IN RE: DARRELL SPENCER TRUCKING, INC.    CASE NO. 01-53607 MEMORANDUM OPINION and ORDER Administrative Expenses

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

LEXINGTON DIVISION

 

 

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

 

 



[1] The record shows no further hearings held on the Motion to Compel and objection.