Opinion ID: 4777078
Heading Depth: 2
Heading Rank: 2

Heading: Subrogation under the Bankruptcy Code, 11

Text: U.S.C. § 509 Section 509 of the Bankruptcy Code “is the statutory enactment of the long-standing doctrine of equitable subrogation.” In re Chateaugay Corp., 89 F.3d 942, 947 (2d Cir. 1996) (“Chateaugay I”). The parties do not dispute the Bankruptcy Court’s conclusion that application of Section 509 controls this case. See LTC Holdings, 597 B.R. at 573–74; see also 4 Collier on Bankruptcy ¶ 509.02 (16th ed. 2021) (noting that many courts “still apply common law standards in one form or another when conducting a section 509 analysis”). In relevant part, Section 509 provides: (a) Except as provided in subsection (b) or (c) of this section, an entity that is liable with the debtor on, or that has secured, a claim of a creditor against the debtor, and that pays such claim, is subrogated to the rights of such creditor to the extent of such payment. . . . (c) The court shall subordinate to the claim of a creditor and for the benefit of such creditor an allowed claim, by way of subrogation under this section, or for reimbursement or contribution, of an entity that is liable with the debtor on, or that 16 has secured, such creditor’s claim, until such creditor’s claim is paid in full, either through payments under this title or otherwise. 11 U.S.C. § 509. In a departure from the general common-law rule, Section 509(a) provides that a surety is partially subrogated to the rights of a creditor to the extent that the surety has made any payments (i.e., short of payment in full). However, Section 509(c) provides that those subrogation rights are subordinated to the remainder of the creditor’s claim until the creditor has been paid in full. Although resort to legislative history is unnecessary here to render any more plain Congress’s intent in ordering how Section 509(c) should operate, portions of that history do explain congressional concern for preventing a surety from “compet[ing] with the creditor he has assured until the assured party’s claim has [been] paid in full.” 124 Cong. Rec. H. 11,094 (Sept. 28, 1978), S. 17,410–11 (Oct. 6, 1978); see also Pa. Nat’l Mut. Cas. Ins. Co. v. City of Pine Bluff, 354 F.3d 945, 951 (8th Cir. 2004) (explaining that the full performance requirement also encourages a surety to pay claims in full, rather than paying only to the extent that the surety anticipates a “dividend in the assets of the debtor”). 17