Opinion ID: 782113
Heading Depth: 1
Heading Rank: 1

Heading: introduction

Text: 2 This is an appeal from an Order of the District Court, which set aside an Order of the Bankruptcy Court authorizing a creditors' committee (the Committee) to sue on the estate's behalf to avoid a fraudulent transfer in a Chapter 11 proceeding. Before seeking derivative standing, the Committee had unsuccessfully petitioned the debtor-in-possession to pursue the avoidance claim. In granting derivative standing, the Bankruptcy Court determined that such a suit would be in the estate's best interest. The question on appeal is whether the decision of the United States Supreme Court in Hartford Underwriters Ins. Co. v. Union Planters Bank, 530 U.S. 1, 120 S.Ct. 1942, 147 L.Ed.2d 1 (2000), a Chapter 7 case which interpreted the text of 11 U.S.C. § 506(c) to foreclose anyone other than a trustee from seeking to recover administrative costs on its own behalf, operates to prevent the Bankruptcy Court from authorizing the suit described above. 3 We conclude that it does not. 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. We believe that Sections 1109(b), 1103(c)(5), and 503(b)(3)(B) of the Bankruptcy Code evince Congress's approval of derivative avoidance actions by creditors' committees, and that bankruptcy courts' equitable powers enable them to authorize such suits as a remedy in cases where a debtor-in-possession unreasonably refuses to pursue an avoidance claim. Our conclusion is consistent with the received wisdom that [n]early all courts considering the issue have permitted creditors' committees to bring actions in the name of the debtor in possession if the committee is able to establish that a debtor is neglecting its fiduciary duty. 7 Collier on Bankruptcy ¶ 1103.05[6][a] (15th rev. ed. 2002). 4 Accordingly, we will reverse the judgment of the District Court and remit the case to the original Panel so that it may consider the other grounds for the District Court's reversal of the Bankruptcy Court's Order, which were not argued before the en banc Court.