Opinion ID: 3013106
Heading Depth: 1
Heading Rank: 8

Heading: Other Code Provisions

Text: The majority does not contend that enforcing § 544 as written would produce an absurd result. Nevertheless, the majority looks beyond the text of § 544 to determine whether a creditors’ committee has “derivative” standing. Specifically, the majority asserts that §§ 1109(b) and 1103(c)(5) of the Bankruptcy Code, paired with trustee); § 1164 (naming the Surface Transportation Board, the Department of Transportation, and any State or local commission having regulatory jurisdiction over the debtor); § 1224 (naming a party in interest, the trustee, or the United States trustee); § 1229(a) (naming the debtor, the trustee, or the holder of an allowed unsecured claim); § 1307(c) (naming a party in interest or the United States trustee); § 1329(a) (naming the debtor, the trustee, or the holder of an allowed unsecured claim). 2. Congress has extended the rights and powers vested in a trustee to a debtor in possession, but has made no analogous provision for a creditors’ committee. See 11 U.S.C. § 1107(a). 55 § 503(b)(3)(B), make it “unmistakably clear that Congress approved of creditors’ committees suing derivatively to recover property for the benefit of the estate.” I respectfully disagree. The majority also contends that § 544 must be considered in light of the equitable powers of the bankruptcy courts, pre-Code practice, and policy concerns. I address these arguments in turn.
Section 1109(b) states that a “party in interest, including the debtor, the trustee, a creditors’ committee, an equity security holders’ committee, a creditor, an equity security holder, or any indenture trustee, may raise and may appear and be heard on any issue in a case under [Chapter 11].” 11 U.S.C. § 1109(b) (emphasis added). This Court has liberally construed § 1109(b) to grant a creditors’ committee a broad right to be heard, including among other powers, an unconditional right to intervene in a Chapter 11 adversary proceeding that has been initiated by a trustee. See Phar-Mor, Inc. v. Coopers & Lybrand, 22 F.3d 1228, 1232 (3d Cir. 1994); Matter of Marin Motor Oil, Inc., 689 F.2d 445, 446 (3d Cir. 1982), cert. denied, 459 U.S. 1207 (1983). However, this provision does not confer authority upon a creditors’ committee to initiate an action when the trustee or debtor-in-possession declines to bring suit. Section 1109(b) only establishes a right to be heard by way of intervention as a party plaintiff when a proceeding has already been brought by the statutorily authorized party. Courts that have found authority for creditors to bring avoidance actions under this provision have noted that “a general right to be heard would be an empty grant unless those who had such a right were allowed to act when those who should act did not.” Coral Petroleum, Inc. v. Banque Paribas-London, 797 F.2d 1351, 1363 (5th Cir. 1986) (quoting 5 Collier on Bankruptcy ¶ 1109.02(3) (15th ed. 1986)). Yet § 544(b), read in light of Hartford Underwriters, grants an exclusive right of action to the trustee, and a broad “right to be heard” provision may not expand the intent evidenced by the plain, specific language used by Congress in § 544(b). 56 Any doubt on this question is eliminated by the Supreme Court’s statement in Hartford Underwriters, albeit in dicta, indicating that the Court would not read § 1109(b) to allow a non-trustee to bring suit under a provision stating only that “the trustee may.” After acknowledging that § 1109(b) was “by its terms inapplicable” in Hartford Underwriters because the case arose under Chapter 7 rather than Chapter 11, the Court stated, “[i]n 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 specific parties.” 530 U.S. at 8-9 (citing 7 L. King, Collier on Bankruptcy & ¶ 1109.05 (rev. 15th ed. 1999) (“In general, section 1109 does not bestow any right to usurp the trustee’s role as representative of the estate with respect to the initiation of certain types of litigation that belong exclusively to the estate.”)). This is consistent with our prior interpretation of § 1109(b), and it strengthens my view of the statute.
Section 1103(c)(5) of the Bankruptcy Code provides that “[a] committee appointed under section 1102 of this title may perform such other services as are in the interest of those represented.” 11 U.S.C. § 1103(c)(5). This section does not, as the majority acknowledges, confer express authority for the Committee “independently to initiate an adversary proceeding, including one under § 544(b).” Nonetheless the majority argues that such authority may be found in the “flexible representation” role of a creditors’ committee evidenced by § 1103(c)(5). I do not read § 1103(c)(5) to suggest, in any way, a committee’s authority to file a lawsuit. The powers granted to committees under § 1103(c)(1)-(4) are very specific. They include the power to (1) consult with the trustee or debtor, (2) investigate the debtor’s acts and financial condition, (3) participate in the bankruptcy plan, and (4) request the appointment of an examiner. None of these provisions support the authority to initiate a lawsuit. Since the grants of power in (1) to (4) are quite 57 narrow and non-adversarial, the catch-all power should be similarly confined. See Federal Maritime Comm’n v. Seatrain Line, Inc., 411 U.S. 726, 734 (1973); see also Norfolk and Western Ry. v. American Train Dispatchers Ass’n, 499 U.S. 117, 129 (1991) (“Under the principle of ejusdem generis, when a general term follows a specific one, the general term should be understood as a reference to subjects akin to the one with specific enumeration.”). Because Congress authorized only limited, discrete rights of participation for a committee in § 1103(c)(1)-(4), we should not read § 1103(c)(5) to grant a broad, implied power to initiate a suit under general language regarding “other services as are in the interest of those represented.”
The majority argues that, while §§ 1109 and 1103 provide “at best indirect evidence that Congress granted bankruptcy courts the power to confer derivative standing” upon creditors’ committees, a third section, 503(b)(3)(B), provides “far more direct insight into bankruptcy courts’ powers.” I disagree on this point as well. Federal courts have consistently held that § 503(b)(3)(B) does not itself confer standing. Instead, this section merely authorizes the recovery of certain administrative expenses incurred by “a creditor that recovers, after the court’s approval, for the benefit of the estate any property transferred or concealed by the debtor.” 11 U.S.C. § 503(b)(3)(B). Thus, this section “only authorizes recovery of expenses to a creditor who successfully recovered property, which is to say, a creditor who had standing in the first place.” In re SRJ Enterprises, Inc., 151 B.R. 189, 193 n.1 (Bankr. N.D. Ill. 1993). See also In re Vogel Van & Storage, Inc., 210 B.R. 27, 32 n.4 (N.D.N.Y. 1997); Surf N Sun Apts., Inc. v. Dempsey, 253 B.R. 490, 492 (M.D. Fla. 1999). If a creditor does not have standing to prosecute a claim under § 503(b)(3)(B), there would seem to be even less support for the idea that this section confers derivative standing on a committee of creditors. Nevertheless, the majority argues that “the most natural reading of § 503(b)(3)(B) is that it recognizes and rewards 58 monetarily the practice of permitting creditors’ committees . . . to pursue derivative actions.” I again disagree. The plain reading of § 503(b)(3)(B) is that it permits “a creditor,” not a creditors’ committee, to recover expenses. Indeed, the most prevalent use of § 503(b)(3)(B), based on my review of the cases citing this provision, is to compensate individual creditors who object to discharge and then successfully locate and bring into the estate assets that had been transferred or concealed by the debtor. See, e.g., In re George, 23 B.R. 686, 687 (Bankr. S.D. Fla. 1982); In re Antar, 122 B.R. 788, 791 (Bankr. S.D. Fla.1990); In re Spencer, 35 B.R. 280, 281 (Bankr. N.D. Ga. 1983); In re Rumpza, 54 B.R. 107, 108 (Bankr. D. S.D. 1985); In re Humphrey’s Pest Control Co., Inc., 1990 WL 191859, at  (Bankr. E.D. Pa. Nov. 30, 1990), aff ’d, 1991 WL 136195 (E.D. Pa. July 18, 1991). See also Judy Simmons Henry, Recovery of Creditors’ Costs from the Bankruptcy Estate: Reasonable, Necessary, and . . . Uncertain, 18 U. ARK. LITTLE ROCK L.J., 199, 208-19 (1996) (discussing cases in which individual creditors have been allowed to recover their expenses under § 503(b)(3)(B)); Gregg D. Johnson, Recovering a Creditor’s Expenses and Legal and Accounting Fees as an Administrative Claim, 5 BANKR. DEV. J. 463, 47079 (1988) (same). In light of the plain language of the statute and its prevalent use, the majority’s view that § 503(b)(3)(B) rewards creditors’ committees for pursuing derivative actions is unpersuasive. In fact, committees recover expenses under a different Code provision. That is because creditors’ committees are typically represented by an attorney and § 330 of the Code specifically provides compensation for fees and expenses of the committee’s representative. Sections 330(a)(1)(A) and (B) allow for “reasonable compensation” as well as “reimbursement for actual, necessary expenses” incurred by the committee’s representative. 11 U.S.C. §§ 330(a)(1)(A), (B). In sum, § 503(b)(3)(B) is not the proper provision for awarding creditors’ committees expenses and is not an appropriate basis from which to infer that Congress authorized creditors’ committee derivative actions under § 544. See In re S.W.G. Realty Associates, II, L.P., 265 B.R. 534, 539 (E.D. Pa. 2001) (explaining that creditors’ committees’ eligibility for compensation is based on 59 § 330(a), not § 503(b)(3)(B)); In re UNR Industries, Inc., 736 F.2d 1136, 1139 (7th Cir. 1984) (stating that § 330 “provides for reimbursement of expenses incurred by professional persons hired by the Committee with court approval . . .”). Neither §§ 1109(b), 1103(c)(5), or 503(b)(3)(B), taken separately or together, provide sufficient statutory authority for the practice invoked by the Committee and approved by the bankruptcy court in this case. Because these Chapter 11 provisions granting significant authority to creditors’ committees do not go as far as to allow such committees to initiate avoidance actions, no matter whether the trustee fails to act and/or the creditors secure court approval, I cannot distinguish Hartford Underwriters, as the majority does, simply on the basis that Hartford Underwriters was a Chapter 7 case while here we consider a case under Chapter 11. The Committee urges this Court to go beyond a “cursory reading” of § 544(b) and examine other provisions of the Code. I have done so, and can find no provision which grants the Committee the authority denied to it in § 544(b).