In re Commissary Operations, Inc.
| Citation | 421 B.R. 873 |
| Decision Date | 07 January 2010 |
| Docket Number | Adversary No. 309-00306A.,Adversary No. 309-00309A.,Adversary No. 309-00282A.,Adversary No. 309-00287A.,Adversary No. 309-00327A.,Adversary No. 309-00301A.,Adversary No. 309-00295A.,Adversary No. 309-00332A.,Adversary No. 309-00297A.,Bankruptcy No. 308-06279.,Adversary No. 309-00300A.,Adversary No. 309-00280A.,Adversary No. 309-00315A.,Adversary No. 309-00290A.,Adversary No. 309-00303A. |
| Parties | In re COMMISSARY OPERATIONS, INC., Debtor. Commissary Operations, Inc., Plaintiff, v. Dot Foods, Inc., Sugar Foods Corporation, Arcobasso Foods, Inc., New City Packing Company, Inc., SCA Tissue North America, LLC, H.J. Heinz Company, L.P., Georgia Pacific Consumer Products, LP, et al, Ecolab, Inc., Conagra Foods, Inc., et al, National Steak Processors, Inc., d/b/a National Steak And Poultry, Allen's, Inc., Rocky Mountain Natural Meats, Inc., Superior Dairy, Inc., and Ryder Truck Rental, Inc., Defendants. |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Middle District of Tennessee |
Barbara Dale Holmes, David Phillip Canas, Glenn Benton Rose, Glenn Benton Rose, John F. Blackwood, Renee M. Bacon, Tracy M. Lujan, Harwell Howard Hyne Gabbert & Manner, P., Mark A. Baugh, Baker Donelson Bearman et al., Nashville, TN, for Debtor.
Charles M. Walker, Office of U.S. Trustee, Nashville, TN, for U.S. Trustee.
James I. Stang, Jason S. Pomerantz, Pachulski Stang Ziehl & Jones, Los Angeles, CA, Joseph Allen Kelly, Robert J. Mendes, Tara Lesley Kraemer, MgLaw, PLLC, Joseph R. Prochaska, Victoria Ann Ferraro, Prochaska Thompson Ferraro & Quinn, P.C., Nashville, TN, Ronald Clifford, Scott E. Blakeley, Blakeley & Blakeley, LLP, Newport Beach, CA, for Creditor Committee.
This matter came before the Court upon the debtor's motions for declaratory judgment regarding the use of 11 U.S.C. § 503(b)(9) administrative invoices in the 11 U.S.C. § 547(c)(4) subsequent new value defense to a preference claim and the various defendants' objections to the debtor's motions and motions for summary judgment on the same issue.1 As stated in open court and for the following reasons, the Court denies the debtor's motions for declaratory judgment, sustains the defendants' objections to the debtor's motions, and grants the defendants' motions for partial summary judgment.
On July 22, 2008, the debtor filed its voluntary Chapter 11 petition. As of the petition date, the debtor's primary business was the wholesale distribution of food and related items to chain restaurants and restaurant franchisees. The debtor originally intended to reorganize its business, however, due to various post-petition occurrences, the debtor determined in the exercise of its business judgment to wind down its business and liquidate its assets. Over 200 creditors asserted approximately 215 claims for allowance of administrative expenses arising under 11 U.S.C. § 503(b)(9). The debtor then initiated adversary proceedings against several creditors, seeking recovery of alleged preferential transfers made by the debtor within the 90 days prior to the petition date. During a hearing held on September 17, 2009, this Court invited the parties to assert their positions on whether a creditor may reduce its liability by new value provided to a debtor within the 20 days prior to the bankruptcy filing if the creditor also files a § 503(b)(9) administrative claim seeking payment for that new value. Pleadings on this issue were filed in the above-styled adversaries.
The issue in dispute is whether the goods and invoices making up the pending 11 U.S.C. § 503(b)(9) claims may be included in the 11 U.S.C. § 547(c)(4) defense to a preference claim, commonly referred to as the "subsequent new value defense." The debtor argues that they should not be included in the subsequent new value defense, asserting that creditors would receive double value for their § 503(b)(9) invoices: first by receiving administrative expense priority over unsecured creditors, and second by reducing their preference liability by the amount of their § 503(b)(9) invoices, assuming those invoices are for goods provided subsequent to avoidable preferential transfers.
The creditors submit that goods delivered to a pre-petition debtor within the 20 days prior to the petition date benefit the pre-petition debtor and the estate upon a bankruptcy filing. Therefore, the creditors argue that they cannot be excluded from a subsequent new value defense analysis under 11 U.S.C. § 547(c)(4) because: (1) a creditor's ability to file a claim for administrative payment for the value of goods delivered in the 20 days prior to the petition date arises only after the debtor files the bankruptcy petition, and unlike reclamation, affords a creditor only the right to request administrative status, but not to seek return of its deliveries, or otherwise encumber the delivered goods prior to or after the bankruptcy filing; (2) any payment that a creditor may receive on a properly filed § 503(b)(9) claim necessarily occurs after the bankruptcy filing, and because post-petition payments cannot be used to deplete pre-petition new value, any payment a creditor receives, or may hope to receive, on its § 503(b)(9) claim cannot deplete that creditor's new value in a subsequent new value defense to a preference action; (3) applying §§ 503(b)(9) and 547(c)(4) so as not to limit a creditor's new value by the amount of its § 503(b)(9) claim furthers the policy of both provisions to encourage creditors to continue to do business with a troubled debtor; (4) forcing a creditor to choose between its right to administrative expense status under § 503(b)(9) and the statutory defense in § 547(c)(4) runs counter to the long-standing interpretation and treatment of the new value defense; and (5) the plain language of §§ 503(b)(9) and 547(c)(4) and prior case law compel a holding that the new value defense is not reduced by the allowance of an administrative expense claim.
Whether deliveries entitled to a § 503(b)(9) claim status are disqualified from constituting new value for purposes of 11 U.S.C. §§ 547(a)(2) and 547(c)(4) is a question of first impression. In order to decide this issue, the Court must consider and interpret 11 U.S.C. §§ 503(b)(9), 547(a)(2), and 547(c)(4).
"New value" is defined in 11 U.S.C. § 547(a)(2) as "money or money's worth in goods, services, or new credit, or release by a transferee of property previously transferred to such transferee in a transaction that is neither void nor voidable by the debtor or the trustee under any applicable law, including proceeds of such property, but does not include an obligation substituted for an existing obligation." Pursuant to 11 U.S.C. § 547(c)(4), a creditor is protected from avoidance of an allegedly preferential transfer to the extent that after the transfer, the creditor "gave new value to or for the benefit of the debtor." New value helps a creditor reduce its preference liability if that new value is not secured by an otherwise unavoidable security interest. 11 U.S.C. § 547(c)(4)(A). The reasoning behind this limitation is that a debtor "is not enhanced if the new value given after the preferential transfer is subject to liens and would not balance the loss caused by the preferential transfer." Phoenix Rest. Group, Inc. v. Proficient Food Co. (In re Phoenix Rest. Group, Inc.), 373 B.R. 541, 547 (M.D.Tenn.2007).
Section 503(b)(9) provides that an allowed administrative expense includes "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 such debtor's business." A creditor's right to assert an administrative expense claim under 11 U.S.C. § 503(b)(9) is not linked to or conditioned upon the creditor's separate, potential right to assert a reclamation claim against the debtor pursuant to 11 U.S.C. § 546(c). See ASM Capital, LP v. Ames Dep't Stores, Inc. (In re Ames Dep't Stores, Inc.), 582 F.3d 422, 424 n. 2 (2d Cir.2009) () (citation omitted). While 11 U.S.C. § 503(b)(9) affords a creditor the opportunity to receive payment for goods delivered within the 20-day period before the bankruptcy filing, it does not allow a creditor to claim a lien or otherwise repossess those delivered goods. In other words, it is not a reclamation claim.
As stated earlier, there are no reported decisions specifically addressing whether payment of a § 503(b)(9) claim precludes the claimant from asserting a new value defense based upon the related 20-day goods delivered to the debtor. However, in Phoenix Rest. Group, Inc. v. Proficient Food Co. (In re Phoenix Rest. Group, Inc.), the District Court agreed with the bankruptcy court and determined that the amount of a preference defendant's reclamation claim can be used to deplete that defendant's new value because the defendant "essentially kept strings on those goods and thus, the goods subject to reclamation did not enhance [the debtor]...." 373 B.R. 541, 547. The District Court adopted the bankruptcy court's reasoning that:
[G]oods shipped on the eve of bankruptcy that are subject to reclamation are not the same "money or money's worth, as goods shipped free of the seller's strings." See 11 U.S.C. § 547(a)(2). In the same sense that goods subject to a PACA trust do not enhance the debtor because the value of those goods is held in trust for the growers and shippers, goods subject to reclamation do not enhance the debtor to the extent the value of those goods can be reclaimed.
Id. at 548 (citation omitted).
In other words, in In re Phoenix Rest. Group, Inc., the District Court...
To continue reading
Request your trial
-
Gonzales v. Sun Life Ins. Co. (In re Furr's Supermarkets, Inc.)
...debtor” with an otherwise unavoidable transfer. 11 U.S.C. § 547(c)(4)(B).See also Commissary Operations, Inc. v. Dot Foods, Inc. (In re Commissary Operations, Inc.), 421 B.R. 873, 878 (Bankr.M.D.Tenn.2010), in which a different judge from the Middle District of Tennessee Bankruptcy Court ru......
-
In re Circuit City Stores, Inc.
...§ 503(b)(9) nor § 547(c)(4) states that the provisions are mutually exclusive. Citing Commissary Operations v. Dot Foods, Inc. (In re Commissary Operations, Inc.), 421 B.R. 873, 879 (M.D.Tenn.2010), Movants argue that the plain language of the Code permits a § 503(b)(9) Claimant both to see......
-
In Re: Circuit City Stores Inc.
...or an administrative claim. 20. The court in TI Acquisition noted that it did not agree with the analysis contained in Commissary Operations v. DOT Foods Inc., (In re Commissary Operations), 421 B.R. 873, 877-79 (Bankr. M.D. Tenn. 2010), in which the court found that reclamation claims and ......
-
PMCM 2, LLC v. Fabric Sources, Inc. (In re Beaulieu Grp., LLC)
...payments made by the debtor do not affect the creditor's preference liability); Commissary Operations, Inc. v. Dot Foods, Inc. (In re Commissary Operations, Inc.) , 421 B.R. 873, 878-79 (Bankr. M.D. Tenn. 2010) (a § 503(b)(9) claim does not reduce the availability of the new value defense) ......
-
First Impressions: The Eleventh Circuit Examines 20-Day Administrative Expense Claims And The Subsequent New Value Preference Defense
...claim under section 503(b)(9), but not both, whereas others have ruled to the contrary. Compare In re Commissary Operations, Inc., 421 B.R. 873, 878-89 (Bankr. M.D. Tenn. 2010) (holding that payment under section 503(b)(9) does not impact the subsequent new value defense), with PMCM2, LLC v......
-
Protecting What You Have, Pursuing What You're Owed: Eleventh Circuit Rules That Distributions On Section 503(b) (9) Claims Do Not Reduce The New Value Defense To Preferences
...transfer" that did not qualify as new value). 11. Commissary Ops., Inc. v. Dot Foods, Inc. et al. (In re Commissary Ops. Inc.), 421 B.R. 873 (Bankr. M.D. Tenn. 2010) (denying the plaintiff's request in more than a dozen adversary proceedings for declaratory judgment that goods delivered to ......
-
Nick Sears, Defeating the Preference System: Using the Subsequent New Value Defense and Administrative Expense Claims to ?double Dip?
...in the ordinary course of such debtor’s business.”).Commissary Operations, Inc. v. Dot Foods, Inc. (In re Commissary Operations, Inc.), 421 B.R. 873, 879 (Bankr. M.D. Tenn. 2010).Id.However, less than a year later, the bankruptcy court for the Northern District of Georgia encountered the sa......
-
Bankruptcy
...Id. at 1282.285. Id.286. Id.287. Id. at 1283. See also Commissary Operations, Inc. v. Dot Foods, Inc. (In re Commissary Operations), 421 B.R. 873 (Bankr. M.D. Tenn. 2010); TI Acquisition, LLC v. S. Polymer, Inc. (In re TI Acquisition, LLC), 429 B.R. 377 (Bankr. N.D. Ga. 2010); In re Circuit......