## Facts

- An equipment trust financed Eastern Air Lines’ sale-leaseback of aircraft by issuing about $500 million in equipment trust certificates secured by aircraft held in trust.
- Eastern filed for Chapter 11 in 1989 while operating the aircraft; the bondholders were initially oversecured by a substantial equity cushion that later declined as aircraft values dropped.
- The indenture trustees eventually moved in the bankruptcy court under 11 U.S.C. § 363(e) for adequate protection or, alternatively, for relief from the automatic stay to foreclose on the aircraft.
- Eastern later returned the aircraft, but liquidation proceeds were insufficient to pay the bonds in full; the resulting deficiency was treated as a general unsecured claim with limited recovery.
- Bondholders sued the trustees, alleging breach of the Trust Indenture Act, state-law fiduciary duties, and contractual “prudent person” duties based on an asserted delay in seeking adequate protection or stay relief.
- Bondholders’ causation theory relied on 11 U.S.C. § 507(b): they claimed an earlier motion—whether granted or denied—would have yielded a superpriority administrative claim when collateral later proved inadequate.
- After an initial trial and appeal, the case returned to the district court to decide, as a question of law, whether § 507(b) superpriority could arise when a motion for adequate protection or stay relief is denied and collateral later becomes insufficient.

## Issues

1. Whether 11 U.S.C. § 507(b) grants a secured creditor a superpriority administrative claim when the creditor seeks adequate protection or stay relief, the bankruptcy court denies relief, and the collateral later proves inadequate.

## Decision

- The court held that § 507(b) does not confer superpriority merely because a creditor sought protection that was denied and later suffered a collateral shortfall.
- The court ruled that § 507(b) applies only when the bankruptcy court actually provides adequate protection (or other qualifying protection under §§ 362, 363, or 364) and that court-ordered protection later proves inadequate.

## Legal Principles

- Section 507(b) superpriority is triggered only by the inadequacy of “protection provided” under §§ 362, 363, or 364; it does not arise from a denied request for protection.
- Adequate protection and § 507(b) operate as a structured mechanism: the estate may use collateral subject to court-ordered protection, and superpriority serves as a backstop if that ordered protection fails.
- Statutory interpretation of § 507(b) is a question of law for the court, not a question for the jury in a trustee-liability action premised on bankruptcy strategy and causation.

## Conclusion

The court construed § 507(b) to limit superpriority administrative status to situations where the bankruptcy court actually granted adequate protection (or comparable protection) that later proved insufficient, rejecting the theory that a denied adequate-protection or stay-relief motion can itself create superpriority and thereby support causation for trustee-delay claims.


LNC Invs., Inc. v. First Fid. Bank, 247 B.R. 38 (S.D.N.Y. 2000)