UNITED STATES BANKRUPTCY COURT FOR
EASTERN DISTRICT OF KENTUCKY
MARY GAIL FOWLER
DEBTOR CASE NO. 01-10615
Phaedra Spradlin, as trustee (the "Trustee") of the bankruptcy estate of Mary Gail Fowler (the "Debtor"), is before the court on the Trustee's Application to Pay INS Investigation & Security that she filed in this case on December 1, 2003. The application seeks authority to pay INS Investigation & Security ("INS") the sum of $22,320 representing its charges for security services at the property located at 16230 Bowling Drive, Catlettsburg, Kentucky (the "Property") over a two-month period commencing in mid-November 2001. On December 8, 2003 Frederick Cecil Damron ("Mr. Damron"), the Debtor's former spouse, filed an Objection to Application to Pay INS Investigation and Security, attached to which were affidavits signed by Mr. Damron and by his mother, Hazel B. Damron ("Ms. Damron"). On September 8, 2003 the court disallowed Mr. Damron's claims, but the Trustee acknowledges that Ms. Damron is the largest creditor in this case. Accordingly, the court will overrule the objection to the extent that it was asserted by Mr. Damron. (1) For the reasons set forth below, the court will sustain the objection to the extent asserted by Ms. Damron.
The Debtor filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code, commencing this case, on September 17, 2001, at which time, the Debtor's daughter was the record owner of the Property. Shortly thereafter, Mr. Damron and Dennis Kiser ("Mr. Kiser"), the owner of INS, approached the Trustee and cautioned her that there was an imminent danger of damage to or destruction of the Property, based on the Debtor's alleged history of destroying assets (including a Corvette and other automobiles) rather than having them taken from her. Mr. Kiser offered to watch the Property, to be compensated, thought the Trustee, by Ms. Damron who had retained INS in connection with her efforts to enforce a judgment against the Debtor. The Trustee agreed that for INS to monitor the property was a good idea. The Trustee did not apply for or obtain an order authorizing her to retain INS.
In her affidavit, Ms. Damron denied retaining INS to safeguard the Property. The affidavit denied that Mr. Damron is an employee of INS's as alleged in the Trustee's application but acknowledged that he has done work for INS on a contract basis, and stated that Mr. Damron did not work for INS during the period for which compensation is sought. Ms. Damron also claims that the amount of the expense is unreasonable because an insurance policy would have been much less expensive. The remaining statements contained in the affidavit are not pertinent to the Trustee's application.
Neither Mr. Damron nor Ms. Damron appeared at the hearing on the application and the objection. Mr. Kiser testified that he understood he had an agreement that the estate would be responsible for his bill in the event that there were funds available to do so, and the Trustee represented that she understood that INS would be paid by Ms. Damron. The court finds that both were credible witnesses, and that there was simply a misunderstanding as to the source of payment of INS's fees. Mr. Kiser's testimony confirmed that Mr. Damron did not perform any of the services for which compensation is sought. The Trustee does not question the amount of INS's bill, which was computed at an hourly rate of $15, and stated at the hearing that she believes INS's services were of value and benefit to the estate. The Trustee also stated that she did not obtain insurance on the Property because she did not have an insurable interest therein until the estate acquired title thereto pursuant to a settlement of a fraudulent conveyance action against the Debtor's daughter.
Section 327 of the Bankruptcy Code governs a trustee's employment of professionals and Sections 330 and 331 govern the allowance and payment of compensation to professionals. Section 327(a) provides:
Except as otherwise provided in this section, the trustee, with the court's approval, may employ one or more attorneys, accountants, appraisers, auctioneers, or other professional persons, that do not hold or represent an interest adverse to the estate, and that are disinterested persons, to represent or assist the trustee in carrying out the trustee's duties under this title.
INS is not an attorney, accountant, appraiser, or auctioneer. As for the category of "other professional persons," one bankruptcy court in this circuit has explained:
The term "professional person" is not defined by the Bankruptcy Code, but case law provides some guidance. Generally, "[p]ersons who offer services normally performed by professionals, such as appraisers or management consultants, have been designated as professionals, while persons who are involved in the mechanics of a debtor's business have been found not to be within that category of persons." Nevertheless, regardless of a person's title or whether he is considered a "professional" outside the context of bankruptcy proceedings, the phrase "professional persons" as used in § 327(a) is a term of art and is reserved for those persons playing a central and intimate role in the reorganization of the debtor's estate.
In re United Color Press, Inc., 129 B.R. 143, 145 (Bankr. S.D. Ohio 1991) (citations omitted); accord, e.g., In re Riker Indus., Inc., 122 B.R. 964, 973 (Bankr. N.D. Ohio 1990) (those performing "routine administrative functions and services, without more" are not "professional persons"); In re Frederick Petroleum Corp., 75 B.R. 774, 779 (Bankr. S.D. Ohio 1987).
The court is aware of no court decisions determining whether a security or guard service constitutes a "professional person" within the meaning of Section 327(a), but has little difficulty finding that INS does not fall within that category under the circumstances of this case. Accordingly, court approval of INS's employment was not required and Sections 330 and 331 do not govern INS's compensation.
Rather, the Trustee's application is controlled by Code Section 503, which provides, in pertinent part:
(a) An entity may timely file a request for payment of an administrative expense, or may tardily file such request if permitted by the court for cause.
(b) After notice and a hearing, there shall be allowed, administrative expenses, other than claims under section 502(f) of this title, including--
(1) (A) the actual, necessary costs and expenses of preserving the estate . . . .
The Sixth Circuit has adopted a two-step analysis in applying these provisions:
[A] debt qualifies as an "actual, necessary" administrative expense only if (1) it arose from a transaction with the bankruptcy estate and (2) directly and substantially benefitted the estate. The benefit to the estate test limits administrative claims to those where the consideration for the claim was received during the post-petition period.
PBGC v. Sunarhauserman, Inc. (In re Sunarhauserman, Inc.), 126 F.3d 811, 816 (6th Cir. 1997) (citing Employee Transfer Corp. v. Grigsby (In re White Motor Corp.), 831 F.2d 106, 110 (6th Cir. 1987)). "In bankruptcy court, the party claiming entitlement to administrative expense priority has the burden of proof." Gen. Am. Transp. Corp. v. Martin (In re Mid Region Petroleum, Inc.), 1 F.3d 1130, 1132 (10th Cir. 1993) (citation omitted); accord, e.g., In re Visi-Trak, Inc., 266 B.R. 372, 374 (Bankr. N.D. Ohio 2001).
There is no question regarding the timeliness of the application. Moreover, Mr. Kiser testified and the Trustee acknowledged that INS's services were of benefit to the estate. However, the requirement of a "transaction with the bankruptcy estate" is not satisfied here. There was clearly no meeting of the minds between INS and the Trustee sufficient to create a contractual obligation by the estate to pay for INS's services.
In determining whether there was a "transaction with the bankruptcy estate," "the proper focus [is] on the inducement involved in causing the creditor to part with its goods or services." United Trucking Serv., Inc. v. Trailer Rental Co. (In re United Trucking Serv., Inc.), 851 F.2d 159, 162 (6th Cir. 1988). Although the requirement of a "transaction" with the estate may not mandate an express contract, see In re Adelphia Bus. Solutions, Inc., 296 B.R. 656, 663-64 (Bankr. S.D.N.Y. 2003), it cannot be said that the Trustee induced INS to render those services. Accordingly, the court finds that INS has not carried its burden proving that its services constitute the "actual, necessary costs and expenses of preserving the estate."
For the foregoing reasons, the court will enter a separate order overruling the Trustee's application.
Phaedra Spradlin, Trustee
Frederick Cecil Damron
Hazel B. Damron
1. Moreover, on February 23, 2004 Mr. Damron filed a notice withdrawing his motions in this action. He may well have intended his notice to withdraw the objection to the application presently before the court as well.