Fifth Circuit: Bankruptcy Court, Not State Court, Had Jurisdiction to Allow or Disallow Administrative Expense Claim

The scope of a bankruptcy court's "core" jurisdiction to adjudicate disputes extends to a wide variety of issues that arise during the course of a bankruptcy case, including disputes regarding the allowance or disallowance of claims against the bankruptcy estate. Some of those disputes necessarily involve the interpretation and application of non-bankruptcy (typically state) law. The U.S. Court of Appeals for the Fifth Circuit examined this jurisdictional mandate in Storey Minerals Ltd. v. EP Energy E&P Co., LP (Matter of EP Energy E&P Co., LP), 169 F.4th 609 (5th Cir. 2026). The court affirmed lower courts' rulings disallowing a creditor's administrative expense claim and rejecting the creditor's argument that, because the claims were predicated on state law, a state court should adjudicate the merits of the state law causes of action before the bankruptcy court could allow or disallow the claim as an administrative expense. According to the Fifth Circuit, even though the causes of action were based on state law, the bankruptcy court had jurisdiction to determine whether the creditor's claims should be conferred with administrative expense priority in the debtors' chapter 11 case. 

Bankruptcy Court Jurisdiction 

Federal district courts have "original and exclusive jurisdiction" of all "cases" under the Bankruptcy Code. 28 U.S.C. § 1334(a). District courts also have "original but not exclusive jurisdiction of all civil proceedings arising under" the Bankruptcy Code, "or arising in or related to cases" under the Bankruptcy Code. 28 U.S.C. § 1334(b). District courts may (and do), however, refer these cases and proceedings to the bankruptcy courts in their districts, which are constituted as "units" of the district courts. 28 U.S.C. § 157(a). 

A bankruptcy "case" is the umbrella under which all of the proceedings that follow the filing of a bankruptcy petition take place. The filing of a voluntary or involuntary petition for relief commences a bankruptcy case. After an order for relief is entered (on the petition date, in a voluntary case, and after a trial on the petition, in an involuntary case), the bankruptcy case may involve many civil proceedings, whether denominated administrative matters, controversies, adversary proceedings, contested matters, suits, actions, or disputes. 

Matters "arising under" and "arising in" bankruptcy cases are generally referred to as "core" proceedings; 28 U.S.C. § 157(b)(2) contains a nonexclusive catalog of "core" proceedings. They include, among other things, matters concerning the administration of the bankruptcy estate, counterclaims by the estate against persons filing claims against the estate, orders to turn over property of the estate, motions to modify or terminate the automatic stay, and proceedings to avoid and recover preferential or fraudulent transfers. Under 28 U.SC. § 157(b)(2)(B), core proceedings also include the "allowance or disallowance of claims against the estate…." 

A matter "arises under" the Bankruptcy Code "if it invokes a substantive right provided by title 11." In re Southmark Corp., 163 F.3d 925, 930 (5th Cir. 1999). In other words, when a cause of action is created by title 11, that civil proceeding is one "arising under" the Bankruptcy Code. See generally Collier on Bankruptcy ¶ 3.01[3][e][i] (16th ed. 2026). 

Similarly, claims that "arise in" a bankruptcy case are claims that by their nature, rather than their particular factual circumstances, could arise only in the context of a bankruptcy case. Stoe v. Flaherty, 436 F.3d 209, 218 (3rd Cir. 2006). 

Claims or causes of action arising under state law are not "core proceedings" because they do not invoke "a substantive right provided by title 11 or a proceeding that, by its nature, could arise only in the context of a bankruptcy case." In re Seven Fields Dev. Corp., 505 F.3d 237, 256 (3d Cir. 2007). 

A civil proceeding is "related" to a bankruptcy case when "the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy." Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1985); accord Celotex Corp. v. Edwards, 514 U.S. 300 (1995). 

A bankruptcy court may enter a final judgment in a core proceeding. 28 U.S.C. § 157(b)(1). The court may also hear non-core related matters, but may not decide them without the consent of the parties. 28 U.S.C. §§ 157(b)(1), (c). Unless all the parties consent to a bankruptcy court's final adjudication of a non-core related matter, the court must "submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge after considering the bankruptcy judge's proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected." 28 U.S.C. § 157(c). 

A district court may abstain from hearing a "proceeding" arising in a bankruptcy case (other than a chapter 15 case) in the interests of justice or comity for state courts. 28 U.S.C. § 1334(c)(1). It must abstain from hearing a proceeding if it: (i) is based upon a non-core but related state law claim or cause of action; (ii) could not have been commenced in a federal court absent the bankruptcy filing; and (iii) can be timely adjudicated in a state forum. 28 U.S.C. § 1334(a)(2). 

In addition to statutory authority, a bankruptcy judge must have constitutional authority to hear and determine a matter. Stern v. Marshall, 564 U.S. 462 (2011). Constitutional authority exists when a matter originates under the Bankruptcy Code or, in non-core matters, where the matter is either one that falls within the "public rights exception," (i.e., cases involving "public rights" that Congress could constitutionally assign to "legislative" courts for resolution), or where the parties have consented, either expressly or impliedly, to the bankruptcy court hearing and determining the matter. See, e.g., Wellness Int'l Network, Ltd. v. Sharif, 135 S. Ct. 1932 (2015) (parties may consent to a bankruptcy court's jurisdiction); Richer v. Morehead, 798 F.3d 487, 490 (7th Cir. 2015) (noting that "implied consent is good enough"). 

Administrative Expenses in Bankruptcy 

Section 503 of the Bankruptcy Code provides for that, upon the request of an "entity" and after notice and a hearing, a bankruptcy court shall allow nine categories of "administrative expenses." Administrative expenses include "the actual, necessary costs and expenses of preserving the estate," such as certain postpetition wages, salaries, and commissions; certain taxes, fines, or penalties; or bankruptcy professional fees and expenses. 

Most courts apply a two-part test in assessing whether a claim is entitled to administrative expense priority—i.e., the claim must arise from a transaction with the estate, and the estate must benefit directly and substantially from the claim. See, e.g., Nabors Offshore Corp. v. Whistler Energy II, L.L.C. (In re Whistler Energy II, L.L.C.), 931 F.3d 432, 441–442 (5th Cir. 2019) ("The requirement that expenses arise 'post-petition and as a result of actions taken by the' debtor-in-possession, … is closely tied to the purpose of section 503(b)(1)(A). This subsection is designed to address a specific business problem. Once bankruptcy proceedings are underway, '[t]hird parties might refuse to extend credit to debtors-in-possession for fear that their claims would not be paid.'") (citations omitted); Calpine Corp. v. O'Brien Envtl. Energy, Inc. (In re O'Brien Envtl. Energy, Inc.), 181 F.3d 527, 532–33 (3d Cir. 1999) (for a claim to be entitled to administrative expense status under [section 503(b)(1)(A)], it must "arise from a [postpetition] transaction with the debtor-in-possession," and "be beneficial to the debtor-in-possession in the operation of the business"); In re Eagle-Picher Indus., Inc., 447 F.3d 461, 464 (6th Cir. 2006). The party asserting an administrative expense claim bears the burden of demonstrating that it is entitled to administrative expense status. O'Brien, 181 F.3d at 533. 

Postpetition tort claims may also be allowed as administrative expenses if those claims arise from actions related to the preservation of a bankruptcy estate, even if those claims have no discernable benefit to the estate. Reading Co. v. Brown, 391 U.S. 471, 477, 88 S.Ct. 1759 (1968) (holding that fire damage costs resulting from the negligent actions of a bankruptcy receiver acting in the scope of his authority are an "actual and necessary" expense of reorganization). Although Reading involved interpretation of the former Bankruptcy Act, subsequent decisions have recognized that its analysis applies to section 503(b) of the Bankruptcy Code. See, e.g., Matter of Roman Cath. Church of Archdiocese of New Orleans, 2024 WL 3440466, at *6 (5th Cir. July 17, 2024); In re Munce's Superior Petroleum Prods., Inc., 736 F.3d 567, 571 (1st Cir. 2013); In re Philadelphia Newspapers, LLC, 690 F.3d 161, 173–74 (3d Cir. 2012); Eagle-Picher, 447 B.R. at 464; In re Duplan Corp., 212 F.3d 144, 155 (2d Cir. 2000). 

If a claim is conferred with administrative expense status, it is entitled to priority in payment under section 507(b)(2) of the Bankruptcy Code, and a chapter 11 plan may not be confirmed by the bankruptcy court without the claimant's consent unless all such claims are paid in full on the effective date of the plan. See 11 U.S.C. § 1129(a)(9).

EP Energy

EP Energy E&P Co., L.P. and various affiliates (collectively, the "debtors") are the lessees/operators under 16 "non-standard" mineral (oil and gas) leases on land located in South Texas owned by Storey Minerals, Ltd. and certain affiliates (collectively, "Storey"). On October 3, 2025, the debtors filed for chapter 11 protection in the Southern District of Texas.

During the debtors' chapter 11 case, a substantial decrease in demand for oil associated with the COVID-19 pandemic and other market forces caused market prices to collapse. In an effort to avoid producing oil that would be sold (if at all) at a loss, the debtors temporarily ceased production on one of the leased oil fields. However, the debtors resumed production from the wells 40 days afterward.

In August 2020, the bankruptcy court confirmed the debtors' chapter 11 plan, which became effective on October 1, 2020. The plan established October 31, 2020, as the administrative expense claim bar date, providing that any administrative claimants failing to timely file proof of their claim would be barred from asserting the claims against the debtors or their property, and that the claims would be discharged 30 days after the effective date of the plan.

The plan also provided in relevant part that nothing in the plan or the confirmation order altered Storey's right to timely file an administrative claim for damages arising from the debtors' postpetition, pre-effective date conduct under the leases. It further provided that the bankruptcy court retained "exclusive jurisdiction to determine any dispute" with respect to Storey's "retention of all real property interests and equitable remedies under [the leases] that do not constitute Claims, … which threshold determination may be heard upon motion of [Storey], the Debtors, or the Reorganized Debtors, as applicable."

The day before the claims bar date, Storey filed a motion in the bankruptcy court seeking allowance of an administrative expense claim, alleging that the debtors' temporary cessation of production from the oil filed wells caused the mineral lease to terminate and that the debtors' continued oil and gas exploration activities on the property constituted an "ongoing trespass giving rise to trespass damages" under Texas law. In its motion, Storey stated that, as permitted by the plan, it had filed the motion to "preserve" the administrative status of its claims and maintained that several issues required further adjudicatory proceedings and involved state law matters and events that occurred both during the chapter 11 case and after the plan's effective date.

On November 5, 2020, Storey filed another motion seeking a "threshold determination" that its claims were not prepetition, but administrative claims, because the mineral leases had terminated postpetition under Texas law due to the debtors' temporary suspension of production. Storey also maintained that a Texas state court should adjudicate the merits of the state-law lease-termination/trespass damages claims underlying its administrative expense claims because, among other things, "such claims would be payable in any event by the post bankruptcy [debtors] as a reorganized debtor." Storey accordingly asked the court to abstain from adjudicating the dispute under 28 U.S.C. § 1334(c) (governing "permissive abstention").

The bankruptcy court concluded that 28 U.S.C. §§ 157 and 1334(b) conferred it with jurisdiction over a request for the allowance and payment of an administrative expense under section 503(b)(1)(A) of the Bankruptcy Code, and that the court's jurisdictional authority necessarily encompassed assessing the validity of Storey's lease termination and trespass claims under state law. The court also refused to abdicate its role in administering the debtors' estate, ruling that permissive abstention was unwarranted.

Addressing the merits of the state law elements of Storey's claim, the bankruptcy court held that the debtors' temporary suspension of production did not terminate the mineral leases, its continued operations on the leased properties did not amount to trespass, and Storey was not entitled to damages. It accordingly denied Storey's administrative expense claim. After a federal district court affirmed the ruling on appeal, Storey appealed to the Fifth Circuit.

The Fifth Circuit's Ruling 

A three-judge panel of the Fifth Circuit affirmed the rulings below. 

Addressing Storey's jurisdictional arguments, U.S. Circuit Court Judge Kurt Damian Engelhardt explained that a proceeding to determine a request for payment of an administrative expense pursuant to section 503 of the Bankruptcy Code is a "core proceeding"—as expressly acknowledged in Storey's pleadings—because it arises under, or in a case under, the Bankruptcy Code for purposes of the jurisdictional provisions of 28 U.S.C. §§ 1334(b) and 157(a)–(b). EP Energy, 169 F.4th at 621 (citing In re Chesapeake Energy Corp., 70 F.4th 273, 281 (5th Cir. 2023)). Accordingly, he noted, a bankruptcy court has jurisdiction to "hear and determine" motions for the payment of administrative expenses and may render a final order, judgment or decree that would be appealable to an appellate court. Id. 

The Fifth Circuit panel rejected Storey's argument that the bankruptcy court lacked jurisdictional authority to rule on its administrative expense request until a Texas state court had adjudicated the underlying state-law claims (over which there was no non-bankruptcy source of federal subject-matter jurisdiction) because the bankruptcy court could not assess whether the damages were "actual, necessary costs and expenses of preserving the estate" until the state court had issued a ruling. 

According to Judge Engelhardt, Storey's "jurisdictional challenge falls short," because, as numerous courts (including the U.S. Supreme Court) have recognized, "a bankruptcy court's determinative authority encompasses underlying matters, governed by state law, that necessarily would be resolved in the process of adjudicating core matters over which the bankruptcy court has federal statutory and constitutional subject-matter jurisdiction." Id. at 622 (citing Stern v. Marshall, 564 U.S. at 499 (explaining that a bankruptcy court may constitutionally decide claims/rights that "stem[ ] from the bankruptcy itself or would necessarily be resolved in the claims allowance process"); Travelers Cas. & Sur. Co. of Am. v. Pac. Gas & Elec. Co., 549 U.S. 443, 450–51 (2007) (recognizing that bankruptcy courts must consult state law to determine most claims because "the basic federal rule in bankruptcy is that state law governs the substance of most claims" (cleaned up)); Katchen v. Landy, 382 U.S. 323, 329, (1966) (confirming that the bankruptcy court's power to allow or disallow claims includes the power to inquire into the validity of the alleged debt or obligation upon which a demand or claim against the estate is based); In re Trendsetter HR, L.L.C., 949 F.3d 905, 912 (5th Cir. 2020) (confirming that the bankruptcy court properly "look[ed] to governing state law" to determine whether there [was] a cognizable bankruptcy claim" for purposes of 11 U.S.C. § 1101(5) (defining "claim") and 11 U.S.C. § 502 (governing claims allowance process)); Morrison v. W. Builders of Amarillo, Inc. (In re Morrison), 555 F.3d 473, 479 (5th Cir. 2009) (acknowledging that proceeding to determine the non-dischargeability of a debt, a "core" proceeding, requires proof of the basis for and amount of a debt, which may require state-law determination); cf. Northern. Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 96–97 (1982) (White, J., dissenting) (emphasizing that "the bankruptcy judge is constantly enmeshed in state-law issues" because "the existence and validity of [filed] claims recurringly depend on state law")). 

The Fifth Circuit panel was not convinced that a different rule should apply when a bankruptcy court is considering a motion for the payment of an administrative expense pursuant to section 503 of the Bankruptcy Code, rather than ruling on the allowance of a filed proof of claim under sections 501 and 502, or adjudicating a complaint seeking to except a debt from discharge under section 523. According to Judge Englehardt, Storey neither cited any controlling precedent nor "a principled basis for concluding that the relief supplied by this particular Bankruptcy Code provision—§ 503(b)—requires bifurcated federal/state proceedings." Id. at 623 (footnotes omitted). 

The Fifth Circuit panel also determined that the availability of permissive abstention under 28 U.S.C. § 1334(c)(1) does not deprive a bankruptcy court of jurisdiction "that otherwise exists" under 28 U.S.C. § 1334(b), but "merely confirms that the jurisdiction granted by §1334(b) does not prevent the court's deciding, 'in the interest of comity with State courts or respect for State law,' to forgo exercising that jurisdiction by 'abstaining from hearing a particular proceeding.'" Id. 

In addition, the panel rejected Storey's argument that its administrative expense claim was not "ripe for determination" by a bankruptcy court until a state court issued a ruling on the lease termination and trespass claims. Judge Englehardt explained that: (i) the events giving rise to Storey's claims "were not uncertain events that might yield a sufficiently concrete impact sometime in the future" but instead occurred before Storey filed its motion seeking allowance and payment of its administrative expense claims; and (ii) the dispute involved disputed questions of law that did not require additional factual development to be resolved. Id. at 625. 

Judge Engelehardt also emphasized that, "critically," Storey did not challenge the propriety of the bankruptcy court's refusal—as affirmed by the district court—to permissively abstain from adjudicating the merits of Storey's lease termination and trespass claim in deference to a Texas state court. Accordingly, the Fifth Circuit panel ruled, that argument was waived on appeal, and would have failed in any event because 28 U.S.C. § 1334(d) precludes appellate review of a district court's decision denying a request for permissive abstention under 28 U.S.C. § 1334(c)(1). Id. at 626. 

Addressing the merits of Storey's administrative expense claims, the Fifth Circuit panel found no fault with the bankruptcy court's conclusion that temporary cessation of production at the wells did not terminate the leases and did not constitute trespass under Texas law. It therefore affirmed the ruling disallowing Storey's asserted administrative expense claims. 

Outlook 

The Fifth Circuit's decision in EP Energy does not blaze any untrodden trails in bankruptcy jurisprudence regarding a bankruptcy court's core jurisdiction to allow or disallow claims that are predicated on applicable non-bankruptcy law. The ruling reinforces the idea that bankruptcy courts are frequently required to consider state law in determining whether a claim—be it secured, unsecured, or administrative—should be allowed in a bankruptcy case. The lessor in EP Energy attempted to usurp that statutory authority by insisting that the validity of its underlying claims must initially be decided by a state court because the underlying causes of action arose under state law. The lower and appellate courts unequivocally rejected this argument as being clearly contrary to statutory authority and relevant case law interpreting it.

In cases like EP Energy, where the facts were fully developed and the applicable non-bankruptcy law was not unsettled, a bankruptcy court is both authorized and capable of adjudicating the merits of claims based on non-bankruptcy law.

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