672 B.R. 775
Bankr. E.D. Mo.2025Background:
- Abengoa Bioenergy debtors (including ABC and ABNE) operated ethanol plants and executed long‑term natural gas Base Agreements and Confirming Orders with Encore Energy for York and Ravenna plants.
- Debtors filed Chapter 11 on Feb 24, 2016; Encore continued supplying gas through May 31, 2016 and was paid postpetition for those deliveries.
- Debtors moved to reject the Encore Agreements; court entered a Rejection Order effective May 31, 2016, deeming the contracts executory and rejected under 11 U.S.C. § 365(a).
- Encore later submitted Trueup invoices (May 2016) for NYMEX hedge unwind/true‑up charges and filed administrative claims (Sept 19, 2016) asserting §503(b) priority; the claims were later transferred to Hain Capital.
- Drivetrain, as GUC Liquidating Trustee, objected and sought to reclassify Encore’s claims as general unsecured rejection damages under §§ 365(g) and 502(g); Encore sought payment and administrative treatment, arguing its postpetition performance preserved the estate and made the claims administrative.
- The bankruptcy court denied Encore’s motion to pay, sustained Drivetrain’s omnibus objection, and allowed the claims only as general unsecured rejection damages.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Encore’s claims arising from the rejected gas‑supply contracts qualify as administrative expenses under 11 U.S.C. §503 or are rejection damages treated as general unsecured under §§365(g)/502(g) | Encore: Postpetition gas preserved the estate and provided a substantial contribution; claims are administrative under §503(b)(1) and §503(b)(3)(D) | Drivetrain: Rejection Order converted the contracts to breaches; claims are rejection damages and must be general unsecured under §365(g) and §502(g); allowing priority would nullify rejection | Court: Claims are rejection damages and general unsecured; Encore’s motion to pay denied; objection sustained |
Key Cases Cited
- U.S. ex rel. U.S. Postal Serv. v. Dewey Freight Sys., Inc., 31 F.3d 620 (8th Cir. 1994) (postpetition benefit must be shown for administrative priority; rejected executory contracts produce general unsecured claims absent such benefit)
- Mission Product Holdings, Inc. v. Tempnology, LLC, 587 U.S. 370 (2019) (debtor may assume or reject executory contracts under §365; rejection is treated as breach)
- N.L.R.B. v. Bildisco & Bildisco, 465 U.S. 513 (1984) (bankruptcy policy and business‑judgment framework for assumption/rejection; rejection relieves estate of burdensome obligations)
- In re Whistler Energy II, L.L.C., 931 F.3d 432 (5th Cir. 2019) (rejection of prepetition contract does not give rise to an administrative priority claim)
- In re Old Carco LLC, 424 B.R. 633 (Bankr. S.D.N.Y. 2010) (burden on claimant to prove administrative‑priority status by preponderance; distinguishing rejection damages from allowable administrative expenses)