In Re Johnson Rubber Co., Inc.

391 B.R. 779, 2008 Bankr. LEXIS 2610, 2008 WL 3090793
CourtUnited States Bankruptcy Court, N.D. Ohio
DecidedJuly 30, 2008
Docket07-19391
StatusPublished
Cited by1 cases

This text of 391 B.R. 779 (In Re Johnson Rubber Co., Inc.) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, N.D. Ohio primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In Re Johnson Rubber Co., Inc., 391 B.R. 779, 2008 Bankr. LEXIS 2610, 2008 WL 3090793 (Ohio 2008).

Opinion

*781 MEMORANDUM OF OPINION AND ORDER

RANDOLPH BAXTER, Bankruptcy Judge.

Before the Court are the Motions of General Electric Capital Corporation (“GE Capital”), Maxus Capital Group, LLC (“Maxus Capital”), U.S. Molding Machinery Company, Inc. (“US Molding”) and Winthrop Resources (“Movants”) for Allowance and Payment of Administrative Expense Claims. The Debtor opposes the relief sought. This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1384 and General Order No. 84 of this District. This is a core proceeding pursuant to 11 U.S.C. § 157(a)(2)(B) and (0). After considering the parties’ pleadings, and conducting a hearing, the Court rules as follows:

*

Movants seek payment of administrative expense claims pursuant to 11 U.S.C. § 503(b) as follows: 1) GE Capital in the amount of $26,489.42; 2) Maxus Capital in the amount of $11,413.92; 3) U.S. Molding in the amount of $56,280.00; and 4) Winthrop Resources in the amount of $15,673.19. The Debtor objects to the allowance of these amounts as administrative expense claims.

The following facts appear undisputed: Each of the Movants leased certain equipment to the Debtor, prepetition, which the Debtor used in its business operations, postpetition. The monthly rental amount was due on the first of the month. The Debtor filed its Chapter 11 petition on December 11, 2007. The Debtor began paying postpetition rent to the Movants effective January 1, 2008 through the effective date of its rejection of the various leases. The Movants now seek administrative expense status for the 20-day period from the petition date to January 1, 2008 (“stub rent”). 1

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The Movants allege that they are entitled to an administrative expense claim for the stub rent pursuant to 11 U.S.C. § 503(b) because use of their equipment benefitted the estate. Debtor responds that the stub rent can only be an unsecured claim because rent for the month of December fell due pre-petition and that the Sixth Circuit does not provide for the pro-ration of rent.

The dispositive issue for the Court is whether Movants have satisfied the requirements for administrative expense claims pursuant to 11 U.S.C. § 503(b).

* * * *

Section 503 of the Bankruptcy Code addresses the requirements for the allowance of administrative expenses and provides, in pertinent part:

(b) After notice and a hearing, there shall be allowed administrative expenses, other than claims allowed under section 502(f) of this title, including—
(1)(A) the actual, necessary costs and expenses of preserving the estate, including wages, salaries, or commissions for services rendered after the commencement of the case; ...

11 U.S.C. § 503(b)(1)(A). The two-part test in the Sixth Circuit to determine whether a claimed expense should receive administrative expense status pursuant to § 503(b) is 1) whether the debt arose from a transaction with the bankruptcy estate, and 2) whether such transaction directly *782 and substantially benefited the estate. In re Sunarhauserman, Inc. 126 F.3d 811, 816 (6th Cir.1997). Under this test, “[i]t is an absolute requirement for administrative expense priority that the liability at issue arise post-petition.” Id. at 817. A creditor “provides consideration to the bankruptcy estate only when the debtor-in-possession induces the creditor’s performance and performance is rendered to the estate. If the inducement came from a pre-petition debtor, then consideration was given to that entity rather than to the debtor-in-possession.” In re White Motor Corp., 831 F.2d 106, 110 (6th Cir.1987).

Administrative expenses under § 503(b) “should be narrowly construed in order to maximize the value of the estate preserved for the benefit of all creditors.” In re United Trucking Service, 851 F.2d 159, 164 (6th Cir.1988) (citations omitted). The applicant bears the burden of proving its entitlement to an administrative expense award under 11 U.S.C. § 503(b) and it must demonstrate by a preponderance of the evidence that a substantial contribution was made. In re Buttes Gas & Oil Co., 112 B.R. 191, 193 (Bankr.S.D.Tex.1989). See also In re Visi-Trak, Inc., 266 B.R. 372, 374 (Bankr.N.D.Ohio 2001). If the applicant makes a prima facie showing of entitlement to administrative expense status, the burden of production shifts to the objector. In re Primary Health Services, Inc., 227 B.R. 479, 484 (Bankr.N.D.Ohio 1998).

* * * % * *

The Movants explain at great length in their respective papers that the Debtor’s estate benefitted from the post-petition use of their equipment and argue, therefore, that they are entitled to an administrative expense claim. However, the test for an administrative expense claim is two-fold and the Movants fail to meet their burden with respect to the first requirement, that there be a transaction with the debtor-in-possession. It is clear in the Sixth Circuit that to be entitled to an administrative expense claim, the creditor must have been induced by the debtor-in-possession, not the prepetition debtor. In re White Motor Corp., 831 F.2d at 110. Therein, the Court stated that “[i]f the inducement came from a pre-petition debt- or, then consideration was given to that entity, rather than to the debtor-in-possession.” Id. The requirement that inducement come from the postpetition Debtor is consistent with the effect of the filing of a Chapter 11 petition, which creates a separate legal entity from the prepetition Debtor. In re Gordon Sel-Way, Inc., 270 F.3d 280, 290 (6th Cir.2001)(“In Chapter 11 bankruptcy, the debtor files a petition for bankruptcy, becomes a debtor-in-possession ... and is considered to be a separate legal entity from the debtor himself.”)

It is undisputed that the equipment which was the subject of the leases was provided to the Debtor prepetition.

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Cite This Page — Counsel Stack

Bluebook (online)
391 B.R. 779, 2008 Bankr. LEXIS 2610, 2008 WL 3090793, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-johnson-rubber-co-inc-ohnb-2008.