► In This Issue:

• A Note from Your Newsletter Editor
• Section 503(b)(9): An Overview and Survey of Recent Developments
• Measuring the Value of Goods under § 503(b)(9)
• If You’re Not Confused, You’re Not Paying Attention: Electricity and § 503(b)(9)
• Electricity Is a "Good" under § 503(b)(9), Right? Not So Fast — It Might Be Too Fast to Be a "Good"
• The Debate Charges On: Is Electricity a Good or Service?
• Bankruptcy Litigation Committee to Host Webinar - Register Now!
• Only 75 Minutes to CLE - View Relevant Recordings Now
• Join the Committee at ABI's Annual Spring Meeting
• Sharpen Your Litigation Skills at ABI Symposium in May

A Note from Your Newsletter Editor

In this edition of the ABI Bankruptcy Litigation Committee Newsletter, we spotlight § 503(b)(9) reclamation/administrative claims. Our collection of articles on this topic provides an in-depth analysis, including the interpretation of the section’s unique language, recent significant cases and legislative history. The articles also provide a detailed analysis of how electricity is considered under § 503(b)(9). We would like to thank all of our authors for their valued contributions and hope that you find these pieces interesting and engaging.

Regards,
Neil Steinkamp
Ferve Ozturk
Newsletter Editors

Section 503(b)(9): An Overview and Survey of Recent Developments

by Jamie R. Netznik Sugar Felsenthal Grais & Hammer LLP Chicago

by Barouir Brian Yeretzian Hinds & Shankman LLP Los Angeles

Section 503(b)[1] of the Bankruptcy Code sets out the nine types of administrative expenses in a bankruptcy proceeding that receive a priority distribution under § 507(a)(2). Section 503(b) derives from § 64a of the Bankruptcy Act of 1898, which entitled the costs and expenses of administration of a bankruptcy estate to priority over dividends paid to creditors.[2] Section 503(b)(9) grants a seller of goods an administrative expense for the value of any goods that the debtor received within 20 days before the petition date, if the goods were sold to the debtor in the ordinary course of the debtor’s business.[3] Thus, this subsection, added to the Code in 2005, provides an administrative expense for certain pre-petition debts, while the remaining majority of § 503(b) provides administrative priority for post-petition debts.[4] Vendors that are eligible for a § 503(b)(9) claim have priority ahead of claims for unpaid wages, taxes and all other unsecured claims that rank below administrative expenses.[5]

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) introduced amendments to § 503(b)(9).[6] Prior to § 503(b)(9)’s enactment, only a few pre-petition obligations qualified for administrative-expense priority.[7] In addition, before § 503(b)(9), the only remedy available for a vendor who provided goods to a debtor before the filing of a bankruptcy petition was governed by § 546(c),[8] which has strict noticing requirements. The BAPCPA amendments to § 546(c) and the addition of § 503(b)(9) provide better protection to vendors that provided goods to a debtor immediately before the petition date.

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Measuring the Value of Goods under § 503(b)(9)

by Todd Henry Bartels Polsinelli PC Kansas City, Mo.

Section 503(b)(9) of the Bankruptcy Code creates an administrative expense for “the value of any goods received by the debtor” within 20 days preceding bankruptcy. While there is little case law analyzing the appropriate measure of “value” under this section, courts that have addressed the question recognize that the purchase price reflected in the invoice or contract, pursuant to which the goods were delivered to the debtor, is prima facie evidence of value but that it can be rebutted by other evidence. Courts have also addressed the issue of dividing value between goods delivered, which qualifies as an administrative expense under the section, and services performed, which do not.

If You’re Not Confused, You’re Not Paying Attention: Electricity and § 503(b)(9)

by Blake D. Roth Waller Lansden Dortch & Davis LLP Nashville, Tenn.

Determinations as to whether electricity is a “good” for purposes of § 503(b)(9) remains an intensely fact-driven exercise with a lack of consistency coming from the courts. This inconsistency was evidenced by four recent written decisions addressing the issue.

It’s the Facts? It’s the Facts!
In In re Great Atlantic & Pacific Tea Co. Inc.,[1] the district court determined that the issue of whether electricity was a good under § 503(b)(9) was not solely an issue of law. In this case, a wholesale electricity purchaser asserted an administrative-expense claim for the sale of electricity. The bankruptcy court, relying solely on written submissions and oral argument, concluded that electricity was not clearly a “good” because it is simply a stream of electrical energy identified at the point of delivery and disappearing into use the moment that it reaches the meter. Finding that administrative-expense claims must be tightly construed, the bankruptcy court granted the debtor’s objection to the claim.[2]

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Electricity Is a "Good" under § 503(b)(9), Right? Not So Fast — It Might Be Too Fast to Be a "Good"

by John Cardinal Parks Horowitz & Burnett PC Denver

Numerous bankruptcy court decisions have considered whether electricity is a good under 11 U.S.C. § 503(b)(9).[1] One of the most recent decisions, In re NE Opco Inc.,[2] bucks a recent trend in cases that have held that electricity is a good under § 503(b)(9).[3] Moreover, in ruling that electricity is not a good for this purpose, the NE Opco court adopted a fresh approach to the issue based on the notion of meaningful delay between identification to the contract and consumption.
           
In NE Opco, Westfield Gas and Electric Light Department, a utility provider, sought allowance of an administrative expense under § 503(b)(9) for electricity and natural gas that Westfield provided to the debtors within 20 days of the debtor’s petition date. The court first noted that § 503(b)(9) only applies to vendors of “goods” and not service providers.[4] The court also noted that like many others courts, it had previously adopted the definition of the term “goods” in Article 2 of the Uniform Commercial Code (UCC) for purposes of § 503(b)(9):

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The Debate Charges On: Is Electricity a Good or Service?

by Laura Napoli Coordes Arizona State University Phoenix

Alexandra Pierce Stout Risius Ross New York

Neil Steinkamp Stout Risius Ross New York

Numerous bankruptcy court decisions have considered whether electricity is a good under 11 U.S.C. § 503(b)(9).[1] One of the most recent decisions, In re NE Opco Inc.,[2] bucks a recent trend in cases that have held that electricity is a good under § 503(b)(9).[3] Moreover, in ruling that electricity is not a good for this purpose, the NE Opco court adopted a fresh approach to the issue based on the notion of meaningful delay between identification to the contract and consumption.
           
The Source of Confusion
Unlike other subsections of § 503, which create administrative priority for post-petition debt, subsection (b)(9) applies to pre-petition debt. Some explain this apparent discrepancy by arguing that § 503(b)(9) was intended for goods that are in the debtor’s possession prior to filing, but which are generally used by the debtor in possession post-petition in order to continue its operations. Under this premise, electricity should not be considered a good covered under § 503(b)(9) as all electricity in the company’s possession pre-petition would be used pre-petition. However, there are many other ways to consider electricity and the intentions of the Bankruptcy Code.

Reclamation?
Others have argued that § 503(b)(9)’s legislative history suggests that it was intended to provide relief to sellers who failed to give the required notice under the reclamation section of the Bankruptcy Code, § 546(c).[4] This would suggest that electricity ought not to be interpreted as a “good” as it is typically not considered reclaimable. Other courts, however, have expressly stated that a creditor’s claim under § 503(b)(9) is not linked to or conditioned upon the creditor’s rights of reclamation under § 546(c).[5] Because sellers have a much broader range of rights under § 503(b)(9) than they do under reclamation, it does not seem correct to limit application of § 503(b)(9) to only those goods that can be reclaimed.

What About Natural Gas?
If we are to accept the premise that electricity should not be considered a “good” for purposes of § 503(b)(9) on the grounds that electricity provides no benefit to a post-petition estate, what should we think about natural gas? Natural gas seems similar to electricity in many ways: It is generally consumed at the same time that it is provided, and gas suppliers are awarded utility privileges under § 366. However, case law definitively recognizes natural gas as a good for the purposes of § 503(b)(9).[6] Courts have agreed that natural gas meets the definition of a “good” as it is movable at the time it is identified for sale.[7]

 Read More

Bankruptcy Litigation Committee to Host A May Webinar - Register Now!

The committee is pleased to announce they will be hosting the next ABILive webinar, titled "Representing Creditors in Wilmington and Manhattan: An Outsider's Primer to Litigating in America's Busies Bankruptcy Courts." This webinar will be a guide for non-Delaware-, non-New York-based attorneys and law firms (as well as junior attorneys practicing in Delaware and New York) to delivering more value to their clients by (a) anticipating SDNY and Delaware requirements, (b) knowing the black-letter rules and unwritten practices in Delaware and SDNY for appearing without local counsel, and (c) recognizing those situations where outside counsel should retain local counsel, even if is allowed to operate on their own under the applicable rules. 

Panelists for this webinar will include Paul Hage (Jaffe Raitt Heuer & Weiss of Southfield, Mich.), David Banker (Lowenstein Sandler LLP in New York) and Lucian Murley (Saul Ewing LLP in Wilmington, Del.).

Register now!

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