In Re Dant & Russell, Inc., Debtors. Burlington Northern Railroad Company, Creditor-Appellant v. Dant & Russell, Inc., Debtor-Appellee

Burlington Northern Railroad Company appeals from the district court order denying its claim for administrative expense priority against the bankruptcy estate of Dant & Russell, Inc. We affirm in part and reverse in part and remand for further proceedings.

Dant & Russell, Inc. (debtor-in-possession), operated a wood treatment plant and storage facilities on two parcels of land from 1972 to December 1983. Logs were stored on one parcel, the Vadis site, and then treated with creosote and other chemicals at the North Plains site.

Debtor-in-possession owned most of the land at each site. A portion of the land at each site, however, is owned by Burlington Northern and is leased to debtor-in-possession.

On November 22, 1982, debtor-in-possession filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code. On March 1, 1983, debtor-in-possession’s president executed new leases with Burlington Northern for the North Plains and Vadis sites. Burlington Northern knew that debtor-in-possession had filed under Chapter 11, and therefore insisted on short-term, five-year leases instead of the previous fifteen-year leases. For more than a year after filing the…