Court Opinion

ID: 9647569
Source: CourtListenerOpinion
Date Created: 2023-08-23 13:40:53.144734+00
Date Added: 2024-06-11T15:23:54.085459
License: Public Domain

KRESSEL, Chief Judge,
dissenting.
While I disagree with very little of the majority’s legal analysis, I do disagree with its application of the law and think, as a result, it reaches the wrong result. Therefore, I feel that I must dissent.
I think the majority implicitly recognizes the principle that § 503(b)(1) is strictly a priority provision. It does not create any liability of the estate to an entity, it only grants priority to liabilities that meet the criteria listed in § 503(b)(1). This is in contrast to the provisions of § 503(b)(2), (3), (4), and (5), which do, in fact, deal with the liabilities of entities other than the estate and, by their terms, create both a liability of the estate and a priority for that liability.
As a result, in order to claim a priority under § 503(b)(1), an entity must first show that there is some sort of liability running to it from the estate. Thus, to qualify for priority status, a debt must be incurred by the debtor in possession or the trustee. See, Matter of Jartran, Inc., 732 F.2d 584, 586 (7th Cir.1984), citing Reading Co. v. Brown, 391 U.S. 471, 475, 88 S.Ct. 1759, 20 L.Ed.2d 751 (1968). Admittedly, very few cases discuss this part of § 503(b)(1), but rather assume it or skip over it.
In this case, clearly the expenses that AgriProcessors wants paid out of the estate were not incurred by the estate in the first instance, but rather by AgriProces-sors itself. Thus, if there were no more, its claim would clearly fail. A party who incurs expenses is not entitled to their payment as a § 503(b)(1) administrative expense.27
If the right circumstances are met, a trustee, on behalf of an estate, can incur an obligation to reimburse third parties for certain expenses they incur. The majority recognizes this principle as well and has held that because the agreement between *101the trustee and AgriProeessors contained a provision allowing it to apply for reimbursement of certain fees and expenses, that the trustee thereby incurred the obligation to make such a payment (subject, of course, to court approval). The agreement of course, does not explicitly provide that the trustee agreed to pay such expenses. It literally only provides that AgriProces-sors could file an administrative expense claim, not to exceed $50,000.00. However, I would have to concede that the point that the majority implicitly makes: since any entity has the right to file an administrative expense claim, the most logical reading of that provision is that the trustee has agreed to its payment.
The trustee was not authorized to operate the debtor’s business and, even if she were, this transaction would not be in the ordinary course of business. Therefore, § 364(b) is applicable to the incurring of a liability such as this one. That provision provides, in relevant part:
The court, after notice and a hearing, may authorize the trustee ... to incur unsecured debt, allowable under section 503(b)(1) of this title as an administrative expense.
II U.S.C. § 364(b). While not citing to this section, the majority concedes that court approval was required. It is here that I depart from the majority when it holds that the bankruptcy court gave its approval to the trustee incurring this debt. The majority concedes that the agreement between the trustee and AgriProeessors, in which this provision is found, was never explicitly approved by the bankruptcy court. The majority holds that, because the agreement was in the court file28 and because the bankruptcy court placed additional conditions on the trustee’s motion when it granted the motion, that that somehow constituted court approval of the incurring of this obligation by the trustee. I think this is unsupported by the record. Nothing indicates that this provision was explicitly or even implicitly approved by the bankruptcy court.
I think the implication in the majority’s opinion that courts have an affirmative duty to speak up and express disapproval of things that are in the record, but not the subject of the actual hearing, places an impossible burden on bankruptcy courts. I also think it is bad law to hold that a court’s silence can constitute implied approval. That is especially true in this case, since the agreement at issue was filed minutes before the hearing on the trustee’s motion to extend the time for her to assume or reject the lease. The propriety of the agreement itself was not at issue at the March 12th hearing.
I concede the appropriateness of breakup fees in the bankruptcy sale process. It creates a significant incentive for possible bidders to get involved in purchasing property from a bankruptcy estate, thereby creating a stalking horse which often will increase the amount for which property can be sold. However, the terms of such breakup fees can be complicated and numerous and it is important, and I think required, that they be subjected to court scrutiny and approval before they are effective. Very often such breakup fees are tied to bidding increments so that the estate would not be put in the anomalous provision of either accepting a bid other than the highest bid or accepting the highest bid which results in a smaller net to the estate as would occur here under the majority’s holding. AgriProeessors’ last bid was $130,000.00 (net to the estate), while the winning bid submitted by Iowa *102Quality Beef Supply Network was $153,000.00 (net to the estate). Thus, while accepting the highest bid, the trustee actually would lose money if the provision for the payment of breakup fee is enforced.29
CONCLUSION
Because I think the bankruptcy court correctly concluded that AgriProcessors was not entitled to an administrative expense claim under § 503(b)(1), I would affirm.

. Contrast this to provisions of § 503(b)(2) which would include as administrative expenses, compensation incurred by a creditors' committee for example or § 503(b)(3) which allows certain creditors to be reimbursed for certain expenses that they incurred.

. The trastee filed her actual motion to assume the lease on March 12, 2002, the same day as the hearing on the trustee's motion to extend the time for her to assume or reject.

. It is, of course, much more complicated than that. One of the biggest things that Iowa Quality Beef Supply had in its favor was the support of the City of Tama, which was the landlord. It is clear from the record that the ability of the trustee to consummate a sale with AgriProcessors would have been much more difficult, if not impossible, because of the lack of support by the City of Tama.