Broadcast Corp. of Georgia v. Broadfoot
| Decision Date | 11 October 1985 |
| Docket Number | Civ. No. C85-2858. |
| Citation | 54 BR 606 |
| Parties | BROADCAST CORPORATION OF GEORGIA v. Herbert C. BROADFOOT, II, as Trustee for the Estate of Subscription Television of Greater Atlanta. |
| Court | U.S. District Court — Northern District of Georgia |
R. Wayne Thorpe, Alston & Bird, Atlanta, Ga., for plaintiff.
David W. Pollard, Swift, Currie, McGhee & Hiers, Atlanta, Ga., for defendant.
This matter is now before the court on appeal from the order and judgment entered by the Honorable William L. Norton, Jr., United States Bankruptcy Judge for the Northern District of Georgia. The Trustee for the debtor, Subscription Television of Greater Atlanta ("Subscription TV") appeals Judge Norton's order allowing an administrative claim in favor of Broadcast Corporation of Georgia ("Broadcast") in the amount of $156,166.20. Broadcast appeals from Judge Norton's subsequent order amending his opinion to dismiss a counterclaim of the Trustee without prejudice rather than with prejudice.
The facts of this case are not in dispute on appeal, and are therefore set forth below as summarized from Judge Norton's opinion.
Broadcast's administrative claim is based primarily upon a "Contract for the Provision of Subscription Television" between Broadcast and the Debtor, Subscription TV ("the Contract"). The Contract governed Broadcast's obligation to provide a scrambled television signal to the Debtor during certain hours of each day, in return for payment by Subscription TV. These charges are levied for "Primary Lease Time," under the terminology of the Contract, and make up the bulk of Broadcast's claim. Broadcast also has made an administrative claim for charges incurred by the Trustee and Subscription TV, as debtor in possession, for the use of editing equipment.
The Debtor was engaged in the operation of a subscription television service, which was still operating at the time Subscription TV converted its Chapter 11 case into a Chapter 7 case. The Trustee was appointed on July 6, 1983, and was authorized by the court to continue Subscription TV's operations. For a 17-day period, he did so. In particular, he provided video tapes to Broadcast, who scrambled and transmitted them in accordance with the Contract. During this time, Broadcast's equipment was also used for editing.
After this 17-day period, the Trustee no longer supplied video tapes to Broadcast for transmission, and no transmission was conducted by Subscription TV to its customers. The Trustee notified Broadcast that he would no longer be using its signal. However, the Trustee did not reject the Contract, which is an assumable, executory agreement. Instead, the Trustee retained the Contract for a full 60 days after the date of the conversion to Chapter 7. Under the contract, Broadcast was obligated to keep the signal available exclusively to Subscription TV.
During the 60-day period, the Trustee attempted to remarket the Contract at a profit, and dealt with some potential purchasers. The Trustee never rejected the Contract with Broadcast during that period. Instead, the Contract was "deemed rejected" at the end of the 60 days under 11 U.S.C. § 365(d)(1). At that time, Broadcast regained the right to market the TV signal which was the subject of the Contract. Broadcast promptly did so, and immediately received substantial revenues.
On November 3, 1983, Broadcast filed its motion seeking the allowance of administrative expenses under 11 U.S.C. § 503(b)(1)(A). In its motion, Broadcast requested payment for primary lease time and editing charges allegedly incurred by the estate while this case was being administered under Chapter 11 and Chapter 7. The Trustee filed an objection denying liability, and a hearing was set for December 6, 1983.
Shortly before the hearing, the Trustee amended his prior response to assert a counterclaim. The counterclaim adopted by reference the allegations contained in an eight-count complaint previously filed by the Debtor in the Superior Court of Fulton County, Georgia. The state court action had been removed to the Bankruptcy Court in July of 1983, but was subsequently remanded to the Superior Court on December 5, 1983.
At the hearing, Broadcast claimed a priority expense for the full 60 days during which the Trustee kept the Contract executory and subject to assumption. The Trustee conceded that an administrative claim should be allowed for the 17-day period during which he actually used the signal, but denied that an administrative claim would be justified for the balance of the 60-day period. Judge Norton also heard argument from the parties on the claimed editing charges and certain offsets asserted by the Trustee.
On January 28, 1985, Judge Norton issued an opinion allowing Broadcast's claim for primary lease time for the full 60 days. The order also allowed Broadcast's claims for editing charges, and preconversion claims under Chapter 11, which are not disputed in this appeal. Judge Norton also granted the Trustee an offset for rent and phone service consistent with the agreements made between the Debtor and Broadcast. Finally, the opinion stated that the Trustee's counterclaim would be dismissed with prejudice, and judgment entered in favor of Broadcast, because the Trustee had introduced no supporting evidence.
In response to a motion by the Trustee, the Judge subsequently amended his opinion to strike the term "dismissed with prejudice" and insert the following:
The counterclaim is dismissed without prejudice as the issues have been remanded in another proceeding for adjudication by the Superior Court of Fulton County, Georgia.
Order of March 20, 1985, page 2.
The Trustee now appeals Judge Norton's January 28, 1985 order to the extent that (1) Broadcast's priority claim for primary lease time was allowed for the full 60 days, (2) the entire offset for phone charges sought by Trustee was not deducted, and (3) no offset was allowed for alleged debt obligations to third parties.
In directing that the Trustee pay Broadcast its fee for the television signal for the full 60 days, Judge Norton found that the Trustee's retention of the contract for that period was a use of Broadcast's assets in preservation of the estate. 11 U.S.C. § 503(b)(1)(A) states that an administrative expense shall be allowed for "the actual, necessary costs and expenses of preserving the estate . . ." In particular, the Judge focused on the Trustee's own testimony that he kept the Contract assumable for the full 60-day period in the hope that a sale of the Debtor's business could be arranged, and that he did receive expressions of interest from at least two parties. The Judge also noted that Broadcast had repeatedly requested the Trustee to make an early determination as to rejection or assumption of the contract.
The Trustee had argued that the estate was actually and necessarily benefited only for the 17-day period, during which he used the signal to broadcast to its customers and received income in return. The Trustee contended that under 11 U.S.C. § 365(b)(1), he has an exclusive, unfettered right for 60 days to decide whether to assume or reject an executory contract. The Trustee also asserted that under 11 U.S.C. § 362(d)(1), neither a party in interest nor the court can force him to make a decision to assume or reject during that period. Judge Norton agreed, but stated:
That discretionary right of § 365(b)(1) does not give the trustee a free ride to use the property or right during that period of decision without reasonable compensation to the owner-lessor.
Order of January 28, 1985, page 9. The court then went on to award Broadcast its full payment under the Contract for each of the 60 days.
The Bankruptcy Code provides that the trustee generally may assume or reject any executory contract or unexpired lease of the debtor, subject to the court's approval. 11 U.S.C. § 365(a). In a Chapter 7 liquidation case, if the trustee does not assume or reject an executory contract or unexpired lease within 60 days after the order for relief, such contract or lease is deemed rejected. § 365(d)(1). In a Chapter 11 reorganization case, the trustee may assume or reject at any time before the confirmation of a plan, but at any party's request the court may order the trustee to make that decision within a shorter period of time. § 365(d)(2).
It is well established that once an executory contract or lease is rejected, the creditor may file an administrative claim for the "reasonable value of the use or occupation" by the trustee of the creditor's assets during the time before rejection. 2 Collier on Bankruptcy ¶ 365.03 at 365-24;1Philadelphia Co. v. Dipple, 312 U.S. 168, 61 S.Ct. 538, 85 L.Ed. 651 (1941). The cases in this area vary widely, however, in their interpretations of how such a claim should be valued. Most of these cases have dealt with unexpired leases and the trustee's use of the claimant's real estate.
Some cases have held that the trustee should be liable only to the extent of the actual benefit received by the estate from the use of the property. See American A. & B. Coal Corp. v. Leonardo Arrivabene S.A., 280 F.2d 119 (2d Cir.1960).2 Other cases have held that the trustee's particular use of the property should not dictate the amount of the claim to be paid, but instead a fair market value for the lease of the property should be used. See Kneeland v. American Loan & Trust Co., 136 U.S. 89, 10 S.Ct. 950, 34 L.Ed. 379 (1890); Diversified Services, Inc. v. Harralson, 369 F.2d 93 (5th Cir.1966).3 In theoretical approach, the former line of cases focuses on the avoidance of unjust enrichment to the estate, while the latter line of cases takes into consideration the claimant's loss once a benefit to the estate has been established.
In this case, Judge Norton relies primarily on In Re Fred Sanders Company, 22 B.R. 902, 903 (Bkcy.E.D.Mich.1982). In Sander...
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