931 F.3d 432
5th Cir.2019Background
- Whistler Energy II owned a Gulf of Mexico production platform and had a pre‑petition drilling contract with Nabors Offshore for a rig and crew; Whistler filed for Chapter 11 in 2016 and rejected the drilling contract effective June 20, 2016.
- After rejection, Nabors’ rig, equipment, and some personnel remained on the platform pending a BSEE‑required demobilization plan and regulatory approvals; demobilization did not begin until BSEE approved a production shut‑in waiver on October 20, 2016, and finished December 13, 2016.
- Nabors sought administrative expense priority under 11 U.S.C. § 503(b)(1)(A) for $4.32M (pre‑demobilization) and $2.65M (demobilization); the bankruptcy court awarded $897,024 as an administrative claim and the remainder as general unsecured rejection damages; the district court affirmed.
- The core factual disputes: (1) whether Whistler (as debtor‑in‑possession) induced Nabors to remain post‑rejection or otherwise caused Nabors’ post‑petition costs; and (2) whether Nabors’ continued availability or services conferred an actual benefit to the bankruptcy estate.
- The Fifth Circuit clarified the legal standard: administrative priority requires post‑petition costs resulting from actions by the debtor‑in‑possession that benefitted the estate; inducement may be shown by an express request or by knowing, voluntary post‑petition acceptance of services (i.e., inducement includes acceptance/availability, not only explicit orders).
- The court remanded for factual findings on inducement, the portion of Nabors’ stay attributable to Whistler’s needs, and the actual and necessary costs; it affirmed denial of administrative priority for demobilization costs because demobilization flowed from the pre‑petition contract rejection and was not shown to be required by law or to benefit the estate in the relevant way.
Issues
| Issue | Nabors' Argument | Whistler's Argument | Held |
|---|---|---|---|
| Whether pre‑demobilization costs qualify as administrative expenses | Nabors: Whistler required Nabors to delay demobilization pending BSEE approvals and used Nabors’ services/availability, so costs are post‑petition, debtor‑induced, and benefited estate | Whistler: Nabors stayed voluntarily or delayed, most activity was "waiting" and not requested; only specific services Whistler requested merit priority | Remanded to bankruptcy court to determine inducement, duration caused by Whistler, and actual/necessary costs; availability can qualify if induced and beneficial |
| Whether mere availability/waiting can be a benefit to the estate | Nabors: Availability avoided disruption to production and thus benefitted the estate | Whistler: Availability without specific use does not create administrative priority | Court: Availability can benefit estate (e.g., avoiding disruption, insurance/backup capacity); availability induced by debtor may be administrative |
| Whether Nabors’ post‑rejection services (e.g., crane use, housing, maintenance) are administrative | Nabors: Services and related maintenance were used/accepted post‑petition so full ordinary cost (including overhead) is administrative | Whistler: Only services expressly requested should be administrative; incidental maintenance is Nabors’ own cost | Bankruptcy court should clarify which post‑petition services were requested or knowingly accepted; administrative priority includes full ordinary cost of provided services but not double recovery |
| Whether demobilization costs are administrative expenses | Nabors: Demobilization was necessary for regulatory compliance and Whistler influenced demobilization method/timing, so costs benefited estate | Whistler: Demobilization was the consequence of contract rejection (a pre‑petition obligation) and not required by law immediately; any changes were paid or remit to third parties | Demobilization costs denied as administrative: demobilization stemmed from pre‑petition contract rejection and not shown to be legally required or sufficiently estate‑beneficial; limited relief only for specific post‑petition modifications the record proves uncompensated |
Key Cases Cited
- In re Jack/Wade Drilling, Inc., 258 F.3d 385 (5th Cir.) (administrative‑expense standard; review framework)
- In re TransAmerican Nat. Gas Corp., 978 F.2d 1409 (5th Cir.) (burden on claimant; purpose of §503 to encourage post‑petition suppliers)
- In re DP Partners Ltd. P’ship, 106 F.3d 667 (5th Cir.) (scrutinize claimed expenses for waste and duplication)
- In re Jartran, Inc., 732 F.2d 584 (7th Cir.) (post‑petition acceptance/usage supports administrative priority)
- Mammoth Mart, Inc. v. United States, 536 F.2d 950 (1st Cir.) (acceptance of services post‑petition can create priority claim)
- In re Phones for All, Inc., 288 F.3d 730 (5th Cir.) (administrative claim must arise from transaction with debtor‑in‑possession)
- In re H.L.S. Energy Co., Inc., 151 F.3d 434 (5th Cir.) (narrow construction of "actual and necessary"; compliance costs can be administrative)
- Reading Co. v. Brown, 391 U.S. 471 (U.S. Supreme Court) (costs incident to operation of business may be administrative)
- Midlantic Nat’l Bank v. N.J. Dep’t of Envtl. Prot., 474 U.S. 494 (U.S. Supreme Court) (trustee/debtor‑in‑possession must comply with health/safety laws; speculative future obligations insufficient)
- In re Airlift Int’l, Inc., 761 F.2d 1503 (11th Cir.) (post‑petition contract breaches entitled to administrative priority)