Ford Motor Credit Co. v. Dobbins

Rayfeal and Mary Ellen Dobbins (debtors) owned a car dealership to which Ford Motor Credit Company (FMCC) (creditor) provided financing. The Dobbinses personally guaranteed the dealership’s debts to FMCC and secured the guaranty by a deed of trust on the property where the dealership was located (the Melrose Avenue property). After the dealership and the Dobbinses filed for Chapter 11 bankruptcy, FMCC sought relief from the Bankruptcy Code’s automatic stay to foreclose on the Melrose Avenue property. The bankruptcy court found that FMCC was adequately protected by the equity in the Melrose Avenue property and refused to lift the stay. At the time of the adequate-protection order, the Melrose Avenue property was valued at roughly $700,000. The bankruptcy court subsequently confirmed reorganization plans that called for selling the Melrose Avenue property. However, the Dobbinses were unable to sell the property, and the bankruptcy court lifted the stay for FMCC to sell it. FMCC eventually sold the property for $375,000. The net sale proceeds were applied to FMCC’s claim but were not enough to satisfy the claim fully. FMCC sought a superpriority administrative-expense claim under 11 U.S.C. § 507(b) for $322,720, which was the amount that the Melrose Avenue property’s value had decreased between the date of the adequate-protection order and the sale date. FMCC asserted that its claim should be allowed because the Dobbinses’ bankruptcy estate had benefited from the Melrose Avenue property by having the opportunity to market the property for sale. The bankruptcy court ruled that FMCC was not entitled to a superpriority claim, but the district court reversed. The Dobbinses appealed.