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Administrative Claim Denied for Postpetition Services Offset by Debtor Claims

By Alexander Beeby posted 09-26-2021 13:59

Contributing Editor: James C. Brand, Fredrikson & Byron, P.A.

In In re Rancher’s Legacy Meat Co., 630 B.R. 308 (Bankr. D. Minn. June 3, 2021) (Ridgway, C.J.), Judge Ridgway denied a motion for allowance of an administrative claim filed by a third-party shipping and logistics provider. 

The shipper arranged for shipping services for the debtor’s products post-petition.  The debtor paid for those services until problems with one shipment resulted in a customer rejecting the debtor’s products.  After significant back and forth, during which time the shipper continued to provide services, the debtor offset its asserted damages against other amounts it owed the shipper.  Meanwhile, after almost 17 months, the main players in the chapter 11 case sought approval of a global settlement that would resolve the case.  The shipper threw a stick in the spokes.  It filed an administrative claim and objected to the settlement on the grounds that there were not sufficient funds to pay its administrative claim.

Although the court walked through a full § 503(b)(1) analysis regarding whether the estate received value from the shipper’s services, the court ultimately concluded that the debtor had properly exercised its common law right of setoff.  As a result, there was no amount owing to the shipper that would support an administrative claim.

Interestingly, the court did not stop there.  It continued with a lengthy discussion of the court’s equitable powers.  While the court did not rely solely on its equitable powers to deny the motion, the circumstances clearly affected the court’s analysis and, more fundamentally, how the court framed the issues.

Co-Editors in Chief
Alexander J. Beeby, Larkin Hoffman Daly & Lindgren Ltd.
Kesha Tanabe, Tanabe Law