Opinion ID: 2966527
Heading Depth: 3
Heading Rank: 2

Heading: Interests in Property

Text: Section 363(f) of the Bankruptcy Code authorizes the bankruptcy courts, under any one of five prescribed conditions, to authorize the sale of property free and clear of any interest in such property of an entity other than the estate.10 11 U.S.C. § 363(f) (emphasis added). The Code does not define the kinds of interests in property that the statute is intended to encompass. The Plan and Fund have contended, though, that their respective interests in receiving premium payments are not within the scope of the statute: Coal Act obligations are not in the nature of an encumbrance on property of the debtor, nor are they enforceable through an in rem action, nor do they arise from ownership of property. Those obligations, therefore, cannot be subject to a free and clear sale under Section 363(f). Appellants' Brief at 27. In Leckie Smokeless, citing WBQ Partnership v. Virginia Dep't of Medical Assistance Servs. (In re WBQ Partnership), 189 B.R. 97, 105 (Bankr. E.D. Va. 1995), the District Court stated that [a] creditor has an `interest in the property' of a debtor when he has a right to seek a future money payment from the debtor. Because the Fund and Plan have a right to seek Coal Act premiums from the debtors, the court concluded that the Fund and Plan have interests in the debtors' prop_________________________________________________________________ 10 In Leckie Smokeless, the District Court held that the first of the five alternative bases for issuing a free and clear order applied: the court held that nonbankruptcy law--namely, the Coal Act--permitted the sale of the debtors' assets free and clear of Coal Act liabilities. See 11 U.S.C. § 363(f)(1) (stating that a trustee may sell property free and clear of an interest in that property if applicable nonbankruptcy law permits sale of such property free and clear of such interest). In Lady H, the District Court found itself bound by the Leckie Smokeless decision. In the alternative, the Lady H court adopted the Bankruptcy Court's proposed finding that the debtors' property could be sold free and clear of the Plan's interest because the Plan could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest. See 11 U.S.C. § 363(f)(5). The Plan has not appealed that aspect of the Lady H court's alternative ruling. 16 erty. In Lady H, the District Court did not expressly address the issue; instead, it adopted the Bankruptcy Court's conclusion that the Plan has an interest in the debtors' property and that its claim for premiums would attach to the proceeds of the sale of that property. Though courts have not yet settled upon a precise definition of the phrase interest in such property, see Ninth Ave. Remedial Group v. Allis-Chalmers Corp., 195 B.R. 716, 730-32 (Bankr. N.D. Ind. 1996), we find that the District Court in Leckie Smokeless applied an unduly broad interpretation of the statute when it stated that one has an interest in a debtor's property simply when one has a right to demand money from the debtor. We have previously observed, for example, that courts have recognized that general, unsecured claims do not constitute `interests' within the meaning of§ 363(f). Yadkin Valley Bank & Trust Co. v. McGee (In re Hutchinson ), 5 F.3d 750, 756 n.4 (4th Cir. 1993); see also Ninth Ave. Remedial Group, 195 B.R. at 729-32 (observing that a few courts have held that section 363(f) applies only to in rem interests, while numerous other courts have interpreted the statute more broadly, applying it, for example, to product liability and employment discrimination claims). Yet while the plain meaning of the phrase interest in such property suggests that not all general rights to payment are encompassed by the statute, Congress did not expressly indicate that, by employing such language, it intended to limit the scope of section 363(f) to in rem interests, strictly defined, and we decline to adopt such a restricted reading of the statute here. Accord P.K.R. Convalescent Centers v. Commonwealth of Virginia, Dep't of Medical Assistance Servs. (In re P.K.R. Convalescent Centers), 189 B.R. 90, 92-94 (Bankr. E.D. Va. 1995) (holding that section 363(f) permitted a sale free and clear of Virginia's depreciation-recoupment interest in the debtor's property, even though that interest was unsecured by lien or otherwise). Contra Fairchild Aircraft Corp. v. Cambell (In re Fairchild Aircraft Corp.), 184 B.R. 910, 917-19 (Bankr. W.D. Tex. 1995) (holding that section 363(f) applies only to in rem interests which have attached to the property, by way of either the debtor's consent to a security interest or the creditor's attachment of the property resulting in a lien). It is difficult to make further categorical observations concerning the intended meaning of the words interest in--indeed, the precise boundaries of the phrase likely will be defined only as the courts con17 tinue to apply it to the facts presented in the cases brought before them. Yet we hold that the Fund's and Plan's rights to collect premium payments from Appellees constitute interests in the assets that Appellees now wish to sell, or have sold already. Those rights are grounded, at least in part, in the fact that those very assets have been employed for coal-mining purposes: if Appellees had never elected to put their assets to use in the coal-mining industry, and had taken up business in an altogether different area, the Plan and Fund would have no right to seek premium payments from them. Because there is therefore a relationship between (1) the Fund's and Plan's rights to demand premium payments from Appellees and (2) the use to which Appellees put their assets, we find that the Fund and Plan have interests in those assets within the meaning of section 363(f).11