Court Opinion

ID: 4269690
Source: CourtListenerOpinion
Date Created: 2018-04-25 02:00:37.514356+00
Date Added: 2024-06-11T14:31:39.225629
License: Public Domain

FILED
                                                              APR 24 2018

 1                                                        SUSAN M. SPRAUL, CLERK
                                                            U.S. BKCY. APP. PANEL
                                                            OF THE NINTH CIRCUIT
 2                            ORDERED PUBLISHED
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
                              OF THE NINTH CIRCUIT
 4
 5   In re:                        )      BAP No. AK-17-1285-JuBL
                                   )
 6   COOK INLET ENERGY LLC,        )      Bk. No. 15-00236
                                   )
 7                  Debtor.        )
     ______________________________)
 8                                 )
     SCOTT M. BORUFF,              )
 9                                 )
                    Appellant,     )
10   v.                            )      O P I N I O N
                                   )
11   COOK INLET ENERGY LLC; U.S.   )
     TRUSTEE; and CHARLES GEBHARDT,)
12   Trustee for the Miller Energy )
     Creditors Liquidation Trust, )
13                                 )
                    Appellees.     )
14   ______________________________)
15                   Argued and Submitted on March 22, 2018
                             at Pasadena, California
16
                             Filed - April 24, 2018
17
              Appeal from the United States Bankruptcy Court
18                      for the District of Alaska
19     Honorable Gary A. Spraker, Chief Bankruptcy Judge, Presiding
20                    _____________________________________
21   Appearances:     William D. Sullivan of Sullivan, Hazeltine,
                      Allinson, LLC, argued for Appellant Scott M.
22                    Boruff; David A. Zdunkewicz of Andrews Kurton
                      Kenyon LLP argued for Appellees Cook Inlet Energy
23                    LLC and consolidated Debtors.
                      ______________________________________
24
25   Before: JURY*, BRAND, and LAFFERTY, Bankruptcy Judges.
26
27
28
          *
            Bankruptcy Judge Meredith Jury, Central District of
     California, sitting by assignment.
 1   JURY, Bankruptcy Judge:
 2
 3            Appellant Scott M Boruff (Boruff), former executive
 4   chairman, board member, and majority shareholder of Miller
 5   Energy Resources, Inc. (Miller), one of several related Chapter
 6   112 debtors whose cases were jointly administered under the lead
 7   caption of Cook Inlet Energy, LLC., filed an application for an
 8   administrative expense claim for his prorated contractual salary
 9   for the four-month period between the filing date and plan
10   confirmation, when his contract was rejected.      The bankruptcy
11   judge awarded him far less than the prorated salary, determining
12   that Boruff had not proved that the reasonable value of the
13   benefit to the estate of his postpetition services was more than
14   the amount paid to other directors on the Miller board.        Boruff
15   asserts on appeal that the bankruptcy court applied the wrong
16   legal standard in its analysis, imposing an incorrect burden of
17   proof.      We conclude that the court applied a correct legal
18   standard and properly allocated the burden of proof.      Therefore,
19   we AFFIRM.
20                 I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY3
21            On August 6, 2015, an involuntary chapter 11 petition was
22   filed against Cook Inlet Energy, LLC (Cook), a subsidiary of
23
24        2
            Unless otherwise indicated, all chapter and section
     references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
25   Rule references are to the Federal Rules of Bankruptcy Procedure.
26        3
            Most of the material facts are undisputed and are taken
27   from the Memorandum on Application of Scott M. Boruff For
     Administrative Expense Claim entered by the bankruptcy court on
28   September 13, 2017.

                                       -2-
 1   Miller.    Cook consented to entry of an order for relief under
 2   Chapter 11 on October 1, 2015, and on the same day Miller and
 3   several other related subsidiaries filed their own chapter 11
 4   petitions, all of which were jointly administered.   Miller and
 5   its subsidiaries (collectively, Debtors) were independent oil
 6   and natural gas exploration and production companies that
 7   focused on developing oil and gas properties in Alaska.    Miller
 8   was a publicly traded holding company that owned, directly or
 9   indirectly, the subsidiaries.   A significant drop in the price
10   of oil, Miller’s default on a credit agreement with its secured
11   lenders, and an unsuccessful attempt to raise capital or sell
12   some of the assets combined to cause financial distress for the
13   Debtors.   To assist it in finding buyers or creating a financial
14   restructure, before filing Miller had employed investment
15   bankers at Seaport Global Securities (SGS), whose continued
16   employment was approved by the bankruptcy court.
17        Boruff was part of Miller’s senior management group,
18   holding the position of executive chairman when the petition was
19   filed.    He had been hired by Miller in August 2008 as its chief
20   executive officer (CEO), a position he held until September
21   2014, when he was replaced by Carl Giesler and assumed the newly
22   created position of executive chairman.   Per Boruff’s testimony,
23   Giesler was brought in to manage the operations of the growing
24   company while Boruff focused on the “big picture stuff,”
25   including putting financial deals together and overseeing the
26   company’s future development.   He was employed under an
27   employment contract (the Contract), which at the time of filing
28

                                     -3-
 1   paid him $795,000 a year or $66,250 per month.4     The Contract’s
 2   description of Boruff’s job functions was imprecise, but it
 3   emphasized oversight of future development, including mergers
 4   and acquisitions.      He worked primarily from his home in
 5   Tennessee, with occasional travel to Alaska and to Houston,
 6   where the Miller headquarters were located.      After the drop in
 7   oil prices, he focused on seeking joint venturers or buyers of
 8   assets.
 9            Prior to filing its voluntary petition, Miller formed a
10   Restructuring Committee to solicit offers to purchase the
11   company or its assets.      Boruff was not initially included on
12   this committee, which was made up of Giesler and the independent
13   members of the board of directors. Per Giesler’s testimony, as
14   Miller’s largest shareholder Boruff was excluded from the
15   committee.      Eventually, during the plan confirmation process,
16   Boruff was added to the Restructuring Committee.
17        Soon after filing, Debtors filed Notices of Intent to Take
18   Compensation for its officers, but did not include Boruff on that
19   list.     Although the Notices were not served on Boruff, he soon
20   learned that he was not going to be paid in the chapter 11.
21   Debtors moved expeditiously toward confirmation, filing their
22   disclosure statement and plan just two and one half months
23   postpetition. Soon after, they filed a Notice of Intent to Assume
24   or Reject Executory Contracts and Unexpired Leases as part of
25   confirmation.     The Notice was served upon Boruff; his Contract
26   was listed among those being rejected.     Under the terms of the
27   plan confirmed at a hearing on January 27, 2016, the Contract was
28
          4
              Giesler earned $800,000 per year as CEO.

                                       -4-
 1   rejected.   Boruff received no portion of his contractual salary
 2   postpetition.
 3        On April 28, 2016, Boruff filed a timely Application for
 4   Administrative Expense Claim, seeking payment as an
 5   administrative priority claim under § 503(b)(1)(A)(i) of his
 6   contractual salary prorated over the four months between the
 7   petition date and the confirmation date.    The Application
 8   asserted Boruff was entitled to be paid his full salary because
 9   he remained employed under the Contract while the chapter 11 was
10   pending until rejection of the Contract at confirmation.      The
11   Application contained scant legal argument other than reference
12   to the statute itself.
13        Debtors opposed the Application, citing numerous cases,
14   including NLRB v. Bildisco and Bildisco, 465 U.S. 513 (1984) and
15   In re Bryant Universal Roofing, Inc., 218 B.R. 948 (Bankr. D.
16 Ariz. 1998), for the principle that although the wages
17   established in a prepetition employment contract may be probative
18   evidence on an administrative priority claim, the claimant must
19   prove the value of the benefit to the estate by a preponderance
20   of the evidence.     They asserted that Boruff failed to show how
21   his role as executive chairman had benefitted Debtors any more
22   than the services of other board members, who had been paid less
23   than $15,000 each.
24        Boruff replied, arguing that because Debtors did not
25   terminate the Contract until the confirmation date, he continued
26   to perform the duties of executive chairman valued at the
27   contractual rate and these services were presumed beneficial to
28   the estate.   He construed Bildisco and Bryant Universal Roofing

                                       -5-
 1   to support his assertion that the benefit was set by the contract
 2   rate paid to an employee, so long as the employee continued
 3   working for the debtor, until the contract was rejected.      The
 4   gist of his argument was that an employee was not required to
 5   prove the benefit to the estate beyond the contractual salary.
 6        The bankruptcy court determined that an evidentiary hearing
 7   would be necessary to rule on the amount of the administrative
 8   claim, and after almost a year for discovery and other
 9   preparation,5 that hearing took place on May 17, 2017.     Boruff
10   and Giesler testified at the hearing.    Exhibits, all admitted by
11   stipulation, included declarations and deposition transcripts of
12   other witnesses as well as pertinent documents.    Boruff’s
13   testimony described in general the services he performed both
14   pre- and post petition, which included his efforts to find a
15   buyer for assets and his participation on the Restructuring
16   Committee.   Giesler also described the scope of his own
17   postpetition duties and the general reorganization efforts which
18   led to plan confirmation.   He testified that the salaried
19   management personnel who were listed in the Notices to be paid
20   postpetition, and whose contracts were assumed, were specified by
21   the lenders, who excluded Boruff.     He also described the efforts
22   by SGS to procure buyers, which substantially overlapped with any
23   efforts of Boruff.
24        At the close of testimony and oral argument, the bankruptcy
25   court requested another round of briefing.    In his Post-Hearing
26
27
          5
            Much of the delay was caused by scheduling issues of the
28   parties and the court.

                                     -6-
 1   Memorandum of Law, Boruff argued for the first time that the
 2   statute itself, § 503(b)(1)(A)(i), provided that wages, salaries,
 3   and commissions for services rendered after the commencement of
 4   the case were de facto “actual, necessary costs and expenses of
 5   preserving the estate” and that beyond showing that claimant
 6   worked postpetition, no further proof in support of a § 503(b)
 7   administrative claim was necessary.    He then cited Bryant
 8   Universal Roofing and other cases which he believed supported his
 9   assertion that a contractual salary was presumed to be the value
10   of the benefit to the estate without further proof.
11        Debtors’ simultaneous brief emphasized that the statute and
12   case law gave Debtors an express right to assume or reject
13   contracts through the time of confirmation without the obligation
14   to pay for contracts that did not benefit the estate.    Contrary
15   to Boruff’s view, the majority of courts placed the burden on the
16   claimant under the rejected contract to establish the beneficial
17   value of the services to the estate.    They urged the court to
18   adopt the analysis in a factually similar case, In re Health
19   Diagnostic Laboratory, Inc., 557 B.R. 885 (Bankr. E.D. Va. 2016).
20   That case emphasized the “heavy burden” on the administrative
21   claimants to show an “actual benefit to the estate and that such
22   costs and expenses were necessary to preserve the value of the
23   estate assets.”   Id. at 898.   Debtors argued that the admitted
24   evidence fell far short of proving that the reasonable value of
25   Boruff’s postpetition services should be measured at the Contract
26   rate.   They suggested that he be reimbursed at the same rate as
27   other board members.
28        The bankruptcy court issued its Memorandum on Application of

                                      -7-
 1   Scott M. Boruff for Administrative Expense Claim in September
 2   2017, concluding that Boruff had failed to demonstrate that the
 3   reasonable value of his postpetition services was more than would
 4   be paid to him as a board member and member of the Restructuring
 5   Committee.   In the Memorandum the court recounted the scope of
 6   work Boruff performed for Debtors, which included his efforts to
 7   negotiate with potential buyers of the assets, a service being
 8   primarily provided by Debtors’ investment banker SGS, his
 9   chairman’s role at three board meetings, and his attendance at
10   Restructuring Committee meetings.     It noted there was little
11   concrete evidence of the time actually expended on these tasks,6
12   and Boruff had not independently proved a reasonable value for
13   his services other than to point to the contractual salary.
14   After a review of the case law, the court concluded that
15   “[Miller] has rebutted any presumption that the pre-petition
16   employment contract states the reasonable value of Boruff’s post-
17   petition services.”7   Although it found that Boruff’s efforts to
18   find a buyer were of some value, his prepetition salary had no
19   relation to those benefits and no other evidence supported an
20   award greater than the sum received by other board members,
21   $15,000.
22        The court entered an order consistent with the conclusions
23   in the Memorandum, which Boruff timely appealed.
24
25
26        6
           Phone records showed only a few hours of actual time on
27   calls. The meeting time was also estimated at a few hours.
28        7
            Memorandum on Application of Scott M. Boruff for
     Administrative Expense Claim, p. 20.

                                     -8-
 1                                II.   JURISDICTION
 2        The bankruptcy court had jurisdiction over this proceeding
 3   under 28 U.S.C. §§ 1334 and 157(b)(2)(A) and (B).   We have
 4   jurisdiction under 28 U.S.C. § 158.
 5                                  III.    ISSUES
 6        A.   Did the bankruptcy court apply the proper legal standard
 7   to Boruff’s application for an administrative claim for wages and
 8   salary under § 503(b)(1)(A)(i) when it determined that the
 9   Contract salary rate was not binding and that Boruff had the
10   ultimate burden of proving the benefit to the estate and the
11   reasonable value of his postpetition services?
12        B.   Is the contractual salary in a rejected executory
13   employment contract the presumptive value of services rendered
14   postpetition for an administrative claim under § 503(b)(1)(A)(i)?
15        C.   Did the bankruptcy court abuse its discretion in
16   partially granting Boruff’s application and awarding him $15,000
17   rather than the contract rate of $252,657.63?
18                          IV.    STANDARDS OF REVIEW
19        We review the bankruptcy court’s order allowing or
20   disallowing an administrative claim for abuse of discretion.
21   Gonzalez v. Gottlieb (In re Metro Fulfillment, Inc.), 294 B.R.
22   306, 309 (9th Cir. BAP 2003), citing Teamsters Indus. Sec. Fund
23   v. World Sales, Inc. (In re World Sales, Inc.), 183 B.R. 872, 875
24   (9th Cir. BAP 1995).    A bankruptcy court abuses its discretion if
25   it applies the wrong legal standard or its findings are
26   illogical, implausible or without support in the record.
27   TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th
28   Cir. 2011).

                                           -9-
 1        We review legal issues de novo and factual issues for clear
 2   error.    See Veal v. Am. Home Mortg. Servicing, Inc. (In re Veal),
 3   450 B.R. 897, 918 (9th Cir. BAP 2011).       However, where the facts
 4   are undisputed, the issue is purely one of law subject to de novo
 5   review.   Kipperman v. IRS (In re 800Ideas.com), 496 B.R. 165, 171
 6   (9th Cir. BAP 2013) (citing Elliott v. Four Seasons Props. (In re
 7   Frontier Props., Inc.), 979 F.2d 1358, 1362 (9th Cir. 1992).
 8        Whether the bankruptcy court identified and applied the
 9   correct burden of proof is a question of law we review de novo.
10   Margulies Law Firm v. Placide (In re Placide), 459 B.R. 64, 71
11   (9th Cir. BAP 2011) (citing People’s Ins. Co. Of China v. M/V
12   Damodar Tanabe, 903 F.2d 675, 682 (9th Cir. 1990)).      We also
13   review issues of statutory interpretation de novo.      Allen v. U.S.
14   Bank, N.A. (In re Allen), 472 B.R. 559, 564 (9th Cir. BAP 2012).
15        We may affirm on any ground supported by the record,
16   regardless of whether the bankruptcy court relied upon, rejected
17   or even considered that ground.    Fresno Motors, LLC v. Mercedes
18   Benz USA, LLC, 771 F.3d 1119, 1125 (9th Cir. 2014).
19                              V.   DISCUSSION
20        Recognizing that the clearly erroneous standard of review of
21   the bankruptcy court’s factual findings is an unsurmountable
22   barrier to success in this appeal, Boruff seeks de novo review,
23   asserting that the court applied the wrong legal standard for two
24   separate and distinct reasons.    First, he argues that the
25   construction of the statute whereby wages and salaries are
26   specifically enumerated as included in “the actual, necessary
27   costs and expenses of preserving the estate” should end the
28   inquiry; all he needed to demonstrate to the bankruptcy court for

                                      -10-
 1   an administrative priority claim was that he worked for Debtors
 2   postpetition until confirmation and had an employment contract
 3   which set his salary.     In the alternative, he submits that
 4   Bildisco, when referencing payment for postpetition performance
 5   under an executory contract, holds that the contract price is the
 6   presumptively reasonable value of services; Debtors must rebut
 7   that presumption with contrary evidence.       Further, he argues that
 8   subsequent case law supports this interpretation of Bildisco.
 9   The effect of this second argument is a burden shift contrary to
10   that normally applied in claims litigation, such that the
11   ultimate burden of persuasion falls upon the objecting party.       As
12   our analysis below shows, we disagree with both assertions.
13        Before tackling Boruff’s theories, however, it is helpful to
14   review the well-established burden shifts in claims litigation
15   and specific application of these standards to allowance of
16   administrative expense claims.      Addressing allowance of claims in
17   general, a claim is deemed allowed absent objection from a party
18   in interest.     § 502(a).    A mere formal claim objection, without
19   evidence, cannot defeat a claim if the claim is presumed to be
20   valid under Rule 3001(f).      Lundell v. Anchor Constr. Specialists,
21   Inc., 223 F.3d 1035, 1039 (9th Cir. 2000).      To overcome this
22   presumption, the objecting party must present evidence with
23   probative value equal to that of the proof of claim to rebut the
24   claim.   Id.    If the objecting party successfully rebuts the
25   presumption, the claimant bears the burden of proof to show by a
26   preponderance of the evidence that its claim is valid, and the
27   “ultimate burden of persuasion remains at all times upon the
28   claimant.”     Id. at 1039.

                                        -11-
 1        Administrative priority claims under § 503(b)(1)(A) are held
 2   to a stricter standard.   Because they must be presented to the
 3   court by motion, they are not deemed allowed as priority claims.
 4   The statute provides as follows:
 5        (b) After notice and a hearing, there shall be allowed,
          administrative expenses. . .including-–
 6
               (1)(A) the actual, necessary costs and expenses of
 7             preserving the estate including-–
 8                   (i) wages, salaries, and commissions for
                     services rendered after the commencement of
 9                   the case;
10   (emphasis added).
11        As noted in the seminal Ninth Circuit case on administrative
12   claims, Burlington Northern Railroad Co. v. Dant & Russell, Inc.
13   (In re Dant & Russell, Inc.), 853 F.2d 700, 706 (9th Cir. 1988):
14        The statute is explicit. Any claim for administrative
          expenses and costs must be the actual and necessary costs
15        of preserving the estate for the benefit of its
          creditors. [citations omitted] The terms “actual” and
16        “necessary” are construed narrowly so as “to keep fees
          and administrative costs at a minimum.” [citations
17        omitted] An actual benefit must accrue to an estate.
          [citations omitted] Additionally, keeping costs to a
18        minimum serves the overwhelming concern of the Code:
          Preservation of the estate.     [citations omitted] This
19        limitation is necessary to protect the limited assets of
          the estate for the benefit of the unsecured interests and
20        is particularly important in a Chapter 11 case where a
          partial   liquidation    is   necessary   to   facilitate
21        reorganization.
22   Dant & Russell and the statute itself make it clear that an
23   administrative claimant must present its claim at a noticed
24   hearing and, like any other moving party, bear the burden of
25   persuasion by a preponderance of the evidence to meet the strict
26   standards set, keeping in mind the policy behind the allowance of
27   such claims.   See Shin v. Altman (In re Desert Springs Fin. LLC),
28   No. CC-16-1374-KuFL, 2017 WL 1434403 (9th Cir. BAP Apr. 20, 2017)

                                    -12-
 1   (citing Lundell, 223 F.3d at 1039 for the burden and
 2   preponderance of the evidence standards).
 3        Against this backdrop, Boruff asserts that the statute
 4   itself has carved out wages and salaries as automatically
 5   entitled to administrative expense priority, without more.    He
 6   cites no case law for this novel argument8, nor does he present a
 7   statutory construction analysis of the statute to arrive at that
 8   conclusion.   Rather, he merely asserts that since the statute
 9   says wages and salaries for postpetition services are included in
10   the actual, necessary costs of preserving the estate, the value
11   of those services is measured by the terms of a prepetition
12   employment contract which was not assumed.   No other court has
13   read § 503(b) in that manner, nor do we.    The words alone do not
14   take us there, and the policy which requires that such expenses
15   be limited to those of actual benefit to the estate mandates
16   against such interpretation.
17        Beyond common sense, this assertion fails for additional
18   reasons, particularly when considering wages set by a prepetition
19   employment contract which has been rejected under § 365(a).
20   First, if Congress had meant the rejecting debtor or trustee
21   would be bound to pay the contract rate until rejection, it would
22   have said so explicitly, as it did for rents due under an
23   unexpired lease.   Section 365(d)(4) was added to the Code by the
24   Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub. L.
25
          8
26          None of the cases cited by Boruff nor by Debtors even
     ponder this argument and we could find no authorities that
27   suggest that the question of “if” and “how much” postpetition
     wages are entitled to priority treatment is simply answered by
28
     the statute itself.

                                    -13-
 1   98-353, 98 Stat. 333 (1984).   That bill required a trustee to
 2   perform all the obligations of the debtor under a lease of
 3   nonresidential real property at the time required in the lease
 4   while the trustee decided whether to assume or reject the lease.
 5   130 Cong. Rec. S8, 994-95 (daily ed. June 29, 1984) There is no
 6   parallel provision for wages and salaries under an operative
 7   employment contract prior to assumption or rejection.   If
 8   Congress had intended such result, it would have said so
 9   explicitly.
10        In addition, such reading would eviscerate a significant
11   advantage to a debtor in possession provided by § 365(a), which
12   is a breathing space to determine whether continuing to pay an
13   employee at a potentially onerous prepetition salary will be a
14   benefit to the estate.   If a debtor is required to pay that
15   contract rate pending rejection even if the contract is not
16   eventually assumed, a rush to early rejection without the
17   attributes of a full analysis is likely to occur.   Nothing
18   requires a debtor in possession to decide whether to assume or
19   reject prior to the confirmation date, and this section of the
20   Code cannot be read to mandate an earlier decision.
21        Having addressed this novel statutory argument, we now turn
22   to the issues with which the bankruptcy court tussled when ruling
23   on the administrative claim application: did Bildisco and its
24   progeny create a presumption that the contract rate is the
25   reasonable value of Boruff’s postpetition services which must be
26   rebutted by Debtors and if so, did Debtors rebut it, or is the
27   Contract accorded some lesser weight?   The bankruptcy court
28

                                    -14-
 1   found, equivocally,9 that if there was a presumption, Debtors had
 2   rebutted it.   We choose a cleaner view: although the rate for
 3   payment under a rejected executory contract has some bearing on
 4   the court’s discretionary determination of the benefit of
 5   postpetition services to the estate, such rate is not presumptive
 6   as the reasonable value, and a debtor in possession need not
 7   rebut it.   The burden falls upon the applicant to prove the
 8   value.
 9        We begin, as we should, with the Supreme Court’s decision in
10   Bildisco, then proceed to the subsequent cases, mostly at
11   bankruptcy court level, which have interpreted and applied that
12   ruling.   In Bildisco, the Court held that a collective bargaining
13   agreement, like any other executory contract, was subject to
14   rejection by a debtor in possession and that the debtor in
15   possession did not commit an unfair labor practice when, before
16   the court-ordered rejection, it unilaterally modified or
17   terminated a provision of the agreement.   In addressing an
18   argument of the NLRB about the effect of § 365(g)(1)10 the Court
19   stated that the rejection was a breach, creating an unsecured
20
21        9
            “Rather, the court concludes that [Miller] has rebutted
22   any presumption that the pre-petition employment contract states
     the reasonable value of Boruff’s post-petition services.”
23   Memorandum at 20 (emphasis added).
24        10
            Section 365(g)(1) provides “except as provided in
25   subsections (h)(2) and (i)(2) of this section, the rejection of
     an executory contract or unexpired lease of the debtor
26   constitutes a breach of such contract or lease – (1) if such
     contract or lease has not been assumed under this section or
27   under a plan confirmed under chapter 9, 11, 12, or 13 of this
     title, immediately before the date of the filing of the
28
     petition.”

                                    -15-
 1   prepetition claim.    However, “[i]f the debtor-in-possession
 2   elects to continue to receive benefits from the other party to an
 3   executory contract pending a decision to reject or assume the
 4   contract, the debtor-in-possession is obligated to pay for the
 5   reasonable value of those services. . . , which, depending on the
 6   circumstances, may be what is specified in the contract.”
 7   Bildisco, 465 U.S. at 531.
 8        The Court was addressing the evidentiary impact of the terms
 9   of such rejected contracts on the value of postpetition
10   performance in the broadest context, accounting for the entire
11   panoply of possible agreements.    Such contracts would range from
12   employment contracts, leases of residential property, supplier or
13   executory sales contracts and others.    The evidence which might
14   be presented to establish the reasonable value of that
15   performance could vary considerably, depending on what the
16   contract covered.    The Court gave the trial courts unlimited
17   discretion to determine whether such postpetition services were
18   “actual, necessary costs and expenses of preserving the estate”
19   and how to measure the value of such services in light of the
20   benefit to the estate.    Recognizing the breadth of potential
21   evidence, the Court provided only a generic road map by saying
22   “depending on the circumstances” and “may be what is specified in
23   the contract.”   The language used allowed a court tasked with
24   determining the value of goods delivered postpetition, where
25   there was no real debate about the level of performance under the
26   contract and where arms’ length parties had negotiated the value
27   of such goods, to use the contract for considerable evidentiary
28   weight in valuing the benefit to the estate.    On the flip side,

                                     -16-
 1   where the performance of an executory contract was more
 2   subjective and measuring the postpetition benefit to the estate
 3   more nuanced, such as a management employment contract, the trial
 4   court could put the contract price in the mixer with other
 5   evidence and accord it whatever weight it deserved.
 6        Not surprisingly, the subsequent case law, when applying the
 7   Court’s direction in the context of a rejected employment
 8   agreement, has almost uniformly ruled that although the contract
 9   wages are probative, they are not binding, and courts have not
10   given them presumptive weight.     The Ninth Circuit has not
11   addressed this precise issue in a published opinion,11 but the
12   analysis in a First Circuit opinion is compelling.       In Mason v
13   Official Committee of Unsecured Creditors (In re FBI Distribution
14   Corp.), 330 F.3d 36 (1st Cir. 2003), the court turned away a
15   former executive’s argument that the termination benefits
16   (severance pay) in her rejected prepetition employment and
17   retention agreement should be accorded administrative priority
18   status.    Id. at 48.   In arriving at this conclusion, the court
19   first looked to the widely accepted standard for awarding an
20   administrative expense: (1) it must have arisen from a
21   transaction with the debtor in possession postpetition and
22   (2) the consideration supporting the claim must have benefitted
23   the estate in some demonstrable way.     Id. at 42, see Cramer v.
24   Mammoth Mart, Inc. (In re Mammoth Mart), 536 F.2d 950, 954 (1st
25   Cir. 1976).    Then, recognizing that Mammoth Mart left open how
26   the terms of the prepetition contract affected the measure of
27   benefit to the estate, it looked to the broad language of
28
          11
               Or any unpublished one that we could locate.

                                      -17-
 1   Bildisco for direction.    Id. at 43-44.
 2        Following that direction, it explicitly rejected the
 3   assertion that the prepetition contract controlled the amount of
 4   such claim because of Bildisco’s ruling that the rejected
 5   employment agreement was unenforceable against the debtor in
 6   possession.    At most, it found that the contract had probative,
 7   not presumptive weight and was not dispositive on the value of
 8   the benefit.    Id.   In so ruling, it noted, as we did above, that
 9   Congress had specifically provided in § 365 that the contractual
10   rent in an unexpired lease of nonresidential real property was
11   determinative of the administrative claim before rejection but
12   had not so provided for any other executory contract, including
13   an employment contract.    Id. at 44-45.   It also opined that if it
14   accepted the executive’s argument that he was entitled to an
15   administrative claim for severance pay, it would be blessing an
16   “implicit assumption” of the executory contract, something which
17   § 365 forbids.    Id. at 45.
18        In a case factually similar to the case at hand, where the
19   former CEO and a board member had filed administrative priority
20   claims based on rejected prepetition contracts, In re Health
21   Diagnostic Laboratory, Inc., 557 B.R. 885 (Bankr. E.D. Va. 2016),
22   the court ruled that insofar as the claimants sought
23   administrative priority payment for postpetition services,12 they
24
25
          12
            The case was complex because it considered applications
26   for administrative expenses for (a) the prepetition value of the
     contracts without providing postpetition services, (b) expenses
27
     potentially arising from indemnification claims under the
28   contracts, (c) compensation for postpetition services, and
     (d) attorney’s fees. Only the compensation for postpetition
     services is relevant to our ruling.

                                      -18-
 1   carried a “‘heavy burden of demonstrating that the [postpetition
 2   services for which they seek compensation] provided an actual
 3   benefit to the estate and that such costs and expenses were
 4   necessary to preserve the value of the estate assets.’”    Id. at
 5   898 (quoting In re Bernard Technologies, Inc., 342 B.R. 174, 177
 6   (Bankr. D. Del. 2006)).   Such proof must be made by a
 7   preponderance of the evidence.    Id.   The motion before the court
 8   was brought on summary judgment by the Liquidating Trustee, so
 9   the bankruptcy court found that factual disputes as to the
10   reasonable value of the services prevented a final merits ruling.
11   However, in addressing the evidence which might be pertinent to
12   its final ruling, it gave no weight to the terms of the
13   prepetition contract and made no mention of Bildisco at all.    The
14   only presumption applied by the court was that a debtor’s limited
15   resources should be distributed equally among its creditors such
16   that administrative priority status should be strictly construed.
17   Id. at 893.
18        The bankruptcy court in In re Kaber Imaging, Inc., 262 B.R.
19   187 (Bankr. D.N.H. 2001), construed Bildisco to specifically hold
20   that a rejected contract could not be the proper measure of
21   value. It ruled that because the former chief financial officer’s
22   contract was not assumed by the debtor in possession, he was only
23   entitled to the quantum meruit value of his postpetition
24   services.   Id. at 191.   The court placed no presumptive weight on
25   the wages and vacation pay specified in the rejected contract.
26   In addition, because the CFO’s executory contract was not
27   enforceable until assumed, that the debtor in possession had
28   delayed in making its decision to reject the contract until

                                      -19-
 1   confirmation had no bearing on the effect of the contract on the
 2   amount of the claim given administrative priority.    Id. at 190.
 3        Not citing Bildisco but following closely the First Circuit
 4   ruling in FBI Distrib. Corp., the court in In re Bernard
 5   Technologies, Inc., 342 B.R. 174 (Bankr. D. Del. 2006) found that
 6   a debtor’s CEO was not entitled to his contract rate of pay
 7   because his employment contract was never assumed, giving it only
 8   “minimal probative value.”   Id. at 178.   The CEO was only
 9   entitled to the reasonable value of his services to the extent
10   they resulted in an actual benefit to the estate.    Id. at 179.
11        The only Ninth Circuit case which gave presumptive weight to
12   a cost specified in a contract rejected under § 365 dealt with an
13   entirely different measure of monetary value: the monthly rental
14   value of farm equipment.   Thompson v. IFG Leasing Co. (In re
15   Thompson), 788 F.2d 560 (9th Cir. 1986).    The court ordered
16   remand because the bankruptcy court had made inadequate factual
17   findings on whether specific pieces of equipment were actually
18   used to the benefit of the estate.    In so doing, the court stated
19   that the rent reserved in the lease was the presumptive evidence
20   of fair and reasonable value which could be rebutted.    The court
21   of appeals then clarified that the bankruptcy court was not bound
22   by the terms of the lease:
23        When a lease is ultimately rejected but its interim
          continuance was an actual and necessary cost and expense
24        of the estate, the allowable administrative expense is
          valued not according to the terms of the lease, but cf.
25        Mathews v Butte Machinery Co.,286 F. 2d 801, 805-06 (9th
          Cir. 1923); Dayton Hydraulic Co. v Felsenthall, 116 F.
26        961, 966, 969, (6th Cir. 1902), but under an objective
          worth standard that measures the fair and reasonable
27        value of the lease.
28   Id. at 563.

                                    -20-
 1        Despite the reference to a presumption in Thompson, we do
 2   not believe the Ninth Circuit would extend such presumption to a
 3   rejected employment contract because the measure of value of
 4   management services as a benefit to the estate is substantially
 5   different from calculating the rental value of equipment.      An
 6   objective marketplace would control the contracted lease prices
 7   for the equipment whereas no such marketplace would exist for
 8   management services.    Under the broad guise of Bildisco, a
 9   court’s discretion to value the benefit of management services
10   should be unfettered by any presumption.
11        Boruff cites two bankruptcy court cases, one published and
12   one unpublished, to support his argument that his employment
13   contract should be given presumptive weight in determining the
14   value of his postpetition service.     Digging into these cases,
15   however, shows that neither actually helps his argument.     In
16   Bryant Universal Roofing, 218 B.R. 948, chapter 7 debtor’s former
17   chairman of the board moved in pertinent part to compel payment
18   of his administrative claims for salary owing under his
19   employment agreement.    In the context of a summary judgment
20   motion, after citing Dant & Russell for the accepted Ninth
21   Circuit standard that a claim for administrative priority is
22   construed narrowly against the applicant, the bankruptcy court
23   tussled with whether the services provided by movant should be
24   allowed as an administrative claim based on the contract or upon
25   the basis of quantum meruit.    Id. at 955.   After considering the
26   applicable language from Bildisco, and recognizing “[t]here is a
27   paucity of authority on the extent to which the terms of an
28   unassumed pre-petition employment contract govern the amount of

                                     -21-
 1   compensation due to an employee as an administrative expense,”
 2   the court decided to use the contract rate as “persuasive”, not
 3   presumptive.   Id. at 956.   In other words, the court put that
 4   evidence in the hopper along with other evidence to consider when
 5   making the factual ruling on value which could not be determined
 6   in a summary judgment motion.    Therefore, Bryant Universal
 7   Roofing at best demonstrates that the weight to be given to the
 8   contract has not been determined in the Ninth Circuit.
 9        In an unpublished decision, the bankruptcy court in the
10   District of Columbia ruled the prepetition employment contract
11   was “probative” on the issue of the value of postpetition
12   services, but not dispositive.    In re Ellipso, Inc., No. 09-
13   00148, 2012 WL 827103, *4 (Bankr. D.D.C. 2012).    However, the
14   court explicitly cited Kaber for its holding that the terms of
15   the contract do not determine the amount of the priority claim;
16   the reasonable value was determined by all the evidence before
17   the court.   This case has limited value to support the
18   presumption Boruff would have us accord his Contract.
19        After this review of the relevant authorities, we are of the
20   firm conviction that the bankruptcy court here did not apply the
21   wrong legal standard in a dispositive manner.    The bankruptcy
22   court equivocally found a presumption, but also found that
23   Debtors overcame it.   We hold more definitively that the contract
24   price in a rejected employment contract is not presumptive of
25   value in the first place.    Neither the statute nor relevant case
26   law supports the notion that the evidentiary weight of such terms
27   creates a burden shift requiring Debtors to rebut the contractual
28   wage.   The Ninth Circuit in Dant & Russell ruled that such claims

                                      -22-
 1   are subject to high scrutiny, consistent with preserving the
 2   estate for distribution to general unsecured creditors.     Lundell
 3   and a plethora of subsequent authorities make it clear that the
 4   ultimate burden of persuasion on any claim lies with the
 5   claimant.   Absent some mandate to shift that burden where the
 6   claim is one for administrative priority - a highly scrutinized
 7   claim which can only be paid if the services provided a
 8   substantial benefit to the estate - we will not do so here.
 9   Bildisco says only that the bankruptcy court may consider the
10   terms of the contact, depending on the circumstances of the
11   particular case.   At most, that statement gives the contract
12   probative, not presumptive, value.
13        Boruff did not challenge the bankruptcy court’s factual
14   findings, where it weighed the sparse and indefinite evidence of
15   the value of his postpetition services.      We will not disturb its
16   conclusion that he should be compensated at a rate comparable to
17   what the other board members were paid.      The court did not abuse
18   its discretion.
19                             VI.   CONCLUSION
20        The terms of a rejected prepetition employment contract are
21   not presumptive on the value of postpetition services, creating a
22   burden shift.   Accordingly, we AFFIRM.
23
24
25
26
27
28

                                     -23-