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Litton Loan Servicing, L.P. v. Dennis Schubert

Summarizing by Amir Shachmurove

Alton v. KeyBank, N.A. (In re Powell's International, Inc.)

Bk. No. 10-02965-GBN
The bankruptcy appellate panel found Non-Debtor Mr. Alton's appeals moot. While Alton may equitably be entitled to $126,000, there is no mechanism under the Code for satisfying his claim. Based on 11 USC 726(b), unpaid chapter 11 administrative claims get paid only after chapter 7 administrative claims. Here, at the time of appeal, the case was in Chapter 7, and so Alton's claims were only entitled to secondary administrative priority. Unfortunately, the estate was administratively insolvent even for chapter 7 administrative claims. Alton alternatively argues that Key Bank's security interest should be equitably surcharged under 11 USC 506(c). Unfortunately, only trustees or debtors in possession have standing to surcharge sales benefiting secured lenders. In the present case, because it lacks standing, debtor in possession could not provide the remedy Alton seeks in Chapter 7. Moreover, the trustee in a chapter 7 may not seek to surcharge to benefit a single creditor. As to whether the bankruptcy court property denied Alton's motion to extend the time to appeal under Bankruptcy Rule 8002(c), the court articulated its basis rationally. While the delay was only of one day, non-debtor failed to provide any excuse for his late filing.
Procedural context:
Non-Debtor moved for compensation with regard to his help in selling Debtor's cars in Chapter 11. Court denied, and non-debtor failed to timely appeal. Non-debtor then successfully moved to extend time to file appeal, which Court then reversed on reconsideration. While appeals were pending, Chapter 11 case converted to Chapter 7, and case was found administratively insolvent.
Chapter 11 Debtor owned a Volvo dealership in Scottsdale, Arizona. Debtor sought to sell cars as part of an 11 USC 363 sale. Non-debtor Mr. Alton was solicited to assist as a "finder" of bidders for the sale. An employment application was submitted, retroactive to the beginning of the case. The Court entered the application, but approved it only as of the date the application was filed. The vast majority of Mr. Alton's time spent facilitating the sale predated the employment application. Mr. Alton claimed to be owed approximately $126,000 as a result of his efforts. Key Bank was the secured lender on the cars.
Taylor, Ahart, Jury

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