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In re Paul Cumbess

Summarizing by Kathleen DiSanto

In re S.S. Body Armor Inc.

Summarizing by Thomas Horan

Meruelo v. Reorganized Meruelo Maddux Prop., Inc. (In re Meruelo Maddux Prop., Inc.)

9th Circuit BAP No. CC-13-1494-KiTaD (August 26, 2014)
The BAP VACATED the order of the bankruptcy court for abuse of discretion in applying the "reasonableness" standard under Section 502(b)(4) to a post-petition claim for administrative expense based upon unpaid severance and unpaid bonus, rather than the "actual and necessary" standard set forth in Section 503(b)(1), and REMANDED for application of the proper standard.
Procedural context:
Appeal from an order denying the request of Appellant, the former CEO and Chairman of Debtor, for severance pay in connection with his postpetition termination.
Debtor entered into an executive employment agreement with Meruelo, which provided for payment of bonus and severance payments. The agreement had an initial 3 year term with a one-year automatic renewal unless either party provided written notice of non-renewal. During the initial term of the agreement, Debtor filed Chapter 11 in 2009. The agreement was not assumed or rejected in bankruptcy and expired in 2010. The parties in interest both believed that the agreement was renewed until 2011 and in late 2010 the Official Committee of Equity Holders ("OEC") sought relief in the bankruptcy case to submit a non-renewal notice under the agreement, which was granted by the bankruptcy court. The non-renewal notice was issued and Meruelo was terminated in 2011. Upon termination, Meruelo filed an administrative claim seeking recovery of bonus amounts from 2009, 2010 and 2011 and severance pay, which he argued he was entitled to under the employment agreement. The bankruptcy court granted Meruelo's motion and compelled payment as to the 2009 and 2010 bonus amounts and held an evidentiary hearing on the 2011 bonus and severance payment. Upon conclusion of the evidentiary hearing, the bankruptcy court denied the 2011 bonus and severance amounts. Meruelo appealed. The bankruptcy court did not issue written findings of fact and conclusions of law, but from the record at the evidentiary hearing, the BAP noted that the bankruptcy court's decision was based upon the fact that the severance claim was not "reasonable" under 502(d). The Ninth Circuit BAP, however vacated and remanded the case to the bankruptcy court because it found that the claims at issue for the 2011 bonus and severance, which both accrued post-petition , were not for pre-petition claims. Therefore, if the bankruptcy court applied Section 502(d) instead of the "actual, necessary costs and expenses" analysis under Section 503(b)(1), it abused its discretion.
Kirscher, Taylor, and Dunn

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