Opinion ID: 512405
Heading Depth: 3
Heading Rank: 3

Heading: United States v. Butner

Text: 75 The appellees maintain that allowing the Committee to pursue LWE's cause of action against its officers and directors for gross negligence, mismanagement and breach of fiduciary duty--in lieu of a trustee or the debtor-in-possession--would give LWE's creditors substantive property rights which they are not entitled to under Louisiana law, in contravention of the United States Supreme Court's opinion in Butner v. United States, 440 U.S. 48, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979). Butner involved a dispute between a bankruptcy trustee and a second mortgagee over the right to rents collected during the period between a mortgagor's bankruptcy and the foreclosure sale of mortgaged property. The Court was forced to determine if a particular question--whether a security interest in property extends to rents and profits derived from the property--should be resolved by reference to state law. Recognizing that Congress has generally left the determination of property rights in the assets of a bankrupt's estate to state law, id. at 54, 99 S.Ct. at 918, the Court refused to adopt a federal rule of equity affording a mortgagee an automatic security interest in the rents even if state law would not recognize any such interest until after foreclosure, id. at 53-54, 99 S.Ct. at 917-18. 76 In doing so, the Court clarified the relationship between state property laws and the equity powers of the bankruptcy court. As the Court explained: 77 Property interests are created and defined by state law. Unless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding. Uniform treatment of property interests by both state and federal courts within a State serves to reduce uncertainty, to discourage forum shopping, and to prevent a party from receiving a windfall merely by reason of the happenstance of bankruptcy. 78 Id. at 55, 99 S.Ct. at 918 (quoting Lewis v. Manufacturers Nat'l Bank, 364 U.S. 603, 609, 81 S.Ct. 347, 350, 5 L.Ed.2d 323 (1960)); see also In re Waldron, 65 B.R. 169, 170 (Bankr.N.D.Tex.1986). In Butner, therefore, the Supreme Court stressed that federal bankruptcy law should not be used to work a substantive change in the ordering of property interests under state law. The appellees argue that allowing the Committee to maintain this action effectively creates a new cause of action on the part of creditors, thereby working a substantive change in property interests under Louisiana law. We reject that proposition and conclude that Butner in no way forbids the committee from maintaining this action in lieu of a trustee or the debtor-in-possession. 79 Here, it is clear that LWE's cause of action against its officers and directors for gross negligence, mismanagement and breach of fiduciary duty arises under Louisiana law. The named plaintiff, LWE, is the party to whom the action belongs under state law; moreover, any recovery from successful litigation flows directly to that same party. State law property interests are not disturbed--indeed, state property interests would be disturbed if we were to accept the appellees' argument--and no substantive interests are created by allowing the Committee to pursue LWE's state law created cause of action. The only change lies in the identity of the agent that actually pursues that state law cause of action on behalf and in the name of LWE. That change is, at most, a procedural device, authorized by the Code, which does not affect state created property interests. To the extent that Louisiana has any interest whatsoever in the identity of the agent who actually asserts LWE's state law rights where LWE is unable to do so, that interest must yield to the procedural needs and dictates of federal bankruptcy law. Butner is simply not implicated.