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Opinion 417

Case Name: 

In re Husting Land & Development, 255 B.R. 772 (Bankr.D.Utah)

Judge: 
Judge Boulden
Date: 
Nov-22-2000
Case Number(s): 
97B-20309
Status: 

PUBLISHED

Body: 

Unsecured creditor entered into a postpetition construction agreement with debtor, a land developer, for the purpose of correcting defective work and completing improvements on debtor's sixty-one acre residential subdivision. Upon creditor's application for allowance of administrative expense, the trustee and secured creditors objected, arguing that the postpetition debt was not incurred in the ordinary course of the debtor's business pursuant to 11 U.S.C. § 364(a). The court concluded that the postpetition debt was not incurred in the ordinary course of business and, accordingly, creditor's claim could not be allowed as an administrative expense. The court first determined that the opinion testimony of creditor's expert witness was inadmissable because his methodology could not be proved under the test set forth in Kuhmo Tire Company, Ltd. vs. Carmichael , 526 U.S. 137 (1999). The court then applied the well-established "creditor expectation" test to determine that, given its scope and nature, this was not the type of transaction a reasonable creditor would expect the debtor to enter into in the ordinary course of its business. Specifically, when the debtor and creditor entered into the construction agreement, neither had a clear understanding of the amount of corrective work that would be necessary, nor was there any certainty as to the source of funds to repay the debt incurred. As such, this transaction was outside the ordinary course of the debtor's business, and creditors should have been given notice and an opportunity to be heard.

Internal Ref: 
Opinion 417
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