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NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. NV-16-1242-LJuKu

)

KITTUSAMY, LLP, ) Bk. No. 2:15-bk-13868-abl

)

Debtor. )

______________________________)

)

PARTAP INVESTMENTS, LLC, )

)

Appellant, )

) MEMORANDUM*

v. )

)

KITTUSAMY, LLP, )

)

Appellee. )

______________________________)

Argued and Submitted on February 24, 2017

at Las Vegas, Nevada

Filed - March 10, 2017

Appeal from the United States Bankruptcy Court

for the District of Nevada

Honorable August B. Landis, Bankruptcy Judge, Presiding

_________________________

Appearances: Samuel A. Schwartz of The Schwartz Law Firm argued

for Appellant Partap Investments, LLC; Bart Kurt

Larsen of Kolesar & Leathan, Chtd. argued for

Appellee Kittusamy, LLP. 

_________________________

Before: LAFFERTY, JURY, and KURTZ, Bankruptcy Judges.

FILED

MAR 10 2017

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

* This disposition is not appropriate for publication.

Although it may be cited for whatever persuasive value it may

have (see Fed. R. App. P. 32.1), it has no precedential value. 

See 9th Cir. BAP Rule 8024-1.
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INTRODUCTION

Pre-petition, Kittusamy, LLP (“Kittusamy”) defaulted on

payments due under agreements to lease medical imaging equipment. 

After an order for relief was entered in Kittusamy’s involuntary

chapter 111 case, the lessor filed a proof of claim asserting a

secured claim of approximately $3.3 million.2 Thereafter, the

lessor was granted relief from stay and foreclosed its security

interest. The equipment was sold to Partap Investments, LLC

(“Partap”) at a private foreclosure sale; the bill of sale also

transferred to Partap the lessor’s rights under the proof of

claim filed in Kittusamy’s bankruptcy case and Kittusamy’s rights

under a sublease. 

Thereafter, Partap filed an application for allowance of an

administrative claim of $917,593.26 based on unpaid postpetition

rent from the petition date through a date six days after Partap

purchased the equipment. The bankruptcy court disallowed the

administrative claim in its entirety, finding that the leases

were not true leases but were disguised security agreements, so

that the rights transferred to Partap could not have included an

administrative claim for postpetition rent. Additionally, viewed

through the alternative lens of a secured creditor’s rights, the

bankruptcy court found that Partap had not met its burden of

proving a diminution in value of the collateral for any relevant

period.

1 Unless otherwise indicated, all chapter and section

references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.

2 Although characterized as leases, the relevant documents

granted lessor a security interest in the equipment.

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We AFFIRM.

FACTS

The facts are not in dispute. Kittusamy is a Nevada limited

liability partnership. Prem K. Kittusamy, M.D., and Bhuvaneswari

P. Kittusamy, M.D., are the principals of the LLP. 

In 2008 and 2009, Kittusamy and its affiliate, DMP

Equipment, LLC, entered into agreements to lease medical imaging

equipment from Siemens Medical Solutions USA, Inc. (“Siemens

Medical”). Kittusamy leased one piece of equipment through a

Master Equipment Lease Agreement and Leasing Schedule that set

forth the details of the financing; DMP leased four pieces of

equipment, also via a Master Equipment Lease Agreement and a

separate Leasing Schedule for each item. DMP then subleased that

equipment to Kittusamy under an Equipment Sublease Agreement

(“Sublease”). 

All three parties entered into a Consent to Sublease and

Agreement under which Siemens Medical approved the sublease and

Kittusamy agreed to be bound by the terms of the DMP Master

Lease. All of the Leasing Schedules provided that Kittusamy had

the option to purchase the equipment for a “Nominal Fixed

Purchase Option Price of $1.00” at the end of the lease term. 

Thereafter, Siemens Medical assigned its interests in the Master

Equipment Lease Agreements, Leasing Schedules, and Sublease and

Consent (collectively, the “Lease Documents”) to Siemens

Financial Services, Inc. (“Siemens Financial”). At some point,

Kittusamy defaulted on its obligations under the Lease Documents;

according to its proof of claim, Siemens Financial accelerated

the amounts due under the Lease Documents on November 4, 2014.

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On July 2, 2015, an involuntary chapter 11 petition was

filed against Kittusamy; Kittusamy consented to entry of an order

for relief, which was entered August 10, 2015. Siemens Financial

filed proof of claim no. 23-1 asserting a secured claim of

$3,343,487.18 representing prepetition amounts due under the

leases, including late charges, property taxes, discounted

accelerated balance of future rentals, and attorneys’ fees and

costs through December 10, 2015. Siemens Financial then moved

for relief from the automatic stay, which the bankruptcy court

granted. Thereafter, Siemens Financial foreclosed on its

security interest, selling the equipment to Partap for

$924,641.70 plus $75,358.30 in sales tax through an “As Is,”

“Where Is” Bill of Sale and Non-Recourse Assignment dated

March 2, 2016 (“Bill of Sale”). Siemens Financial also

transferred to Partap “all of Siemens Financial’s rights, title

and interests in any claim Siemens Financial has asserted in the

Kittusamy, LLP Bankruptcy Case No. 15-13868-ABL . . .” and all of

Kittusamy’s and DMP’s “respective rights, titles and interests,

in and to the equipment . . . and sublease[.]”

On March 3, 2016, Partap filed a Notice of Transfer of

Siemens Financial’s claim in Kittusamy’s bankruptcy case. On

March 9, 2016, Partap filed proof of claim no. 41-1 asserting an

administrative claim of $917,593.26 pursuant to § 507(a)(2) for

Kittusamy’s postpetition use of the equipment. The amount of the

claim was based on the monthly payments due under the DMP Master

Lease and the Sublease only (not the Kittusamy Master Lease)

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through March 9, 2016,3 and included more than $300,000 in late

fees.

Kittusamy filed an objection to Partap’s unsecured and

administrative claims; Partap filed an application for approval

of its administrative claim, and an “opposition” to Kittusamy’s

objection to claims. The bankruptcy court heard argument and

took the matters under submission. On July 19, 2016, the

bankruptcy court made oral findings and conclusions on the record

and entered written orders (1) sustaining Kittusamy’s objections

to Partap’s administrative and unsecured claims and (2) denying

Partap’s motion to allow its administrative claim. Partap timely

appealed. Partap appeals only the bankruptcy court’s

disallowance of its administrative claim.

JURISDICTION

The bankruptcy court had jurisdiction pursuant to 28 U.S.C.

§§ 1334 and 157(b)(2)(B). We have jurisdiction under 28 U.S.C.

§ 158.

ISSUE

Did the bankruptcy court abuse its discretion in disallowing

Partap’s administrative claim?

STANDARDS OF REVIEW

We review the bankruptcy court’s legal conclusions de novo

and its findings of fact for clear error. See Allen v. U.S.

Bank, NA (In re Allen), 472 B.R. 559, 564 (9th Cir. BAP 2012). 

3 At oral argument, Partap’s counsel asserted that it was

owed an administrative claim for amounts due through early April

when Kittusamy surrendered the equipment. However, both the

proof of claim and the application to approve it requested

amounts due only through March 9, 2016.

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A bankruptcy court’s order allowing or disallowing a proof

of claim, including an administrative claim, is reviewed for

abuse of discretion. Burlington N. R.R. Co. v. Dant & Russell,

Inc. (In re Dant & Russell, Inc.), 853 F.2d 700, 707 (9th Cir.

1988); Bitters v. Networks Elec. Corp. (In re Networks Elec.

Corp.), 195 B.R. 92, 96 (9th Cir. BAP 1996). A bankruptcy court

abused its discretion if it applied the wrong legal standard or

its findings were illogical, implausible or without support in

the record. TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d

820, 832 (9th Cir. 2011).

Questions of contract interpretation are subject to de novo

review unless extrinsic evidence was introduced on issues such as

intent. Captain Blythers, Inc. v. Thompson (In re Captain

Blythers, Inc.), 311 B.R. 530, 534 (9th Cir. BAP 2004), aff’d,

182 F. App’x 708 (9th Cir. 2006).

DISCUSSION

A. The bankruptcy court did not abuse its discretion in

disallowing Partap’s administrative claim.

Under § 503(b), the bankruptcy court, after notice and a

hearing, shall allow an administrative expense claim for “the

actual, necessary costs and expenses of preserving the estate[.]” 

The party seeking administrative priority bears the burden of

proof. Microsoft Corp. v. DAK Indus., Inc. (In re DAK Indus.,

Inc.), 66 F.3d 1091, 1094 (9th Cir. 1995). To keep

administrative costs to the estate at a minimum, the term

“actual, necessary costs and expenses of preserving the estate”

is narrowly construed. Id. An administrative claimant must

demonstrate that its claim (a) arose from a transaction with the

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debtor in possession as opposed to the preceding entity, and

(b) directly and substantially benefitted the estate. Id. at

1094.

Here, the bankruptcy court made the following findings

relevant to Partap’s administrative claim: (1) the leases were

security agreements under N.J. Stat. Ann. § 12A:1-203(b)4;

(2) the Bill of Sale did not transfer to Partap a right to assert

an administrative claim for the period prior to Partap’s purchase

of the equipment; (3) any administrative claim would be limited

to the actual value of Kittusamy’s use of the equipment, not the

monthly payments under the Lease Documents, and Partap had not

provided sufficient evidence of the diminution in value of the

equipment during the pendency of the case. The court also noted

that Partap might be entitled to an administrative claim based on

the diminution in value of the equipment from the time Partap

purchased the equipment in March 2016, but that Partap had not

provided any evidence of what that diminution might be.

Partap has not assigned error to the bankruptcy court’s

finding that the leases were disguised security agreements, but

disputes that the Bill of Sale did not transfer to Partap a right

to assert an administrative claim and that any administrative

claim would be limited to the actual value of Kittusamy’s use of

the equipment. We conclude that the bankruptcy court did not err

in these findings.

4 The Lease Documents provide that they are to be construed

in accordance with the laws of the state of New Jersey. The

parties do not dispute that New Jersey law applies to the

analysis of whether the leases are security agreements. As it

happens, New Jersey and Nevada law are consistent in this regard.

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1. The bankruptcy court did not err in finding that Partap

had no right to assert an administrative claim for

postpetition rents based on the Bill of Sale.

As noted above, the Bill of Sale transferred to Partap “all

of Siemens Financial’s rights, title and interests in any claim

Siemens Financial has asserted in the Kittusamy, LLP Bankruptcy

Case No. 15-13868-ABL[.]” The bankruptcy court found that

Siemens Financial had neither filed an administrative claim nor

transferred any such claim to Partap under the Bill of Sale and

thus Partap was not entitled to assert an administrative claim as

successor-in-interest to Siemens Financial. Additionally, the

bankruptcy court found that, as a secured creditor, Siemens

Financial would not have been entitled to assert an

administrative claim for the lease payments, but would have been

entitled only to adequate protection for the postpetition

diminution in the value of the equipment. Importantly, Partap

has not assigned error to this latter aspect of the bankruptcy

court’s ruling.

Partap argues that the bankruptcy court did not consider

page 2 of the Bill of Sale, which provides for the transfer to

Partap of “all of Kittusamy’s and DMP’s . . . respective rights,

titles and interests in, and to the equipment . . . and sublease

. . . described in Schedule 1 hereto . . . , subject to the terms

and conditions hereof.” Schedule 1 lists the five pieces of

equipment along with “[r]ights, title and interest in and to that

certain Equipment Sublease Agreement entered into between

Kittusamy, LLC and DMP Equipment, LLC regarding the above

equipment.” Partap contends that the transfer of the interests

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in the Sublease entitled Partap to assert an administrative claim

against Kittusamy for its failure to make payments under the

Sublease. Partap points out that contracts should be construed

so as to avoid rendering portions of them superfluous, Penske

Logistics, Inc. v. KLLM, Inc., 285 F. Supp. 2d 468, 474 (D.N.J.

2003), and argues that the bankruptcy court’s interpretation of

the Bill of Sale renders Schedule 1 meaningless. 

Additionally, Partap notes that the Bill of Sale expressly

excludes certain claims that were not transferred to Partap and

argues that if Siemens Financial had intended to exclude the

transfer of its right to an administrative claim it would have

done so; Partap further contends that the fact that Siemens

Financial never filed an administrative claim or opposed Partap’s

application for allowance of its administrative claim is evidence

that the Bill of Sale included the transfer of the right to

assert an administrative claim.

Finally, Partap argues that in fact Siemens Financial did

assert a right to file an administrative claim in its motion for

relief from stay, which stated: 

[T]o the extent that the adequate protection to which

Siemens Financial is entitled proves to be inadequate,

and the value of its interest in the Siemens Equipment

continues to decline, Siemens Financial asserts that

any claim arising therefrom is entitled to an

administrative expense claim pursuant to Section 507(b)

of the Bankruptcy Code.

Partap argues that because the Bill of Sale referred to

“asserted” rather than “filed” claims, Siemens Financial’s

reservation of rights in its motion for relief from stay gave

Partap the right to file an administrative claim.

We find these arguments unconvincing. With respect to any

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right of a lessor to assert an administrative claim for unpaid

rent, Siemens Financial could not transfer to Partap a right it

did not have. As noted, Partap does not assign error to the

bankruptcy court’s finding that Siemens Financial was a secured

creditor, not a lessor, and the transfer of rights under the

Sublease did not change the character of the leases as security

agreements. Where the property in question is not owned by the

lessor but is instead owned by the lessee under a disguised

security agreement, the lessor is not entitled to an

administrative priority claim under § 503(b)(1)(A) for unpaid

post-petition lease payments. See Williams v. IMC Mortg. Co.

(In re Williams), 246 B.R. 591, 595 (8th Cir. BAP 1999) (noting

that § 503(b) is not intended to provide an administrative

expense award to a prepetition secured lender based on the

debtor’s postpetition possession and use of collateral, and

citing cases); See also In Re ES2 Sports & Leisure, LLC, 519 B.R.

476, 480 (Bankr. M.D.N.C. 2014). Further, the payment

obligations under the Lease Documents were incurred prepetition,

not postpetition. This circumstance alone would have barred

Siemens Financial from asserting an administrative claim. See

In re Williams, 246 B.R. at 594 (postpetition mortgage payments,

although not due until after the filing of the petition, were an

obligation incurred prior to the creation of the estate, thus the

requirement that the administrative claim arise from a

postpetition transaction was not met). This conclusion is

bolstered by the fact that Siemens Financial apparently

accelerated the amounts due under the Lease Documents in November

2014, eight months prepetition.

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The bankruptcy court did not err in finding that the Bill of

Sale did not grant Partap a right to file an administrative claim

for unpaid rent for the period prior to its purchase of the

equipment.

2. The bankruptcy court did not err in finding that Partap

had not presented sufficient evidence of diminution in

value.

With respect to the transfer of any rights as a secured

creditor, i.e., a right to assert a claim for postpetition

diminution in value of the equipment, Partap asserted in the

bankruptcy court that the equipment had diminished in value by

$525,358.30 before March 3, 2016, the date Partap purchased the

equipment. Partap contended that the beginning value of the

equipment was $1.45 million, based on Prem Kittusamy’s testimony

at a confirmation hearing on March 18, 2016 regarding

negotiations with Siemens Financial, in which Dr. Kittusamy

stated that the parties had agreed at some point during the

bankruptcy that the equipment was worth between $1.4 and

$1.5 million. Partap also noted that Kittusamy’s Proposed

Disclosure Statement to Accompany Debtor’s First Amended

Chapter 11 Plan of Reorganization filed October 30, 2015 valued

the equipment at $1,397,518. From $1.45 million, Partap

subtracted the amount it paid for the equipment, $924,641.70,

yielding $525,358.30.

The bankruptcy court found this evidence insufficient to

establish the diminution in value, but did not elaborate on its

specific reasoning. However, we find no error in the bankruptcy

court’s conclusion. Even assuming (without deciding) that

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Dr. Kittusamy’s testimony and/or the disclosure statement were

competent evidence of the equipment value as of the petition

date,5 it is far from clear whether the price paid by Partap to

purchase the equipment reflects its fair market value on that

date. 

First, the price obtained at a forced sale does not

necessarily reflect fair market value. See BFP v. Resolution

Trust Co., 511 U.S. 531, 537-38 (1994) (noting that market value

is the antithesis of forced-sale value, and that “fair market

value” presumes market conditions that do not obtain in the

context of a forced sale).

Second, as pointed out by Partap, it purchased not only the

equipment but also Siemens Financial’s right to collect on its

claim filed in the bankruptcy case and Kittusamy’s and DMP’s

rights under the Sublease. Therefore, the purchase price does

not appear to have been based solely on the fair market value of

the equipment. In short, Partap failed to provide sufficient

evidence from which the bankruptcy court could discern the fair

market value of the equipment and therefore its diminution in

value.

3. The bankruptcy court did not err in disallowing

Partap’s administrative claim for the period after

March 3, 2016.

The bankruptcy court disallowed Partap’s administrative

5 Kittusamy notes that Dr. Kittusamy’s testimony was in the

context of describing failed efforts to reach a compromise with

Siemens Financial to retain the equipment, and that no final

agreement on value was ever reached.

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claim in its entirety, thus implicitly denying a claim for the

six-day period after Partap had purchased the equipment. Partap

argues that the bankruptcy court erred in this aspect of its

ruling because, as the owner of the equipment, Partap was

entitled to an administrative claim for Kittusamy’s use of the

equipment after March 3, 2016.

Partap’s argument might make sense had it filed an

application for allowance of such a claim. Instead, according to

Partap’s application for allowance of its administrative claim,

claim no. 41-1 was based on unpaid postpetition rent from the

petition date through March 9, 2016. Assuming without deciding

that Partap was entitled to an administrative claim for unpaid

rent accruing after it purchased the equipment on March 3, 2016,

Partap did not differentiate in its application between the preand post-purchase periods or provide any explicit evidence of the

amount due for the period after it purchased the equipment. 

Keeping in mind that it was Partap’s burden to prove its

entitlement to an administrative claim, there was a failure of

proof with respect to the amount of any such claim. Thus, the

bankruptcy court did not err in disallowing the claim in its

entirety.6

CONCLUSION

For the reasons explained above, the bankruptcy court did

not abuse its discretion in disallowing Partap’s administrative

6 This is not to suggest that Partap could not seek relief

for Kittusamy’s continued retention and use of the equipment

after the purchase date. However, any such relief would be

premised upon Partap’s status as the owner of the equipment.

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claim. Accordingly, we AFFIRM.

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