In re Ti Acquisition, LLC

• Decision Date: 06 May 2009
• Docket Number: No. 08-42370-MGD.,08-42370-MGD.
• Citation: 410 B.R. 742
• Parties: In re TI ACQUISITION, LLC, Debtor. Southern Polymer, Inc., Movant, v. TI Acquisition, LLC, Respondent.
• Court: U.S. Bankruptcy Court — Northern District of Georgia

410 B.R. 742

In re TI ACQUISITION, LLC, Debtor.

Southern Polymer, Inc., Movant, v. TI Acquisition, LLC, Respondent.

No. 08-42370-MGD.

United States Bankruptcy Court, N.D. Georgia, Rome Division.

May 6, 2009.

Richard T. Klingler, Richard C. Kennedy, for Debtor.

J. Robert Williamson, attorney for Southern Polymer, Inc.

Thomas R. Walker, attorney for Bank of America, N.A. Martin P. Ochs, attorney for the U.S. Trustee Brendan G. Best, Chris D. Phillips, Margaret O. Rentz, attorneys for the Official Committee of Unsecured Creditors.

ORDER ALLOWING SOUTHERN POLYMER, INC'S SECTION 503(b)(9) ADMINISTRATIVE EXPENSE CLAIM AND DENYING IMMEDIATE PAYMENT THEREOF

MARY GRACE DIEHL, Bankruptcy Judge.

This matter is before the Court on the Motion of Southern Polymer, Inc. ("SPI") for Allowance and Immediate Payment of Administrative Expense Claim Pursuant to 11 U.S.C. § 503(b)(9) (the "Motion"). (Docket No. 96). The Motion is supported by the Committee of Unsecured Creditors (the "Committee") and opposed by Debtor TI Acquisition, LLC ("Debtor"), and Debtor's major secured creditor, Bank of America, N.A. ("BOA"). For the reasons set forth herein, the Court determines that SPI is entitled to an allowed administrative expense under 11 U.S.C. § 503(b)(9) but that immediate payment of that claim is denied. The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. This is a core proceeding under 28 U.S.C. § 157(b)(2).

I. FINDINGS OF FACT

An evidentiary hearing on SPI's Motion was held before the Court on February 3, 2008. The Court heard testimony from Harry G. Watson, SPI's comptroller, John W. Everett, former Chief Operating Officer of Debtor, and Wayman Carroll, Debtor's former comptroller. Documents tendered by SPI and Debtor were admitted into evidence without objection from any party. The relevant evidence is summarized herein.

The following basic facts are not in dispute. Debtor filed its Chapter 11 case on July 27, 2008 (the "Petition Date"). Within the twenty days preceding the Petition Date, SPI made two shipments of plastic resin to Debtor with a total invoice price of $302,512.06. These shipments were received by Debtor on July 11, 2008, and July 22, 2008, and were invoiced by SPI for $154,840.00 and $147,672.00, respectively. Each shipment consisted of a railcar filled with plastic resin. The shipments varied in price because of a slight weight difference and because the price per pound of material is a variable market price.

The parties also agree that Debtor made payments to SPI during this same period. On July 10, 2008, Debtor made a payment to SPI in the amount of $135,610.00 and on July 23, 2008, Debtor made a payment to SPI in the amount of $144,300.00. These respective payments were applied by SPI to Invoice No. 053767 dated April 24, 2008, in the amount of $135,610.00 and Invoice No. 054054 dated April 28, 2008, in the amount of $144,300.00. Invoice Nos. 053767 and 054054 represented the oldest outstanding invoices owed by Debtor to SPI.

The terms stated on SPI's invoice to Debtor were NET 30 DAYS. Debtor did not pay according to such terms in the months leading up to the Petition Date. Debtor had an initial credit limit with SPI of approximately $1.0 million. As of the Petition Date, however, SPI had actually extended $1.3-1.4 million in credit to Debtor. There was no written agreement between the parties. The evidence, however, established that the standard practice between the parties was for Debtor to issue a check to SPI at approximately the same time as Debtor placed a new order for material. Debtor placed orders by phone and told SPI that a check would be forthcoming. SPI did not wait for the receipt of a check but, instead, relied upon the Debtor's historical conduct and verbal promise of payment. SPI reasoned that the credit limit would not be exceeded in any significant way by the new shipment with Debtor's regular practice of promptly sending checks as promised.

The practice was described as by the parties as a "one for one" exchange. Debtor would receive one railcar of resin and would pay for one railcar of resin. Debtor would issue a check in the amount corresponding to the oldest outstanding invoice, and SPI would apply it to the invoice number noted on the check. SPI would release the new railcar of resin before the check from Debtor had cleared the bank or, in some cases, before the check was even received.

On December 19, 2008, the Court set the bar date for administrative expense claims as February 15, 2009. (Docket No. 250). SPI had filed the Motion on August 12, 2008. In addition, SPI also filed a Proof of Claim (Claim No. 140) on December 26, 2008, and filed an Amended Claim on January 12, 2009. The claim is in the total amount of $1,329,787.00 and states that $302,512.00 of the claim is subject to priority under 11 U.S.C. § 507(a)(2). SPI's Proof of Claim included supporting documentation, including invoices dated July 11, 2008, and July 22, 2008, for two shipments that were received by Debtor within twenty days before the Petition Date.

There is no substantial dispute in the testimony of the witnesses or the documentary chain shown by the series of invoices and check copies that were admitted into evidence. The parties disagree, however, about how this factual pattern interacts with § 503(b)(9) of the Bankruptcy Code, whether § 502(d) is applicable, and whether immediate payment of the claim is appropriate.

II. THE HISTORY AND APPLICATION OF § 503(b)(9)

Section 503(b)(9) was added to the Bankruptcy Code by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"). Section 503 is entitled "Allowance of Administrative Expenses" and subsection 503(b) details nine types of expenses which are to be allowed as administrative expenses and therefore are entitled to priority under § 507(a)(2). This list is non-exclusive since it is prefaced by the word "including." E.g., In re Thompson, 67 B.R. 1, 2 (Bankr.N.D.Ohio 1984). Section 503(b)(9) encompasses "the value of any goods received by the debtor within 20 days before the date of commencement of a case under this title in which the goods have been sold to the debtor in the ordinary course of business." While most of the other paragraphs in § 503(b) are expenses incurred by the debtor post-petition, § 503(b)(9) joins §§ 503(b)(3)(A), 503(b)(3)(E) and 503(b)(4) in describing pre-petition expenses that are to be accorded administrative expense priority. Unlike the other pre-petition expense sections, the applicability of § 503(b)(9) is not limited to involuntary bankruptcy cases or those cases involving the appointment of a receiver. Rather, § 503(b)(9) is structured to have general applicability to most Chapter 11 cases.

The treatment of expenses in § 503(b)(9) appears to be an outgrowth of the policy that first appeared in 11 U.S.C. § 546(c), which preserved the right of reclamation to certain sellers of goods on credit. BAPCPA included both the addition of § 503(b)(9) and the amendment of § 546(c). The combination of these changes suggests that Congress intended to recognize a reclamation right for sellers that was no longer exclusively dependent upon state law. Alternatively, and at a minimum, these two changes to the Bankruptcy Code expanded certain aspects of state law reclamation. See In re Dana Corp., 367 B.R. 409 (Bankr.S.D.N.Y.2007) (rejecting the creation of an independent federal right); COLLIER ON BANKRUPTCY ¶ 546.04[2] (15th rev. ed.) (explaining that the amendment's deletion of the language "any statutory or common law" could serve no purpose if not to uncouple bankruptcy right of reclamation from state law). Prior to BAPCPA, § 546(c) provided for an administrative priority claim for reclaiming sellers who were denied a right of reclamation by the court. BAPCPA deleted that portion of § 546(c)(2) and added § 503(b)(9), thus according protection to sellers of goods on credit in the period immediately preceding the filing of a bankruptcy petition, regardless of whether the technical requirements for reclamation were met. While no legislative history exists, one can only surmise that these amendments reflect Congress' intent to better insure that ordinary course of business sellers of goods received by the debtor in the twenty days before the petition date gain priority in payment over most other creditors.

Since BAPCPA was enacted, bankruptcy courts have considered some issues raised by § 503(b)(9). The court in Brown & Cole Stores, LLC, held that a secured claim could qualify as an administrative expense claim under amended § 503(b)(9). In re Brown & Cole Stores, LLC, 375 B.R. 873, 878 (9th Cir. BAP 2007). Recently, the bankruptcy court for the district of Delaware held that the administrative priority provided by § 503(b)(9) is limited to goods received by the debtor in the twenty days preceding bankruptcy. In re Goody's Family Clothing, Inc., 401 B.R. 131, 134-135 (Bankr.D.Del.2009) (denying administrative expense status under § 503(b)(9) for services provided to the debtor within 20 days proceeding the bankruptcy filing). Similarly, in Plastech Engineered Products, Inc., the court relied on the U.C.C. definition for goods when it held that claimants with mixed goods and services claims would only hold allowed priority claims for the goods portion of the claims. In re Plastech Eng'r Prods., Inc., 397 B.R. 828, 838 (Bankr.E.D.Mich.2008). In Global Home Products, LLC, the court addressed the issue of the timing of payment on § 503(b)(9) claims. There, the court noted that § 503(b)(9) does not specify a time for payment, yet § 1129(a)(9) requires that administrative expense claims, be paid in full on the effective date of the plan. In re Global Home Prods., LLC, 2006 WL 3791955 (Bankr.D.Del. Dec.21, 2006). The court also considered three factors in determining how to exercise its discretion on the timing of payment of an administrative expense claim: (1) the prejudice to...