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#2233 signed 5-24-96

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF KANSAS

IN RE:

HARLEN O. ELLIOTT, and

THERESA M. ELLIOTT,

DEBTOR.

CASE NO. 92-40891-11

CHAPTER 11

ITT COMMERCIAL FINANCE CORP.

PLAINTIFF,

v.

TRANSAMERICA COMMERCIAL FINANCE CORPORATION, et al.,

DEFENDANTS.

ADVERSARY NO. 92-7102

MEMORANDUM OF DECISION

In this adversary proceeding, the First National Bank in Leavenworth (FNB) has filed an application for an administrative surcharge which is opposed by Transamerica Commercial Finance Corporation (Transamerica) and ITT Commercial Finance Corporation (ITT). FNB is represented by Betsy Garvin of Watson & Marshall L.C., Kansas City, Missouri. Transamerica is represented by Donald Loudon of Shughart, Thomson & Kilroy, P.C., Kansas City, Missouri. ITT is represented by Eric Bruce of Bruce & Davis, Wichita, Kansas. The parties have submitted legal memoranda and the matter is ready for decision

FACTS

The relevant facts are not disputed. Debtor Harlen Elliott ran a sole proprietorship selling boat and marine accessories. Since Mrs. Elliott was not involved in the business activites relevant to this proceeding, the Court will use "debtor" to refer only to Mr. Elliott. FNB, Transamerica, and ITT all have perfected security interests in the at least some of debtor's business property.

ITT commenced this proceeding to obtain a determination, among other things, of the relative priorities of parties who claim an interest in certain of the debtor's collateral and cash collateral accounts. It has devolved to the three present litigants. Some time ago, the Court determined that FNB's security interest in some of the debtor's inventory had priority over Transamerica's security interest in that same inventory. That ruling was affirmed by the district court on appeal. This decision will resolve FNB's attempt to surcharge Transamerica and ITT for costs it incurred monitoring the debtor's activities, allegedly to protect all three creditors' interests. In addition to this ruling, today the Court is issuing a decision resolving an alleged circular priority problem concerning the three creditors.

Pursuant to 11 U.S.C.A. §506(c), FNB wants to surcharge the two other secured creditors $12,475. It contends they should pay $50 per hour for time FNB's president spent monitoring the debtor's accounts at the bank daily, taking inventories at the debtor's place of business, recording all the debtor's sales, speaking to the debtor's attorneys and creditors, and performing other miscellaneous tasks. FNB had other employees who were capable of performing these functions for less than $50 per hour, but its president chose to undertake them himself.

Transamerica and ITT contend that FNB has no standing to surcharge them under §506(c), FNB acted simply to protect its own pecuniary interests, and FNB acted contrary to an agreement among these three claimants. The claimants' agreement is evidenced by a proposed cash collateral order which they read into the record at a hearing rather than filing with the Court; FNB attached a copy to one of its pleadings. Under the agreement, the debtor was to maintain at FNB an operating account, a cash collateral account, and a restricted account which contained money in dispute among the claimants. FNB was allowed to monitor the accounts. The claimants were given the right to inspect the debtor's inventory weekly, and agreed to rotate inspections and share the results with each other. The debtor was to pay the costs of the inspections to the extent required under his loan agreements and allowed under 11 U.S.C.A. §506. Nothing in the agreement indicated the claimants could seek such costs from one another.

FNB claims ITT and Transamerica did not satisfy their inspection obligations while ITT and Transamerica claim FNB was so uncooperative they were precluded from making meaningful inspections. The documents filed in this case do demonstrate FNB's substantial unwillingness to respond to the others' requests for information.

DISCUSSION AND CONCLUSIONS

FNB seeks to surcharge ITT and Transamerica under §506(c), which provides: "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." On its face, the statute allows only a trustee or, in conjunction with §1107(a), a debtor-in-possession to recover such charges. Nevertheless, courts disagree about whether the statute is so limited. See 3 Collier on Bankruptcy, ¶506.06 at 506-57 to -58 (15th ed. 1994). Some cases merely read the statute and deny a claim made by anyone other than the trustee or debtor-in-possession. See, e.g., Dock's Corner Assocs. v. Boyd (In re Great Northern Forest Products, Inc.), 135 B.R. 46, 62-69 (Bankr.W.D.Mich. 1991). Others allow someone else to recover, at least if the trustee or debtor-in-possession has no incentive or refuses to seek recovery. See, e.g., North County Jeep and Renault, Inc., v. General Electric Capital Corp. (In re Palomar Truck Corp.), 951 F.2d 229 (5th Cir. 1991).

Under the circumstances of this case, and without determining the greater question of whether a party other than the trustee or debtor-in-possession may ever recover under §506(c), the Court concludes that FNB is not entitled to the administrative claim it seeks. All three claimants asserted secured claims against the money and property FNB sought to monitor. Their agreement called for them to share the work FNB seeks to be compensated for, but FNB prevented the sharing by refusing to cooperate with the others, as is documented in the court file. Of course, had it been the only secured creditor, it would have had to do most, if not all, of the same work to protect itself anyway. The debtor's accounts were all moved to FNB so that it could monitor them to protect its own interests. Thus, FNB benefited from its work. It should not be allowed to shift its costs onto the other claimants when it could have avoided a good portion of them simply by cooperating with those claimants. Finally, to make matters worse, FNB's highest paid officer did all the monitoring, leading the bank to seek $50 per hour for the services rendered, even though lower-echelon employees could have performed all the work. In the Court's opinion, this is an unreasonable rate resulting from an unreasonable practice.

For these reasons, the Court will deny FNB's request for an administrative surcharge under §506(c).

The foregoing constitutes Findings of Fact and Conclusions of Law under Rule 7052 of the Federal Rules of Bankruptcy Procedure and Rule 52(a) of the Federal Rules of Civil Procedure. A judgment based on this ruling will be entered on a separate document as required by FRBP 9021 and FRCP 58.

Dated at Topeka, Kansas, this ____ day of May, 1996.













_________________________________

JAMES A. PUSATERI

CHIEF BANKRUPTCY JUDGE







IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF KANSAS







IN RE: )

)

HARLEN O. ELLIOTT, and ) CASE NO. 92-40891-11

THERESA M. ELLIOTT, ) CHAPTER 11

)

DEBTOR. )

)

ITT COMMERCIAL FINANCE CORP. )

)

PLAINTIFF, )

v. ) ADVERSARY NO. 92-7102

)

TRANSAMERICA COMMERCIAL )

FINANCE CORPORATION, et al., )

)

DEFENDANTS. )



JUDGMENT ON DECISION

In this adversary proceeding, the First National Bank in Leavenworth (FNB) filed an application for an administrative surcharge which was opposed by Transamerica Commercial Finance Corporation (Transamerica) and ITT Commercial Finance Corporation (ITT). FNB was represented by Betsy Garvin of Watson & Marshall L.C., Kansas City, Missouri. Transamerica was represented by Donald Loudon of Shughart, Thomson & Kilroy, P.C., Kansas City, Missouri. ITT was represented by Eric Bruce of Bruce & Davis, Wichita, Kansas. The parties submitted legal memoranda and the Court has now issued its Memorandum of Decision.

For the reasons stated in that Memorandum, judgment is hereby entered denying FNB's application.

IT IS SO ORDERED.

Dated at Topeka, Kansas, this _____ day of May, 1996.













__________________________________

JAMES A. PUSATERI

CHIEF BANKRUPTCY JUDGE

 

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