U.S. Department of Agriculture v. J. Michael Hopper (In re Colusa Regional Medical Center)

Case Type:
Business
Case Status:
Reversed and Remanded
Citation:
BAP No. EC-18-1266-TaBS (9th Circuit, Sep 10,2019) Published
Tag(s):
Ruling:
BAP for 9th Cir. vacated and remanded decision of bankruptcy court (ED Cal.) granting chapter 7 trustee's motion to surcharge encumbered sale proceeds for payment of administrative expenses based on preservation of collateral. Bankruptcy court abused discretion in excluding lien creditor's evidentiary objection to trustee's late-filed, declaratory evidence. Trustee also failed to show he was entitled to surcharge under objective test of proving that Trustee's services were reasonable, necessary, and provided a quantifiable benefit to secured creditor.
Procedural context:
Bankruptcy court granted chapter 7 trustee's motion (ED Cal.) for surcharge of sale proceeds over objection of lien creditor. Lien creditor appealed to BAP for 9th Circuit.
Facts:
Colusa Regional Medical Center provided hospital and emergency medical services in rural area. Colusa was insolvent and filed chapter 7 bankruptcy in 2016. Colusa County lacked replacement medical services. Chapter 7 trustee actively marketed hospital for sale and located purchaser within a month of appointment. Trustee closed sale for benefit of lien creditors and citizens of Colusa County. USDA's lien was senior and encumbered majority of estate assets, including sale proceeds. Trustee incurred significant administrative expenses preserving collateral, including maintaining staff for ongoing operations, posting a guard at the facility and properly disposing of patient files. Trustee filed motion for payment of approximately $200k in Trustee's commission and his attorney's fees related and expenses related to sale. USDA opposed surcharge.
Judge(s):
Taylor, Brand, Spraker

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