## Facts

- American Housing Foundation (AHF) entered Chapter 11 bankruptcy proceedings in April 2009 in the U.S. Bankruptcy Court for the Northern District of Texas.
- Jack Traeger worked at AHF as a portfolio manager, but he was formally employed through Administaff, a staff-leasing company that assigned employees to client companies.
- Traeger did not have an individual employment contract with Administaff.
- Administaff maintained an employment policy that allowed employees, including Traeger, to accrue vacation benefits.
- Administaff’s vacation policy did not expressly state that unused vacation would be paid out in cash upon termination.
- As of AHF’s bankruptcy filing, Traeger had already accrued approximately three weeks of vacation under Administaff’s policy.
- Traeger continued performing services for AHF after the bankruptcy filing until AHF terminated his assignment/employment in December 2009.
- After termination, Traeger filed an administrative expense claim in AHF’s bankruptcy case seeking $5,641.03 for unused vacation pay.

## Issues

1. Whether unused vacation pay sought by a staff-leased worker constitutes an “actual, necessary” cost of preserving the estate entitled to administrative-expense status under 11 U.S.C. § 503(b)(1)(A).
2. If vacation pay is owed, whether administrative-expense status extends to vacation accrued before the petition date, or only to the portion attributable to post-petition services.

## Decision

- The court applied the § 503(b)(1)(A) standard and treated vacation benefits as a component of compensation that may qualify as an administrative expense only to the extent earned through post-petition services that benefitted the bankruptcy estate.
- The court allowed Traeger administrative-expense priority only for the portion of unused vacation attributable to work performed after AHF entered bankruptcy.
- The court denied administrative-expense treatment for any portion of the claimed vacation pay that accrued before the petition date, treating that portion as a prepetition wage/benefit claim subject to the Bankruptcy Code’s priority scheme and limits.

## Legal Principles

- Administrative expenses under 11 U.S.C. § 503(b)(1)(A) are narrowly limited to obligations arising from post-petition transactions with the estate that provided a concrete benefit to the estate.
- Compensation and employee benefits can qualify as administrative expenses when they are earned through post-petition services performed for the debtor’s estate.
- When a benefit (such as vacation pay) is earned over time, the court may allocate the claim between prepetition and post-petition periods; only the post-petition portion qualifies for administrative priority.
- The fact that payment is triggered or sought after the petition date does not convert consideration earned prepetition into an administrative expense.

## Conclusion

In AHF’s Chapter 11 case, the bankruptcy court held that unused vacation pay could receive administrative-expense priority only to the extent it was earned from post-petition services that benefitted the estate; vacation accrued before the bankruptcy filing was not allowed as a § 503(b)(1)(A) administrative expense.


In re American Housing Foundation, Debtor, 2010 WL 2371072 (2010)