498 B.R. 425
Bankr. D. Vt.2013Background
- Sheriffs are custodians under 11 U.S.C. §101(11) and levied debtor’s property to enforce a lien; they partnered with LRT and EWS to store the equipment as custodians’ agents.
- Rathe Salvage obtained a writ and directed storage of the levied equipment with LRT (Barre) and EWS (Castleton).
- Stipulation (July 9, 2013) required Debtor to turnover equipment, provide adequate protection payments, and resolve storage fees as administrative expenses; it also conditioned a $10,000 payment toward storage fees.
- Debtor filed Chapter 11 June 18, 2013; Debtor objected to the reasonableness and priority of pre- and post-petition storage charges.
- Court prior memorandum held custodians and agents, required accounting under §543, and allowed payment if sums were reasonable; Debtor objected to accountings.
- Court determines that LRT and EWS are entitled to administrative expense treatment under §503 and that their charges are payable as administrative expenses, with specified allowed amounts and offsets
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §543 requires payment to custodians’ agents. | Brown asserts charges are unreasonable and should be disallowed. | Rathe/LRT/EWS contend charges are required by §543 and must be paid. | Yes; custodians’ agents must be paid under §543. |
| Classification of charges as administrative expenses under §503. | Debtor seeks disallowance or different treatment. | Charges are actual, necessary, and reasonable. | Post-petition and pre-petition charges may qualify as administrative expenses if they meet criteria. |
| Burden of proof and standard for allowance of charges. | Burden lies with the debtor to prove unreasonableness. | Custodian/agent bears burden to prove entitlement by preponderance of the evidence. | Custodians/agents have burden to prove entitlement by a preponderance of evidence. |
| Role of 12 V.S.A. §2731 in allowance of charges. | State statute governs costs with possible liability on debtor. | Statute guides custodians’ duties; does not create contrary federal rights. | State statute supports payment discretion; weighs in favor of allowing charges. |
| Amount and priority of allowed storage charges. | Debtor seeks offset rights and different totals. | EWS and LRT proved 116 days of storage; amounts are administrative expenses. | LRT: $25,300; EWS: $43,000 (administrative expenses), subject to offset rights; Towncar excluded. |
Key Cases Cited
- Ohakpo, 494 B.R. 269 (Bankr.E.D.Mich.2013) (custodian/agent analysis; administrative expense eligibility under 543(c)(2))
- In re Lake Region Operating Corp., 238 B.R. 99 (Bankr.M.D.Pa.1999) (pre-petition custodian fees may qualify for §503(b)(3)(E) priority)
- In re 215 Assocs., 188 B.R. 743 (Bankr.S.D.N.Y.1995) (§503(b)(3)(E) priority for custodian pre-petition services)
- In re Kenval Marketing Corp., 84 B.R. 32 (Bankr.E.D.Pa.1988) (pre-petition custodian services may be priority under §503(b)(3)(E))
- Szwak v. Earwood (In re Bodenheimer, Jones, Szwak, & Winchell L.L.P.), 592 F.3d 664 (5th Cir.2009) (reasonableness requirement for administrative expenses; custodian expenses)