                                                                FILED
                                                                MAR 10 2017
 1                          NOT FOR PUBLICATION
                                                          SUSAN M. SPRAUL, CLERK
 2                                                             U.S. BKCY. APP. PANEL
                                                               OF THE NINTH CIRCUIT

 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
                              OF THE NINTH CIRCUIT
 4
 5   In re:                        )       BAP No. NV-16-1242-LJuKu
                                   )
 6   KITTUSAMY, LLP,               )       Bk. No. 2:15-bk-13868-abl
                                   )
 7                   Debtor.       )
     ______________________________)
 8                                 )
     PARTAP INVESTMENTS, LLC,      )
 9                                 )
                     Appellant,    )
10                                 )       MEMORANDUM*
     v.                            )
11                                 )
     KITTUSAMY, LLP,               )
12                                 )
                     Appellee.     )
13   ______________________________)
14                  Argued and Submitted on February 24, 2017
                               at Las Vegas, Nevada
15
                             Filed - March 10, 2017
16
              Appeal from the United States Bankruptcy Court
17                      for the District of Nevada
18        Honorable August B. Landis, Bankruptcy Judge, Presiding
                         _________________________
19
     Appearances:      Samuel A. Schwartz of The Schwartz Law Firm argued
20                     for Appellant Partap Investments, LLC; Bart Kurt
                       Larsen of Kolesar & Leathan, Chtd. argued for
21                     Appellee Kittusamy, LLP.
                            _________________________
22
     Before: LAFFERTY, JURY, and KURTZ, Bankruptcy Judges.
23
24
25
26        *
             This disposition is not appropriate for publication.
27   Although it may be cited for whatever persuasive value it may
     have (see Fed. R. App. P. 32.1), it has no precedential value.
28   See 9th Cir. BAP Rule 8024-1.
 1                              INTRODUCTION
 2        Pre-petition, Kittusamy, LLP (“Kittusamy”) defaulted on
 3   payments due under agreements to lease medical imaging equipment.
 4   After an order for relief was entered in Kittusamy’s involuntary
 5   chapter 111 case, the lessor filed a proof of claim asserting a
 6   secured claim of approximately $3.3 million.2    Thereafter, the
 7   lessor was granted relief from stay and foreclosed its security
 8   interest.   The equipment was sold to Partap Investments, LLC
 9   (“Partap”) at a private foreclosure sale; the bill of sale also
10   transferred to Partap the lessor’s rights under the proof of
11   claim filed in Kittusamy’s bankruptcy case and Kittusamy’s rights
12   under a sublease.
13        Thereafter, Partap filed an application for allowance of an
14   administrative claim of $917,593.26 based on unpaid postpetition
15   rent from the petition date through a date six days after Partap
16   purchased the equipment.   The bankruptcy court disallowed the
17   administrative claim in its entirety, finding that the leases
18   were not true leases but were disguised security agreements, so
19   that the rights transferred to Partap could not have included an
20   administrative claim for postpetition rent.     Additionally, viewed
21   through the alternative lens of a secured creditor’s rights, the
22   bankruptcy court found that Partap had not met its burden of
23   proving a diminution in value of the collateral for any relevant
24   period.
25
          1
26           Unless otherwise indicated, all chapter and section
     references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
27
          2
             Although characterized as leases, the relevant documents
28   granted lessor a security interest in the equipment.

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 1        We AFFIRM.
 2                                  FACTS
 3        The facts are not in dispute.     Kittusamy is a Nevada limited
 4   liability partnership.   Prem K. Kittusamy, M.D., and Bhuvaneswari
 5   P. Kittusamy, M.D., are the principals of the LLP.
 6        In 2008 and 2009, Kittusamy and its affiliate, DMP
 7   Equipment, LLC, entered into agreements to lease medical imaging
 8   equipment from Siemens Medical Solutions USA, Inc. (“Siemens
 9   Medical”).   Kittusamy leased one piece of equipment through a
10   Master Equipment Lease Agreement and Leasing Schedule that set
11   forth the details of the financing; DMP leased four pieces of
12   equipment, also via a Master Equipment Lease Agreement and a
13   separate Leasing Schedule for each item.    DMP then subleased that
14   equipment to Kittusamy under an Equipment Sublease Agreement
15   (“Sublease”).
16        All three parties entered into a Consent to Sublease and
17   Agreement under which Siemens Medical approved the sublease and
18   Kittusamy agreed to be bound by the terms of the DMP Master
19   Lease.   All of the Leasing Schedules provided that Kittusamy had
20   the option to purchase the equipment for a “Nominal Fixed
21   Purchase Option Price of $1.00” at the end of the lease term.
22   Thereafter, Siemens Medical assigned its interests in the Master
23   Equipment Lease Agreements, Leasing Schedules, and Sublease and
24   Consent (collectively, the “Lease Documents”) to Siemens
25   Financial Services, Inc. (“Siemens Financial”).    At some point,
26   Kittusamy defaulted on its obligations under the Lease Documents;
27   according to its proof of claim, Siemens Financial accelerated
28   the amounts due under the Lease Documents on November 4, 2014.

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 1        On July 2, 2015, an involuntary chapter 11 petition was
 2   filed against Kittusamy; Kittusamy consented to entry of an order
 3   for relief, which was entered August 10, 2015.    Siemens Financial
 4   filed proof of claim no. 23-1 asserting a secured claim of
 5   $3,343,487.18 representing prepetition amounts due under the
 6   leases, including late charges, property taxes, discounted
 7   accelerated balance of future rentals, and attorneys’ fees and
 8   costs through December 10, 2015.    Siemens Financial then moved
 9   for relief from the automatic stay, which the bankruptcy court
10   granted.   Thereafter, Siemens Financial foreclosed on its
11   security interest, selling the equipment to Partap for
12   $924,641.70 plus $75,358.30 in sales tax through an “As Is,”
13   “Where Is” Bill of Sale and Non-Recourse Assignment dated
14   March 2, 2016 (“Bill of Sale”).    Siemens Financial also
15   transferred to Partap “all of Siemens Financial’s rights, title
16   and interests in any claim Siemens Financial has asserted in the
17   Kittusamy, LLP Bankruptcy Case No. 15-13868-ABL . . .” and all of
18   Kittusamy’s and DMP’s “respective rights, titles and interests,
19   in and to the equipment . . . and sublease[.]”
20        On March 3, 2016, Partap filed a Notice of Transfer of
21   Siemens Financial’s claim in Kittusamy’s bankruptcy case.    On
22   March 9, 2016, Partap filed proof of claim no. 41-1 asserting an
23   administrative claim of $917,593.26 pursuant to § 507(a)(2) for
24   Kittusamy’s postpetition use of the equipment.    The amount of the
25   claim was based on the monthly payments due under the DMP Master
26   Lease and the Sublease only (not the Kittusamy Master Lease)
27
28

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 1   through March 9, 2016,3 and included more than $300,000 in late
 2   fees.
 3        Kittusamy filed an objection to Partap’s unsecured and
 4   administrative claims; Partap filed an application for approval
 5   of its administrative claim, and an “opposition” to Kittusamy’s
 6   objection to claims.   The bankruptcy court heard argument and
 7   took the matters under submission.       On July 19, 2016, the
 8   bankruptcy court made oral findings and conclusions on the record
 9   and entered written orders (1) sustaining Kittusamy’s objections
10   to Partap’s administrative and unsecured claims and (2) denying
11   Partap’s motion to allow its administrative claim.       Partap timely
12   appealed.   Partap appeals only the bankruptcy court’s
13   disallowance of its administrative claim.
14                               JURISDICTION
15        The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
16   §§ 1334 and 157(b)(2)(B).   We have jurisdiction under 28 U.S.C.
17   § 158.
18                                    ISSUE
19        Did the bankruptcy court abuse its discretion in disallowing
20   Partap’s administrative claim?
21                           STANDARDS OF REVIEW
22        We review the bankruptcy court’s legal conclusions de novo
23   and its findings of fact for clear error.       See Allen v. U.S.
24   Bank, NA (In re Allen), 472 B.R. 559, 564 (9th Cir. BAP 2012).
25
          3
26           At oral argument, Partap’s counsel asserted that it was
     owed an administrative claim for amounts due through early April
27   when Kittusamy surrendered the equipment. However, both the
     proof of claim and the application to approve it requested
28   amounts due only through March 9, 2016.

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 1        A bankruptcy court’s order allowing or disallowing a proof
 2   of claim, including an administrative claim, is reviewed for
 3   abuse of discretion.    Burlington N. R.R. Co. v. Dant & Russell,
 4   Inc. (In re Dant & Russell, Inc.), 853 F.2d 700, 707 (9th Cir.
 5   1988); Bitters v. Networks Elec. Corp. (In re Networks Elec.
 6   Corp.), 195 B.R. 92, 96 (9th Cir. BAP 1996).      A bankruptcy court
 7   abused its discretion if it applied the wrong legal standard or
 8   its findings were illogical, implausible or without support in
 9   the record.    TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d
10   820, 832 (9th Cir. 2011).
11        Questions of contract interpretation are subject to de novo
12   review unless extrinsic evidence was introduced on issues such as
13   intent.    Captain Blythers, Inc. v. Thompson (In re Captain
14   Blythers, Inc.), 311 B.R. 530, 534 (9th Cir. BAP 2004), aff’d,
15   182 F. App’x 708 (9th Cir. 2006).
16                                   DISCUSSION
17   A.   The bankruptcy court did not abuse its discretion in
18        disallowing Partap’s administrative claim.
19        Under § 503(b), the bankruptcy court, after notice and a
20   hearing, shall allow an administrative expense claim for “the
21   actual, necessary costs and expenses of preserving the estate[.]”
22   The party seeking administrative priority bears the burden of
23   proof.    Microsoft Corp. v. DAK Indus., Inc. (In re DAK Indus.,
24   Inc.), 66 F.3d 1091, 1094 (9th Cir. 1995).      To keep
25   administrative costs to the estate at a minimum, the term
26   “actual, necessary costs and expenses of preserving the estate”
27   is narrowly construed.    Id.    An administrative claimant must
28   demonstrate that its claim (a) arose from a transaction with the

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 1   debtor in possession as opposed to the preceding entity, and
 2   (b) directly and substantially benefitted the estate.   Id. at
 3   1094.
 4        Here, the bankruptcy court made the following findings
 5   relevant to Partap’s administrative claim: (1) the leases were
 6   security agreements under N.J. Stat. Ann. § 12A:1-203(b)4;
 7   (2) the Bill of Sale did not transfer to Partap a right to assert
 8   an administrative claim for the period prior to Partap’s purchase
 9   of the equipment; (3) any administrative claim would be limited
10   to the actual value of Kittusamy’s use of the equipment, not the
11   monthly payments under the Lease Documents, and Partap had not
12   provided sufficient evidence of the diminution in value of the
13   equipment during the pendency of the case.   The court also noted
14   that Partap might be entitled to an administrative claim based on
15   the diminution in value of the equipment from the time Partap
16   purchased the equipment in March 2016, but that Partap had not
17   provided any evidence of what that diminution might be.
18        Partap has not assigned error to the bankruptcy court’s
19   finding that the leases were disguised security agreements, but
20   disputes that the Bill of Sale did not transfer to Partap a right
21   to assert an administrative claim and that any administrative
22   claim would be limited to the actual value of Kittusamy’s use of
23   the equipment.   We conclude that the bankruptcy court did not err
24   in these findings.
25
          4
26           The Lease Documents provide that they are to be construed
     in accordance with the laws of the state of New Jersey. The
27   parties do not dispute that New Jersey law applies to the
     analysis of whether the leases are security agreements. As it
28   happens, New Jersey and Nevada law are consistent in this regard.

                                     -7-
 1        1.   The bankruptcy court did not err in finding that Partap
 2             had no right to assert an administrative claim for
 3             postpetition rents based on the Bill of Sale.
 4        As noted above, the Bill of Sale transferred to Partap “all
 5   of Siemens Financial’s rights, title and interests in any claim
 6   Siemens Financial has asserted in the Kittusamy, LLP Bankruptcy
 7   Case No. 15-13868-ABL[.]”   The bankruptcy court found that
 8   Siemens Financial had neither filed an administrative claim nor
 9   transferred any such claim to Partap under the Bill of Sale and
10   thus Partap was not entitled to assert an administrative claim as
11   successor-in-interest to Siemens Financial.   Additionally, the
12   bankruptcy court found that, as a secured creditor, Siemens
13   Financial would not have been entitled to assert an
14   administrative claim for the lease payments, but would have been
15   entitled only to adequate protection for the postpetition
16   diminution in the value of the equipment.   Importantly, Partap
17   has not assigned error to this latter aspect of the bankruptcy
18   court’s ruling.
19        Partap argues that the bankruptcy court did not consider
20   page 2 of the Bill of Sale, which provides for the transfer to
21   Partap of “all of Kittusamy’s and DMP’s . . . respective rights,
22   titles and interests in, and to the equipment . . . and sublease
23   . . . described in Schedule 1 hereto . . . , subject to the terms
24   and conditions hereof.”   Schedule 1 lists the five pieces of
25   equipment along with “[r]ights, title and interest in and to that
26   certain Equipment Sublease Agreement entered into between
27   Kittusamy, LLC and DMP Equipment, LLC regarding the above
28   equipment.”   Partap contends that the transfer of the interests

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 1   in the Sublease entitled Partap to assert an administrative claim
 2   against Kittusamy for its failure to make payments under the
 3   Sublease.   Partap points out that contracts should be construed
 4   so as to avoid rendering portions of them superfluous, Penske
 5   Logistics, Inc. v. KLLM, Inc., 285 F. Supp. 2d 468, 474 (D.N.J.
 6   2003), and argues that the bankruptcy court’s interpretation of
 7   the Bill of Sale renders Schedule 1 meaningless.
 8        Additionally, Partap notes that the Bill of Sale expressly
 9   excludes certain claims that were not transferred to Partap and
10   argues that if Siemens Financial had intended to exclude the
11   transfer of its right to an administrative claim it would have
12   done so; Partap further contends that the fact that Siemens
13   Financial never filed an administrative claim or opposed Partap’s
14   application for allowance of its administrative claim is evidence
15   that the Bill of Sale included the transfer of the right to
16   assert an administrative claim.
17        Finally, Partap argues that in fact Siemens Financial did
18   assert a right to file an administrative claim in its motion for
19   relief from stay, which stated:
20        [T]o the extent that the adequate protection to which
          Siemens Financial is entitled proves to be inadequate,
21        and the value of its interest in the Siemens Equipment
          continues to decline, Siemens Financial asserts that
22        any claim arising therefrom is entitled to an
          administrative expense claim pursuant to Section 507(b)
23        of the Bankruptcy Code.
24   Partap argues that because the Bill of Sale referred to
25   “asserted” rather than “filed” claims, Siemens Financial’s
26   reservation of rights in its motion for relief from stay gave
27   Partap the right to file an administrative claim.
28        We find these arguments unconvincing.   With respect to any

                                       -9-
 1   right of a lessor to assert an administrative claim for unpaid
 2   rent, Siemens Financial could not transfer to Partap a right it
 3   did not have.   As noted, Partap does not assign error to the
 4   bankruptcy court’s finding that Siemens Financial was a secured
 5   creditor, not a lessor, and the transfer of rights under the
 6   Sublease did not change the character of the leases as security
 7   agreements.   Where the property in question is not owned by the
 8   lessor but is instead owned by the lessee under a disguised
 9   security agreement, the lessor is not entitled to an
10   administrative priority claim under § 503(b)(1)(A) for unpaid
11   post-petition lease payments.   See Williams v. IMC Mortg. Co.
12   (In re Williams), 246 B.R. 591, 595 (8th Cir. BAP 1999) (noting
13   that § 503(b) is not intended to provide an administrative
14   expense award to a prepetition secured lender based on the
15   debtor’s postpetition possession and use of collateral, and
16   citing cases); See also In Re ES2 Sports & Leisure, LLC, 519 B.R.
17   476, 480 (Bankr. M.D.N.C. 2014).   Further, the payment
18   obligations under the Lease Documents were incurred prepetition,
19   not postpetition.   This circumstance alone would have barred
20   Siemens Financial from asserting an administrative claim.     See
21   In re Williams, 246 B.R. at 594 (postpetition mortgage payments,
22   although not due until after the filing of the petition, were an
23   obligation incurred prior to the creation of the estate, thus the
24   requirement that the administrative claim arise from a
25   postpetition transaction was not met).   This conclusion is
26   bolstered by the fact that Siemens Financial apparently
27   accelerated the amounts due under the Lease Documents in November
28   2014, eight months prepetition.

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 1        The bankruptcy court did not err in finding that the Bill of
 2   Sale did not grant Partap a right to file an administrative claim
 3   for unpaid rent for the period prior to its purchase of the
 4   equipment.
 5        2.   The bankruptcy court did not err in finding that Partap
 6             had not presented sufficient evidence of diminution in
 7             value.
 8        With respect to the transfer of any rights as a secured
 9   creditor, i.e., a right to assert a claim for postpetition
10   diminution in value of the equipment, Partap asserted in the
11   bankruptcy court that the equipment had diminished in value by
12   $525,358.30 before March 3, 2016, the date Partap purchased the
13   equipment.   Partap contended that the beginning value of the
14   equipment was $1.45 million, based on Prem Kittusamy’s testimony
15   at a confirmation hearing on March 18, 2016 regarding
16   negotiations with Siemens Financial, in which Dr. Kittusamy
17   stated that the parties had agreed at some point during the
18   bankruptcy that the equipment was worth between $1.4 and
19   $1.5 million.   Partap also noted that Kittusamy’s Proposed
20   Disclosure Statement to Accompany Debtor’s First Amended
21   Chapter 11 Plan of Reorganization filed October 30, 2015 valued
22   the equipment at $1,397,518.   From $1.45 million, Partap
23   subtracted the amount it paid for the equipment, $924,641.70,
24   yielding $525,358.30.
25        The bankruptcy court found this evidence insufficient to
26   establish the diminution in value, but did not elaborate on its
27   specific reasoning.   However, we find no error in the bankruptcy
28   court’s conclusion.   Even assuming (without deciding) that

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 1   Dr. Kittusamy’s testimony and/or the disclosure statement were
 2   competent evidence of the equipment value as of the petition
 3   date,5 it is far from clear whether the price paid by Partap to
 4   purchase the equipment reflects its fair market value on that
 5   date.
 6        First, the price obtained at a forced sale does not
 7   necessarily reflect fair market value.   See BFP v. Resolution
 8   Trust Co., 511 U.S. 531, 537-38 (1994) (noting that market value
 9   is the antithesis of forced-sale value, and that “fair market
10   value” presumes market conditions that do not obtain in the
11   context of a forced sale).
12        Second, as pointed out by Partap, it purchased not only the
13   equipment but also Siemens Financial’s right to collect on its
14   claim filed in the bankruptcy case and Kittusamy’s and DMP’s
15   rights under the Sublease.   Therefore, the purchase price does
16   not appear to have been based solely on the fair market value of
17   the equipment.   In short, Partap failed to provide sufficient
18   evidence from which the bankruptcy court could discern the fair
19   market value of the equipment and therefore its diminution in
20   value.
21        3.   The bankruptcy court did not err in disallowing
22             Partap’s administrative claim for the period after
23             March 3, 2016.
24        The bankruptcy court disallowed Partap’s administrative
25
26        5
             Kittusamy notes that Dr. Kittusamy’s testimony was in the
27   context of describing failed efforts to reach a compromise with
     Siemens Financial to retain the equipment, and that no final
28   agreement on value was ever reached.

                                    -12-
 1   claim in its entirety, thus implicitly denying a claim for the
 2   six-day period after Partap had purchased the equipment.    Partap
 3   argues that the bankruptcy court erred in this aspect of its
 4   ruling because, as the owner of the equipment, Partap was
 5   entitled to an administrative claim for Kittusamy’s use of the
 6   equipment after March 3, 2016.
 7        Partap’s argument might make sense had it filed an
 8   application for allowance of such a claim.   Instead, according to
 9   Partap’s application for allowance of its administrative claim,
10   claim no. 41-1 was based on unpaid postpetition rent from the
11   petition date through March 9, 2016.    Assuming without deciding
12   that Partap was entitled to an administrative claim for unpaid
13   rent accruing after it purchased the equipment on March 3, 2016,
14   Partap did not differentiate in its application between the pre-
15   and post-purchase periods or provide any explicit evidence of the
16   amount due for the period after it purchased the equipment.
17   Keeping in mind that it was Partap’s burden to prove its
18   entitlement to an administrative claim, there was a failure of
19   proof with respect to the amount of any such claim.   Thus, the
20   bankruptcy court did not err in disallowing the claim in its
21   entirety.6
22                              CONCLUSION
23        For the reasons explained above, the bankruptcy court did
24   not abuse its discretion in disallowing Partap’s administrative
25
26        6
             This is not to suggest that Partap could not seek relief
27   for Kittusamy’s continued retention and use of the equipment
     after the purchase date. However, any such relief would be
28   premised upon Partap’s status as the owner of the equipment.

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 1   claim.   Accordingly, we AFFIRM.
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