In re Inc.

• Decision Date: 19 August 2011
• Docket Number: No. 10–14548–JMD.,10–14548–JMD.
• Citation: 55 Bankr.Ct.Dec. 94,66 Collier Bankr.Cas.2d 84,455 B.R. 353,2011 BNH 010
• Parties: In re MOMENTA, INC., Debtor.
• Court: U.S. Bankruptcy Court — District of New Hampshire

455 B.R. 353

66 Collier Bankr.Cas.2d 84

55 Bankr.Ct.Dec. 94

2011 BNH 010

In re MOMENTA, INC., Debtor.

No. 10–14548–JMD.

United States Bankruptcy Court, D. New Hampshire.

Aug. 19, 2011.

Charles R. Bennett, Jr., Esq., Christopher M. Condon, Esq., John C. Elstad, Esq., Murphy & King P.C., Boston, MA, for Debtor.David E. LeFevre, Esq., Hage & Hodes, P.A., Manchester, NH, for Ningbo Chenglu Paper Products Manufacturing Co.

MEMORANDUM OPINION

J. MICHAEL DEASY, Bankruptcy Judge.I. INTRODUCTION

Ningbo Chenglu Paper Products Manufacturing Co. (“Ningbo”) filed a Motion for Payment of Administrative Expenses (Doc. No. 73) (the “Motion”). The United States Trustee (“UST”) and Momenta, Inc. (the “Debtor”) filed objections to the Motion (Doc. Nos. 85 and 86) (the “Objections”). The Court held a hearing on February 23, 2011, and continued the matter to April 7, 2011. At the conclusion of the April 7 hearing, the Court directed the parties to file a proposed scheduling order to resolve the issues (Doc. No. 133). On April 15, 2011, the Court entered a scheduling order that directed the Debtor and Ningbo to file a stipulation of facts and for each party to file a memorandum of law in support of its position (Doc. No. 141). Ningbo filed its memorandum of law on May 12, 2011 (Doc. No. 161) (“Ningbo's Memo”) and the Debtor filed its memorandum of law on May 23, 2011 (Doc. No. 163) (“Debtor's Memo”). After the memoranda of law were filed, the Court took the matter under advisement.

Neither party submitted a stipulation of facts. However, Ningbo's Memo and the Debtor's Memo do contain mutual assertions of fact which are not disputed. Accordingly, the Court shall treat all mutually asserted undisputed facts as the factual record for the purposes of this decision. See In re Doolan, 447 B.R. 51, 57 (Bankr.D.N.H.2011). The Court will use this factual record to determine the following issues of law: (1) whether Ningbo should be allowed an administrative expense claim pursuant to 11 U.S.C. § 503(b)(9) because the Debtor received goods from Ningbo within twenty days of the bankruptcy petition, and (2) whether any administrative expense claim held by Ningbo should be disallowed under 11 U.S.C. § 502(d) because Ningbo was allegedly the recipient of a transfer avoidable under 11 U.S.C. § 547.

This Court has jurisdiction of the subject matter and the parties pursuant to 28 U.S.C. §§ 1334 and 157(a) and the “Standing Order of Referral of Title 11 Proceedings to the United States Bankruptcy Court for the District of New Hampshire,” dated January 18, 1994 (DiClerico, C.J.). This is a core proceeding in accordance with 28 U.S.C. § 157(b).

II. FACTS

Based on the record, the Court makes the following findings. The Debtor filed a petition under chapter 11 of the Bankruptcy Code ¹ on October 23, 2010. On December 6, 2010, Ningbo filed the Motion seeking the allowance of an administrative expense claim of $163,527.95.² The Motion concerns goods that were ordered by the Debtor from Ningbo and delivered to the Debtor or its customers. The orders are detailed in six invoices attached both to the Motion and Ningbo's Memo and described in the Debtor's Memo. Invoices 4095 and 4096 detail shipments of goods from Ningbo, China to the Debtor's customer in Felixstowe, United Kingdom with balances due in the amount of $39,281.04 and $39,024.72 respectively. Invoice 4093 details a shipment of goods from Ningbo, China to the Debtor's customer in Southampton, United Kingdom with a balance due in the amount of $57,780. Invoice 4090 details a shipment of goods from Ningbo, China to the Debtor's customer in Montreal, Canada and has a balance due in the amount of $6,250.92. There is no record as to what happened to the shipments in invoices 4095, 4096, 4093 and 4090 (the “Drop Shipments”) when they arrived at Felixstowe, Southampton, and Montreal (i.e. were they placed in a warehouse, held by a customs agent, delivered to a common carrier, held by a bailee, etc.). In addition, samples worth $1,873.68 were delivered directly to the Debtor as part of the Drop Shipments (“Samples”). Finally, goods in invoices 4104 and 4102 were delivered to the Debtor's warehouse and the invoices have balances due in the amount of $1,529.91 and $19,661.36 respectively. The total balance due on all of the invoices is $163,527.95.

The Debtor concedes that all of the shipments were received within twenty days of the petition date.³ The Debtor further concedes that the Samples, invoice 4104, and invoice 4102 give rise to an administrative expense claim of $23,070.95 since they were received by the Debtor within twenty days of the petition date. The parties dispute whether the Drop Shipments were “received by the debtor” within twenty days of the petition date within the meaning of § 503(b)(9) and whether any administrative expense claim should be disallowed under § 502(d). The definition of “received by the debtor” as used in § 503(b)(9) and the applicability of § 502(d) to administrative expense claims are issues of law.

III. DISCUSSION

The Court will first address whether the Drop Shipments were “received by the debtor” under § 503(b)(9), giving rise to an administrative expense claim, and then whether any administrative expense claim arising under § 503(b)(9) may be disallowed under § 502(d) due to an alleged preference claim against Ningbo.

A. Received by the Debtor

Administrative expense claims are allowed under the provisions of § 503 of the Bankruptcy Code. “An entity may timely file a request for payment of an administrative expense claim.” 11 U.S.C. § 503(a). After notice and a hearing, the administrative expense claim shall be allowed for any items listed in subsection (b). 11 U.S.C. § 503(b). Allowance of an administrative expense claim may be a material event in a chapter 11 case. Unless otherwise agreed, the holder of an administrative expense claim must receive cash equal to the amount of their claim on the effective date of the plan. 11 U.S.C. § 1129(a)(9)(A). As a result, allowance of a significant administrative expense claim may require a chapter 11 debtor to have a large cash reserve available on the date of confirmation. See In re Plastech Engineered Prods., Inc., 394 B.R. 147, 151 (Bankr.E.D.Mich.2008).

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) added three new categories of administrative expense claims to § 503(b). Among the new categories is § 503(b)(9), which grants an administrative expense claim for “the value of goods received by the debtor within 20 days before the date of commencement of a case under this title in which goods have been sold to the debtor in the ordinary course of such debtor's business.” 11 U.S.C. § 503(b)(9) (emphasis added). The new subsection elevates certain prepetition unsecured obligations to a seller of goods, who would otherwise only have a general unsecured claim, to a priority administrative expense claim. Despite the potential significance of this additional priority administrative expense, there is little legislative history regarding the addition of § 503(b)(9). Id.

The phrase “received by the debtor” is not a term of art nor is it a defined phrase in the Bankruptcy Code. The dispute in this case involves the meaning of this phrase. In determining the meaning of the phrase, a “court should not confine itself to examining a particular statutory provision in isolation. The meaning—or ambiguity—of certain words or phrases may only become evident when placed in context.” F.D.A. v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 132, 120 S.Ct. 1291, 146 L.Ed.2d 121 (2000) (citations omitted).

It is a “fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme.” A court must therefore interpret the statute “as a symmetrical and coherent regulatory scheme,” and “fit, if possible all parts into a harmonious whole.”

Id.

The context of the Bankruptcy Code provides a direct link to the origin and purpose of the phrase. Section 503(b)(9) is directly referenced in 11 U.S.C. § 546(c). Section 546(c)(1) addresses a seller's right of reclamation and § 546(c)(2) states that “[i]f a seller of goods fails to provide notice in the manner described in paragraph (1), the seller may still assert the rights contained in section 503(b)(9).” Therefore, § 503(b)(9) provides a seller, who did not comply with the notice requirements of § 546(c)(1), an alternative remedy to reclamation. Furthermore, the section of BAPCPA that created § 503(b)(9) was titled “Reclamation” and was the same section that amended § 546(c). In addition, pre-BAPCPA caselaw provides further evidence that §§ 503(b)(9) and 546(c) are closely related. When Congress amends bankruptcy laws, “it does not write on a clean slate” and courts should not effect major changes without at least some discussion in the legislative history. In re Dana Corp., 367 B.R. 409, 417 (Bankr.S.D.N.Y.2007) (citing Dewsnup v. Timm, 502 U.S. 410, 419, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992)). Prior to the enactment of BAPCPA, there were multiple decisions where courts granted sellers administrative expense claims as a substitute to the right of reclamation. See e.g., Flav–O–Rich, Inc. v. Rawson Food Serv., Inc. (In re Rawson Food Serv., Inc.), 846 F.2d 1343 (11th Cir.1988); Collingwood Grain, Inc. v. Coast Trading Co, (In re Coast Trading Co.), 744 F.2d 686 (9th Cir.1984); In re Lawrence Paperboard Corp., 52 B.R. 907 (Bankr.D.Mass.1985); Party Packing Corp. v. Rosenberg (In re Landy Beef Co.), 30 B.R. 19 (Bankr.D.Mass.1983). These pre-BAPCPA decisions establish a long history connecting administrative expense claims to the right of reclamation. Therefore, based on the express language of the Bankruptcy Code, its legislative history, and pre-BAPCPA practice, §§ 503(b)(9) and 546(c) are related provisions that should be read together.

Since Article 2 of the...