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Opinion 44

Case Name: 

In re Callister, 15 B.R. 521 (Bankr.D.Utah)

Judge: 
Judge Mabey
Date: 
Nov-20-1981
Case Number(s): 
80-2605
Status: 

PUBLISHED

Body: 

Secured creditor of chapter 11 debtor sought relief from stay, after which the parties agreed to the value of the collateral and the amount owed, and to other conditions that would adequately protect creditor's interest. Debtor defaulted on the payment provision it had agreed to, and the stay was lifted according to the terms of the parties' agreement. Debtor's case was converted to chapter 7, and fee applications were submitted by counsel for debtor and counsel for the creditors committee, to which creditor objected on the basis of its superpriority under 11 U.S.C. § 507(b). As of the date on which the stay was lifted, the court determined that the collateral had significantly decreased in value due to various circumstances, including debtor's use of the collateral, error in the stipulated values, and uninsured loss of one of three secured tractors, due to debtor's inadvertent failure to obtain insurance on it as required by the stipulation. The court explained that the concepts of adequate protection and superpriority are related and intertwined. Adequate protection initially shields the creditor from impairment in the value of its interest, whereas superpriority is intended to recapture value that was unexpectedly lost during the course of a case. Thus, "the superpriority is born when adequate protection fails," and only applies to declines in value that could and probably would have been prevented or mitigated, but for the stay. The court then considered whether creditor was entitled to superpriority for each loss of value, concluding that creditor was not entitled to superpriority for loss attributable to error in the parties' stipulation, but was entitled to superpriority for losses attributable to uninsured loss, market forces, and depreciation through use of the collateral. However, since depreciation was a factor taken into account in the interim payments required by the parties' stipulation, the court held that the amount of that loss for which creditor would receive superpriority would be limited to the total of the required stipulated payments until the stay was lifted, less the amount of payments that were actually made. Finally, the court rejected creditor's contention that its superpriority precluded payment of attorney's fees until it's claim was paid, holding that fees "may" be paid on an interim basis under 11 U.S.C. § 331, which creates a rebuttable presumption that they will be paid, despite the existence of a superpriority.

Internal Ref: 
Opinion 44
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