In re Cardinal Export Corp., Bankruptcy No. 182-12233-21.
| Decision Date | 13 June 1983 |
| Docket Number | Bankruptcy No. 182-12233-21. |
| Parties | In re CARDINAL EXPORT CORPORATION, Debtor. |
| Court | U.S. Bankruptcy Court — Eastern District of New York |
Marilyn Frier, pro se.
Albin & Richman, Garden City, N.Y., for Vernon Sutton Realty, Inc.; Lee Albin, Garden City, N.Y., of counsel.
Simon, Meyrowitz & Meyrowitz, New York City, for Merchants Bank of New York.
Lewis J. Solomon, Garden City, N.Y., for debtor.
Acting pro se, Marilyn Frier, Esq., the trustee of Cardinal Export Corporation ("Cardinal"), the debtor herein, is objecting to the claim filed in this proceeding by Vernon Sutton Realty, Inc. ("Realty"), asserting an administration expense in the amount of $13,706.82. It is Mrs. Frier's position that as an administration debt, the claim should be reduced to $7,073.97, and that the balance should be either reclassified, or expunged.
Mrs. Frier has moved on notice to Merchants Bank of New York ("Merchants Bank") and to Arthur Lerner, principal officer of the debtor, because their rights may be affected by the disposition of the claim of Realty.
The relevant facts are few and not in dispute. Cardinal filed a petition for relief under Chapter 7 on August 30, 1982. According to its schedules, Merchants Bank held a security interest in its inventory and receivables in the amount of $1,200,000, which equalled, or exceeded, their value. The debtor's only other tangible assets were its automobiles, office equipment, and furniture of relatively little value.
At the time the debtor filed, it was occupying premises at 30-55 Vernon Boulevard, Long Island City, New York, which it had rented from Realty on August 13, 1979. Its lease had expired on December 15, 1981, and it continued to occupy that premises as a month-to-month tenant. Among the obligations of the lease was that upon the expiration of the lease, the tenant will surrender the premises to the landlord "broom clean, in good order and condition," and shall remove all its property (Ex. 1, ¶ 21).
Pursuant to a supplementary letter agreement, Cardinal was obligated to pay a fixed proportion of the electricity and gas supplied the building. It was responsible for 60 percent of the gas, and for 80 percent of the electricity, from June 1 through September 1, 1982, and 60 percent for the remainder of the year (Ex. 2).
Mrs. Frier, who was appointed interim trustee by the Court, and continued in office as permanent trustee, arranged the sale by public auction of the debtor's machinery, equipment, office furniture, and vehicles on October 6, 1982. The machinery and equipment was sold for $15,000, and the inventory for $395,000. Pursuant to the terms of the sale, "buyers were allowed five (5) days within which to remove the merchandise, machinery, and equipment." The successful bidders who bought jointly were: Out of the Past, Ltd., a Pennsylvania corporation, and Robert McMillis, d/b/a Music Makers of Los Angeles, California.
Five days following the sale, David Strauss & Co., the auctioneers retained by the trustee, turned over the keys of the premises to Realty, which accepted them. However, the buyers of the debtor's assets were slow in removing the inventory and the other assets from the property so that the building was not totally vacated until November 8, 1982. On that date, it was full of debris and unfit for occupancy.
In order to render the building broom clean, Realty retained a cleaning company, Five Counties Carting Corp., which worked five days and rendered a bill for $1,750 for the labor and dumpsters used in clearing the premises. Dumpsters were necessary because of the quantity of trash left behind. Not until November 15, 1982 was the cleaning completed.
Realty has filed a claim for "use, occupancy, gas, and electric for premises 30-55 Vernon Boulevard, Long Island City, New York from September 1, 1982 to November 15, 1982, together with expenses in connection with clearing the premises of debtor's supplies and debris, in the amount of $13,706.82." Of this figure, Realty claims $8,718.75 for use and occupancy, $2,287.17 for electricity, and $932 for gas, plus $1,750 for cleaning up the premises. The trustee concedes her liability up to October 11, 1982 (the date on which the purchasers at the auction sale should have removed their equipment, and the date on which the key was surrendered) for use, occupancy, gas, and electricity. These figures total $7,037.97. She, however, contends that the estate is not liable for use and occupancy subsequent to October 11, 1982, and asks that the claim for that period either be expunged, or reclassified. She also denies liability as an administrative expense for the costs of cleaning up the premises.
There appears to be no question but that the premises were not totally vacated until November 8, 1982, and that it was not until November 15, 1982, due to the landlord's efforts, that the property was in the broomclean condition to which the debtor had obliged itself to leave them on termination of its occupancy. However, this is not a proceeding between the landlord and the tenant, but between the landlord and the representative of the debtor's other creditors, and turns on what debts are eligible for administrative expense status under § 503(b)(1)(A) of the Bankruptcy Code (11 U.S.C. § 503(b)(1)(A)). To so qualify, they must be the result of the "actual necessary costs and expenses of preserving the estate." Ibid.
Occupancy by the trustee of the premises from which the debtor was operating gives rise to administrative liability only to the extent and for the period that the trustee actually uses and occupies the premises. 3 Collier on Bankruptcy ¶ 503.041a, at p. 503-15 (15th ed. 1983). This is because "the purpose of according priority * * * is fulfillment of the equitable principle of preventing unjust enrichment of the debtor's estate, rather than the compensation of the creditor for the loss to him." American Anthracite & Bituminous Coal Corp. v. Leonardo Arrivabene, S.A., 280 F.2d 119, 126 (2d Cir.1960); In re United Cigar Stores Co. of America, 69 F.2d 513 (2d Cir.), cert. denied sub nom. Reisenwebers, Inc. v. Irving Trust Co., 293 U.S. 566, 55 S.Ct. 76, 79 L.Ed. 665 (1934). The reasonable value of such use and occupancy is ordinarily, but not necessarily, determined by an allocation of the rent reserved in the lease on a pro rata basis. Green v. Finnigan Realty Co., 70 F.2d 465 (5th Cir.1934); In re Chase Commissary Corp., 11 F.Supp. 288 (S.D.N.Y.1935). In this case, the trustee concedes her liability for use and occupancy up to October 11, 1982 (the date on which the key to the premises...
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