You are here

Section 503 Allowance of Administrative Expenses (Judge Davis)

In re FPMC Austin Realty Partners (Mar. 10, 2017
After the successful sale of the Debtor's property (a hospital and medical office building, together with an adjacent parking garage),  a creditor of the Chapter 11 Debtor filed a substantial contribution claim seeking to collect $2.875 million from the Debtor's estate because the Creditor hired a consulting firm who contributed to the sale. Although the Creditor and the consulting firm entered into a monthly contract and discussed paying additional compensation, it was never a certainty and no formal written agreement was signed. The Creditor argued that the property sold for $20 million more than a prior offer on the property and investors risked a total loss if the property were foreclosed on.

The Creditor, who was also the managing member of the general partner of the Debtor, failed to produce operating and other organizational governance documents (the Debtor's was owned by one general and 80 limited partners). The Creditor also did not provide an itemized invoice from the consulting firm and documents detailing the qualifications or expertise of the consulting firm to substantiate its position. Instead, the Creditor produced several laudatory emails and a text message, testimony from the consulting firm of its valuable contribution, and very limited information about the property's appraised value. In response, a manager of one of the limited partners, who had substantial experience in real estate transactions, testified that the sale was at best an average result.  

 The Court considered the claim pursuant to 11 U.S.C. § 503(b)(3)(D) and held that the Creditor failed to meet its burden of proving the contribution was substantial. In addition, because the Creditor was not obligated to pay the consulting firm prior to the sale, the Creditor did not satisfy the "actual, necessary expense" statutory requirement.
WL Cite: In re FPMC Austin Realty Partners, LP, No. 16-10020, 2017 WL 980332, at *1 (Bankr. W.D. Tex. Mar. 10, 2017).