583 B.R. 494
9th Cir. BAP2018Background
- Cook Inlet Energy and related Miller Energy debtors filed chapter 11; Scott M. Boruff was Miller’s executive chairman under a prepetition employment contract paying $795,000/year.
- Debtors moved rapidly toward confirmation; they served Boruff with notice that his employment contract would be rejected and plan confirmed in January 2016, so he received no postpetition contractual salary.
- Boruff filed an administrative expense application under 11 U.S.C. § 503(b)(1)(A)(i) seeking prorated postpetition salary for the period between petition and confirmation (~4 months).
- Debtors opposed, arguing Boruff bore the burden to prove the reasonable value of any benefit to the estate and that contract salary was only probative, not presumptive evidence of value.
- After an evidentiary hearing, the bankruptcy court awarded Boruff $15,000 (comparable to other board members) rather than the contract rate, finding he failed to prove the reasonable value of his postpetition services.
- Boruff appealed, arguing the statute or NLRB v. Bildisco & Bildisco create a presumption that contract wages equal the reasonable value of postpetition services unless debtor rebuts.
Issues
| Issue | Boruff's Argument | Debtors' Argument | Held |
|---|---|---|---|
| Whether § 503(b)(1)(A)(i) makes postpetition wages automatically entitled to administrative priority at the contract rate | Section enumerates wages/salaries as administrative expenses; showing postpetition work and an employment contract is sufficient | § 503 requires "actual, necessary" benefit to estate; claimant must prove value by preponderance | Rejected: statute does not automatically fix value at contract rate; claimant must prove benefit and value |
| Whether terms of a rejected prepetition employment contract are presumptive evidence of reasonable value of postpetition services | Bildisco and progeny create a presumption that the contract rate is the reasonable value unless debtor rebuts | Contract terms are probative but not presumptive; burden stays with claimant to prove value | Rejected presumption: contract is probative only; no burden shift to debtor |
| Proper allocation of burden of proof on an administrative claim for postpetition services | Contract should shift burden to debtor to rebut | Claimant bears ultimate burden of persuasion by preponderance; debtor may rebut initial evidence | Held claimant (Boruff) bears ultimate burden; court did not err in allocating burden to him |
| Whether bankruptcy court abused discretion in awarding $15,000 instead of contract rate (~$252,658) | Contract salary should control award; court misapplied legal standard | Sparse evidence of time/value; comparable board-member payments were far lower; award reasonable | No abuse of discretion; award affirmed |
Key Cases Cited
- NLRB v. Bildisco & Bildisco, 465 U.S. 513 (U.S. 1984) (rejected executory contracts create breach; court may award reasonable value of postpetition performance which may, depending on circumstances, be the contract rate)
- Burlington N. R.R. Co. v. Dant & Russell, Inc., 853 F.2d 700 (9th Cir. 1988) (administrative expenses must be actual and necessary to preserve the estate; narrow construction)
- Lundell v. Anchor Constr. Specialists, Inc., 223 F.3d 1035 (9th Cir. 2000) (objector must present probative evidence to rebut a claim; claimant retains ultimate burden of persuasion)
- Mason v. Official Comm. of Unsecured Creditors (In re FBI Distribution Corp.), 330 F.3d 36 (1st Cir. 2003) (prepetition employment contract is probative, not dispositive, of value for administrative claim)
- Thompson v. IFG Leasing Co. (In re Thompson), 788 F.2d 560 (9th Cir. 1986) (lease rent is presumptive evidence of rental value for equipment; court still values allowable administrative expense by fair and reasonable standard)