Butner v. United States

In May 1973, Golden Enterprises, Inc. (Golden) filed a Chapter 11 bankruptcy petition. The bankruptcy court consolidated a number of liens on North Carolina real estate held by Golden. Out of that action, Butner (plaintiff) obtained a second mortgage securing a debt of $360,000. In April 1974, the court appointed an agent, upon Golden’s motion, to collect rents on the mortgaged property in order to pay, in the following order, tax liabilities, first mortgage obligations, insurance premiums, and second mortgage obligations. In February 1975, Golden was adjudicated bankrupt and a federal bankruptcy trustee (defendant) was appointed. The trustee was ordered to collect and retain rents for purposes to be determined by the court. In November 1975, after various delays, the mortgaged property was sold to Butner for $174,000. Thus, Butner was still owed a balance of $186,000. As of the sale date, the trustee held a fund of nearly $163,000 from rents collected. In December 1975, Butner moved the court to have the fund applied to his outstanding balance. Prior to his motion, Butner had never expressly claimed or received a security interest in the rents. The bankruptcy court denied the motion, ruling that Butner’s balance should be treated as an unsecured claim. The district court reversed. The court of appeals reversed the district court’s judgment and reinstated that of the bankruptcy court. In each instance, the reviewing court applied North Carolina law, with disagreements among them as to how the facts should be interpreted thereunder. Butner petitioned the United States Supreme Court for certiorari.