In re Leaver

641 B.R. 197

IN RE: Zachery R. LEAVER, Debtor.

Case Number: 21-10905-12

United States Bankruptcy Court, W.D. Wisconsin.

Signed May 26, 2022

Wade M. Pittman, Pittman & Pittman Law Offices, LLC, Madison, WI, for Debtor.

DECISION

Catherine J. Furay, United States Bankruptcy Judge

The issue before the Court is whether an entitlement to administrative expenses in a Chapter 12 bankruptcy carry over to a subsequent bankruptcy proceeding after voluntary dismissal of the initial proceeding where the right to the administrative expenses accrued. For the reasons outlined below, this Court holds that they do not carry over.

JURISDICTION

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334(a). Venue is proper under 28 U.S.C. §§ 1408 and 1409. The issue before the Court relates to an allowance of administrative expenses pursuant to 11 U.S.C. § 503. It falls within the parameters of "allowance or disallowance of claims against the estate," as well as "matters concerning the administration of the estate" and "other proceedings affecting the liquidation of the assets of the estate." 28 U.S.C. § 157(b)(2)(A), (B), and (O).

BACKGROUND

The facts are not in dispute. On April 21, 2020, Debtor Zachery Leaver ("Leaver") filed his first Chapter 12 petition ("Leaver I") for relief in the Western District of Wisconsin. In response, Hillside Dairy, LLC ("Hillside") filed a secured claim of $106,448.84 for a boarding lien against Debtor's dairy cows and youngstock in Hillside's possession as of the initial petition date of Leaver I. On or about July 29, 2020, Hillside and Leaver entered into a stipulation (the "Stipulation"). Soon after, the Stipulation was approved by this Court. Under the Stipulation, Hillside was to "release any animals in its possession owned by" Leaver. In exchange, Hillside was to retain any lien rights in Leaver's animals that were kept and raised by Hillside. Debtor also agreed to treat any outstanding bill by Hillside Dairy as an administrative expense in his Chapter 12 plan. Hillside released the livestock around May 20, 2020. Leaver, however, later challenged Hillside's secured status and administrative priority.

Concerning the dispute around the Stipulation, this Court issued a decision on March 24, 2021, holding that Hillside relinquished its secured claim when it surrendered possession of the cattle. The Court also concluded Hillside was entitled to an administrative expense claim both for its post-petition expense claims and the portion of its claim relating to prepetition expenses that met the requirements of 11 U.S.C. § 503(b) ("Leaver I Decision").¹ The amount of the administrative expense claim, though, was subject to further hearing and determination on Hillside's prepetition claims.

The same day the Court issued the Leaver I Decision, secured creditor Wisconsin Bank & Trust moved to dismiss Leaver I on the grounds that a Chapter 12 plan was not feasible. The next day, Debtor also moved to voluntarily dismiss the Chapter 12 proceeding, and the case was dismissed. About a month later, on April 27, 2021, Debtor commenced the current Chapter 12 proceeding ("Leaver II").

In this case, Hillside reasserts the administrative claim granted in Leaver I. It filed a Motion for Allowance of Administrative Expense Pursuant to 11 U.S.C. § 503(b)(3)(B) and (b)(9).² Leaver objected. Hillside argues its administrative claim survived dismissal of Leaver I. Leaver, on the other hand, believes Hillside's administrative claims from a prior bankruptcy do not carry over to the subsequent bankruptcy filing. Hillside submitted an amended proof of claim for administrative expenses totaling $106,448.84.

DISCUSSION

Effect of Dismissal

There is no provision in the Bankruptcy Code that explicitly governs whether administrative expense claims from a previously dismissed bankruptcy filing are carried over and treated as administrative expense claims in subsequent filings. 11 U.S.C. § 349, however, discusses the effects of a dismissal of a bankruptcy case generally. Section 349 states as follows:

(a) Unless the court, for cause, orders otherwise, the dismissal of a case under this title does not bar the discharge, in a later case under this title, of debts that were dischargeable in the case dismissed; nor does the dismissal of a case under this title prejudice the debtor with regard to the filing of a subsequent petition under this title, except as provided in section 109(g) of this title.

(b) Unless the court, for cause, orders otherwise, a dismissal of a case other than under section 742 of this title—

(1) reinstates—

(A) any proceeding or custodianship superseded under section 543 of this title;

(B) any transfer avoided under section 522, 544, 545, 547, 548, 549, or 724(a) of this title, or preserved under section 510(c)(2), 522(i)(2), or 551 of this title; and

(C) any lien voided under section 506(d) of this title;

(2) vacates any order, judgment, or transfer ordered, under section 522(i)(1), 542, 550, or 553 of this title; and

(3) revests the property of the estate in the entity in which such property was vested immediately before the commencement of the case under this title.

The only provision in section 349 that mentions subsequent filings following a dismissal is section 349(a). Section 349(a) states that a dismissal does not bar the discharge of debts in subsequent petitions if those debts were dischargeable in a dismissed case. Section 349(a) also states that a dismissal does not prejudice a debtor with regard to the filing of a subsequent petition. Here, the issue is not dischargeability, nor is there a question of whether Leaver can file a subsequent petition. So section 349(a) is irrelevant.

Likewise, section 349(b)(1) is inapplicable to the present facts because the issue before this Court does not concern 11 U.S.C. § 543, an avoided transfer, or lien avoidance.

The next section, section 349(b)(2), states that unless a court for cause orders otherwise, a dismissal of a case vacates any order, judgment, or transfer ordered, under section 522(i)(1), 542, 550, or 553 of the Bankruptcy Code. In Leaver I , this Court ordered that Hillside is entitled to an administrative expense claim both for its post-petition expense claims as well as the portion of its claim relating to prepetition expenses that meet the requirements of 11 U.S.C. § 503(b). That order, however, was not an order, judgment, or transfer based on any of the enumerated subsections listed in section 349(b)(2). As a result, the order was not vacated when Leaver I was dismissed. Hillside argues that because the order was not vacated upon dismissal, this Court must extend its order to Leaver II and hold that Hillside is entitled to an administrative expense claim in the present bankruptcy proceeding.

That the order was not vacated upon the dismissal of Leaver I does not automatically entitle Hillside to an administrative priority claim in Leaver II. In this Court's Leaver I Decision, it held that Hillside was entitled to an administrative priority claim for post-petition expenses pursuant to section 503(b)(1)(A), as well as prepetition expenses that met the requirements of section 503(b). Section 503(b)(1)(A) of the Code allows for an administrative expense claim for the "actual, necessary costs and expenses of preserving the estate " (emphasis added). The plain language of this section makes it clear that entitlement to an administrative expense claim under section 503(b)(1)(A) is connected to the bankruptcy estate of a particular case.

Likewise, section 503(b)(9), which Hillside is also now asserting an administrative expense claim under, allows for an administrative expense claim for "the value of any goods received by the debtor within 20 days before the date of commencement of a case " (emphasis added). The language of section 503(b)(9) is therefore also tethered to a particular bankruptcy filing. In other words, the administrative expense claims in Leaver I relate solely to the estate in Leaver I , not Leaver II. For that reason, this Court's previous decision was only about what Hillside was entitled to in Leaver I.

Had Leaver I not been dismissed, Hillside would have had a right to assert an administrative expense claim. But the final section of 349, section 349(b)(3), states that a dismissal "revests the property of the estate in the entity in which such property was vested immediately before the commencement of the case under this title." So, when Leaver I was dismissed, the estate that was created in Leaver I went away and all the property of the estate became property of the Debtor again. And, when Leaver II was later filed, there was a new, distinct estate created.

Because administrative priority claims under section 503 are tied to the estate created in a particular bankruptcy case, Hillside must show that its administrative priority claims asserted in Leaver II relate solely to the estate in Leaver II. Hillside cannot do so, however, because the administrative priority claims it is asserting stem from the Leaver I estate, an estate that has since revested in the debtor.

Case law supports this reasoning. The Seventh Circuit held in In re Jartran, Inc., that to receive an administrative priority treatment for a claim in a subsequent bankruptcy filing, a creditor must demonstrate its claim is entitled to such treatment relative to that subsequent bankruptcy filing. See 886 F.2d 859, 870 (7th Cir. 1989) ("To receive an administrative priority in Jartran II, [Appellant] must demonstrate its claims relative to Jartran II; an administrative priority in Jartran I does not translate to an administrative priority in Jartran II. "). Several cases that followed In re Jartran both in and out of the Seventh Circuit have cited and applied this holding.³

This Court therefore holds that any administrative claim Hillside may have been entitled to in Leaver I does not retain its administrative priority status in Leaver II. While Hillside may hold...