Commercial Law World - Issue 1, 2018 - 27
Tales From the Front
- Continued from page 28
or wear and tear of the collateral. Cheatham v. Cent. Carolina Bank &
Trust Co. (In re Cheatham), 91 B.R. 382, 387 (E.D.N.C. 1988). These
courts reason that the creditor should have better predicted the amount
of foreseeable decreases in the value of its collateral when it agreed
to the amount of adequate protection payments. A secured creditor's
"gross miscalculation" in the stipulated amount of adequate protection
should not be rewarded with an administrative priority claim.59 Other
courts reject the unforeseeability requirement arguing that such an
interpretation of § 507(b) discourages creditors from stipulating to the
amount of adequate protection payments and makes them unwilling to
cooperate with the bankruptcy process.60
Starling City, where the judgment we docketed in
Gotham was not recognized. Other than looking
to docket the judgment in Starling City, I did
not see any other option, and we told Olsen that
things looked bleak.
4. The Priority of § 507(b) Claim After
Conversion to a Chapter 7
Five minutes later, I saw an email from a
fellow member of the Justice League, that I was
copied on, which read:
After running the gauntlet of Bankruptcy rules and case law, a
secured creditor with an awarded superpriority § 507(b) claim in a
Chapter 11 or 13 proceeding may still lose its exalted position. Under
§ 726(b), administrative claims incurred following conversion of a case
to a Chapter 7 proceeding and allowed under §503(b) enjoy priority over
§ 503(b) claims that were incurred prior to conversion.61 This means a
superpriority claim awarded to a secured creditor for the diminution
of the value of its collateral while the case was being reorganized
is subordinated to administrative claims incurred in the Chapter 7
proceeding.62 The secured creditor's § 507(b) position will still be
positioned above the level of Chapter 7 general unsecured creditors.
The administration of a bankruptcy case often requires a delicate
balancing of the debtor's need to utilize collateral with the creditor's
right to maintain the value of its security. To alleviate this tension, the
Code fashioned § 361 providing the debtor with access to the collateral
while offering the creditor "adequate protection." Since adequate
protection orders are merely predictions of the collateral's value, they
may occasionally fail to fully protect a creditor's interest. Section
507(b) rectifies the inherent hazards of the adequate protection order
by enabling the injured creditor to file a superpriority claim for its
deficiency. A secured claim meeting § 507(b)'s prerequisites take on
the enviable nature of an administrative claim under § 507(a)(1), the
highest priority the Code recognizes. Moreover, § 507(b) provides that
a qualifying secured claim "shall have priority over every other claim"
allowable under § 507(a)(1). Hence, a § 507(b) claim has the entirely
appropriate adjective "superiority".
Olsen was furious and ripped into my staff via
email. I advised him that if he was interested in
seeking other counsel, we would cooperate with
any substitution that he wanted.
"Dear Mr. Olsen,
Unfortunately, while I am in Gotham, I do
not enforce judgments against individuals, only
corporations. However, I can recommend you to
someone else, the best in the League. I refer you
to Timothy Wan. I am Ccing him on this email
so he can introduce himself.
I didn't respond to that ego-stroke
immediately. I wasn't sure what to say, other
than to thank Aquaman. About an hour later, I
received a phone call from Mr. Olsen. He stated
that in the last hour, he actually contacted three
members of the Justice League, and all three
recommended that he come to me. His tone
changed, and he was apologetic.
Unfortunately, we never collected anything
from Luthor. But I look forward to the day that I
can work with Olsen because his tenacity might
be useful should I have an adversary who is in
In re Callister, 15 B.R. 521, 530 (Bankr. D. Utah 1981), appeal dismissed, 673 F.2d 305
(10th Cir. 1982).
In re California Devices, Inc., 126 B.R. 82, 85 (Bankr. N.D. Calif. 1991); In re Becker,
51 B.R. 975, 979 (Bankr. D. Minn. 1985).
11 U.S.C. §726(b).
In re Sun Runner Marine, 134 B.R. 4, 7 (B.A.P. 9th Cir. 1991).