chapter 11],"
is by its terms inapplicable here, since petitioner's attempt to
use § 506(c) came after the bankruptcy proceeding was converted
from Chapter 11 to Chapter 7. In any event, we do not read §
1109(b)'s general provision of a right to be heard as broadly
allowing a creditor to pursue substantive remedies that other Code
provisions make available only to other specific parties. Cf. 7 L.
King, Collier on Bankruptcy ~ 1109.05 (rev. 15th ed. 1999) ("In
general, section 1109 does not bestow any right to usurp the
9
trustee's role as representative of the estate with respect to
the initiation of certain types of litigation that belong
exclusively to the estate").
III
Because we believe that by far the most natural reading of §
506(c) is that it extends only to the trustee, petitioner's burden
of persuading us that the section must be read to allow its use by
other parties is "'exceptionally heavy.'"
Patterson v.
Shumate, 504
U. S. 753, 760 (1992) (quoting
Union Bank v.
Wolas, 502 U.
S. 151, 156 (1991)). To support its proffered reading,
petitioner advances arguments based on pre-Code practice and policy
considerations. We address these arguments in turn.
A
Section 506(c)'s provision for the charge of certain
administrative expenses against lienholders continues a practice
that existed under the Bankruptcy Act of 1898, see,
e.
g., In re Tyne, 257 F.2d
310,312
(CA7 1958); 4 Collier on Bankruptcy,
supra,
~ 506.05[1]. It was not to be found in the text of the Act, but
traced its origin to early cases establishing an equitable
principle that where a court has custody of property, costs of
administering and preserving the property are a dominant charge,
see,
e. g., Bronson v.
La Crosse &
Milwaukee
R. Co., 1 Wall. 405, 410 (1864);
Atlantic Trust Co. v.
Chapman, 208
U. S. 360, 376 (1908). It was the norm that recovery of costs
from a secured creditor would be sought by the trustee, see,
e.
g., Textile Banking Co. v.
Widener, 265 F.2d
446, 453-454
(CA4 1959);
Tyne, supra, at 312.
Petitioner cites a number of lower court cases, however, in
which-without meaningful discussion of the pointparties other than
the trustee were permitted to pursue such charges under the Act,
sometimes simultaneously with the trustee's pursuit of his own
expenses, see,
e. g., First Western Savings and Loan Assn.
v.
Anderson, 252 F.2d
544, 547-548
(CA9 1958);
In re Louisville Storage
Co., 21 F. Supp. 897, 898
10
(WD Ky. 1936), aff'd, 93 F.2d 1008
(CA6 1938), but
sometimes independently, see
In re Chapman Coal Co.,
196 F.2d
779,
780 (CA7 1952);
In re Rotary Tire &
Rubber Co., 2 F.2d 364
(CA6 1924). Petitioner also
relies on early decisions of this Court allowing individual
claimants to seek recovery from secured assets, see
Louisville,
E. &
St. L. R. Co. v.
Wilson, 138 U. S. 501, 506
(1891);
Burnham v.
Bowen, 111 U. S. 776, 779,783
(1884);
New York Dock Co. v. S. S.
Poznan, 274 U. S. 117, 121
(1927).
Wilson and
Burnham involved equity
receiverships, and were not only pre-Code, but predate the
Bankruptcy Act of 1898 that the Code replaced; while
New York
Dock was a case arising in admiralty.
It is questionable whether these precedents establish a
bankruptcy practice sufficiently widespread and well recognized to
justify the conclusion of implicit adoption by the Code. We have no
confidence that the allowance of recovery from collateral by
nontrustees is "the type of 'rule' that ... Congress was aware of
when enacting the Code."
United States v.
Ron Pair
Enterprises, Inc., 489 U. S., at 246. Cf.
Dewsnup v.
Timm, 502 U.
S. 410, 418 (1992) (relying on "clearly established" pre-Code
practice);
Kelly v.
Robinson, 479 U. S. 36, 46 (1986)
(giving weight to pre-Code practice that was "widely accepted" and
"established"). In any event, while pre-Code practice "informs our
understanding of the language of the Code,"
id., at 44, it
cannot overcome that language. It is a tool of construction, not an
extratextual supplement. We have applied it to the construction of
provisions which were "subject to interpretation,"
id., at
50, or contained "ambiguity in the text,"
Dewsnup, supra, at
417. "[W]here the meaning of the Bankruptcy Code's text is itself
clear ... its operation is unimpeded by contrary ... prior
practice,"
BFP v.
Resolution Trust Corporation,
511 U. S. 531,
546 (1994) (internal quotation marks omitted). See,
e. g.,
Pennsylvania Dept. of Public Welfare v.
Davenport,
495 U. S. 552,
563 (1990);
United States v.
Ron Pair Enterprises, Inc.,
supra, at 245-246.
11
In this case, we think the language of the Code leaves no room
for clarification by pre-Code practice. If § 506(c) provided only
that certain costs and expenses could be recovered from property
securing a secured claim, without specifying any particular party
by whom the recovery could be pursued, the case would be akin to
those in which we used prior practice to fill in the details of a
pre-Code concept that the Code had adopted without elaboration.
See,
e. g., United States v.
Noland,
517 U. S. 535,
539 (1996) (looking to pre-Code practice in interpreting Code's
reference to "principles of equitable subordination");
Midlantic
Nat. Bank v.
New Jersey Dept. of Environmental
Protection, 474
U. S. 494, 501 (1986) (codification of trustee's abandonment
power held to incorporate established exceptions). Here, however,
it is not the unelaborated concept but only a specifically narrowed
one that has been adopted: a rule allowing the charge of costs to
secured assets
by the trustee. PreCode practice cannot
transform § 506(c)'s reference to "the trustee" to "the trustee and
other parties in interest."
B
Finally, petitioner argues that its reading is necessary as a
matter of policy, since in some cases the trustee may lack an
incentive to pursue payment. Section 506(c) must be open to
nontrustees, petitioner asserts, lest secured creditors enjoy the
benefit of services without paying for them. Moreover, ensuring
that administrative claimants are compensated may also serve
purposes beyond the avoidance of unjust enrichment. To the extent
that there are circumstances in which the trustee will not use the
section although an individual creditor would,4 allowing suits by
nontrustees
4 The frequency with which such circumstances arise may depend
in part on who ultimately receives the recovery obtained by a
trustee under § 506(c). Petitioner argues that it goes to the party
who provided the services that benefited collateral (assuming that
party has not already been compensated by the estate). Respondent
argues that this read-
12
could encourage the provision of postpetition services to
debtors on more favorable terms, which would in turn further
bankruptcy's goals.
Although these concerns may be valid, it is far from clear that
the policy implications favor petitioner's position. The class of
cases in which § 506(c) would lie dormant without nontrustee use is
limited by the fact that the trustee is obliged to seek recovery
under the section whenever his fiduciary duties so require. And
limiting § 506(c) to the trustee does not leave those who provide
goods or services that benefit secured interests without other
means of protecting themselves as against other creditors: They may
insist on cash payment, or contract directly with the secured
creditor, and may be able to obtain superpriority under § 364(c)(1)
or a security interest under §§ 364(c)(2), (3), or § 364(d). And of
course postpetition creditors can avoid unnecessary losses simply
by paying attention to the status of their accounts, a protection
which, by all appearances, petitioner neglected here.
On the other side of the ledger, petitioner's reading would
itself lead to results that seem undesirable as a matter of policy.
In particular, expanding the number of parties who could use §
506(c) would create the possibility of multiple administrative
claimants seeking recovery under the sec-
ing, like a reading that allows creditors themselves to use §
506(c), upsets the Code's priority scheme by giving administrative
claimants who benefit collateral an effective priority over
others-allowing, for example, a Chapter 11 administrative creditor
(like petitioner) to obtain payment via § 506(c) while Chapter 7
administrative creditors remain unpaid, despite § 726(b)'s
provision that Chapter 7 administrative claims have priority over
Chapter 11 administrative claims. Thus, respondent asserts that a
trustee's recovery under § 506(c) simply goes into the estate to be
distributed according to the Code's priority provisions. Since this
case does not involve a trustee's recovery under § 506(c), we do
not address this question, or the related question whether the
trustee may use the provision prior to paying the expenses for
which reimbursement is sought, see
In re K &
L
Lakeland, Inc., 128 F.3d
203, 207, 212
(CA4 1997).
13
tion. Each such claim would require inquiry into the necessity
of the services at issue and the degree of benefit to the secured
creditor. Allowing recovery to be sought at the behest of parties
other than the trustee could therefore impair the ability of the
bankruptcy court to coordinate proceedings, as well as the ability
of the trustee to manage the estate. Indeed, if administrative
claimants were free to seek recovery on their own, they could
proceed even where the trustee himself planned to do so. See,
e. g., In re Bluffton Castings Corp., 224 B.
R. 902, 904 (Bkrtcy. Ct. ND Ind. 1998).5 Further, where
unencumbered assets were scarce, creditors might attempt to use §
506(c) even though their claim to have benefited the secured
creditor was quite weak. The possibility of being targeted for such
claims by various administrative claimants could make secured
creditors less willing to provide postpetition financing.
In any event, we do not sit to assess the relative merits of
different approaches to various bankruptcy problems. It suffices
that the natural reading of the text produces the result we
announce. Achieving a better policy outcome-if what petitioner
urges is that-is a task for Congress, not
5We do not address whether a bankruptcy court can allow other
interested parties to act in the trustee's stead in pursuing
recovery under § 506(c).
Amici American Insurance
Association and National Union Fire Insurance Co. draw our
attention to the practice of some courts of allowing creditors or
creditors' committees a derivative right to bring avoidance actions
when the trustee refuses to do so, even though the applicable Code
provisions, see 11 U. S. C. §§ 544,545, 547(b), 548(a), 549(a),
mention only the trustee. See,
e. g., In re Gibson Group,
Inc., 66 F.3d
1436, 1438
(CA6 1995). Whatever the validity of that
practice, it has no analogous application here, since petitioner
did not ask the trustee to pursue payment under § 506(c) and did
not seek permission from the Bankruptcy Court to take such action
in the trustee's stead. Petitioner asserted an independent right to
use § 506(c), which is what we reject today. Cf.
In re Xonics
Photochemical, Inc., 841 F.2d
198, 202-203
(CA7 1988) (holding that creditor had no
right to bring avoidance action independently, but noting that it
might have been able to seek to bring derivative suit).
14
the courts.
Kawaauhau v.
Geiger, 523 U. S. 57, 64 (1998);
Noland, 517 U. S., at 541-542, n. 3;
Wolas, 502 U.
S., at 162.
***
We have considered the other points urged by petitioner and find
them to be without merit. We conclude that 11 U. S. C. § 506(c)
does not provide an administrative claimant an independent right to
use the section to seek payment of its claim. The judgment of the
Eighth Circuit is affirmed.
It is so ordered.
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