In re Thatcher Glass Corp., Bankruptcy No. 5-84-00911

• Decision Date: 15 April 1986
• Docket Number: Motion No. 5-85-0232-M.,Bankruptcy No. 5-84-00911
• Citation: 59 BR 797
• Court: U.S. Bankruptcy Court — District of Connecticut
• Parties: In re THATCHER GLASS CORPORATION, Debtor. PEOPLES GAS SYSTEM, INC., Movant, v. THATCHER GLASS CORPORATION, Respondent.

59 B.R. 797 (1986)

In re THATCHER GLASS CORPORATION, Debtor PEOPLES GAS SYSTEM, INC., Movant, v. THATCHER GLASS CORPORATION, Respondent.

Bankruptcy No. 5-84-00911, Motion No. 5-85-0232-M.

United States Bankruptcy Court, D. Connecticut.

April 15, 1986.

Paul K. Barenholtz, Kelley, Drye & Warren, Stamford, Conn., for Peoples Gas System, Inc.

Barbara G. Kaplan, Stroock & Stroock & Lavan, New York City, for debtor.

MEMORANDUM AND ORDER

ALAN H.W. SHIFF, Bankruptcy Judge.

People's Gas System, Inc. ("PGS") seeks relief from the automatic stay, 11 U.S.C. § 362(a), so that it may apply a security deposit it holds to pay for post petition natural gas it supplied to the debtor, Thatcher Glass Corporation ("Thatcher"). Thatcher in turn seeks an order directing PGS to return the security deposit together with interest thereon after deducting the amount of unpaid post petition charges for that natural gas.

BACKGROUND

The parties have requested that the court enter judgment upon their pleadings, briefs, and the following stipulation:

1. On or about October 1, 1982 PGS and the Debtor entered into a one year "Contract for Interruptible Natural Gas Service" (the "Contract"), automatically renewable annually, under which PGS supplied natural gas to the Debtor\'s Tampa, Florida glass factory. (Exhibit A).

2. PGS is authorized by the Florida Public Service Commission to offer a reduced "interruptible service" rate ("IS rate") for gas as contained in its IS rate tariff, only under contracts conforming with the requirements contained in PGS\'s IS rate tariff (Exhibit B), including the customer\'s agreement to maintain an alternative standby fuel source, to be subject to interruptibility and to take or pay for certain monthly and annual minimum quantities of gas.

3. As authorized by the Florida Public Service Commission, PGS supplies gas under the General Service Commercial and Industrial rate ("GSCI rate") tariff (Exhibit C) to commercial and industrial customers who have not signed a contract conforming with the lower IS rate tariff.

4. The current term of the Contract was for the year ending September 30, 1985.

5. On December 29, 1984 the Debtor filed a voluntary petition for reorganization under Chapter (sic) 11 U.S.C. § 101 et seq.

6. On February 14, 1985, in accordance with 11 U.S.C. § 366, this Court entered an Order on Stipulation, whereby the debtor was to pay to PGS the sum of $60,000 on Friday of each week for estimated gas service during the preceding week, to be credited monthly against the actual gas usage reading.

7. The Order on Stipulation further provided that the debtor pay to PGS a gas deposit of $200,000, which deposit was paid by the Debtor to PGS and, with interest, now stands in excess of $210,500.

8. Payments were made by the Debtor to PGS in accordance with the Order on Stipulation under the IS rate in existence under the Contract.

9. Full $60,000 weekly payments under the Order on Stipulation were made by the Debtor through March 8, 1985.

10. A partial weekly payment of $12,640.95 was made on March 19, 1985.

11. The total payments by the Debtor to PGS through March 19, 1985 in respect of post-petition gas service were $612,640.95.

12. In mid-March the debtor sharply reduced its gas consumption at its Tampa factory and, contemporaneous therewith, ceased production at the Tampa factory.

13. PGS continued to supply reduced quantities of gas to the Debtor from approximately mid-March to mid-May, 1985, without any additional payments from the Debtor.

14. The total amount of natural gas actually supplied by PGS and used by the Debtor post-petition was 1,498,622.5 therms.

15. On June 20, 1985 this Court entered an Order directing the Debtor to assume in accordance with 11 U.S.C. § 365(b) or to reject by July 15, 1985 the Contract; upon the Debtor\'s failure to act on or before July 15, the PGS Contract would be deemed rejected by the Debtor.

16. On July 1, 1985, the Debtor sold the bulk of its property, including all furnaces and other fixtures (but excluding the Tampa factory realty and buildings), to Diamond Thatcher, Inc., a newly-created subsidiary of Diamond-Bathurst, Inc.

17. The Debtor, by letter of counsel dated July 15, 1985, notified the Court and PGS that the Contract was deemed rejected (Exhibit D).

18. Upon consent of the parties, PGS has taken a final meter reading and retrieved its gas meter from the Tampa factory property.

19. Thatcher claims the price for actual post-petition gas usage at the IS rate is $626,792.59. Thatcher has paid $612,640.95, leaving a balance of $14,151.64.

20. PGS claims the price for actual post-petition gas usage at the GSCI rate is $800,568.60. Thatcher has paid $612,640.95, leaving a balance of $187,927.65.

Thatcher concedes that "There is NO DISPUTE that the utility is entitled to an administrative expense claim for the 1,498,622.5 thermal units of natural gas consumed after the filing date".¹ Accordingly, the narrow issue which will be addressed in this decision is what is the appropriate rate for calculating the administrative expense of those thermal units.

DISCUSSION

Under Code § 503(a), an entity which provides goods or services to an estate in a voluntary bankruptcy case may file a request for payment of that administrative expense. Under Code § 503(b)(1)(A), after notice and a hearing, the reasonable value of the actual and necessary costs and expenses of such goods and services, which were necessary for the preservation of the estate, will be allowed.² As this court observed in an analogous context in In re Rhymes, Inc., 14 B.R. 807, 808, 8 B.C.D. 637, 638 (Bankr.D.Conn.1981):

With respect to unexpired leases, it is well settled that until assumption or rejection of the debtor\'s lease, the estate is liable only for the reasonable value of the use and occupancy of the property. In re United Cigar Stores Co., 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); In re Standard Furniture Co., 3 B.R. 527, 6 B.C.D. 270 (Bkrtcy.S.D.Cal.1980); 2 Collier on Bankruptcy Par. 365.032 (15th ed. 1979); See 3 Collier on Bankruptcy Par. 503.041a (15th ed. 1979). The liability for actual use and occupancy is based on "the equitable principle of preventing unjust enrichment, rather than the compensation of the creditor for loss to him." American Anthracite & Bituminous Coal Corp. v. Leonardo Arrivabene, S.A., 280 F.2d 119, 126 (2d Cir.1960).

PGS argues that the GSCI rate is the appropriate measure of the reasonable value of the post petition natural gas it supplied to Thatcher and bases that contention on the logic that had Thatcher sought to purchase natural gas for less than one year, utility regulations in effect would require PGS to charge Thatcher at the GSCI rate. Thatcher, on the other hand, contends that the reasonable value of the natural gas is established by the IS Contract under which the gas was delivered.

While it is true that the reasonable value of post petition goods is not necessarily measured by the price established by the contract under which they were delivered, see In re California Steel Company, 24 B.R. 185, 188-189 (Bankr.N.D.Ill.1982), the contract rate is presumed to be reasonable. See S & W Holding Company v. Kuriansky, 317 F.2d 666, 667 (2d Cir.1963), quoting, 3 Collier On Bankruptcy, 1516 (14th ed. 1961):

The quantum of allowance for use and occupation by the receiver or trustee is measured by "the reasonable value of such use and enjoyment." Ordinarily this will be the contractual rental, pro rata temporis, unless it is shown that the contractual rental itself is clearly unreasonable. There is a presumption to the effect that the contractually reserved rent is reasonable.

See also, In re First Research Corporation, 457 F.2d 331, 332-333 (5th Cir.1972); In re Vermont Real Estate Investment Trust, 25 B.R. 809, 811 (Bankr.D.Vt.1982). Therefore, in calculating the reasonable value of the post petition natural gas supplied by PGS, it is necessary in the first analysis to consider the IS Contract.

Under the IS Contract, Thatcher was required, inter alia, to purchase and pay for a minimum volume of natural gas over a period of not less than one year. See stipulation ¶ 2, supra, at 2....