## Facts

- Cook and Sons Mining, Inc. (Cook) filed a Chapter 11 bankruptcy petition in August 2003 and continued operating as debtor in possession.
- Cook was in the coal business.
- Postpetition, Cook entered a one-year contract with Santee Cooper (South Carolina Public Service Authority) to sell 60,000 tons of coal per month at $35 per ton.
- Cook did not seek or obtain bankruptcy-court approval before entering the contract.
- The contract’s structure and terms were consistent with Cook’s prepetition coal contracts.
- Cook began shipping coal under the contract in January 2004 and shipped for about three months.
- Cook never met the 60,000-tons-per-month commitment.
- Cook became administratively insolvent in April 2004.
- Santee Cooper moved in the bankruptcy court for an administrative-expense claim exceeding $10 million for damages it attributed to Cook’s breach of the postpetition contract.
- Cook responded by moving to avoid the contract under 11 U.S.C. § 549(b), contending the agreement was outside the ordinary course of business and therefore required court approval under 11 U.S.C. § 363.
- The bankruptcy court concluded Cook could avoid the contract for July 2004 through December 2004, but not for January 2004 through June 2004, and allowed Santee Cooper an administrative-priority claim of about $5 million.
- Cook and Santee Cooper filed cross-appeals to the United States District Court for the Eastern District of Kentucky, resulting in the decision reported at 2005 WL 2386238.

## Issues

1. Whether Cook’s postpetition coal-supply contract was within the debtor in possession’s ordinary course of business under 11 U.S.C. § 363(c), permitting Cook to enter it without prior court approval.
2. If the contract was not authorized under § 363, whether (and to what extent) Cook could avoid obligations arising from the postpetition contract under 11 U.S.C. § 549(b).
3. Whether Santee Cooper’s claimed breach damages were entitled to administrative-expense priority under 11 U.S.C. § 503(b), and in what amount.

## Decision

- The bankruptcy court ruled that Cook could avoid the contract for July 2004 through December 2004, but could not avoid it for January 2004 through June 2004.
- The bankruptcy court allowed Santee Cooper an administrative-expense claim of approximately $5 million, rather than the more than $10 million requested.
- The district court opinion at 2005 WL 2386238 addresses the parties’ cross-appeals from that bankruptcy-court order.

## Legal Principles

- A Chapter 11 debtor in possession may enter transactions in the ordinary course of business without prior court authorization under 11 U.S.C. § 363(c); transactions outside the ordinary course generally require court approval under § 363(b).
- Ordinary-course analysis commonly considers whether the transaction is of a type consistent with the debtor’s prepetition business practices and what creditors would reasonably expect while the debtor continues operating in Chapter 11.
- Section 549 provides a method to avoid certain unauthorized postpetition transactions; if a postpetition transaction required but lacked authorization, the estate may seek to avoid resulting obligations to the extent the statute permits.
- Administrative-expense priority under 11 U.S.C. § 503(b) is reserved for postpetition claims that constitute actual, necessary costs of preserving the estate; postpetition breach damages are not automatically entitled to administrative priority in the full amount claimed.
- Where a court treats a postpetition contract as binding only for a limited period (or limits avoidance to a specific period), administrative-expense treatment may likewise be limited to amounts tied to that recognized period or to value that benefited the estate.

## Conclusion

In re Cook and Sons Mining, Inc. involves a Chapter 11 coal company that entered a sizable one-year postpetition supply contract without bankruptcy-court approval and later sought to avoid the contract under § 549(b) by arguing it was outside the ordinary course under § 363, while the buyer sought more than $10 million in administrative-priority breach damages under § 503(b). The bankruptcy court drew a line between the first and second halves of 2004, allowing avoidance only for July–December 2004, denying avoidance for January–June 2004, and allowing an administrative claim of about $5 million, leading to cross-appeals reviewed by the district court in the decision reported at 2005 WL 2386238.


In re Cook and Sons Mining, Inc., 2005 WL 2386238 (2005)