Cedar Creek Fibers,LLC

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
FAYETTEVILLE DIVISION
IN RE:
CEDAR CREEK FIBERS, LLC
DEBTOR
CASE NO.
03-00838-8-ATS
ORDER REGARDING APPLICATION FOR ADMINISTRATIVE EXPENSES
The matter before the court is the application for administrative expenses filed by Wellman, Inc.
A hearing took place in Raleigh, North Carolina on September 11, 2007.
Cedar Creek Fibers, LLC filed a petition for relief under chapter 7 of the Bankruptcy Code on
January 29, 2003, and Shawna Y. Staton was appointed trustee. Gerald A. Jeutter, Jr. was substituted
as trustee on April 3, 2007. Prior to filing bankruptcy, Cedar Creek operated a textile manufacturing
facility in Cumberland County, North Carolina. The assets of the facility, including the real property,
buildings, and machinery, were purchased on June 18, 2002, from Fiber Industries, Inc., a wholly owned
subsidiary of Wellman. Under the purchase agreement, Cedar Creek and Wellman agreed to pro-rate the
2002 property taxes due for the assets.
SO ORDERED.
SIGNED this 05 day of October, 2007.
________________________________________
A. Thomas Small
United States Bankruptcy Judge
____________________________________________________________
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According to Wellman's motion, the facts of which are not disputed, Wellman believed that the
value of the personal property assessed by Cumberland County was too high, and Wellman caused Fiber
Industries to file a personal property tax appeal. While the appeal was pending, Wellman made a partial
payment of $190,000 in January 2003, prior to the petition date. Wellman then negotiated a substantial
reduction in the 2002 personal property tax that resulted in a total 2002 tax liability for both real and
personal property of $224,608.91. After accounting for Wellman's payment of $190,000 and accrued
interest of $2,249.58, a balance of $36,858.50 remained for the 2002 taxes. Additional interest was to
accrue after July 31, 2003. Wellman paid the balance of $36,858.50 by check dated July 25, 2003.
Wellman contends that the taxes shown on Cumberland County's proof of claim, which have been
paid in full through the combination of Wellman's payment and its negotiation of a reduced value for the
personal property, were secured by a lien on the real property at the facility. When the real property was
sold free and clear of liens pursuant to an order dated June 10, 2004, the liens attached to the sale
proceeds of the personal property assets of the estate. The trustee filed a motion for payment of
Cumberland County real property taxes from those proceeds, advising that the personal property sold for
$320,000, and requesting authority to pay Cumberland County $54,029.87 for the 2003 and 2004 tax
years.
Wellman contends that had it not made the postpetition payment of $36,858.50 to Cumberland
County for the 2002 taxes, there would have been an additional lien on the real property in that amount.
As a result, Wellman maintains, it conferred a direct benefit on the estate in the amount of $36,858.50, and
it should be allowed an administrative expense in that amount.
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The trustee does not disagree with the facts, but does oppose the allowance of an administrative
expense in any amount. Under North Carolina law, Wellman was obligated to Cumberland County for the
2002 taxes in their entirety, as it owned the assets as of January 1, 2002. Cedar Creek was responsible
for one-half of the taxes only through its agreement with Wellman, but had no personal liability to the
county. As a result, the trustee maintains, Wellman is entitled only to an unsecured claim for one-half of
the payment. The trustee also contends that the claim is time-barred by the three-year statute of limitations
in North Carolina General Statute § 1-52.
Administrative expenses are governed by 11 U.S.C. § 503. Wellman contends that it is entitled
to an administrative expense claim pursuant to § 503(b)(1)(A), which provides for allowed administrative
expenses for "the actual, necessary costs and expenses of preserving the estate." The court agrees that the
payment to Cumberland County resulted in a benefit to the estate by virtue of a reduction in the lien that
would otherwise have been paid out of the sale proceeds. However, because the debtor would have had
a claim back against Wellman for one-half of the lien amount had the debtor paid the taxes out of the
proceeds, Wellman is entitled to an administrative expense only for one-half of the taxes it paid postpetition.
North Carolina General Statute § 1-52 establishes a three-year statute of limitation for breach of
contract actions. Wellman maintains that it is not seeking reimbursement of the tax payment pursuant to
the sale contract, but for the voluntary benefit it conferred on the estate by paying the taxes. Because no
bar date has been set in the bankruptcy case for filing administrative expense claims, Wellman contends,
the application is timely. The court agrees that the statute of limitations does not apply to the facts before
it, and the application is timely.
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Based on the foregoing, the application for an administrative expense claim in the amount of
$18,429.25 is ALLOWED, while the application with respect to the other one-half of the payment to
Cumberland County is DENIED.
SO ORDERED.
END OF DOCUMENT
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