P.F. Three Partners v. Emery (In re Upland Partners)

MEMORANDUM **

P.F. Three Partners (“P.F. Three”) appeals the district court’s order affirming the bankruptcy court’s denial of administrative expense priority for three unsecured creditor claims. These unsecured claims derived from loans obtained by a Chapter 11 partnership, Upland Partners (“Upland”), without court approval. P.F. Three argues the bankruptcy court abused its discretion in holding (1) the loans obtained by the partnership constituted transactions outside the “ordinary course of business,” and (2) “exceptional circumstances” did not exist to warrant allowance and payment of claims nunc pro tunc. We affirm.

P.F. Three’s “ordinary course of business” claim fails for two reasons. First, the loans do not satisfy the vertical dimension test because the transactions subjected Upland’s creditors to economic risks of a nature different from those accepted when the creditors extended credit. See In re Dant & Russell, Inc., 853 F.2d 700, 705 (9th Cir.1988). Second, the loans do not satisfy the horizontal test because P.F. Three failed to provide any evidence to demonstrate that sole partners of real estate development partnerships ordinarily incur debt from entities…