Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-90-07075/USCOURTS-ca10-90-07075-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 

---

• 

,r 

.. F !LED 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

United States Court of .Appeals 

Tenth Cirrufr 

FEB 211991 

ROBERT L. HOECKER 

Clerk 

ATOKA CARE CENTER, 

Plaintiff-Appellant, 

v. 

CANADAY NURSING HOME, INC., 

Defendant-Appellee. 

) 

) 

) 

) 

) 

) 

) 

) 

) 

ORDER AND JUDGMENT* 

No. 90-7075 

(D.C. No. 89-435-C) 

(E.D. Oklahoma) 

Before LOGAN, MOORE, and BALDOCK, Circuit Judges. 

After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34(a); 10th Cir. R. 34.1.9. The case is therefore ordered submitted without oral argument. 

Plaintiff Atoka Care Center appeals the bankruptcy court's 

order, affirmed by the district court, requiring Atoka to 

reimburse Canaday Nursing Home, Inc. $19,066.11 in monies paid to 

Atoka belonging to Canaday after allowance of one offset. The 

only issue on appeal is whether additional offsets that would have 

* This order and judgment has no precedential value and shall not 

be cited, or used by any court within the Tenth Circuit, except 

for purposes of establishing the doctrines of the law of the case, 

res judicata, or collateral estoppel. 10th Cir. R. 36.3. 

Appellate Case: 90-7075 Document: 010110103819 Date Filed: 02/21/1991 Page: 1 
., 

wiped out the entire obligation were erroneously denied by the 

bankruptcy and district courts. 

Canaday, the operator of a nursing home, was a debtor in 

possession in Chapter 11 bankruptcy proceedings. An Oklahoma 

Department of Human Services check drawn payable to Canaday was 

apparently endorsed by Atoka and appropriated by it. When the 

bankruptcy court ordered the surrender of the funds to the 

bankruptcy estate a dispute arose concerning certain offsets 

claimed by Atoka in the form of expenses paid, accrued employee 

vacation paid, reimbursement for a promissory note Atoka made 

promising payment of rentals owed by Canaday, and certain other 

expenses. The bankruptcy court denied relief with respect to the 

setoffs on various grounds: (1) Atoka was under no obligation to 

make some payments and did so voluntarily; (2) Atoka presented 

insufficient evidence that the amount represented by the 

promissory note was due and owing from Canaday; and (3) Title 19 

expenditure reports were illegible and did not provide sufficient 

information for the court to allow the amount as a setoff. 

Before the district court Canaday presented the additional 

defense that while some of the expenditures might appropriately be 

considered administrative expenses, they were not presented in the 

proper form, and they would have to share or take lower priority 

than certain other administrative expenses such as claims of the 

examiner, the U.S. trustee, and other unpaid claims. The district 

court found "no error" in the bankruptcy court's determination, 

and found for Canaday on the additional ground that "Atoka did not 

-2-

Appellate Case: 90-7075 Document: 010110103819 Date Filed: 02/21/1991 Page: 2 
I 

✓ 

follow proper statutory procedure for seeking recovery of 

administrative expenses." Order of Aug. 23, 1990, at 3. 

The bankruptcy court's findings, affirmed by the district 

court, with respect to whether certain payments were voluntary and 

not owing by Canaday, and whether Atoka presented adequate and 

legible proof of the claims, are subject to review on a clearly 

erroneous basis. The district court's additional ground for 

affirmance, that proper procedures were not followed, should be 

reviewed on a de ·novo basis because it is a conclusion of law. 

See In re Branding Iron Motel, Inc., 798 F.2d 396, 399-400 (10th 

Cir. 1986). 

After examining the record we cannot find the bankruptcy 

court's fact determinations to be clearly erroneous. We also 

agree that Atoka cannot elevate potential Chapter 11 

administrative expense claims over the normal order of priority 

set forth in 11 u.s.c. SS 503(b), 507(a), and 726(b) by simply 

paying them and offsetting the sums against assets owed to the 

estate, thereby potentially frustrating the system of priorities 

set up in the bankruptcy law. See Bankruptcy Rules 2002 and 2016. 

AFFIRMED. 

-3-

Entered for the Court 

James K. Logan 

Circuit Judge 

Appellate Case: 90-7075 Document: 010110103819 Date Filed: 02/21/1991 Page: 3