UNITED
STATES BANKRUPTCY COURT
EASTERN
DISTRICT OF KENTUCKY
IN RE:
DARRELL
SPENCER TRUCKING, INC. CASE
NO. 01-53607
DEBTOR CHAPTER 7
MEMORANDUM
OPINION and ORDER
This matter was submitted to the court for ruling on
the Application of creditor PACCAR Financial Corporation (PACCAR) to award
administrative expenses in the amount of $6,760 (document # 87) and the
response of the Trustee in opposition (document # 88). The court conducted a hearing on the application
on July 20, 2005 where counsel for PACCAR and the Trustee entered
appearances. Pursuant to 11 U.S.C. §
503(b)(1)(A) PACCAR seeks recovery of $6760 paid to the Trustee who in turn
paid Sam Beck’s Auto for sales commissions and cleanup expenses. Trustee argues PACCAR’s expenditures are not
costs and expenses for the “preservation of property of the estate.” The application and objection require the
court to first decide the structure of the property sale to PACCAR and second
whether PACCAR’s payment to the Trustee constitutes an administrative expense.
In making its determination the court reviewed the
record of the bankruptcy case and the associated adversary proceeding (02-5020
Rogan vs. PACCAR Financial Corp. and Darrell Spencer Trucking, Inc.) and found
the following chronology contained therein:
|
February 2002 |
-
Sam Beck hired as agent for trustee |
|
March 4, 2002 |
-
Complaint by trustee to avoid and preserve lien of
PACCAR Financial (AP 02-5020) |
|
March 20, 2002 |
-
Trustee files motion to sell trucks (motion,
document # 37; April 10 order granting, document # 40) |
|
April 18, 2002 |
-
Notice of Intent to sell trucks (documents # 41) |
|
April 25, 2002 |
-
Amended PACCAR Motion to Reconsider order granting
trustee motion to sell (document # 43) |
|
May 1, 2002 |
-
In AP 02-5020, Court rules PACCAR is prima facie
secured creditor and can credit bid on trucks pending outcome of AP (AP
document # 14) |
|
May 6, 2002 |
-
PACCAR credit bids $96000 for trucks (exhibit 1 of
trustee’s objection to motion, document 88) |
|
May 8, 2002 |
-
Vehicles sold to PACCAR (Report of Sale, document
46) |
|
May 9, 2002 |
-
Application to pay $6760 to Sam Beck (document #
45) |
|
May 23, 2002 |
-
Trustee Motion to Compel PACCAR to pay $96000 for
trucks (document # 48) – trustee proposes to pay $6760 to Sam Beck and hold
remainder pending outcome of AP |
|
May 30, 2002 |
-
PACCAR Response and Objection to Motion to Compel
payment (document # 52) |
|
June 5, 2002 |
-
Hearing on trustee Motion to Compel; hearing
continued to July 3 per Judge’s Minutes[1]
(document 53) |
|
June 12, 2002 |
-
Order granting Application to pay Sam Beck $6760
(document # 57) |
|
June 20, 2002 |
-
Check for $6760 from PACCAR to trustee for sale
commissions and cleanup expenses (exhibit A of PACCAR supplemental document,
document # 93) |
|
2003 – 2004 |
-
Status hearings held. Per Trustee, all assets administered except pending AP 02-5020 |
|
May 9, 2005 |
-
Motion to Compromise Controversy (motion document #
80; May 31 order granting, document # 83) |
|
June 22, 2005 |
-
Application to pay PACCAR administrative expenses
(document # 87) |
|
July 1, 2005 |
-
Trustee objection (document # 88) |
|
July 20, 2005 |
-
Hearing on PACCAR Application to pay |
The
arguments made at the July 20 hearing differ on how to classify the $6760
payment made to the Trustee by PACCAR.
The Trustee argues the agreement made with PACCAR required PACCAR to pay
expenses of $6760 and credit bid in the amount of $89,240 representing the
balance of the $96,000 sale price of the trucks. Trustee’s argument further contends that from the $96,000 sale
price, only $6760 of which was paid in cash, the Trustee paid the sales
commissions and cleanup expenses of Sam Beck’s Auto.
Alternatively,
PACCAR argues the parties’ agreement consisted of bids of $43,750 and $52,250
for the trucks at issue. These bids
were made in the form of a $96,000 credit bid pursuant to the court’s May 1,
2002 ruling in the adversary proceeding allowing PACCAR to credit bid. In the adversary the court held that
PACCAR’s properly executed and filed proof of claim was prima facie evidence of
PACCAR’s secured status; thereby making the credit bid proper. PACCAR further contends in the Application
at issue that PACCAR was “forced to pay Sam Beck’s Auto” because the Trustee
“had no funds in the estate at that time…”
The court
looked to the record and pleadings memorializing the terms of the sale to
determine a proper characterization of the $6760 payment. The court further questioned the Trustee
during the July 20 hearing asking where the record contained an indication that
PACCAR agreed to pay agent fees as a part of the sale. The Trustee responded that the purchaser was
obligated to pay $96,000 and rather than pay $96,000 in cash, the purchaser
paid $6760 cash plus a credit bid for the remainder. Neither the Notice of Sale nor Trustee’s Report of Sale
references any payment of the sales commissions as part of the sales
agreement. Where the record does
discuss the terms of the sale it is clear the parties intended to consummate
the sales agreement with a PACCAR credit bid in the sum of $96,000. See Trustee’s Report of Sale, “[T]he
vehicles were sold to PACCAR Financial Corporation, … for the amount of
$43,750.00 and $52,250.00 respectively, by credit bid.” See also letter
from PACCAR’s counsel attached as Exhibit 1 to Trustee’s Objection to PACCAR’s
Application, “[M]y client, PACCAR, made a verbal bid of $43,750 and
$52.250. By phone conversation this
morning (5/6/02), you accepted PACCAR’s credit bid and requested that I reduce
said bid to writing.”
The court finds the terms of the parties’ agreement required Trustee to
sell the trucks to PACCAR in exchange for a PACCAR credit bid in the amount of
$96,000. Therefore PACCAR’s $6760 cash
payment to the Trustee was made in addition to the $96,000 credit bid. The court must now determine whether the
cash payment to the Trustee was made for an administrative expense of the
estate.
Section
503(b)(1)(A) of the Bankruptcy Code provides for the payment of “administrative
expenses… including… the actual, necessary costs and expenses of preserving the
estate, including wages, salaries, or commissions for services rendered after
the commencement of the case[.]” The
test used in this circuit in making the determination of what is “actual” and
“necessary” is known as the “benefit to the estate test.” “Under this test, a claimant must prove that the debt ‘(1)
arose from a transaction with the bankruptcy estate and (2) directly and
substantially benefited the estate.’ ” See
Beneke Company, Inv. v. Economy Lodging Systems, Inc. (In re Economy Lodging
Systems, Inc.), 234 B.R. 691 (6th Cir.BAP 1999) citing Pension Benefit
Guaranty Corp. v. Sunarhauserman, Inc. (In re Sunarhauserman, Inc.), 126
F.3d 811, 816 (6th Cir. 1997).
An expense
is administrative only if it arises out of a postpetition transaction between
the creditor and the trustee, and only to the extent that the transaction is of
direct and substantial benefit to the estate.
In re Southern Soya Corp., 251 B.R. 302 (Bankr. D.S.C.
2000). The record leaves no doubt that
the expenses of Sam Beck’s Auto were incurred at the behest of the Trustee to
repossess, clean and sell two trucks that were part of the bankruptcy
estate. Sam Beck was hired after the
case commenced and all services were provided postpetition. The burden of proving the expense resulted
in a substantial benefit to the estate rests with the claimant. In this case Sam Beck’s Auto repossessed the
trucks at issue, cleaned them and offered the trucks for sale. The sale of the trucks offered the potential
to bring assets into the estate and the final disposition of the adversary
proceeding did indeed provide assets to the estate. In their Application PACCAR points out that Sam Beck’s Auto
preserved and maintained the trucks while in the Trustee’s care and provided
oversight for the viewing and sale of the trucks thereby benefiting the estate
by providing the structure necessary for the estate to sell the trucks.
After reviewing the record and hearing presentations
of counsel, the court finds the $6760 payment made by PACCAR was a payment made
on behalf of the Trustee for a postpetition obligation of the estate. The payment preserved property of the estate
thus giving Trustee the ability to sell the property. Accordingly, the court hereby approves the application of PACCAR
Financial Corporation for administrative expenses in the amount of $6760. Trustee shall pay the expense 100% to the
extent funds are available in the estate, if insufficient funds remain then
PACCAR shall be paid prorata based on the available funds.
Copies to:
Debtor, 102 Agena Drive, Georgetown, Kentucky 40324
Stephen C, Sanders, Esq.
James R. Gregory, Esq.
L. Edwin Paulson, Esq.
Ann E. Samani, Esq.
J. James Rogan, Trustee