## Facts

- Rayfeal C. Dobbins and Mary Ellen Dobbins owned a closely held car dealership and personally guaranteed the dealership’s debt to Ford Motor Credit Company (FMCC).
- FMCC financed the dealership through multiple loans (including a floor-plan loan) secured by dealership personal property; the Dobbinses’ guaranty was secured by a deed of trust on the dealership real estate (the Melrose Avenue property).
- In 1981, the dealership and the Dobbinses filed Chapter 11 petitions.
- FMCC sought relief from the automatic stay to foreclose on the Melrose Avenue property; the bankruptcy court denied relief, finding FMCC adequately protected by an equity cushion based on a valuation of roughly $700,000.
- The confirmed Chapter 11 plans contemplated marketing and selling the Melrose Avenue property to pay FMCC, but the debtors did not complete a sale.
- The bankruptcy court later lifted the stay; FMCC conducted a private sale in 1987 for $375,000, which the bankruptcy court approved over the debtors’ objection that the price was too low.
- After applying sale proceeds, FMCC asserted a remaining deficiency and sought (i) a § 507(b) superpriority administrative-expense claim for alleged collateral-value decline during the Chapter 11 period and (ii) § 506(b) postpetition interest.
- The debtors also sought additional credits from FMCC tied to a Ford Motor Company parts-return program previously addressed by order in the dealership case.

## Issues

1. Whether FMCC was entitled to a superpriority administrative-expense claim under 11 U.S.C. § 507(b) based on an asserted decline in value of the Melrose Avenue collateral after an adequate-protection ruling.
2. Whether FMCC was entitled to postpetition interest under 11 U.S.C. § 506(b).
3. Whether the debtors were entitled to additional credits from FMCC under the Ford parts-return program.

## Decision

- The Fourth Circuit reversed the district court’s award of a § 507(b) superpriority claim to FMCC.
- The Fourth Circuit reversed the district court’s award of § 506(b) postpetition interest to FMCC.
- The Fourth Circuit affirmed the district court’s ruling that the debtors were not entitled to additional parts-return credits from FMCC.
- The case was remanded for further proceedings consistent with these holdings.

## Legal Principles

- Section 507(b) provides a narrow remedy when court-ordered adequate protection later proves insufficient and the creditor’s resulting allowable administrative claim arises from the stay or from the estate’s use, sale, or lease of the collateral; it is not a general guarantee against market-driven declines in collateral value during Chapter 11.
- A creditor seeking § 507(b) relief must connect the asserted loss to the stay or estate use in the manner specified by the statute and show that the earlier adequate-protection determination was inadequate in the statutory sense.
- Postpetition interest under § 506(b) depends on actual oversecurity; where subsequent events show collateral value is insufficient, awarding interest that effectively exceeds realizable collateral value is improper.
- Claims for additional credits based on a parts-return program require a demonstrated contractual, statutory, or order-based entitlement; previously approved transactions cannot be reopened to obtain unspecified additional credits absent such a basis.

## Conclusion

The Fourth Circuit held that a secured creditor could not obtain § 507(b) superpriority or § 506(b) postpetition interest merely because collateral later sold for less than earlier valuations, absent the statutory showing that the loss stemmed from the stay or estate use and that adequate protection proved insufficient, while also rejecting the debtors’ attempt to obtain additional parts-return credits without a proven entitlement.


Ford Motor Credit Co. v. Dobbins, 35 F.3d 860 (4th Cir. 1994)