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In re Dant & Russell, Inc.

ELR Citation: 18 ELR 21312
Nos. No. 86-4435, 853 F.2d 700/28 ERC 1049/(9th Cir., 08/02/1988) District court decision on admin. priority aff'd in part, rev'd in part

The court holds that leases entered into by a debtor-in-possession after it filed a Chapter 11 bankruptcy petition are valid and cleanup costs incurred by the lessor before the debtor filed for bankruptcy are not entitled to administrative expense priority. The debtor operated a wood treatment plant on land which is now contaminated with hazardous waste. The court first holds that the postpetition leases may not be avoided under 11 U.S.C. §549(a) because they were executed in the debtor's ordinary course of business. The horizontal dimension test for determining what constitutes the ordinary course of business is satisfied, since the renewal of the leases was the type of transaction in which other similar businesses would ordinarily engage. The vertical dimension, or creditor's expectation, test is also satisfied, since the leasing transactions occured both before and after the bankruptcy petition. The court next remands the issue of whether the lessor is entitled to administrative expense priority for the rent due under the leases for the period after the bankruptcy petition was filed and prior to default, since the district court did not reach the question of the fair market value of the premises occupied by the debtor prior to default. The court holds that the lessor is not entitled to administrative priority for its prospective cleanup costs under the Comprehensive Environmental, Response, Compensation, and Liability Act or for cleanup costs already incurred, since these costs were incurred before the petition was filed.

[The decision of the bankruptcy court is published at 16 ELR 20191.]

Counsel for Creditor-Appellant
John Daniel Ballbach, Harry H. Schneider
Perkins Coie
1201 Third Ave., Suite 4000, Seattle WA 98101
(206) 328-4000