E.D.N.C.: BB&T v. Construction Supervision Services- Requirements for Super-priority Claim under § 507(b)

Summary: BB&T held secured claim against property of the estate. During the initial Chapter 11, BB&T received $62,900 in adequate protection payments. When the case eventually converted and assets were liquidated, paying the secured claim of BB&T, it nonetheless sought a super-priority claim under 11 U.S.C. § 507(b) for its post-petition interest, costs and fees. In order to hold a super-priority claim BB&T was required to show the following: 1. The adequate protection payments provided ultimately proved to be inadequate. 2. The creditor must have a claim allowable under § 507(a)[(2)by way of an administrative expense claim under § 503(b)). 3. The claim must have arisen from either the automatic stay under § 362; or the use, sale or lease of the collateral under § 363; or the granting of a lien under § 364(d). See Ford Motor Credit Co. v. Dobbins (In re Dobbins), 35 F.3d 860, 865 (4th Cir. 1994). The district court, affirming the bankruptcy decision, held that the purpose of a super-priority claim was to protect a creditor, “the value of whose petition date secured claim is negatively affected by the trustee or debtor’s use of the collateral securing the debtor’s obligation” by granting a claim senior nearly all other claims, so that it could “recoup its petition date secured claim up to the petition date value of principal debt and matured interest owed to it by the debtor.” The value of a creditor’s interest may not exceed the pre-petition claim, with post-petition expenses allowed under 11 U.S.C. § 506(b) only to the extent the creditor was over secured as of the petition date. Even that notwithstanding, the court held that BB&T failed to show that the decline in the “the value of the collateral ... was attributable solely to the debtor’s use of the property or the automatic stay....” Firstly, post-conversion depreciation cannot be recovered as a super-priority. Secondly, the court rejected the argument that the decline in value was attributable to the use by the Debtor of the accounts, rather than by intervening liens. Commentary: It may be useful for Chapter 13 cases, particularly those grappling with the surrender of collateral following In re Royal, that this opinion makes clear that creditors has the burden of showing by a preponderance of the evidence both the inadequacy of previous adequate protection payments and the extent that a creditor is over-secured. For a copy of the opinion, please see: BB&T v. Construction Supervision Services- Requirements for Super-priority Claim under § 507(b)