In re Goody's Family Clothing Inc.
| Decision Date | 06 February 2009 |
| Docket Number | No. 08-11133 (CSS).,08-11133 (CSS). |
| Citation | 401 B.R. 131 |
| Parties | In re GOODY'S FAMILY CLOTHING, INC., et al., Debtors. |
| Court | U.S. Bankruptcy Court — District of Delaware |
Gregg M. Galardi, Marion M. Quirk (Argued), Skadden, Arps, Slate, Meagher & Flom, LLP, Wilmington, DE, for Debtors and Debtors in Possession.
Michael E. Goddard (Argued), Added Value Services, Inc., Decatur, TN, President of Added Value Services.
Before the Court is the Third Omnibus (Non-Substantive) Objection of the Reorganized Debtors to Misclassified 503(b)(9) Claims (the "Objection") filed by Goody's Family Clothing, Inc. and its affiliates (collectively, the "Debtors"). The Debtors argue that the claim of Added Value Services, Inc. ("AVS") is misclassified as an administrative claim under section 503(b)(9) of the Bankruptcy Code, which provides for an allowed administrative claim for the value of goods received by a debtor within 20 days of the bankruptcy filing because AVS provided services to the Debtors rather than selling "goods."
The Court finds that AVS's services do not constitute "goods" within the meaning of section 503(b)(9) and, thus, it is not entitled to an administrative claim under that section.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. Venue of this proceeding is proper in this district pursuant to 28 U.S.C. §§ 1408 and 1409. This is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2).
On June 9, 2008 (the "Petition Date"), the Debtors filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code.3 The Debtors are a moderately priced family apparel retailer, which, as of the Petition Date, operated approximately 350 stores in small to midsize markets throughout the United States.
AVS was one of Debtors' vendors, providing certain services, including inspecting, ticketing, and repackaging apparel purchased from other vendors. During the twenty days prior to the Petition Date, AVS submitted the following invoices to Debtors:
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Invoice # Invoice Date Amount Due Description
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8119 5/20/2008 $21,028.70 Remove bags, ticket, assort and pack
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8120 5/20/2008 $ 4,459.00 Unbag, ticket, assort and pack
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8145 5/30/2008 $ 8,707.80 Inspect Polos
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8146 5/30/2008 $ 6,861.60 Inspect Polo
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8147 5/30/2008 $ 6,646.20 Inspect Polos
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8148 5/30/2008 $ 7,634.40 Inspect Polos
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8149 5/30/2008 $ 7,780.80 Inspect Polos
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Total $63,118.50
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AVS timely asserted an administrative claim, pursuant to 11 U.S.C. § 503(b)(9), in the amount of $63,118.50.
Debtors filed the Objection asserting, inter alia, that AVS's claim is misclassified as a 503(b)(9) claim since the basis for that claim is services provided to the Debtors, not goods sold. AVS filed a response. The Court convened a hearing and, at the conclusion of that hearing, the Court took the matter under advisement and requested post-hearing briefing. The requested briefing is complete and this matter is ripe for decision.
Section 503(b)(9) provides:
(b) After notice and a hearing, there shall be allowed administrative expenses . . . including—
(9) 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.4
The language of the statute provides for the allowance of an administrative claim provided the claimant establishes: (1) the vendor sold "goods" to the debtor; (2) the goods were received by the debtor within twenty days prior to filing; and (3) the goods were sold to the debtor in the ordinary course of business.5 In this case, the Debtors argue that the services AVS provided to the Debtors do not constitute "goods" within the meaning of section 503(b)(9) and, therefore, AVS's claim is improperly classified. The Court agrees.
Resolving the meaning of section 503(b)(9) begins with the language of the statute itself.6 The right to a 503(b)(9) administrative expense is limited to vendors of "goods."7 However, "goods" is not defined in the Bankruptcy Code. "When Congress amends the bankruptcy laws, it does not write `on a clean slate.'"8 Rather, "where words are employed in a statute which had at the time a well-known meaning at common law or in the law of this country, they are presumed to have been used in that sense."9
Article 2 of the Uniform Commercial Code ("UCC") governs sales of goods in 49 states.10 Section 2-105(1) provides the following definition:
"Goods" means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (chapter 8 of this title) and things in action. "Goods" also includes the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be severed from realty (§ 47-2-107).11
Use of the UCC Article 2's definition of "goods" in interpreting section 503(b)(9) is suggested in a leading treatise12 and has been adopted by bankruptcy courts examining this issue.13 Given the near unanimous nationwide adoption of Article 2 of the UCC, the Court concludes that the term "goods" in section 503(b)(9) conforms with the meaning given in U.C.C. § 2-105(1); "goods" are something that is "moveable."14 This approach is supported by the perhaps surprising fact that the definition of "goods" set forth in the UCC is consistent with the ordinary, "non legal" meaning of the word: "property or possessions; esp. moveable property."15
In addition, the construction of the Bankruptcy Code itself excludes services from the meaning of the term "goods." The term "goods" appears throughout the Bankruptcy Code disjunctively connected with the term "services":
• The term `bankruptcy assistance' means any goods or services sold or otherwise provided.16
• The term "security"—does not include—debt or evidence of indebtedness for goods sold and delivered or services rendered.17
• The term `luxury goods or services' does not include goods or services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor.18
• "new value" means money or money's worth in goods, services, or new credit.19
• [Court may order appointment of examiner if] the debtor's fixed, liquidated, unsecured debts, other than debts for goods, services, or taxes, or owing to an insider, exceed $5,000,000.20
"Canons of construction ordinarily suggest that terms connected by a disjunctive be given separate meanings, unless the context dictates otherwise."21 Since the term "goods" and the term "services" are disjunctively connected throughout the Bankruptcy Code, these terms must be ascribed separate meanings; "goods" cannot include services. The use of the term "goods" in section 503(b)(9) must have the same meaning as is has throughout the Bankruptcy Code.22 Therefore, under the plain meaning of the term "goods" in both the UCC and the English language and based upon the distinction between "goods" and "services" throughout in the Bankruptcy Code, a claim for an administrative expense under section 503(b)(9) cannot be a claim for services provided.
In this case, the invoices that are the basis for AVS's claim are for: (1) the inspection of garments that the Debtors purchased from another vendor; and (2) unpacking, ticketing, assorting and repackaging garments the Debtors purchased from another vendor. Such activities do not qualify as "goods" within the meaning of section 503(b)(9). Under the definition of goods in the UCC section 2-105(1), "goods" must be moveable. Here, although AVS performed the activities that constitute the basis of the claim on "things which are moveable," the actual activities AVS "sold" are properly characterized as intangible services. Furthermore, since the structure of the Bankruptcy Code specifically excludes services from "goods," the services AVS performed are not "goods."
AVS argues it "did ship goods to the Debtors." This assertion is correct; the return of the garments after AVS performed its inspection, tagging, and packaging services requires shipping of the actual garments. However, section 503(b)(9) does not provide for the allowance of an administrative claim for goods shipped. Instead, section 503(b)(9) allows an administrative claim for goods sold. At the hearing, AVS admitted that Debtors were invoiced separately for the garments from the garment distributor. Although AVS had possession of the garments, and shipped the garments to Debtors, AVS never had title to the garments, and thus did not sell the garments to Debtors.23
The Court therefore concludes that AVS did not sell "goods" to the Debtors.24 Accordingly, AVS's claim is misclassified as an administrative expense under section 503(b)(9) and the Objection is sustained.
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