In re Chieftain Steel, LLC

Case Type:
Case Status:
19-8005 (6th Circuit, Apr 08,2020) Not Published
The “carve-out” provision of a cash collateral order of the sort ordinarily meant to assure payment of professionals’ fees will be interpreted according to its plain terms, and will not be applied to hold the lender responsible for payment of such fees or grant the professionals a superior interest in the lender’s collateral unless the carve-out so provides.
Procedural context:
After confirmation of the chapter 11 debtor’s plan, unpaid estate professionals sought to compel original secured lender to satisfy unpaid fees under a “carve-out” provision negotiated as part of the postpetition financing order in the debtor’s chapter 11 case. The Bankruptcy Court denied the motion, concluding that the provision did not make the lender (as opposed to the debtor) directly responsible for the unpaid fees. The professionals appealed.
In affirming the bankruptcy court, the BAP centered on the language of the carve-out provision itself, observing that “[a]ny carve-out provision is simply a term in a contract, order or plan. It means whatever the pertinent document provides based on the words and context.” In this case, the carve-out provision subordinated certain of the lender’s right to payment on account of its liens, but did not actually grant the professionals a lien superior to the lender nor make the lender directly responsible for payment. To the contrary, the carve-out provision stated that “[t]he Debtor shall pay the Carve-Out as funds permit without causing an overdraft.” The BAP found this language particularly significant, both for placing liability for payment of fees on the debtor’s shoulders—not the lender’s—and also for its explicit contemplation that there might not be funds sufficient in the end to satisfy the professionals’ unpaid fees. On these facts, the BAP concluded that the bankruptcy court properly interpreted the terms of the cash collateral and plan confirmation orders to deny the professionals’ request.
Dales, Mashburn, and Price Smith

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