Opinion ID: 782113
Heading Depth: 2
Heading Rank: 2

Heading: Did Hartford Underwriters take place in an analogous context?

Text: 26 Based on the above reasoning, the Hartford Underwriters Court interpreted the trustee may in § 506(c) to mean that only the trustee may bring an action. In the case at bar, the District Court concluded that, faced with the same language in § 544(b), the same conclusion must there obtain. But the Hartford Underwriters Court expressly reserved the question before us today. In a footnote critical to understanding the scope of that decision, the Supreme Court stated: 27 We do not address whether a bankruptcy court can allow other interested parties to act in the trustee's stead in pursuing recovery under § 506(c). Amici American Insurance Association and National Union Fire Insurance Co. draw our attention to the practice of some courts of allowing creditors or creditors' committees a derivative right to bring avoidance actions when the trustee refuses to do so, even though the applicable Code provisions, see 11 U.S.C. §§ 544, 545, 547(b), 548(a), 549(a), mention only the trustee. See, e.g., In re Gibson Group, Inc., 66 F.3d 1436, 1438 (6th Cir.1995). Whatever the validity of that practice, it has no analogous application here, since petitioner did not ask the trustee to pursue payment under § 506(c) and did not seek permission from the Bankruptcy Court to take such action in the trustee's stead. Petitioner asserted an independent right to use § 506(c), which is what we reject today. 28 Id. at 13 n. 5, 120 S.Ct. 1942. The District Court nevertheless concluded that the Committee failed sufficiently to distinguish Hartford Underwriters 's method of interpretation, which it found to yield equally compelling results when applied to § 544(b). 29 We agree that Hartford Underwriters is most useful for the interpretive methodology it offers, but it is critical to note the context in which that decision arose, for it is materially unlike the one before us today. The petitioner in Hartford Underwriters was an insurer who, by continuing coverage despite Hen House's failure to pay its premiums, became an administrative lender with claims subordinate to those of the secured creditors. When it learned of Hen House's bankruptcy, it attempted to use § 506(c) to recover the premiums it was owed, but it did so in a strikingly unilateral fashion. The insurance premiums were not costs incurred by the trustee that, if recovered, would have yielded a common benefit. Instead, they would have satisfied only Hartford's outstanding claim. Nor did Hartford seek the court's or the trustee's permission to recoup the expense, but rather it sued in its own name and for its own direct benefit. 30 The situation at bar is markedly different. When the Committee discovered that certain transfers made by Cybergenics were potentially avoidable as fraudulent, it first petitioned the Cybergenics management to file an avoidance action under § 544(b). 4 But management refused to file that action, claiming that the costs would likely outweigh the benefits, and it maintained this position even after the Committee volunteered to bear all litigation costs. The Committee, finding management's stance unreasonable, petitioned the bankruptcy court for permission to prosecute a § 544(b) avoidance action in Cybergenics's name and on its behalf — any recovery would go not to the Committee, but to the estate itself. The Bankruptcy Court concluded that the fraud claims were colorable, and that the Committee's offer to bear the litigation costs insulated the estate from risk. Noting that the debtor-in-possession has a duty to maximize the value of the estate, the court concluded that management's refusal to act was unreasonable even given the usual judicial deference to business judgment, and it authorized the Committee to sue in Cybergenics's name. 31 This difference in contexts is crucially important, for while the question in Hartford Underwriters was one of a nontrustee's right unilaterally to circumvent the Code's remedial scheme, the issue before us today concerns a bankruptcy court's equitable power to craft a remedy when the Code's envisioned scheme breaks down. With this perspective in mind, we turn to the question whether derivative suits may be maintained under § 544(b) after Hartford Underwriters.