In re Curry Printers, Inc., Bankruptcy No. 89-61180.

CourtUnited States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Indiana
Citation135 BR 564
Docket NumberBankruptcy No. 89-61180.
PartiesIn re CURRY PRINTERS, INC., Debtor.
Decision Date04 October 1991

135 B.R. 564 (1991)


Bankruptcy No. 89-61180.

United States Bankruptcy Court, N.D. Indiana, Hammond Division at Gary.

October 4, 1991.

135 BR 565

Samuel Miller, Highland, Ind., for debtor.

Dominic Pollizotto, Indianapolis, Ind.




Statement of Proceedings

This Chapter 11 case came before the Court on a Motion for Summary Judgment filed by Eastman Kodak Company, (hereinafter: "EKC") on April 3, 1991. EKC requests the Court enter a Summary Judgment as to its Motion for Payment of Post-petition Administrative Expenses.

By Order of this Court date April 9, 1991, Curry Printers, Inc., (hereinafter: "Debtor") was given 15 days to file a response or answer to said motion, and upon so doing the EKC was granted 7 days to file a reply thereto.

However, EKC did not file a Supporting Brief with its original Motion as required by Local Bankruptcy Rule B-109. EKC's Brief was subsequently filed on May 20, 1991.

The Debtor then filed an Answer Brief in opposition to EKC's Motion on May 28, 1991.

EKC filed its Reply Brief on August 22, 1991.

On February 11, 1991, EKC filed its Motion for the Payment of Post-petition Administrative Expenses pursuant to 11 U.S.C. § 503(b) in the sum of $64,370.95.

Said Post-petition Motion alleges as follows:

1. On or about November 24, 1987, Curry Printers, Inc. ("Curry"), entered into a rental agreement with EKC for the rental of a Kodak Ektaprint 300AF copier, Serial No. 2744803. A copy of said rental agreement is attached hereto and marked as Exhibit A.
2. On or about March 14, 1988, Curry entered into a rental agreement with EKC for the rental of a Kodak Ektaprint 150AF copier, Serial No.
135 BR 566
605765. A copy of said rental agreement is attached hereto and marked as Exhibit B.
3. On July 17, 1989, Curry filed its instant Chapter 11 bankruptcy petition.
4. At the time Curry filed its bankruptcy petition, its rental payments on the above-described copiers were delinquent.
5. Since the filing of its bankruptcy petition, Curry has made no rental payments to EKC on the above-described copiers.
6. On or about October 16, 1990, the Court entered an order granting EKC\'s request for relief from stay, and allowed EKC to take immediate possession of the above-described copiers.
7. Curry\'s access to and use of the above-described copiers has benefited the estate, and therefore such use constitutes an administrative expense pursuant to 11 U.S.C. § 503(b).
8. EKC\'s administrative claim for the use of the above-described copiers is presumed to be the amount of the copiers\' monthly rental charges.
9. The rental charge for copier Model 150AF, from petition date to date of pick-up, is $22,220.45.
10. The rental charge for copier Model 300AF, from petition date to date of pick-up, is $42,150.57.
11. EKC\'s total administrative claim for Curry\'s use of the above-described copiers is $64,371.02.

After due notice to all creditors, and the Debtor, of said Motion by EKC pursuant to Order of Court dated February 20, 1991 giving until March 18, 1991 to object thereto, the Debtor on March 12, 1991 filed its objection to EKC's Motion and asserted as follows:

1. That Kodak failed to assert its rights for almost one year after debtor\'s petition was filed.
2. That as a result of said delay, Kodak has committed laches, greatly prejudicing the debtor\'s estate and the unsecured creditors.
3. That even if Kodak is entitled to some type of administrative claim, said claim should be determined by the value of the benefit to the estate, if any and not by the contractual rental provision between debtor and Kodak.
4. That debtor is entitled to a set-off approximating Eleven Thousand ($11,000.00) Dollars against Kodak as a result of a preferential transfer received by Kodak prior to the filing of debtor\'s petition.

The Court takes judicial notice of the record in the Debtor's main case which shows the following:

1. That the Debtor commenced its Chapter 11 by filing its voluntary petition on July 17, 1989.
2. The Debtor never filed a motion to accept or reject the subject leases with EKC.
3. That on June 20, 1990, EKC filed its motion for an order requiring the Debtor to assume or reject the subject equipment rental agreement with the Debtor.
4. That by order entered on August 9, 1990, the Debtor was granted to and including August 24, 1990 to object to EKC\'s motion, and failing to do so the Court could grant said Motion without further notice and hearing.
5. That on August 24, 1990, the Debtor filed a request for a hearing on EKC\'s Motion to Accept or Reject.
6. That pursuant to docket entry order of September 14, 1990, it was stipulated between EKC and the Debtor that the Debtor file an acceptance or rejection of said leases by October 16, 1990, or said leases would be deemed rejected.
7. That the Debtor did not file a Motion to Accept or Reject said leases on or before October 16, 1990.
8. That on October 19, 1990 an order was entered that the equipment leases between EKC and the Debtor
135 BR 567
were deemed rejected as of October 16, 1990.


Conclusions of Law and Discussion

No objection was made by counsel to the jurisdiction of this Court as to this matter, the Court finds jurisdiction to be present, and that this contested matter is a core proceeding pursuant to 28 U.S.C. § 157.

It does not appear that the relevant material facts are in dispute, although EKC did not file a Statement of Material Facts as to which it contends there is no genuine issue as required by Local Bankruptcy Rule B-111, nor did the Debtor file a "Statement of Genuine Issues" setting forth all material facts to which it contended there exists a genuine issue to be litigated. In addition, neither party filed any supporting affidavits, or discovery responses.

Both EKC and the Debtor in their Statement of Facts admit that the Debtor and EKC entered into two prepetition equipment leases, that the Debtor had possession of the leased equipment, post-petition, from the petition date of July 17, 1989 until on or about October 16, 1990, when pursuant to order of this court the leases were deemed rejected, and that EKC thereafter took possession of the leased equipment. There also appears to be no dispute as to the terms and conditions of the leases as to the contractual amount that was to be paid to EKC by the Debtor, and which was not paid by the Debtor post-petition.

The threshold issue to be resolved based on EKC's motion is whether EKC's administrative claim arising out of the two leases should be measured by the contractual terms of payment in the leases as asserted by EKC, or whether EKC's administrative claim should only be allowed versus the Debtor's estate to the extent EKC can show that the equipment had actually been used by the Debtor, and such use benefited the estate as asserted by the Debtor.

EKC in its brief argues that it is entitled to an administrative expense claim in the sum of $63,371.02 which represents the Debtor's unpaid post-petition lease obligation through the date the leases were deemed rejected based on the contractual terms of the leases. In support of its position, EKC cites In re Fred Sanders Co., 22 B.R. 902 (Bankr.E.D.Mich.1982).

EKC also asserts that the Seventh Circuit has long adhered to the rule that administrative expense claims are to be based on the reasonable value of the property, regardless of the use made thereof by the estate. In re Xonics, Inc., 65 B.R. 69, 73 (Bankr.N.D.Ill.1986).

The Debtor in its brief correctly notes that two distinct rules have developed regarding the payment of administrative expenses for the post-petition possession of leased equipment by the Debtor prior to rejection of the lease, and that In re Fred Sanders, 22 B.R. 902, supra, supports the argument made by EKC.

However, the Debtor points out that another line of cases have come to a contrary conclusion, and have held that an administrative rent claim should be based on the Debtor's actual use of the leased property, citing, Broadcast Corp. of GA. v. Broadfoot, 54 B.R. 606 (N.D.Ga.1985), appeal decided, Subscription Television of Greater Atlanta, 789 F.2d 1530 (11th Cir.1986). The Eleventh Circuit affirmed the decision of the District Court in Broadcast Corp. Broadcast was a chapter 7 case as opposed to a chapter 11 case as the one before the Court.

The Debtor asserts that the line of reasoning in Broadcast, supra, was adopted by the Seventh Circuit in In re Jartran, Inc., 886 F.2d 859 (7th Cir.1989) where the Court stated as follows:

In order to qualify as "actual and necessary" administrative expenses, expenditures must benefit the estate as a whole rather than just the creditor claimant.

Id. 886 F.2d at 871.

The Debtor notes that this same conclusion has been reached by other Courts in reorganization cases, citing, In re Pickens-Bond Constr. Co., 83 B.R. 581 (Bankr. E.D.Ark.1988) (Chapter 11); In re Carmichael,

135 BR 568
109 B.R. 849 (Bankr.N.D.Ill.1990); Matter of Patch Graphics, 58 B.R. 743 (Bankr.W.D.Wis.1986)

The Debtor also observes that although the Court in In re Xonics, 65 B.R. 69, supra, adopted the reasoning of Fred Sanders, 22 B.R. 902, supra, that same Court four years later in the case of In re Carmichael, 109 B.R. 849, supra, specifically rejected the reasoning in Fred Sanders, and adopted the reasoning of Subscription Television, 789 F.2d 1530, supra.

In its Reply Brief, EKC asserts that this Court should not apply the "actual use" rule as advocated by the Debtor, but should apply the "reasonable lease value" formula whereby the lessor is compensated according to the terms of the lease as the lease rate is presumed to be reasonable, citing as additional authority, Matter of Three Star Telecast, Inc., 73 B.R. 270, 274 (Bankr.D.Puerto Rico, 1987); In re Funding Systems Asset Management Corp., 72 B.R. 87, 89 (Bankr.W.D.Pa.1987); In re Rare...

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