In re Gasel Transp. Lines, Inc.

• Decision Date: 09 June 2005
• Docket Number: No. 04-8062.,04-8062.
• Citation: 326 B.R. 683
• Parties: In re GASEL TRANSPORTATION LINES, INC., Debtor. Volvo Commercial Finance LLC the Americas, Appellant, v. Gasel Transportation Lines, Inc., Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Sixth Circuit

326 B.R. 683

In re GASEL TRANSPORTATION LINES, INC., Debtor Volvo Commercial Finance LLC the Americas, Appellant, v. Gasel Transportation Lines, Inc., Appellee.

No. 04-8062.

United States Bankruptcy Appellate Panel of the Sixth Circuit.

Argued: February 2, 2005.

Decided and Filed: June 9, 2005.

COPYRIGHT MATERIAL OMITTED

Richard Boydston, Greenebaum Doll & McDonald PLLC, Cincinnati, Ohio, for Appellant.

Grady L. Pettigrew, Jr., Cox, Stein & Pettigrew Co., L.P.A., Columbus, Ohio, for Appellee.

Before: COOPER, GREGG, and WHIPPLE, Bankruptcy Appellate Panel Judges.

OPINION

WHIPPLE, Bankruptcy Judge.

The appellant appeals an order denying its application for allowance of an administrative expense claim. For the reasons that follow, we conclude that the order on appeal should be AFFIRMED.

I. ISSUES ON APPEAL

The issue presented is whether the bankruptcy court erred in determining that the appellant is not entitled to allowance of an administrative expense claim as a result of the debtor in possession's postpetition use of trucks in which the appellant holds security interests.

II. JURISDICTION AND STANDARD OF REVIEW

An order determining that a claim is not entitled to administrative expense priority constitutes a final order, Yenkin-Majestic Paint Corp. v. Wheeling-Pittsburgh Steel Corp. (In re Pittsburgh-Canfield Corp.), 309 B.R. 277, 281 (6th Cir. BAP 2004) (citing United States v. Hillsborough Holdings Corp. (In re Hillsborough Holdings Corp.), 116 F.3d 1391, 1393-94 (11th Cir.1997); Beneke Co. v. Economy Lodging Sys., Inc. (In re Economy Lodging Sys., Inc.), 234 B.R. 691 (6th Cir. BAP 1999)), so the order being challenged may be appealed as of right. 28 U.S.C. § 158(a)(1). The United States District Court for the Southern District of Ohio has authorized appeals to the Bankruptcy Appellate Panel, and neither party has timely elected to have this appeal heard by the district court. 28 U.S.C. §§ 158(b)(6), (c)(1). Accordingly, the Panel has jurisdiction to decide this appeal.

"The Panel reviews the bankruptcy court's denial of administrative expense priority status for an abuse of discretion." Pittsburgh-Canfield Corp., 309 B.R. at 281 (citing Economy Lodging Sys., Inc., 234 B.R. at 691; Gull Indus., Inc. v. John Mitchell, Inc. (In re Hanna), 168 B.R. 386 (9th Cir. BAP 1994)). "An abuse of discretion occurs only when the [trial] court relies upon clearly erroneous findings of fact or when it improperly applies the law or uses an erroneous legal standard." Schmidt v. Boggs (In re Boggs), 246 B.R. 265, 267 (6th Cir. BAP 2000). "A finding of fact is clearly erroneous `when although there is evidence to support it, the reviewing court, on the entire evidence, is left with the definite and firm conviction that a mistake has been committed.'" United States v. Mathews (In re Mathews), 209 B.R. 218, 219 (6th Cir. BAP 1997) (quoting Anderson v. City of Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985)). "An abuse of discretion is defined as a `definite and firm conviction that the [court below] committed a clear error of judgment.' The question is not how the reviewing court would have ruled, but rather whether a reasonable person could agree with the bankruptcy court's decision; if reasonable persons could differ as to the issue, then there is no abuse of discretion." Mayor of Baltimore, Md. v. W. Va. (In re Eagle-Picher Indus., Inc.), 285 F.3d 522, 529 (6th Cir.2002) (citations omitted).

III. FACTS

On January 12, 2001, Volvo Commercial Finance LLC The Americas ("Volvo") financed the purchase by Gasel Transportation Lines, Inc. (the "Debtor"), of eleven 2001 tractors (the "Tractors"). On May 19, 2003, the Debtor filed a voluntary petition for relief under Chapter 11 of Title 11, United States Code (the "Bankruptcy Code"). The Debtor, as debtor in possession, continued to use the Tractors postpetition.

On June 2, 2003, Volvo filed a motion for relief from the automatic stay imposed by § 362 of the Bankruptcy Code so that it could exercise its remedies against the Tractors. On June 10, 2003, Volvo filed a motion for abandonment of the Tractors. After a hearing on August 12, 2003, the bankruptcy court entered an order on September 9, 2003, adopting Volvo's assessment of the current values and the rate of depreciation of the Tractors and directing the Debtor to make "a more significant offer of adequate protection" than it had previously proposed. The order provided that, if the Debtor failed to make such an offer within ten days, the court would modify the automatic stay as requested by Volvo. Finding that the Debtor had made no such offer, on September 25, 2003, the bankruptcy court entered an order granting Volvo's motion for relief from the stay.

On October 2, 2003, the Debtor filed a motion for reconsideration. On October 16, 2003, the bankruptcy court entered an Agreed Order on Motions for Relief from Stay and Abandonment by Volvo Commercial Finance LLC The Americas (the "Agreed Order"), which required the Debtor to make certain "adequate protection" payments commencing on October 15, 2003. The parties agree that those payments cover only the time period from September 2003 forward. On October 27, 2003, the Debtor withdrew its motion for reconsideration of the order granting Volvo relief from the automatic stay.

On December 31, 2003, Volvo filed an Application for Allowance of Administrative Expense Claim, seeking the allowance of an administrative expense for the Debtor's use of the Tractors during the period between the commencement of the case and the onset of the adequate protection payments pursuant to the Agreed Order (the "Initial Period").¹ At the conclusion of the hearing on the application, conducted on June 24, 2004, the bankruptcy judge issued an oral bench opinion denying the application. The court reasoned:

Generally what's required is there has to be proof of a post-petition transaction with the estate and there also has to be proof that there has been direct and substantial benefit to the estate or the debtor in possession.

It's no doubt to me that having the trucks is a substantial benefit to the debtor. But where I'm lost here and where I'm not satisfied, Mr. Boydston, from what you're telling me here today is I don't see a post-petition transaction here with the debtor. I instead see a pre-petition contractual relationship where the debtor had agreed to pay so much per month for the use of the trucks. That agreement occurred pre-petition. Once the case was filed, then it becomes a matter, in my mind, of making appropriate adequate protection arrangements, which was done here. And whether debtor defaults on that I think that's a matter for another day. But I don't think I'm entitled to give your client an administrative expense priority because in my view the whole transaction is pre-petition, there is no separate post-petition transaction in this case. I don't believe I'm entitled to or authorized to grant an administrative expense claim under 503(b)1(A).

(Tr. at 34-35, Am.App. of Appellant, at 312-13.) The bankruptcy court entered an order denying Volvo's application on July 21, 2004. Volvo timely filed a notice of appeal on July 23, 2004.

IV. DISCUSSION

Section 503(a) of the Bankruptcy Code authorizes entities to file requests for payment of administrative expenses. Section 503(b) provides, in pertinent part: "After notice and a hearing, there shall be allowed administrative expenses, ... including... the actual, necessary costs and expenses of preserving the estate." 11 U.S.C. § 503(b)(1)(A). 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 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). As the Sixth Circuit explained in White Motor.

A creditor provides consideration to the bankrupt estate only when the debtor-in-possession induces the creditor's performance and performance is then 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. However, if the inducement came from the debtor-in-possession, then the claims of the creditor are given priority.

White Motor Corp., 831 F.2d at 110 (6th Cir.1987) (footnote omitted). Normally, merely continuing to possess equipment pursuant to a prepetition contract does not constitute "inducement" by the debtor in possession. United Trucking Serv., 851 F.2d at 162.

Volvo was granted relief from the automatic stay on September 24, 2003. It was then permitted to exercise any and all of its remedies available under state law and its security agreement free of the automatic stay and the Debtor's bankruptcy case. Under the Agreed Order entered on October 15, 2003, the parties agreed upon and the bankruptcy court accepted terms upon which the Debtor would be permitted to continue to use Volvo's non-cash collateral notwithstanding the granting of relief from the automatic stay. The Agreed Order did not, however, vacate the bankruptcy court's order granting relief from the automatic stay. Arguably, Volvo's willingness to allow the Debtor to use its non-cash collateral on specified terms —...