Opinion ID: 3013106
Heading Depth: 1
Heading Rank: 10

Heading: Pre-Code Practice and Policy Concerns

Text: After completing its comprehensive textual analysis in Hartford Underwriters, the Supreme Court concluded: “[b]ecause we believe that by far the most natural reading of § 506(c) is that it extends only to the trustee, petitioner’s burden of persuading [the Court] that the section must be read to allow its use by other parties is ‘exceptionally heavy.’ ” 530 U.S. at 9 (citations omitted). The Supreme Court also explained that, while pre-Code practice informs the interpretation of statutory provisions that have “ambiguity in the text,” pre-Code practice may not to be used as “an extratextual supplement.” Id. at 10. Based on these principles, the Supreme Court held that the phrase “the trustee may” in § 506, the identical phrase found in § 544(b)(1) and under review here, “leaves no room for clarification by pre-Code practice” and that “[p]re-Code practice cannot transform § 506(c)’s reference to ‘the trustee’ to ‘the trustee and other parties in interest.’ ” Id. at 11.4 I do not believe that the phrase “the trustee may,” which the Supreme Court found to be unambiguous in one section of the Code, becomes ambiguous simply because it appears in a different Code provision. The fact that Hartford Underwriters involved a Chapter 7 proceeding while the present case involves a Chapter 11 proceeding is of no consequence because, as previously explained, no other Code provision under either chapter renders the phrase ambiguous or alters its meaning to allow courts to authorize derivative suits. Because the language of § 544 is clear, a review of pre-Code practice is totally unnecessary. The same is true with regard to the public policy concerns discussed by the majority. In light of the clear import of the language of § 544 and because the result that language commands is not absurd, there is no need to explore the public policy implications of derivative standing. 4. Amicus Brunstad conceded at oral argument that, were we to look to all circuit court decisions decided under the Bankruptcy Act, we would find only four or five that recognize derivative action by creditors’ committees. A handful of cases do not suffice to meet appellants’ “exceptionally heavy” burden of persuasion. 63 One final point. At oral argument, the Court and the parties explored other possibilities which may be available to creditors’ committees, such as: (1) seeking appointment of a trustee or an examiner to pursue allegedly fraudulent transfers; (2) requesting a bankruptcy court order compelling the debtor in possession to act; or (3) seeking an order lifting the automatic stay to allow a creditors’ committee to pursue a fraudulent transfer action in state court on the condition that any assets recovered are brought back to the estate. We are not called upon, in this case, to decide the viability of these or other possibilities. However, the many possibilities raised demonstrate that holding that creditors’ committees lack derivative standing to pursue § 544 actions will not necessarily result in forfeiture of potentially valuable causes of action.