Opinion ID: 23159
Heading Depth: 1
Heading Rank: 2

Heading: The Surcharge Order

Text: 13 TNB argues on appeal that the bankruptcy court, and the district court on appeal, should have granted its motion to reconsider under Fed. R. Civ. P. 60(b). 7 TNB argues that in granting Parker's motions to surcharge, the bankruptcy court made a mistake, which is a basis for relief under Rule 60(b). 8 14 The bankruptcy court opined, at the July 20 hearing, that the surcharge order was clearly contrary to Fifth Circuit precedent. Parker has not rebutted this point. Indeed, 11 U.S.C. 506(c) provides that, The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim. We have interpreted this language to require a quantifiable and direct benefit to the secured creditor; indirect or speculative benefits may not be surcharged, nor may expenses that benefit the debtor or other creditors. See French Mkt. Homestead, FSA v. P.C., Ltd. (In re P.C., Ltd.), 929 F.2d 203, 205 (5th Cir. 1991); New Orleans Pub. Serv., Inc. v. First Fed. Sav. & Loan Ass'n (In re Delta Towers Ltd.), 924 F.2d 74, 76-77 (5th Cir.), reh'g denied, 1991 U.S. App. LEXIS 4829 (1991). The default rule in bankruptcy is, accordingly, that administrative expenses are paid out of the estate and not by the secured creditors of the debtor. See P.C., Ltd., 929 F.2d at 205; Delta Towers, 924 F.2d at 76-77. The remediation of the waste oil did not benefit TNB, as the waste oil was stored in drums on the Grimland premises and did not, apparently, contaminate any of Grimland's personal property. Nor did the storage of the personal property on Grimland's premises benefit TNB. As a secured creditor, TNB was entitled to repossess and auction off its collateral. That the auction was conducted by the trustee afforded TNB no real benefit beyond what it could have recovered on its own. Thus, it seems clear that entry of this surcharge order was contrary to established law. 15 Circuit precedent does allow the use of Rule 60(b), made applicable to bankruptcy proceedings by Fed. R. Bankr. P. 9024, to correct judicial error. When a judicial decision contains an obvious error of law, apparent on the record, then the error may be corrected as a mistake pursuant to Rule 60(b). The error of law must involve a fundamental misconception of the law or a conflict with a clear statutory mandate. See Hill v. McDermott, 827 F.2d 1040, 1043 (5th Cir. 1987), cert. denied, 484 U.S. 1075 (1988); Chick Kam Choo v. Exxon Corp., 699 F.2d 693, 695 (5th Cir.), cert. denied sub nom. Chick Kam Choo v. Esso Oil Co., 464 U.S. 826 (1983). 16 Granting or denying a motion under Rule 60(b) is within the discretion of the district court, and we review that decision only for an abuse of discretion. See Halicki v. La. Casino Cruises, Inc., 151 F.3d 465, 470 (5th Cir. 1998), cert. denied, 526 U.S. 1005 (1999). Parker argues that the bankruptcy court, and the district court in affirming the bankruptcy court, did not in fact make any mistakes in this case. Rather, it argues that the bankruptcy court simply entered an order in response to an uncontested motion. Parker notes, and both the bankruptcy court and the district court agreed, that Local Rule 9014 of the Western District of Texas puts the onus on TNB to respond and contest the motion. 17 In this case, however, the local rule is not dispositive and the bankruptcy court should have ruled on the merits of TNB's objection. First, TNB was entitled under the law to maintain its entire lien position. Second, although TNB should have recognized that the first surcharge motion could put its position in jeopardy, the motion contained no dollar amounts which would clearly alert TNB to the issue. The extent of the lien stripping was unclear and the finalization of the surcharge amount remained an open issue which was not resolved until the hearing on the second surcharge motion. Third, appellant filed a written objection before the hearing on the second surcharge motion and participated in that hearing, making its position clear to the bankruptcy court. Only after that hearing did the court enter an order setting the amount of the surcharge and effectively depriving appellant of its lien position. 18 Negative noticing in bankruptcy serves an important function. It allows the court to issue orders necessary to the prompt disposition of property and other matters essential to a debtor's efficient reorganization or maximization of creditors' recoveries. Under Fed. R. Bankr. P. 9014, contested matter motions must provide for notice and an opportunity for the affected party to be heard. The bankruptcy court relies on the notice to bring forth interested parties. See Oppenheim, Appel, Dixon & Co. v. Bullock (In re Robintech, Inc.), 863 F.2d 393, 398 (5th Cir.), cert. denied, 493 U.S. 811 (1989). Nonetheless, there was no particular urgency to the surcharge issue and any belatedness of the objection to the open-ended request for surcharge would not have delayed the case. The second hearing was necessary to finalize the matter, and, as indicated, TNB objected before that hearing and appeared at that hearing to make its case. 19 Given the complete loss of the value of plaintiff's lien in contravention of the bankruptcy code, the bankruptcy court should have considered the totality of the circumstances, and not just the purported technical delay in responding to the first motion. On the one hand, the bankruptcy court is a court of equity and it must undertake an analysis of equitable considerations. On the other hand, rarely does a court abuse its discretion in holding parties to strict time limits found in local rules. Cf. FDIC v. Yancey Camp Dev., 889 F.2d 647, 649 (5th Cir. 1989) (setting aside default judgment issued after party failed to answer motion timely because the extraordinary facts of [that] case command[ed] such a result). This, however, is such a rare case. 20 In view of the representations made to appellant by the trustee as to the security of its position, Parker's choice of motion language, the lack of time pressure, the lack of equitable factors in Parker's favor and the extreme deprivation of TNB's legal rights, the bankruptcy court abused its discretion in not hearing appellant's claim on the merits at the hearing on the second motion to finalize the surcharge. It also abused its discretion in failing to reconsider its denial of appellant's objection to the surcharge. See Seven Elves, Inc. v. Eskenazi, 635 F.2d 396, 403 (5th Cir. Unit A Jan. 1981) (despite strong interest in finality, Rule 60(b) construed liberally so as to hear case on merits). 21 Accordingly, the order of the district court is REVERSED and this matter is REMANDED for proceedings consistent herewith.