Court Denies Indemnitee's Motion for Administrative Expense, Finding That Indemnity Obligation of Debtors-Indemnitor Arose Pre-Petition Under Applicable State Law
In re ANC Rental Corp., 341 B.R. 178 (Bankr. D. Del. 2006) (Judge Mary F. Walrath)
The claimant, Joan Martin, filed a motion for allowance and payment of an administrative expense against the estate of the debtors. The claim arose out of a pre-petition agreement under which the claimant rented a car from debtor Alamo Rent-A-Car. Martin was involved in a serious car accident in which two died. Post-petition, representatives of the other parties to the accident sued Martin and the debtors, who were found jointly and severally liable. The Minnesota court presiding over that matter found that the debtors had an indemnity obligation to Martin, and found the debtors primarily liable for payment of damages. Martin paid the settlement amount, and then filed an administrative expense motion against the debtors’ estate. The Bankruptcy Court denied the motion, finding that the indemnity obligation was an implied term of the car rental agreement, and therefore was a pre-petition obligation of the debtors that was not entitled to be allowed and paid as an administrative expense.
Prior to the filing of the debtors’ petition, claimant Joan Martin rented a car from debtor Alamo Rent-A-Car under a written agreement. While driving the car in Minnesota, Martin was involved in an accident involving another vehicle. Two people died in the accident. Post-petition, representatives of the other parties to the accident commenced an action against Martin in Minnesota. The debtors thereafter stipulated to modify the automatic stay to permit the plaintiffs to name the debtors as defendants in the Minnesota suit. The plaintiffs filed an amended complaint, and Martin and debtors filed cross-claims against each other for indemnity.The Minnesota suit resulted in a jury verdict in favor of the plaintiffs, with Martin and the debtors found to be jointly and severally liable. The Minnesota court thereafter held that the debtors were liable to Martin for indemnity, and dismissed the debtors’ cross-claim against Martin. Martin paid the plaintiffs $2.44 million in full settlement of the judgment. Martin then filed an administrative claim in that amount in the debtors’ cases. The ANC Liquidating Trust objected to the claim.
Martin contended that her claim was a post-petition administrative claim under the Third Circuit’s holding in In re Frenville, where the Court held that a common law indemnity claim arose post-petition when the movant was sued, not pre-petition when the underlying acts giving rise to the claim occurred. The Bankruptcy Court stated that Frenville requires an analysis of when the claimant’s right to indemnification arises. However, the Frenville court noted that, when the right to indemnity is grounded in contract, there is a right to payment, although contingent, when the contract is signed.
The Bankruptcy Court looked to the applicable Minnesota state law and the decision of the Minnesota court deciding the cross-claims. The Minnesota court found that the debtors did not comply with the self-insurance requirements under state law, and therefore concluded that the debtors were primarily liable, and owed an indemnification obligation to Martin. The Minnesota court also held that the debtors were primarily liable for the damages caused by Martin’s accident. Therefore, the Minnesota court treated the debtors as a self-insured entity with no cap, and with a policy providing for indemnification of Martin.
Based on this ruling, the Bankruptcy Court held that the Martin claim was a pre-petition claim because the indemnification obligation was an implied term of the actual car rental contract between Martin and the debtors. Thus, the obligation arose when the contract was signed, which was pre-petition. Therefore, the Bankruptcy Court denied administrative expense status for Martin’s indemnification claim.
