Court Opinion

ID: 8956280
Source: CourtListenerOpinion
Date Created: 2022-11-27 09:15:41.831269+00
Date Added: 2024-06-11T17:10:05.268907
License: Public Domain

DAVID A. NELSON, Circuit Judge,
concurring.
I concur in the judgment of the court, but write separately to emphasize the limit*606ed precedential effect of our holding in this case and to explain why I read the bankruptcy court’s amended order as purporting, at least, expressly to grant § 364(c) priority to pre-petition debt as well as to post-petition debt.
At the time of the filing of the debtors’ voluntary petitions under Chapter 11 of the Bankruptcy Code, as the amended order recites, the debtors owed the Banks approximately $4.4 million. The Banks claim that this indebtedness was secured by valid liens on all of the debtors’ assets. The unsecured creditors challenged the validity of the Banks’ liens, but the bankruptcy court, which was familiar with at least some of the evidence bearing on that issue, found that there was “little likelihood” that the objections to the liens would be sustained. The bankruptcy court also found that the litigation expense to which the debtors’ estates would be subjected if the objections to the Banks’ liens were fully litigated would be at least $200,000. Under these circumstances, and in view of the unwillingness of the Banks to advance further credit or agree to the continued use of cash collateral unless the objections to the liens were waived, the court found that waiver of the objections to the liens would be in the best interests of the estates and their creditors.
It was against this background that the bankruptcy court authorized the obtaining of additional credit and granted “replacement liens” on all of the assets of the debtors. The amended order expressly stated that the replacement liens were granted as security for “all” liabilities of the debtors, including pre-petition liabilities, and at two separate places in the amended order it was expressly stated that the replacement liens were granted “pursuant to Section 364 of the Bankruptcy Code.”
Pursuant to Section 364(c)(1) of the Bankruptcy Code the additional credit authorized by the amended order was given priority over all administrative expenses, and it is true that the pre-petition liabilities were not given priority over administrative expenses. The replacement liens were clearly intended to give the Banks priority over unsecured creditors for the full amount of the pre-petition liability to the Banks, however, and I do not read the amended order’s reference to Section 364(c)(1) as suggesting in any way that the bankruptcy court did not contemplate that the replacement liens, in their entirety, were granted “pursuant to Section 364....” That understanding is confirmed by the penultimate paragraph of the amended order, which reads as follows:
“This order is entered pursuant to Section 364 of the Bankruptcy Code. The validity of any credit extended by the Banks and any priority or lien granted pursuant to this Order shall not be affected on appeal by reversal or modification of the authorization contained herein unless this Order is stayed pending appeal.”
I am uncertain whether Section 364 ought to be read as authorizing the bankruptcy court to grant liens securing pre-pe-tition debt as well as the additional debt incurred on the strength of the amended order. Section 364(c)(2) does empower the bankruptcy court to authorize the incurring of additional debt “secured by a lien,” however, and the statute does not expressly say that under no circumstances may such a lien secure pre-petition debt as well. In the case at bar everyone concerned was put on notice that the authorization to obtain credit and the grant of replacement liens securing all of the indebtedness to the Banks were made “under this section” (i.e. under Section 364) as far as the bankruptcy court was concerned, and given the particular circumstances of this case I cannot say that the bankruptcy court was completely unreasonable in construing the scope of its authority as broadly as it did. The unsecured creditors having been made aware of the bankruptcy court’s position that under Section 364(e) the validity of the replacement liens would not be affected by reversal on appeal unless the amended order were stayed, it seems to me that the unsecured creditors acted at their peril in failing to obtain such a stay. I believe, therefore, that the district court acted correctly in dismissing the appeal whether or not the *607granting of replacement liens securing both pre-petition and post-petition indebtedness was in fact authorized by Section 364.