MEMORANDUM OF DECISION ON MOTION OF THE UNITED STATES FOR ADEQUATE PROTECTION, ACCOUNTING, DISGORGEMENT, AND PAYMENT; AND MOTION AND AMENDED MOTION OF THE DEBTOR FOR RECOVERY PURSUANT TO 11 U.S.C. § 506(c)
This matter offers an object lesson in how not to run a chapter 11 case. The dispute between the Internal Revenue Service and the debtor, Strategic Labor, Inc., is embodied in the following motions now under consideration: Creditor United States’ Motion For Adequate Protection, Accounting, Disgorgement, And Payment Of The United States’ Prepetition Tax Claim [Docket # 87]; Motion Of Debtor In Possession For Recovery Pursuant To 11 U.S.C. § 506(c) Of The Reasonable And Necessary Costs And Expenses Of Preserving And Disposing Of Property Securing The Secured Claim Of The Internal Revenue Service For Its Benefit [# 99]; and Amended Motion Of Debtor In Possession For Recovery Pursuant To 11 U.S.C. § 506(c) Of The Reasonable And Necessary Costs And Expenses Of Preserving And Disposing Of Property Securing The Secured Claim Of The Internal Revenue Service For Its Benefit [# 116], None of the motions would have been necessary had Strategic Labor and its counsel administered this case with more care and candor or if the IRS had stepped in earlier to assert its rights. The IRS has offered a plausible although, with the benefit of hindsight, not necessarily a superlative explanation for its apathy. The conduct of the debtor and its counsel, on the other
Background
The relevant facts are not in dispute. On June 28, 2010 Strategic Labor, a company which developed, distributed and supported automated workforce scheduling software, filed a voluntary petition for reorganization under chapter 11 of the Bankruptcy Code
According to the schedules of assets and liabilities filed by Strategic Labor to support its bankruptcy petition, the company had assets valued at $112,137.53 on the petition date consisting primarily of accounts receivable valued at $103,141.29. Schedule D entitled “Creditors Holding Secured Claims” listed a single creditor, Balboa Capital, holding a secured claim in the amount of $18,000. The schedule described Balboa Capital’s collateral as “workforce scheduling product development software” of “undetermined value.”
Despite listing the IRS in its schedules as an unsecured priority creditor, in its statement of financial affairs (the “SOFA”) accompanying the schedules Strategic Labor represented that the IRS had placed a
It is also to be noted that while schedule H of Strategic Labor’s schedules of assets and liabilities did not list any co-debtors for any of the company’s obligations, the IRS has alleged and the debtor has not denied that James, Michael and Richard Gondek were individual guarantors of the Balboa Capital debt.
Not only are the schedules incomplete and inconsistent with the SOFA they are also inconsistent with statements in the affidavit of Michael Gondek filed in support of first day motions on June 80, 2010 (the “Gondek Affidavit”). According to the affidavit, the debtor had, as of the petition date, “(i) cash on hand of $4,650; (ii) accounts receivable of $103,141.21; and (iii) anticipated future billings in open software contracts of $184,095.00” for a total asset valuation of $291,886.21. Mr. Gon-dek also stated that:
14. Prior to the Petition Date, the Debtor granted a security interest in substantially all of its assets to Balboa Capital (“Balboa”) to secure financing in the amount of approximately $128,000 provided by Balboa for the debtor’s product development initiatives in 2008. To perfect its security interest in the Debtor’s assets, Balboa filed a UCC-1 Financing Statement under the name Carbaldav on January 30, 2008. As of May 31, 2010, the approximate amount owed to Balboa by the Debtor was $18,633.86.
[and]
16. As of the Petition Date, the Internal Revenue Service held tax liens of $469,004.94 against the Debtor’s assets resulting from the Debtor’s alleged failure to make payroll tax payments in parts of 2007 and 2008. Of the total liens as of May 31, 2010, $290,859.17 is attributed to tax, $145,703.16 is attributed to penalties, and $32,482.61 is a1> tributed to interest.
Mr. Gondek’s affidavit, filed two days after the bankruptcy petition and prior to the schedules and SOFA, materially contradicts the schedules as to the extent of Balboa’s security interest in Strategic Labor’s assets, the value and description of those assets and the status of the IRS as a secured creditor.
On June 30, 2010 Strategic Labor filed an “Emergency Motion for Entry of Interim and Final Orders (1) Approving Post-Petition Financing Pursuant to 11 U.S.C. §§ 105, 362, 363, 364 and 507, (2) Granting Liens and Providing for Superpriority Administrative Expense Status, (3) Modifying the Automatic Stay, and (4) Scheduling a Final Hearing” (the “DIP motion”) seeking to borrow up to $50,000 from Infor, the stalking horse bidder under its sale motion. In the DIP motion Strategic Labor acknowledged the IRS’s lien stating:
Approximately six (6) months ago, the Debtor and the Lender [Infor] began discussing the purchase by the Lender of certain of the Debtor’s assets. Shortly thereafter, and during the Lender’s due diligence, the Debtor learned for the first time that it had substantial payroll tax liens of $470,000.
On July 7, 2010, I entered an interim order and on July 22, 2010 a final order allowing the DIP motion which authorized Strategic Labor to borrow up to $50,000 from Infor (the “DIP loan”) and granted
Approval of the DIP Facility will provide the Debtor with immediate and ongoing access to borrowing availability to pay its operating expenses, including post-petition wages, as well as to satisfy the costs of administration of this case.
The IRS was served with a copy of the DIP motion and did not object to it.
On August 18, 2010, the IRS filed a proof of claim in the amount of $491,505.37 arising from Strategic Labor’s failure to remit payroll taxes to the IRS. The IRS asserted a security interest in all of Strategic Labor’s personal property. Attached to its proof of claim was a schedule setting forth a series of federal tax liens for tax periods in 2007 and 2008, notices of which had been filed between December 24, 2009 and January 28, 2010 in the United States District Court for the District of Massachusetts in accordance with 26 U.S.C. § 6323(f)(l)(A)(ii).
According to its monthly operating reports filed with the United States trustee,
As indicated previously, on July 2, 2010 Strategic Labor filed its motion to sell substantially all its assets to Infor free and clear of liens, claims, and encumbrances pursuant to the APA and also to approve
In response to the sale notice, Strategic Labor received an offer for its assets from a third party that was higher than Infor’s stalking horse bid. According to the bid procedures previously established, this resulted in an open cry auction at the sale hearing between Infor and the third party in which Infor emerged victorious with a final bid of $300,000, a $100,000 improvement on its stalking horse bid. My order approving the sale to Infor was entered on August 30, 2010 and the sale was consum-
mated on September 3, 2010. The sale proceeds of $300,000 were deposited into the Gordon firm’s IOLTA clients’ funds account.
On November 15, 2010 the Gordon firm filed its first interim application for compensation seeking $78,738.05 consisting of $73,587.50 in fees and $5,150.55 in expense reimbursement. Notice of the fee application was served on the IRS. The application was allowed without objection. On May 4, 2011 the Gordon firm filed its final fee application in which it sought approval of the previously allowed interim award as well as additional fees of $35,799.50 and expense reimbursement of $699.30. No objections were raised to the final fee application and it too was allowed resulting in a total award to the Gordon firm on both applications of $109,387 in fees and $5,849.85 in expense reimbursements.
Also on May 4, 2011 Strategic Labor filed its motion to dismiss this ease.
Strategic Labor’s motion to dismiss caught the attention of the IRS. The slumbering giant was aroused and began to stir. It filed an objection to the motion to dismiss. At the hearing on the motion it became clear that on Strategic Labor’s bankruptcy petition date the IRS held a security interest in all the debtor’s assets by virtue of its pre-petition tax liens, that its liens had attached to the proceeds of the sale to Infor, that Strategic Labor had never sought authority to use the IRS’s cash collateral, including the sale proceeds, and hence that the validity of some or all post-petition payments made by Strategic Labor using the IRS’s cash collateral could be called into question.
The Dispute
Matters, of course, did not end there. The IRS filed the presently pending motion for an accounting, adequate protection, disgorgement and payment.
Strategic Labor’s primary response to the IRS’s attack was to file its presently pending motions seeking to surcharge the IRS’s cash collateral under Bankruptcy Code § 506(c)
While the surcharge motions are clearly Strategic Labor’s preferred solution to the IRS’s disgorgement motion, Strategic Labor has offered two additional grounds for avoiding the impact of the IRS’s motion. First, Strategic Labor argues that the cash generated by the company post-petition was not the IRS’s cash collateral. Without citing any legal authority, Strategic Labor
The error in the debtor’s first argument is demonstrated by reading the definition of cash collateral contained in Bankruptcy Code § 363(a):
In this section, “cash collateral” means cash, negotiable instruments, documents of title, securities, deposit accounts, or other cash equivalents whenever acquired in which the estate and an entity other than the estate have an interest and includes the proceeds, products, offspring, rents, or profits of property and the fees, charges, accounts or other payments for the use or occupancy of rooms and other public facilities in hotels, motels, or other lodging properties subject to a security interest as provided in section 552(b) of this title, whether existing before or after the commencement of a case under this title, (emphasis supplied).
The fact that by staying in business Strategic Labor preserved the value of the IRS’s collateral thereby increasing the dollar amount of the proceeds recovered therefrom doesn’t change the character of the recovery from proceeds to something else. Congress recognized the value of preservation and enhancement of collateral by enacting § 506(c), not by depriving a secured creditor of its security interest in post-petition proceeds of pre-petition collateral.
As for Strategic Labor’s second argument that the IRS should have objected sooner to the unauthorized use of cash collateral, the IRS credibly maintains that it was unaware of the debtor’s unauthorized use until receiving the motion to dismiss by which time the money had been spent. Paragraph 16 of the DIP Motion bears repeating at this point:
Approval of the DIP Facility will provide the Debtor with immediate and ongoing access to borrowing availability to pay its operating expenses, including post-petition wages, as well as to satisfy the costs of administration of this case.
There is no reasonable way to understand this except as a representation by Strategic Labor that it did not intend to use cash collateral to satisfy the costs of administering its chapter 11 case. Strategic Labor’s commitment not to use cash collateral so fundamentally distinguishes this case from Nat’l Safe and Gemel as to make any further attempt at analogy meaningless.
Strategic Labor submitted a number of affidavits to support its surcharge requests. In his affidavit, Douglas Wolfson, associate general counsel of Infor, referring to Strategic Labor as “SLI,” stated:
4. In or about the spring of 2010, Infor completed its due diligence concerning SLI’s assets and liabilities. Based on the results of Infor’s due diligence review, including discovery of SLI’s substantial tax liabilities, having considered and rejected a number of alternative transaction structures for acquiring the desired assets, Infor was not willing to purchase the assets of SLI without the protections afforded to asset purchasers by a Bankruptcy Code Section 363 sale*21 conducted in accordance with the Bankruptcy Code and Rules.
5. It was crucial for Infor that its purchase of SLI’s assets occur quickly as SLI’s assets, nearly all intangible, were at serious risk of losing their value due to SLI’s continuing financial difficulties. Infor believed that a Chapter 11 case would facilitate a prompt sale of SLI’s assets and that SLI’s assets would likely become worthless if it ceased doing business in the ordinary course.
In addition each of the Gondeks submitted an affidavit attesting to his efforts to keep the business operating in chapter 11, shepherding the company through the sale process and attempting to interest additional bidders to participate in the sale. A member of the Gordon firm submitted an affidavit in which he described his communications during the chapter 11 case with an IRS employee who seemed “pleased with the sale process” and who never “once raised any cash collateral or adequate protection concerns or the possibility of seeking relief in accordance with Section 363(e) or (f) of the Bankruptcy Code.” In this affidavit counsel represented that it was due to the efforts of Strategic Labor’s employees, “with assistance of counsel,” that the second bidder was identified.
Discussion and Analysis of § 506(c) Requests
Any consideration of a request to recover funds from a secured creditor’s collateral requires, first of all, reference to the statute. Bankruptcy Code § 506(c) creates an exception to the general principle of bankruptcy distribution that prefers secured creditors to all other claimants with respect to the proceeds of the secured creditor’s collateral by permitting a trustee or debtor in possession to recover from such proceeds the reasonable, necessary costs and expenses related to preservation or disposition of the secured creditor’s collateral to the extent of any benefit to the creditor. Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A.,
“Typical examples [of allowed surcharge costs] include appraisal fees, auctioneer fees, moving expenses, maintenance and repair costs, and advertising costs.” In re Swann,
As the First Circuit observed in Parque Forestal, while § 506(c) does not require advance consent by the secured creditor, consent is still a relevant consideration. A secured creditor may not have consented to a specific expenditure but may be subject to surcharge if it can be shown that the creditor acknowledged the desirability of the expenditure. Id. at 512.
The post facto attempt by a debtor to recover administrative expenses out of a secured creditor’s cash collateral in a chapter 11 case is rare because it is risky. Normative chapter 11 practice dictates a debtor’s seeking the secured creditor’s consent or a court order for a carveout to cover some or all the debtor’s administrative expenses before the expenses are incurred. This case is anything but normative. Here, not only did Strategic Labor fail pre-emptively to seek the IRS’s approval for a carve-out for administrative expenses, it went ahead and spent the IRS’s cash collateral without authority, including paying its attorneys’ fees out of the IRS’s cash.
While I will not overlook or condone the conduct of the debtor and its counsel, I am not prepared to deny outright the debtor’s motions for § 506(c) recovery. After all, the sale to Infor which Strategic Labor and its professionals oversaw and consummated will result in a recovery by the IRS that is exponentially greater than what the IRS could have hoped to achieve through a forced liquidation of its collateral.
It remains Strategic Labor’s burden to establish that the expenses for which it seeks § 506(c) status were reasonable and necessary and were expended primarily to benefit the IRS. Strategic Labor seeks to recover $100,661.35 in attorneys’ fees and costs and $55,783.51 (although as noted
Despite the debtor and its counsel’s dismaying confusion about whether the IRS was a secured or a priority unsecured creditor, the record of this case has been consistent and unambiguous from the outset that the primary beneficiary of the debtor’s efforts to sell its assets on a going concern basis in chapter 11 would be the IRS. While the IRS certainly did not consent to the surcharging of the sale proceeds or other proceeds of its collateral for Strategic Labor’s costs, it acknowledged the desirability of the process by which the proceeds were generated by refraining from objecting to the sale. Parque Forestal,
In these circumstances, the appropriate Strategic Labor costs eligible for § 506(c) treatment are the costs directly associated with the sale to Infor. Since it is clear that the continued operation of the debtor’s business was a prerequisite to the sale, the debtor may recover its expenditures for compensation and benefits to its management team through the sale date of September 3, 2010. Daniel, Michael and Richard Gondek all terminated their employment with Strategic Labor in August 2010 and, subject to the offset discussed below, their compensation and benefits totaling $26,242.95 are allowable § 506(c) costs. James Gondek remained an employee of Strategic Labor through December 31, 2010, at a weekly net salary of $1213.44, receiving total compensation through that date of $29,122.68 and expense reimbursement of $372.88. Since the sale to Infor closed on September 3, 2010, the allowable portion of James’s compensation for § 506(c) purposes is $12,134.40.
Strategic Labor submits that James remained on the payroll post-closing to perform various continuing obligations of the company to Infor. These continuing obligations were few and certainly did not require a full-time employee. The prime post-closing obligation imposed by the APA was the assignment to Infor of any executory contracts of Strategic Labor designated by Infor within three months of the closing. APA at 10.6.
The debtor also proposes to surcharge the IRS for $100,661.35 in fees and expenses of the Gordon firm. This includes all the expenses of the firm in both its interim and final fee application totaling $5,849.85, and $94,811.50 in fees, consisting of the entire $73,587.50 from the interim application and $21,224.00 of the $35,799.50 from the final application.
A detailed analysis of the Gordon firm’s daily billing records contained in the debt- or’s § 506(c) motion establishes that $38,871 in fees were billed by the firm for legal services directly related to the sale to Infor.
In the typical case, here the matter would rest. Unfortunately, in this case Strategic Labor, without authority to do so, has already spent most of the money it seeks in its surcharge motions and a good deal more besides. Before Strategic Labor is entitled to any recovery for benefits conferred upon the IRS there must be taken into account as an offset any harm suffered by the IRS as a result of Strategic Labor’s and its counsel’s conduct. To surcharge a secured creditor’s collateral for a benefit received without adjusting for offsetting detriment would be inequitable.
The IRS seeks disgorgement from Strategic Labor of the amount it paid to Balboa Capital ($18,957.41) on the grounds that the Gondeks caused the payments to made so as to reduce their exposure as guarantors. While this may be a reasonable inference, another factor of significance is that, as set forth in the debtor’s schedules, § 341 meeting testimony and motion to dismiss, Balboa Capital’s security interest was limited to a single item, workforce development software.
Even if the specifics of the Balboa payoff were ignored, I would have no difficulty reducing the debtor’s § 506(c) award by $18,957.41 as a sanction to the debtor, its management and counsel for their collective failure to abide by the statutory requirements for use of cash collateral, for their sloppy administration of this case, and most especially for their misleading representation in paragraph 16 of the DIP Motion, all inuring to the ultimate detriment of the IRS.
I do not view the § 506(c) awards allowed here or the factors applied to arrive at them as being discretionary. The awards result from a straightforward application of relevant Bankruptcy Code provisions as informed by binding First Circuit precedent.
Conclusion
As previously indicated, much more than the net § 506(c) award has already been taken by Strategic Labor and spent. Strategic Labor must, therefore, recover the unauthorized payments and thus I will issue disgorgement orders as follows. Strategic Labor paid $58,165.25 in management costs but $38,377.51 is the most that Strategic Labor may receive under § 506(c). Therefore, Strategic Labor must recover $19,787.74 from its payee, James Gondek, who will be ordered to disgorge this amount. Strategic Labor also paid without authority $78,738.05 in legal fees and expenses and based on a § 506(c) allowance of $44,711.15, must recover $34,026.90 from the Gordon firm who will be ordered to disgorge this amount. However, I have reduced the § 506(c) award by $18,957.41. Because I find the debtor’s management and counsel equally responsible for the conduct described herein, especially the unauthorized use of cash collateral, I will apportion the reduction equally reducing the § 506(c) award for management costs and legal fees by $9,478.70 each. The debtor must recover an additional $9,478.70 from the four Gon-deks who will be ordered, jointly and severally, to disgorge this amount and $9,478.70 from the Gordon firm who will be ordered to disgorge this amount. The debtor shall pay all amounts recovered to the IRS. The Gordon firm shall also pay to the IRS forthwith the $221,261.95 in net sale proceeds it is holding in its IOLTA account.
On June 15, 2011, the United States trustee filed a motion to convert this case to chapter 7. After the filing of responsive pleadings and a hearing on August 11, 2011, that motion was continued pending
Separate orders shall issue.
Notes
. Lest the United States trustee feel neglected, it must be observed that more careful monitoring of the administration of this case by United States trustee personnel might also have prevented or at least blunted the impact of the present situation.
. See 11 U.S.C. § 101 et seq. (the "Bankruptcy Code” or the "Code”). All references to statutory sections are to the Bankruptcy Code unless otherwise specified.
. The APA defines "work-in-progress accounts receivable” as receivables for services or product delivered but not yet invoiced. It is likely that work-in-progress accounts receivable are the same as "anticipated future billings in open software contracts" identified as one of Strategic Labor’s assets in the Gon-dek Affidavit discussed later in this memorandum.
.In its statement of material facts, the IRS asserted that Balboa Capital "did not file a proof of claim in this bankruptcy case, and it is not a holder of a secured claim.” It cites the claims register as authority for that statement. But a secured creditor’s failure to file a proof of claim does not render its claim unsecured. In re MacKenzie,
. According to a transcript submitted by the IRS, both James and Michael Gondek attended the debtor's meeting of creditors under Bankruptcy Code § 341 on August 4, 2010. When asked if Balboa Capital's collateral consisted of the workforce scheduling product, James responded affirmatively. Michael did not respond.
.Section 6321 of the Internal Revenue Code, 26 U.S.C. § 6321 (the "IRC”) gives the United States a lien on all personal and real property of any taxpayer who is liable for taxes and does not pay them after a demand is made. IRC § 6323(a) requires a notice which meets the requirements of subsection (f) before the lien imposed by § 6321 is valid. Section 6232(f) permits the notice of a lien on personal property to be filed with the office of the clerk of the United States district court for the district in which the property is located. The debtor does not dispute that the lien was properly noticed and is valid.
. I may take judicial notice of the monthly operating reports which are signed by the debtor under the pains and penalties of perjury and filed with the United States trustee. In re Harmony Holdings, LLC,
. The September 2010 monthly operating report also lists a payment from Infor to the debtor in the amount of $14,737.30. Unlike the payments comprising the $41,000, this payment is not described as "DIP FINANCING”. It appears to be a payment of an account receivable owed to the debtor by In-for.
. IOLTA, which stands for "Interest on Lawyers' Trust Accounts,” "is a program mandated by the Supreme Judicial Court [of Massachusetts], It requires lawyers and law firms to establish interest-bearing accounts for client deposits which are nominal in amount or large amounts held for a short period of time.” (www.maiolta.org) (last visited February 8, 2012).
. By its motion the debtor was attempting a so-called "structured dismissal.” Unlike the old-fashioned one sentence dismissal orders— "this case is hereby dismissed” — structured dismissal orders often include some or all of the following additional provisions: “releases (some more limited than others), protocols for reconciling and paying claims, 'gifting' of funds to unsecured creditors and provisions providing for the bankruptcy court’s continued retention of jurisdiction over certain post-dismissal matters.” Norman L. Pernick & G. David Dean. “Structured Chapter 11 Dismissals: a Viable and Growing Alternative After Asset Sales,” 29 Am. BankrInst. J. 1, 56 (June 2010).
An article authored by attorneys with the United States trustee program has raised concerns about structured dismissals:
First, compared to plan confirmation, structured dismissals "end run ... the protection granted creditors in Chapter 11” and strongly resemble impermissible sub rosa plans. Second, unlike chapter 7 liquidation, structured dismissals distribute assets without enforcing priorities, addressing litigation or ensuring accountability for distributing assets. Third, unlike traditional dismissals, structured dismissals fail to reinstate state law creditor remedies.
Nan Roberts Eitel, T. Patrick Tinker & Lisa L. Lambert, "Structured Dismissals, Or Cases Dismissed Outside of Code’s Structure?”, 30 Am. BankrInst. J. 20, 20 (March 2011), (quoting The Institutional Creditors of Continental Air Lines, Inc. v. Continental Air Lines, Inc. (In re Continental Air Lines, Inc.),
. The debtor's United States trustee monthly operating reports indicate that it paid Balboa $18,957.41 in approximately equal installments between July 30, 2010 and February 3, 2011.
. The debtor never sought to amend its schedules to reflect the information contained in its motion to dismiss.
. Although the IRS has not raised it, this would appear to include the $40,388.61 repayment of the DIP loan. A future chapter 7 trustee will no doubt investigate this and other payments.
. The IRS’s request for an accounting appears to have been satisfied voluntarily by the debtor.
. The IRS's figure is slightly higher than the one used by the debtor in its amended § 506(c) motion. Neither the IRS’s nor the debtor’s figure foots to the debtor's payroll records from June 28, 2010 to December 31, 2010 which the IRS submitted. These records reveal that Michael Gondek received three payroll checks: one labeled "regular” in the net amount of $1,378.25 and two labeled "bonus” in the net amounts of $2,844.91 and $1,466.69. From June 28, 2010 through August 29, 2010 Daniel received a net total of $5,521.29 (although the debtor listed the figure as $5,520.97 in its amended § 506(c) motion) while Richard received a total net salary of $10,740.12 for the same period. The payroll records indicate that James received a total net salary, including one check listed as a "bonus,” of $31,549.57 for the period from June 28, 2010 through December 31, 2010 although the amended § 506(c) motion listed his net pay for the same period as $29,122.68. Based on the payroll records during the post-petition period through the end of 2010, the Gondeks collectively netted salaries totaling $53,500.83. The debtor acknowledges the following additional amounts as reimbursement of expenses: $1,410.84 (Michael); $372.88 (James); and $2,881.17 (Richard). Salary and expense reimbursements to the Gondeks thus total $58,165.72 and I will use this figure.
Similarly the $18,000 figure used by the IRS is slightly lower than the actual amount paid to Balboa of $18,957.41 as reflected in the debtor's monthly operating reports. I will use the amount reflected in the monthly operating reports.
. Section 506(c) provides:
The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim, including the payment of all ad valorem property taxes with respect to the property.
. Henhouse overruled Parque Forestal to the limited extent, not relevant here, that Parque Forestal held that “third parties who equitably come to stand in the trustee's shoes" have standing to bring a claim under § 506(c). Parque Forestal,
. The IRS's position that the expenditures must have been for its exclusive benefit is rejected as being inconsistent with First Circuit precedent.
. The debtor’s assets, consisting almost entirely of accounts receivable, work in process and intellectual property, were of the type whose value would plummet if ongoing operations had ceased and the assets were sold at a liquidation sale. Wolfson Affidavit at ¶ 5.
. The APA also required Strategic Labor to promptly forward any orders or inquiries for Strategic Labor’s goods or services to Infor for six months post-closing, APA at ¶ 10.3; to cooperate with Infor in connection with any audit or response relating to the assets acquired by Infor, APA at ¶ 10.4; and to offer support to Strategic Labor’s existing customers who entered into support and license agreements with Infor for the period from the closing to the end of the existing customers’ agreement with Strategic Labor. APA at ¶ 10. 6. Again there is no evidence that James expended any time attending to any of these matters.
. The figure does not reflect any deduction for work that arguably might be duplicative and includes a generous estimate of time spent on the sale in instances where it was necessary to prorate so-called "lumped” time entries.
. The figure is not exact as some of the time entries lumped time spent working on the Florida Department of Corrections matters with other matters for which no surcharge is being allowed.
. Included is $344.65 which is half of the expense described as "Copying and postage of Nonevidentiary Hearing re [62].” That total expense appears to relate to two motions, one of which was the motion to assume the Florida Department of Corrections contract.
. The Gondek Affidavit, which describes Balboa as holding an all-asset lien, predates all these representations that Balboa held a single-asset lien. I assume therefore that the latter representations, which unlike the IRS’s lien status have never been contradicted, reflect a correction of the Gondek Affidavit.