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Recent Case Developments: Supreme Court:

Creditors and other parties-in-interest lack standing to surcharge secured party's collateral under Code ' 506(c).

Writing for a unanimous Supreme Court, Justice Antonin Scalia holds that the plain, unambiguous text of Code ' 506(c) precludes any party other than the trustee from recovering costs from the collateral of a secured party. The case involved worker's compensation insurance provided post-petition by an insurer without knowledge of the debtor's bankruptcy case. The debtor's effort to reorganize failed and the case converted to one under Chapter 7. Thereafter, the insurer learned of the bankruptcy case and that substantially all of the debtor's assets were encumbered. Not satisfied with worthless administrative claim, the insurer sought recovery of its premiums from the secured party's collateral by arguing that the provision's use of the word "may," or, in the alternative, the provision's failure to use the word "only" indicates that Congress intended for parties other than the trustee to recover costs under Code ' 506(c). In rejecting this argument, the Court stated that "[w]here a statute names the parties granted the right to invoke its provisions, such parties only may act." The Court explained that even if the trustee had not been named in the provision as the party entitled to surcharge a secured party's collateral, the trustee's "unique role in bankruptcy proceedings" would lead the Court to believe that "the trustee is the most obvious party who would have been thought empowered to use the provision." Given the relatively narrow legal issue actually decided, it is likely that this decision will ultimately become better identified for its statements on the rules of statutory construction. Justice Scalia's opinion makes clear that pre-Code practice is a tool of construction, rather than an extratextual supplement, that assists a court's understanding of the language employed in a statute but which fails to overcome the express language utilized by Congress. Thus, pre-Code practice may assist in interpretation, but it cannot transform Code ' 506(c)'s reference to "the trustee" to "the trustee and other parties-in-interest."


Hartford Underwriters Ins. Co. v. Union Planters Bank, ___ U.S. ___, 120 S.Ct. 1942, 147 L.Ed.2d 1 (May 30, 2000).