Court Opinion

ID: 1009518
Source: CourtListenerOpinion
Date Created: 2013-07-04 19:57:20.777141+00
Date Added: 2024-06-11T09:33:24.583577
License: Public Domain

UNPUBLISHED

UNITED STATES COURT OF APPEALS
                FOR THE FOURTH CIRCUIT

IN RE: STEVEN HENSON; KAREN U.         
SMITH, a/k/a Karen Smith, a/k/a
Karen U. Ghee,
                            Debtors.

TIDEWATER FINANCE COMPANY,
                Plaintiff-Appellant,             No. 02-1126
                 v.
STEVEN HENSON; KAREN U. SMITH,
             Defendants-Appellees,
ELLEN W. COSBY, Chapter 13
Trustee,
                 Trustee-Appellee.
                                       
           Appeal from the United States District Court
            for the District of Maryland, at Baltimore.
                Catherine C. Blake, District Judge.
         (CA-01-1056-CCB, BK-00-50470, BK-99-64218,
                        CA-01-1057-CCB)

                      Argued: October 29, 2002

                      Decided: January 15, 2003

Before NIEMEYER, WILLIAMS, and GREGORY, Circuit Judges.

Affirmed by unpublished per curiam opinion.
2                          IN RE: HENSON
                            COUNSEL

ARGUED: James Robert Sheeran, TIDEWATER FINANCE COM-
PANY, Chesapeake, Virginia, for Appellant. Zvi Guttman, LAW
OFFICES OF ZVI GUTTMAN, P.A., Baltimore, Maryland, for
Appellees.

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

                             OPINION

PER CURIAM:

   Tidewater Finance Company, a pre-petition creditor of both Steven
Henson and Karen Smith who filed bankruptcy petitions under Chap-
ter 13 of the Bankruptcy Code, seeks to recover continuing install-
ment payments from Henson’s and Smith’s estates as administrative
expenses under 11 U.S.C. § 503(b). It argues that its agreement to a
post-petition arrangement qualifies the post-petition payments as
administrative expenses. It never sought, however, relief from the
automatic stay of 11 U.S.C. § 362 nor adequate protection under 11
U.S.C. § 363. The bankruptcy court denied Tidewater’s claim, and on
appeal, the district court affirmed. We now affirm the district court.

   Henson purchased computer goods from Access 1 under a "Con-
sumer Credit Retail Installment Contract and Security Agreement,"
which Access 1 assigned to Tidewater. Smith entered into a similar
arrangement with RoomStore Furniture in connection with her pur-
chase of furniture. After Henson and Smith filed separate petitions
under Chapter 13 of the Bankruptcy Code, they reached agreements,
as part of their plans, with Tidewater to make payments directly to
Tidewater for the balance owed on the goods purchased. When Hen-
son and Smith defaulted in making the payments, Tidewater filed
claims with the bankruptcy court for administrative expenses for the
missed payments.
                             IN RE: HENSON                              3
   The bankruptcy court denied Tidewater’s request because Tidewa-
ter’s claim did not arise out of post-petition transactions, because the
payments to Tidewater conferred no benefit on the bankruptcy estates,
and because Tidewater could not elect to recoup the value of its col-
lateral through administrative expense rather than through adequate
protection. The district court affirmed the bankruptcy court, and Tide-
water filed this appeal.*

   Section 503(b)(1)(A) of the Bankruptcy Code provides for admin-
istrative expenses to creditors for "the actual, necessary costs and
expenses of preserving the estate, including wages, salaries, or com-
missions for services rendered after the commencement of the case."
11 U.S.C. § 503(b)(1)(A). If allowed, administrative expenses have
priority over unsecured claims against the bankruptcy estate. 11
U.S.C. § 507(a). One of the main policies behind granting priority to
administrative expenses is "to provide an incentive for creditors and
landlords to continue or commence doing business with a bankrupt
party." In re Merry-Go-Round Enters., Inc., 180 F.3d 149, 158 (4th
Cir. 1999). Pre-petition secured creditors, while not privy to
administrative-expense priority, are protected under the Bankruptcy
Code’s provisions for adequate protection. See 11 U.S.C. §§ 361-364.

   A two-part test determines whether a cost is actual and necessary
to a bankruptcy estate in order to qualify as an administrative expense
under § 503(b)(1)(A). First, for an expense to be actual, it must arise
from a post-petition transaction between the creditor and the debtor
or trustee. In re Merry-Go-Round Enters., Inc., 180 F.3d at 157. Sec-
ond, for an expense to be necessary, it must confer a benefit on the

   *Henson’s and Smith’s cases reached the district court as a consoli-
dated appeal, pursuant to Tidewater’s motion for consolidation filed in
the district court upon appeal of the bankruptcy court’s order and granted
by the district court on May 17, 2001. We note that Tidewater’s appeal
of Henson’s case was no longer before the district court when it issued
its decision on December 31, 2001, because, on October 15, 2001, the
bankruptcy court, on motion of the bankruptcy trustee, had dismissed
Henson’s bankruptcy action due to Henson’s material default in plan
payments. In re Henson, No. 00-50470SD, 2001 Bankr. LEXIS 1911
(Bankr. D. Md. Oct. 15, 2001). Consequently, only Tidewater’s appeal
of Smith’s case is now before us.
4                            IN RE: HENSON
estate. Id. A narrow exception exists to award administrative expenses
to pre-petition creditors where post-petition use of the collateral is in
the operation of a business or to otherwise make an economic profit.
See Grundy Nat’l Bank v. Rife, 876 F.2d 361, 363-64 (4th Cir. 1989).
   Tidewater argues that, despite its status as a pre-petition creditor,
it is nevertheless entitled to administrative expenses. As to the first
requirement — that the expense arise from a post-petition transaction
between the creditor and the debtor — Tidewater argues that Hen-
son’s and Smith’s post-petition use of the collateral qualifies as a
post-petition transaction. It also argues that confirmation of the bank-
ruptcy plans constitutes a qualifying post-petition transaction. As to
the second requirement — that the expense confer a benefit on the
estate — Tidewater argues that Henson’s and Smith’s post-petition
use of the collateral confers an actual benefit on the bankruptcy
estates.
   The district court rejected Tidewater’s attempt to redefine itself as
a post-petition creditor whose collateral confers a concrete benefit on
the bankruptcy estates. Tidewater Fin. Co. v. Henson, No. CCB-01-
1056, 2001 U.S. Dist. LEXIS 23144 (D. Md. Dec. 31, 2001). The
court stated that Tidewater’s pre-petition transactions with Henson
and Smith do not satisfy the two requirements of § 503(b)(1)(A), and
the court declined to apply Grundy’s exception for business use of
collateral acquired pre-petition because the record contained no evi-
dence that Henson or Smith used the computer goods or furniture to
operate a business or to otherwise make an economic profit. Tidewa-
ter Fin. Co., 2001 U.S. Dist. LEXIS 23144, at **9-10. The court
affirmed the bankruptcy court’s order denying administrative
expenses and stated that adequate protection, and not administrative
expense, is the appropriate remedy for Tidewater to seek. Id. at **13.
   We have carefully reviewed the record and considered the argu-
ments of counsel made in their briefs and at oral argument. For the
reasons set forth in the district court’s opinion, we conclude that Tide-
water’s claim for administrative expenses is without merit.
   Because of our holding, we need not address Tidewater’s other
arguments.
                                                            AFFIRMED