Furr's Supermarkets, Inc.

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
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06/10/06
Furr's Supermarkets, Inc.
01-10779
Post-Trial Memorandum Opinion re: [1807-1] Application For Administrative
Expenses in the following amounts: $174,349.60 (based on rate of rent for
storage of equipment from 12/19/01 to 7/3/02); $70,520.55 should be allowed and
paid if the value of comparable storage space is used to measure a fair
Received on: 2005-09-23 10:56:05.000
2005-09-23 00:00:00.000
2005-09-26 00:00:00.000
James Burke
Case 01-10779-nlj7 Doc 3161 Filed 09/23/05 Entered 09/26/05 09:38:00 Page 1 of 16

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
FURRS SUPERMARKETS, INC.
Debtor. No. 11-01-10779 SA
POST-TRIAL MEMORANDUM OPINION ON
TGAAR'S MOTION FOR PAYMENT OF
ADMINISTRATIVE EXPENSES (doc. 1807)
This matter came before the Court for trial of the Motion
for Payment of Administrative Expenses filed by TGAAR
Properties, Inc. d/b/a Westwood Village Shopping Center
("TGAAR") ("Motion") (doc. 1807). TGAAR is represented by
Robert K. Whitt. The Chapter 7 Trustee objected to the Motion
(doc. 1826). Trustee is represented by Jacobvitz, Thuma &
Walker, a Professional Corporation (David T. Thuma). The
Court has jurisdiction pursuant to 28 U.S.C. 1334 and 157 and
this is a core proceeding pursuant to 28 U.S.C. section
157(b)(2)(A) and (B). This Memorandum Opinion constitutes the
Court’s findings of fact and conclusions of law. Bankruptcy
Rule 7052. The Court earlier entered a Memorandum Opinion
(doc. 2068)(“Memorandum”) denying TGAAR’s and Trustee’s cross-
motions for summary judgment, and entered orders denying those
motions. The Memorandum did however rule that TGAAR was
entitled to chapter 11 and chapter 7 administrative claims.
Memorandum, Conclusion ¶ 15. That Memorandum and its
findings and conclusions are incorporated herein.
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1These figures appear in Exhibit 35. Rent for June 2002
appears as both a chapter 7 charge and a “delay” charge, so
the monthly rent of $20,823.08 should be subtracted from one
or the other.
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TGAAR seeks an administrative claim that consists of
three discrete amounts: 1) rent of $283,851.15, consisting of
rent for use of the premises from December 19, 2001 to July 3,
2002, during the chapter 7 portion of this case
($135,479.201), rent for the chapter 11 post-rejection period
to the conversion to chapter 7 ($78,113.87) and “delay”
damages from June through September 2002 ($70,258.08)
(representing the period after the chapter 7 auction to
occupancy by new tenants); 2) payments for damages that
occurred in connection with the auction of estate property at
the store premises, consisting of $106,797.95; and 3) clean up
costs after the auction, in the amount of $8,728.60.
The trial entailed testimony by Gary Glasscock, a partner
in TGAAR; Walter Parker, the auctioneer retained by the
Trustee to auction off the personal property located at the
store; Gary Bailey, a partner in TGAAR; and Yvette Gonzales,
the Chapter 7 Trustee. The parties also stipulated to the use
of the following persons’ depositions: Bill Mussar, the owner
of Tierra Construction Company, who did work on the store
after TGAAR regained possession; Marty Pearcy, an air
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conditioning technician, who did work on the store after TGAAR
regained possession; Rex Bradley Kincaid, a floor layer, who
provided a cost estimate to TGAAR to repair floors at the
store; Colby Todd Easterwood, a master electrician, who did a
complete rewire of the building after TGAAR regained
possession; Frank Gutierrez, a maintenance man that formerly
worked for TGAAR, who granted access to the auctioneer during
the auction and later helped clean the store; James Alan Spar,
a remodeling contractor, who attended the auction and
purchased various items, and also had access to the store for
a period of time after the auction; and Kevin Earl Murphy, a
restaurant repairman, who attended the auction and purchased
various items, and also observed people removing items after
the auction.
FACTS
Mr. Parker had several employees show up a few days
before the auction to prepare the store and equipment for
auction. He arrived at the premises on the day of the auction
(Thursday, May 28, 2002) and remained on the premises until
about 1:30 p.m. the next day. Before the auction, he
announced that anyone purchasing refrigeration equipment had
to have a licensed refrigeration technician evacuate the
compressor before moving the items. He also announced that
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all electrical and water lines needed to be capped when
equipment was removed.
Mr. Parker never had control over the premises. TGAAR
had the keys and let people (including the auctioneer and his
employees) in and out. TGAAR maintained full control over the
premises. TGAAR also provided keys to others, both before and
after the auction sale, and Mr. Glasscock gave buyers
permission to come in after hours to remove items. Mr. Spar,
one of the buyers, had a key and did not complete removal of
his purchases until mid-June, 2002. The day after the
auction, when the auctioneer arrived the premises were already
open and people were removing property.
The gross auction proceeds were about $25,000. Earlier
in the case, TGAAR made an offer to Debtor to buy all assets
in the store from the estate for $5,700.
TGAAR began marketing the space to potential tenants,
including WalMart in early 2002. TGAAR leased a portion of
the property to Goodwill Industries starting in May, 2003, and
a portion to the Southern Career Institute starting in
December, 2003. (Exhibits 28 and 29). A portion remained
empty as of the trial.
DISCUSSION
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A. TGAAR is entitled to a prorated Chapter 11 and 7
administrative rent claim.
Based on the Court’s earlier Memorandum, TGAAR is
entitled to an administrative claim for the value of the use
of the building to the estate. See Memorandum, Conclusion
¶11. See also In re Mainstream Access, Inc., 134 B.R. 743,
749 (Bankr. S.D. N.Y. 1991). The administrative expense
scheme does not focus on whether the creditor sustained a
loss. Kinnan & Kinnan P’ship v. Agristor Leasing, 116 B.R.
162, 166 (D. Neb. 1990). The Court finds that the value to
the estate was $24,742.50 (Exhibit 14) for several reasons.
First, the ultimate value of the equipment was $24,742.50,
which serves as an upper limit on its benefit to the estate.
See Memorandum, Conclusion ¶11; Mainstream Access, Inc., 134
B.R. at 750 (Landlord that ended up with stored personal
property was not entitled to further administrative expense
because landlord in fact got all the value to be had and the
estate got none.) Second, the automatic stay was terminated
before the case converted to chapter 7, and TGAAR took no
steps to regain possession while the basically worthless
personal property remained there pending sale. TGAAR should
not be allowed to sit idly by and let rent accumulate as an
administrative expense when it knew that the property left on
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2 Memorandum Finding ¶11 recites that the Court assumed
that all post petition obligations were paid through August
31, 2001, a slight inconsistency. The Court will count August
31, 2001 as the starting date for calculating the involuntary
rent period.
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the premises was basically worthless. This is especially true
given that TGAAR was marketing the property during this time,
and the personal property left on the premises would have been
attractive to a new supermarket tenant. See id. at 748-49
(Listing options that landlord can pursue to regain
possession.) Third, once the lease was rejected or deemed
rejected “the trustee shall immediately surrender such
nonresidential real property to the lessor.” 11 U.S.C. §
365(d)(4). Clearly TGAAR could have obtained an order of
repossession if it were worried about disturbing the remaining
personal property. Fourth, Mr. Baily testified that he had a
conversation with the Trustee, who assured him that TGAAR
would be compensated for storing equipment as long as the
equipment was worth more than the storage costs and that if it
was worth less, it would be abandoned to TGAAR. Therefore,
TGAAR could justifiably rely only on receipt of the value of
the equipment.
The period for which the premises were used as storage
began on August 31, 20012 and ended on May 30, 2002,
Memorandum Conclusion ¶11, with the conversion date being
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December 19, 2001. It therefore seems appropriate to prorate
the value extended by TGAAR to the estate between a chapter 11
administrative claim and a chapter 7 administrative claim, an
approach this Court has already used in calculating
prepetition and post petition real estate tax obligations in
this case. See In re Furr’s Supermarkets, Inc., No. 7-01-
10779 SA, Order Extending Time within which Trustee may Assume
or Reject Unexpired Lease of El Paso Distribution Center, doc.
1567 (Bankr. D. N.M. Feb. 15, 2002), aff’d., 283 B.R. 60 (10th
Cir. B.A.P. 2002). The proration seems reasonable given that
both the chapter 11 estate and the chapter 7 estate benefitted
from being able to use the premises for storage. $24,742.50
was the full amount of the auction proceeds. Prorating the
$24,742.50 between the 110 chapter 11 days and the 169 chapter
7 days results in a chapter 11 storage claim of $9,755.11 and
a chapter 7 storage claim of $14,987.39.
TGAAR’s claim for “delay in obtaining possession”
(Exhibit 35) charges four months of rent (at the rate
contracted with the new tenants) for June through September
2002, when the new tenants took possession. There is no legal
basis for this claim. TGAAR’s deemed prepetition lease breach
claim includes this theory of recovery. In re Macomb
Occupational Health Care, LLC, 300 B.R. 270, 284 (Bankr. E.D.
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Mich. 2003)(Sections 365(g)(1) and 502(g) mandate that a claim
for rent under a lease for continued occupancy post-rejection
of the lease be treated as having arisen prior to the case,
i.e., as an unsecured claim.) Furthermore, on cross
examination, Mr. Glasscock testified that if TGAAR had had a
tenant ready, all property could have been removed in a matter
of days. The evidence also did not show why it took TGAAR
several months to clean the property or why TGAAR waited until
the end of July to start cleanup.
B. TGAAR is not entitled to any claims for damages.
All damages claimed by TGAAR relate to conduct of the
auction and the removal of property from the premises after
the auction. TGAAR claims the auctioneer was negligent.
1. The estate is not liable for the damages.
In general, an employer is vicariously liable for the
torts of an agent or employee acting within the scope of his
or her agency or employment. Baptist Mem’l Hosp. System v.
Sampson, 969 S.W.2d 945, 947 (Tex. 1998); Restatement (Second)
of Agency § 219(1) (1958). However, an employer is not liable
for the torts of an independent contractor. Baptist Mem’l
Hosp. System, 969 S.W.2d at 947; Restatement (Second) of Torts
§ 409 (1965). Therefore, if the damages were caused by the
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auctioneer, the estate would be liable if he were an agent or
employee, but not liable if he were an independent contractor.
Under Texas law, an independent contractor is one
“who, in the pursuit of an independent business,
undertakes to do a specific piece of work for other
persons, using his own means and methods, without
submitting himself to their control in respect to
all its details.” Pitchfork Land and Cattle Co. v.
King, 162 Tex. 331, 346 S.W.2d 598, 602-03 (1961);
Hoescht Celanese Corp. v. Compton, 899 S.W.2d 215,
220 (Tex.App.-Houston [14th Dist.] 1994, writ
denied). The standard tests for determining whether
one is acting in the capacity of an independent
contractor measure the amount of control that the
employer exerts or has a right to exert over the
details of the work. Newspapers, Inc. v. Love, 380
S.W.2d 582, 591 (Tex. 1964); Hoescht Celanese Corp.,
899 S.W.2d at 220. In determining whether a person
is an employee or an independent contractor, a court
is required to examine a number of factors,
including (1) the independent nature of the
contractor’s business; (2) his obligation to supply
necessary tools, supplies, and materials; (3) his
right to control the progress of the work except as
to final results; (4) the time for which he is
employed; and (5) the method by which he is paid,
whether by the time or by the job. Pitchfork Land
and Cattle Co., 346 S.W.2d at 603; Hoescht Celanese
Corp., 899 S.W.2d at 220. The most fundamental of
these factors, however, is the right of control.
See Ross v. Texas One Partnership, 796 S.W.2d 206,
210-11 (Tex.App-Dallas 1990), writ denied per
curium, 806 S.W.2d 222 (Tex. 1991). Where these
exists no dispute about the controlling facts and
only one reasonable conclusion can be inferred, the
question of whether one is an “employee” or
“independent contractor” is a question of law. Crow
v. TRW, Inc., 893 S.W.2d 72, 78 (Tex,App.-Corpus
Christi 1994, no writ); Sherard v. Smith, 778 S.W.2d
546, 548 (Tex.App.-Corpus Christi 1989, writ
denied).
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Duran v. Furr’s Supermarkets, Inc., 921 S.W.2d 778, 786
(Tex.App. 1996). See also Sugar Land Properties, Inc. v.
Becnel, 26 S.W.3d 113, 117 (Tex.App. 2000)(Applying same five
factors.) And see Nationwide Mutual Ins. Co. v. Darden, 503
U.S. 318, 323-24 (1992)(Court adopts the “common law test” for
determining who is an “employee”, which involves twelve
similar factors.)
The uncontroverted evidence before this Court requires
that it find that the auctioneer was an independent contractor
as a matter of law. First, auctioneers are skilled
professionals engaged in their own line of business and
offering their services to the public in a method regulated by
statute. See Tex. Occ. Code Ann. § 1802.001 (2003) et seq.
Both the trustee and the auctioneer testified that the Trustee
had no control over the auctioneer’s activities and that he
was responsible for the entire auction. The auctioneer
provided services through his own employees. He was paid by
the job per a contract, not by the hour. The Trustee employed
the auctioneer on a discrete basis, for several auctions, and
then the relationship ended. The Trustee had no
responsibility for hiring or paying the wages or benefits of
the auctioneer’s assistants. The Trustee’s regular business
does not entail auctioning property. Accord Case v. ADT
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Automotive, Inc., 17 F.Supp.2d 1077, 1080 (W.D. Mo. 1997),
aff’d., 163 F.3d 601 (8th Cir. 1998) (Auctioneer is independent
contractor.); Restatement (Second) of Agency § 1(3) cmt. e
(1958) (Auctioneers are generally considered independent
contractors.)
Therefore, finding that the auctioneer was in fact an
independent contractor, the estate and/or Trustee are not
liable for any damages caused by his alleged negligence. The
Court will deny the damages request.
2. TGAAR did not prove the amount of damages.
Furthermore, even if the estate were liable for damages
caused by the auctioneer, TGAAR failed to prove those damages.
First, TGAAR did not meet the burden of proving the measure of
damages, and second, TGAAR did not prove the damages by a
preponderance of the evidence.
a. Texas law limits damages to real estate.
[Under Texas law,] [w]hen an injury to land is
temporary and can be remediated at reasonable
expense, the proper measure of damages is the cost
of restoration to its condition immediately
preceding the injury. Kraft [v. Langford], 565
S.W.2d [223] at 227 [(Tex. 1978)]. However, the
diminution in fair market value is the measure of
damages when the cost of restoration exceeds the
diminution in fair market value. North Ridge Corp.
v. Walraven, 957 S.W.2d 116, 119 (Tex.App.-Eastland
1997, pet. denied) (citing Atlas Chem. Indus., Inc.
v. Anderson, 514 S.W.2d 309 (Tex.Civ.App.-Texarkana
1974), aff'd, 524 S.W.2d 681 (Tex.1975)).
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Mieth v. Ranchquest, Inc., ___ S.W.3d ___, 2005 WL 615594, *4
(Tex.App. 2005). See also Primrose Operating Co., Inc. v.
Senn, 161 S.W.3d 258, 261 (Tex.App. 2005) (same.) Accord
Malden Mills Indus., Inc. v. Maroun (In re Malden Mills
Indus., Inc.), 303 B.R. 688, 699 and n.3 (1st Cir. B.A.P. 2004)
(Massachusetts has the same rule as Texas; the standard for
measuring damage to realty is diminution in market value or
the cost of cure, whichever is less. If restoration is
awarded, it must be adjusted for depreciation and
obsolescence. If restoration is not reasonably necessary or
its cost is unreasonable, no restoration may be awarded.)
Furthermore, under Texas law the award of damages is allowable
only to restore a property to the condition immediately
preceding the injury. Sadler v. Duvall, 815 S.W.2d 285, 292
(Tex.App. 1991).
TGAAR did not present evidence on the fair market value
of the premises before and after the damages, nor the
diminution allegedly attributable to the auctioneer’s actions.
The Court observes that the building, before the auction, had
been used for over twenty years as a supermarket, was dirty,
had asbestos floors, was unoccupied and available for rent for
an extended time period after Furrs closed, and eventually was
subdivided and put to alternative use in different lines of
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business. There was no evidence regarding regular or deferred
maintenance. The Court cannot find that the property’s market
value depreciated significantly, if at all, from the evidence
presented. Therefore, TGAAR has failed to prove it is
entitled to any damages.
b. Damages were not sufficiently proved.
To support its damage claims, TGAAR presented the
deposition testimony of various people that worked on the
building after TGAAR regained possession. To summarize the
underlying theme of these depositions, the Court finds that
after work was completed in restoring the premises to a like-
new condition for reletting, TGAAR asked for and obtained cost
estimates to repair the damage done to the property after the
auction. Overall, the cost estimates were guesstimates by the
various craftsmen. And, the estimates were based on bringing
the property back to a new condition. TGAAR is not entitled
to the return of a new building as an administrative expense
of this chapter 7; any damage claims for wear and tear or
abuse are prepetition damage claims through 11 U.S.C. §
365(g)(1). In sum, the Court could not find with any
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3Furthermore, at this point the dispute is between TGAAR
on one hand, and the auctioneer on the other. The Bankruptcy
Court lacks jurisdiction to determine issues solely between
third parties when the outcome has no effect on the estate.
See Gardner v. United States (In re Gardner), 913 F.2d 1515,
1518 (10th Cir. 1990); Pacor, Inc. v. Higgins, 743 F.2d 984,
995 (3rd Cir. 1984).
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confidence the amount of damages attributable to the post-
auction conduct3.
C. TGAAR is entitled to an administrative claim for cleanup
costs.
The Trustee’s contract with the auctioneer specified that
the premises would be left in a “broom clean” condition.
Evidence at trial demonstrated that it was not. TGAAR was at
least a third party beneficiary of the contract between the
Trustee and the auctioneer. The evidence showed that TGAAR
expended $8,728.60 in cleaning up. The Court finds that this
should be an additional administrative expense of the Chapter
7 estate.
CONCLUSION
The Court will enter an Order allowing TGAAR $ 9,755.11
as a Chapter 11 administrative claim and $ 14,987.39 plus $
8,728.60 (total $ 23,715.99) as Chapter 7 administrative
expenses, and denying all other relief.
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Honorable James S. Starzynski
United States Bankruptcy Judge
I hereby certify that on September 23, 2005, a true and
correct copy of the foregoing was electronically transmitted,
faxed, delivered, or mailed to the listed counsel and/or
parties.
David T Thuma
500 Marquette Ave NW Ste 650
Albuquerque, NM 87102-5309
Robert K Whitt
3300 N A St Ste 101
Midland, TX 79705-5421
Yvette Gonzales
PO Box 1037
Placitas, NM 87043-1037
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