In Re Cook And Sons Mining, Inc.

2005 WL 2386238 (2005)

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Nature of the Case

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Facts

P filed Chapter 11 on August 26, 2003. P's business was the mining, cleaning, and shipping of high quality coal to various end-users which were mostly public or privately owned utilities via unit trains provided by CSX. D is a South Carolina state agency operating as a public power and water utility. In November 2003, D began taking bids for a six-month supply of up to 900,000 tons of coal or a one-year supply of up to 1,800,000 tons. On November 21, 2003, P submitted a proposal offering to deliver 60,000 tons of coal per month for a one-year period beginning January 1, 2004, at $35 per ton. D accepted the proposal stating that he would send a purchase order after the holidays. On December 5, 2003, D issued a purchase order. On February 12, 2004, D issued another purchase order stating that the original purchase order would be increased by 70,000 tons and that it would pay $42 per ton for the additional tons.

The February 11, 2004 Letter Agreement stated that D would increase the original purchase order by 70,000 tons. It further provided that D would pay $42 per ton for the first 50,000 tons of additional coal provided that P shipped the 50,000 tons over the next 20 days. If P failed to ship the 50,000 tons, D would pay only $35 per ton for it. The Letter Agreement also provided that D would pay $ 42 per ton for 20,000 tons of additional coal shipped in March 2004 but that, if the Debtor failed to ship the minimum tonnage for March, D would only pay $35 per ton for the additional 20,000 tons. P began shipping coal under the Contract in January 2004. In January, the Debtor shipped 21, 233 tons of coal to Santee Cooper; in February, 50,811 tons; and in March, 11,047 tons. At no time during its months of performance did P ship 60,000 tons in one month as contracted. By April 2004, P was running out of money and ultimately became administratively insolvent. On April 26, 2004, Coal Extraction Company took over all of the Debtor's operations. On July 27, 2004, D filed a Motion for Allowance and Payment of Administrative Priority Claim in the amount of $ 10,815,484.62 pursuant to § 503(b)(1)(A) of the Code. P argued that D was not entitled to an administrative priority claim because the post-petition contract was not in the 'ordinary course of business' pursuant to Code § 363(b) and was avoidable under Code § 549(a). P filed a Motion to Avoid the contract. The Bankruptcy Court ordered that P could avoid the post-petition contract for the months of July 2004 to December 2004 but not for the months of January 2004 through June 2004. The court granted D an administrative expense claim of $ 5,150,284.62 which represented its damages from P's breach of the post-petition contract for the months of January to June 2004. Both parties appealed.