In re Central Rubber Products, Inc., Bankruptcy No. 205-5-80-00063

• Decision Date: 20 July 1983
• Docket Number: Bankruptcy No. 205-5-80-00063,Adv. No. 205-5-82-0356.
• Citation: 31 BR 865
• Court: U.S. Bankruptcy Court — District of Connecticut
• Parties: In re CENTRAL RUBBER PRODUCTS, INC., Debtor. CENTRAL RUBBER PRODUCTS, INC., Plaintiff, v. STAFFORD HIGGINS INDUSTRIES, INC., Defendant.

31 B.R. 865 (1983)

In re CENTRAL RUBBER PRODUCTS, INC., Debtor CENTRAL RUBBER PRODUCTS, INC., Plaintiff, v. STAFFORD HIGGINS INDUSTRIES, INC., Defendant.

Bankruptcy No. 205-5-80-00063, Adv. No. 205-5-82-0356.

United States Bankruptcy Court, D. Connecticut.

July 20, 1983.

Thomas L. Kanasky, Jr., Levin & Charmoy, Bridgeport, Conn., for debtor/plaintiff.

Robert A. Slavitt, Slavitt, Connery & Vardamis, Norwalk, Conn., for claimant/defendant.

MEMORANDUM AND DECISION ON DEBTOR'S OBJECTION TO CLAIMS AND DEBTOR'S COUNTERCLAIM

ALAN H.W. SHIFF, Bankruptcy Judge.

I.

On January 31, 1980, the debtor filed a voluntary petition under Chapter 11 of the Bankruptcy Code. Thereafter, the defendant, Stafford Higgins Industries, Inc., filed the following claims against the estate:

1 Claim Number 3: "$1,500.00 rent payment plus $300.00 water and electric rent." This was designated as a priority claim.

2 Claim Number 4: $2,716.60 "Use and occupation of the premises with respect to goods under Sheriff\'s attachment and two large plastic foaming machines in the premises formerly leased. Sheriff\'s Bill of Costs." The priority of this claim was not stated.

3 Claim Number 34: $17,440.00 "Use and occupation of the premises with respect to goods under Sheriff\'s attachment and two large plastic foaming machines in the premises formerly leased." This was designated as a priority claim.

4 Claim Number 35: $4,140.60 "securing assets for the benefit of creditors." This was designated as a priority claim.

In the instant proceeding, the debtor objects to these claims and further asserts a counterclaim, alleging that property of the debtor was damaged and lost due to the claimant's negligence.

II.

The background common to the objections and counterclaim may be stated briefly. One day prior to the filing of the petition, the debtor was lawfully evicted from the claimant's premises known as 25 Van Zant Street, Norwalk, Connecticut, where the debtor had been leasing 9,000 square feet on the building's first level. On the day of the eviction, the defendant moved the debtor's personal property, except for two large injection molding machines and several lesser objects, to the building's basement level. A sheriff, acting under the defendant's instructions, and workers, who were hired by the defendant, transferred the property.

The debtor then used the basement space as a warehouse. The debtor's president made approximately fifty trips to the basement storage to remove property for sale. In May of 1980, when the debtor had acquired space elsewhere, all remaining property was removed from the basement level.

The two large molding machines on the first level were not removed from the premises until September 1980, when the debtor sold the machines. The defendant had, however, in July of 1980, moved the molding machines from one area of the first level to another.

OBJECTIONS TO CLAIMS

A. Claim Number 3

Claim Number 3, as filed, is in the total amount of $1,800.00 in consideration for rent ($1,500.00) and water and heat ($300.00). The only evidence, which arguably contradicts the claim, consisted of the testimony of the debtor's president, who at the outset of the trial, stated that he could not determine how the amounts or priorities of any of the claims were reached. Later, however, the debtor's president testified that the rent was $1,500.00 per month.

A properly filed proof of claim "constitutes prima facie evidence of the validity and amount of the claim." Bankruptcy Rule 301(b); In re Borne Chemical Co., Inc., 16 B.R. 509 (Bkrtcy.D.N.J.1980); In re Georg Jensen, Inc., 1 B.R. 239, 244 (Bkrtcy.S.D.N.Y.1979). Consequently, a debtor or trustee who objects to a proof of claim has the burden of going forward with evidence in rebuttal. In re Avien, Inc., 390 F.Supp. 1335, 1342 (E.D.N.Y.1975). The ultimate burden of persuasion, however, is upon the creditor, In re Georg Jensen, supra, and in that regard, the creditor must prove his claim by a fair preponderance of the evidence. Rasmussen v. Gresly, 77 F.2d 252 (8th Cir.1935); In re Palm Investments of Pinellas County, Inc., 2 B.R. 646, 649 (Bkrtcy.M.D.Fla.1980).

Here, the debtor has failed to rebut the prima facie validity of claim Number 3. Indeed, the little evidence that bears upon the claim supports it. Thus, Claim Number 3 must be allowed, but the defendant has conceded, and this court accepts, that claim Number 3, arising prepetition, should not be accorded priority status.

B. Claim Number 4

Claim number 4, as filed, is a hybrid claim for use and occupancy and costs incurred during the eviction process. The former element of the claim has been abandoned by the defendant,¹ (because it was duplicative of Claim Number 3),² leaving the priority claims in connection with the eviction.

The evidence adduced at trial demonstrated that the sheriff's fee was $216.60 and those who moved the debtor's property from the first level to the basement charged $800.00. The issue then is whether the total $1,016.60 should be allowed as a priority claim.

A claim of priority must ordinarily be based on a provision of the Bankruptcy Code. See Guerin v. Weil, Gotshal & Manges, 205 F.2d 302 (2d Cir.1953) (Act case³). The defendant points to no specific section in the instant proceeding, but argues that $1,016.60 should be allowed as an "administrative expense or priority claim" because there was a benefit to the estate and the amount is "unsubstantial to all unsecured creditors."⁴

Regarding priorities and administrative expenses, the Bankruptcy Code provides in pertinent part:

507. Priorities

(a) The following expenses and claims have priority in the following order:

(1) First, administrative expenses allowed under section 503(b) of this title, . . .

503. Allowance of administrative expenses.

(b) After notice and a hearing, there shall be allowed, administrative expenses, other than claims allowed under section 502(f) of this title, including—

(1)(A) the actual, necessary costs and expenses of preserving the estate, including wages, salaries, or commissions for services rendered after the commencement of the case; . . . emphasis added

It is apparent that no statutory authority grants a priority to the prepetition claims such as those set forth by Claim Number 4. See In re Hearth & Hinge, Inc., 28 B.R. 595, 10 B.C.D. 615 (Bkrtcy.S.D.Ohio 1983). Thus, under Guerin v. Weil, Gotshal & Manges, supra, the $1,016.60 claim is not entitled to priority status. See also In re Meyer's, Inc., 15 B.R. 390, 8 B.C.D. 418 (Bkrtcy.S.D.Cal.1981); In re Billelo, 171 F.Supp. 69 (E.D.N.Y.1959); In re Ford Home Furnishings Co., 272 F.Supp. 820 (D.D.C.1967).

Even assuming that this court has the equitable power to expand the list of priority claims sanctioned by the Code, see generally, In re Supreme Plastics, Inc., 8 B.R. 730 (D.N.D.Ill.1980), I find no reason for its exercise here insofar as the primary reason that the defendant moved the property was to obtain possession of the premises. Cf. In re Supreme Plastics, Inc., supra; In re Hearth & Hinge, Inc., supra. I accordingly conclude that Claim No. 4 is not entitled to priority status, but it may be allowed as a general claim.

C. Claim Number 34

Claim Number 34 is for the debtor's post-petition use and occupancy of the first and basement levels of 25 Van Zant Street. The debtor acknowledges that this is a priority claim, see 11 U.S.C. §§ 507 and 503, but disputes the amount.

As noted, the first level covered approximately 9,000 square feet. The two injection molding machines, which leaked oil and created an unpleasant odor, were 18 by 4.5 feet. At the time of the eviction, the machines, set perpendicular to each other, occupied a bay 50 feet across and protruded 25 feet from the walls in such a way as to prevent easy passage through the first level.

Although the molding machines each displaced only 81 square feet and occupied a bay of about 1,300 square feet, the defendant contends that its administrative claim should be based upon the entire 9,000 square feet originally leased. The defendant argues that because the machines were difficult to walk around and caused the premises to be "permeated with an unpleasant and distasteful aroma,"⁵ the space was effectively lost for rental purposes. In other words, the defendant does not argue that the debtor benefitted by the full 9,000 square feet but rather relies on its own detriment for the basis of its administrative claim.

Where a landlord is precluded from utilizing space for a reason more compelling than an "unpleasant and distasteful aroma," namely, where the debtor still has the right to assume or reject the lease, the court must inquire into the value received by the estate. American Anthracite & Bituminous Coal Corp. v. Leonardo Arrivabene S.A., 280 F.2d 119 (2d Cir.1960); In re Rhymes, 14 B.R. 807, 8 B.C.D. 636 (Bkrtcy. D.Conn.1981). As stated in 3 Collier on Bankruptcy ¶ 503.04 at 503-15 (15th ed. 1982):

"The court will scrutinize very carefully to what extent the trustee has made necessary use of the premises and will deny the landlord the full rental value where a small part of it was occupied by the trustee in preservation of the assets of the debtor."

Accordingly, I conclude that the defendant is only entitled to charge for the use and occupancy of 1,300 square feet on the first level.

There was conflicting testimony regarding the amount of space used by the debtor at the basement level. The debtor's president, who visited the space about 50 times, testified to an area of about 1,400 square feet and illustrated the area occupied on the basement level with a diagram of 25 Van Zant Street.

The defendant claims that the debtor occupied 5,000 square feet from February 1, 1980 to April 30, 1980 and 3,750 square feet during the month of May. Those figures were supported primarily by the testimony of Mr. Katz, who managed the building for the defendant.

The evidence on this portion of Claim Number 34,...