United States District Court, W.D. Louisiana, Lafayette Division
WHITEHURST MAGISTRATE JUDGE
ELIZABETH ERNY FOOTE UNITED STATES DISTRICT JUDGE
the Court is an appeal filed by Appellants, Trisha and Tyler
Kimzey ("the Kimzeys"), unsecured creditors in the
matter of In Re: Kimzey Casing Service, LLC. [Record Doc. 1].
The Kimzeys appeal an order issued by the United States
Bankruptcy Court, Western District of Louisiana, which
allowed an administrative expense claim filed by the
Appellee, Premium Casing Equipment, LLC
("Premium"). For the reasons assigned herein, the
order of the Bankruptcy Court is AFFIRMED.
October 16, 2015 ("petition date"), Kimzey Casing
Service, LLC ("KCS" or "Debtor") filed a
voluntary petition for relief under Chapter 11 of the United
States Bankruptcy Code. [Record Doc. 4, Bankr. Doc.
After the petition date, KCS operated its business until
December 18, 2015 ("sale date"), when the majority
of KCS' assets were sold to TRK Enterprises, Inc.
("TRK") at an auction authorized by the Bankruptcy
Court. Premium leased specialized oilfield equipment, CRTis,
to KCS. The leased equipment at issue was not sold
or assigned to TRK as part of the sale.
the sale, Premium filed a motion seeking the allowance of an
administrative expense claim pursuant to 11 U.S.C. §
503(b)(1)(A) for post-petition lease payments due on the
equipment from the date of KCS' petition to the sale
date. [Record Doc. 4, Bankr. Doc. 42]. Premium argued that
the lease payments in question were actual, necessary costs
and expenses of preserving the bankruptcy estate of KCS. The
Kimzeys objected to the claim. [Record Doc. 4, Bankr. Doc. 46
and 66]. The Bankruptcy Court allowed an administrative
expense claim in the amount of $57, 752.93 against KCS. The
issue on appeal is whether the Bankruptcy Court properly
determined that the rental charges for the equipment were
actual, necessary expenses for the preservation of the
Debtor's estate such that Premium is entitled to a
priority claim under 11 U.S.C. § 503(b)(1)(A) and 11
U.S.C. § 507(a)(2).
Stipulated Facts of the Case
parties agreed to stipulated facts and presented them to the
Bankruptcy Court. [Record Doc. 4, Bankr. Doc. 65]. The
Bankruptcy Court relied solely on the stipulated facts to
reach its decision. Accordingly, the relevant stipulated
facts are provided herein.
provided oil field services, principally casing work, for
owners and operators of oil and gas properties in two general
areas: (a) Colorado and Wyoming (the "Colorado
Division"), and (b) Ohio, Pennsylvania, and West
Virginia (the "Pennsylvania Division"). [Record
Doc. 3, Bankr. Doc. 65 ¶ 1]. From the filing of the
bankruptcy petition through the sale of most of KCS'
assets to TRK, Robert Fullop ("Fullop") was the
President of KCS. Id. at ¶ 4. Fullop was
knowledgeable about the details relating to all aspects of
KCS' business, and conducted daily operations meetings
with KCS business managers and facility supervisors.
Id. The meetings reviewed and discussed safety,
sales, operations, equipment, and maintenance matters at all
KCS facilities. Id., Ryan Maupin ("Maupin"), a
Director in Grant Thornton's Corporate Advisory &
Restructuring practice, was appointed Interim Chief Executive
Officer for KCS from the filing of the bankruptcy through the
sale of the majority of KCS' assets to TRK. Id.
at ¶ 5. During the time between the petition and the
sale, Kyle Mascarenas ("Mascarenas") was the
business unit manager for KCS in the Colorado Division, and
was in charge of all of the persons who worked for the KCS
Colorado facility. Id. at ¶ 6. During the same
period of time Jordan Beckner ("Beckner") was the
business unit manager for KCS in the Pennsylvania Division,
and was in charge of all of the persons who worked for the
KCS Pennsylvania facility. Id. at ¶ 7.
Mascarenas and Beckner reported directly to Fullop.
Id. at ¶ 8. Fullop reported to Maupin.
Id. at ¶ 9.
equipment in Pennsylvania was stored at the Pennsylvania
facility when not in use. Id. at ¶ 10. All KCS
equipment in Colorado was stored at the Colorado facility
when not in use. Id. at ¶ 11. A Volant CRTi is
a tool that is used to perform some of the services that KCS
offered to customers in both the Colorado and Pennsylvania
divisions.14 at ¶ 12. On the date of the
bankruptcy filing, KCS leased three pieces of specialized
equipment from Premium under a lease agreement dated October
1, 2012, for a total rental amount of $25, 000 per month.
Id. at ¶ 14. The leased items were (i) a Volant
CRTi-3-700 and related components, and a Volant CRTi-2-5.50
and related components for $23, 200 per month ("Leased
CRTis"), and (ii) drill pipe tong model HSZ-125Y, master
and backup, jaws for drill pipe 4.5", 5",
5.5", 6 5/8" and lift cylinder of Chinese origin
for $1, 800.00 per month. Id.
time that the bankruptcy case was filed, KCS had four Volant
CRTi-5.5 devices at the Pennsylvania facility. Id.
at ¶ 15. Three of the four Volant CRTi Devices located
in the Pennsylvania Division were owned by KCS. Id.
The fourth Volant CRTi was one of the pieces KCS leased from
Premium. Id. At the time that the bankruptcy case
was filed, KCS had four Volant CRTi devices at the Colorado
Facility. Id. at ¶ 16. Three of the four Volant
CRTi Devices located in the Colorado Division were owned by
KCS. Id. The fourth Volant CRTi was leased by KCS
from Premium. Id.
after KCS filed for bankruptcy on October 16, 2015, Fullop
and Maupin together determined that KCS needed to continue
leasing the Leased CRTis from Premium. Id. at ¶
17. This determination was based on Maupin and Fullop's
combined business judgment, which was exercised in good
faith. Id. Fullop and Maupin's business judgment
was based on their knowledge of the then-current and expected
use of the Volant CRTis, the risk of losing revenue and
critical customers if the Company ran short of equipment, the
related risk of destroying the Company's enterprise value
while it was being marketed for a section 363 auction, and
the significantly higher cost of renting similar tools
elsewhere. Id. at ¶ 18. Accordingly, both
Fullop and Maupin believed that retaining the lease of the
Leased CRTis was an actual and necessary expense of
preserving the KCS estate's value. Id.
the filing of the bankruptcy case, neither Fullop nor Maupin
ever instructed Mascarenas or Beckner as to which Volant CRTi
to use on a particular job. Id. at ¶ 19.
However, Mascarenas instructed his employees in the Colorado
Division not to use a Leased CRTi. Id. at ¶ 20.
Likewise, Beckner instructed his employees in the
Pennsylvania Division not to use a Leased CRTi. Id.
at ¶ 21. At no time from the filing of the bankruptcy
petition through the sale of the majority of KCS' assets
were either of the Leased CRTis used on a job. Id.
at ¶ 22. The Leased CRTis were not used in any manner
that produced revenue for KCS. Id. at ¶ 23. The
Leased CRTis were not used by KCS to perform all or part of
any job for any customer. Id. at ¶ 24. Neither
of the Leased CRTis produced any revenue for KCS, earned any
revenue for KCS, or created any right for KCS to seek payment
from any person. Id. at ¶ 25.
majority of KCS' assets were sold to TRK on December 18,
2015, by order of the Bankruptcy Court. Id. at
¶ 26. Pursuant to the bid procedures established by the
Bankruptcy Court, TRK submitted a bid for those assets of KCS
that TRK wished to purchase, and those leases that TRK wished
to acquire. Id. at ¶ 27. TRK's bid did not
include the Leased CRTis. Id. at ¶ 28. The bid
did not seek to assume the lease of either of the Leased
CRTis or the assignment of such leases to TRK. Id.
at ¶ 29. KCS did not file a motion to assume the lease
with Premium. Id. at ¶ 30. On December 18,
2015, KCS filed a motion to reject a number of leases,
including the lease with Premium that included the Leased
CRTis. Id., at ¶ 3l. That motion was granted by order of the
Bankruptcy Court on December 29, 2015. Id.
Decision of the ...