In re Pilgrim's Pride Corp.

• Decision Date: 16 September 2009
• Docket Number: No. 08-45664 (DML).,08-45664 (DML).
• Citation: 421 B.R. 231
• Parties: In re PILGRIM'S PRIDE CORPORATION, et al., Debtors.
• Court: U.S. Bankruptcy Court — Northern District of Texas

421 B.R. 231

In re PILGRIM'S PRIDE CORPORATION, et al., Debtors.

No. 08-45664 (DML).

United States Bankruptcy Court, N.D. Texas, Fort Worth Division.

September 16, 2009.

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David William Parham, Baker & McKenzie LLP, Gary T. Holtzzer, Martin A. Sosland, Stephen A. Youngman, Weil, Gotshal & Manges LLP, Dallas, TX, Elisa R. Behar Lemmer, New York, NY, Jerrell Keith Stanley, Fairchild Price Haley & Smith, LLP, Nacogdoches, TX, Victoria Vron, Weil Gotshal & Manges LLP, New York, NY, for Debtors.

Memorandum Opinion

D. MICHAEL LYNN, Bankruptcy Judge.

Before the court is Debtors' Omnibus Response To Section 503(b)(9) Claims (the "Response") in which Debtors object to certain claims made under section 503(b)(9) of the Bankruptcy Code (the "Code") (11 U.S.C. §§ 101 et seq.) by trucking, electric, water, and gas companies.¹ In the Response, Debtors objected to the section 503(b)(9)² claims by trucking companies Stanley Freight, LLC ("Stanley"), S. Easley Trucking, Inc., and Chuck's Transport, Inc. (collectively the "Trucking Companies"). Debtors also objected to the section 503(b)(9) claims of the City of Nacogdoches (the "City") a provider of, inter alia, water and Claiborne Electric Cooperative, Inc., an electricity provider (the "Electricity Provider"). Finally, Debtors objected to the section 503(b)(9) claims of gas utility companies Center-Point Energy Services, Inc., Piedmont Natural Gas, Atmos Energy Corp., Atmos Energy Marketing, LLC, and Marshall County Gas District (collectively the "Gas Providers," and with the Trucking Companies, the City, and the Electricity Provider, the "503(b)(9) Claimants").

Stanley, the City, the Electricity Provider, Marshall County Gas District, Atmos Energy Corp., Atmos Energy Marketing, LLC, and CenterPoint Energy Services, Inc., all filed replies to the Response (each individually a "Reply," and collectively the "Replies"). Debtors then filed Debtors' Omnibus Reply to Section 503(b)(9) Objections (the "Debtors' Reply"). A hearing (the "Hearing") was held on July 21, 2009, during which the court heard argument from Debtors and various of the 503(b)(9) Claimants.

The court exercises core jurisdiction over this contested matter pursuant to 28 U.S.C. §§ 1334 and 157(b)(2)(A), (B), and (O). This memorandum opinion constitutes the court's findings of fact and conclusions of law. FED. R. BANKR.P. 7052 AND 9014.

I. Background

Debtors filed for relief under chapter 11 of the Code on December 1, 2008. Debtors remain in possession of their property and continue operation of their business as provided by sections 1107(a) and 1108 of the Code. Debtors, known within the industry as "chicken integrators," are among the largest producers and marketers of chicken products in the world. They operate numerous plants throughout the United States and employ more than 40,000 persons.

Contemporaneously with commencement of their bankruptcy cases, Debtors filed a motion to establish global procedures for the submission and payment of claims asserting entitlement to administrative priority under Code § 503(b)(9). The court entered an order granting that motion and establishing such procedures (the "Procedures Order") on December 31, 2008. In accordance with the Procedures Order, numerous creditors filed section 503(b)(9) claims, and Debtors filed the Response asking the court to allow some of the claims as presented and to disallow, at least as to priority treatment, all or part of other of the claims for various reasons, inter alia, that some of the claims were not for "goods." Several of the 503(b)(9) Claimants then filed Replies. The court considered the Response, the Replies, and the Debtors' Reply at the Hearing.

II. Discussion

The dispute between Debtors and the 503(b)(9) Claimants concerns whether those claimants qualify for administrative priority treatment pursuant to section 503(b)(9) of the Code. Section 503(b)(9) states:

(b) After notice and a hearing, there shall be allowed administrative expenses, other than claims allowed under section 502(f) of this title, 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.

Thus, to qualify for administrative priority treatment, a claim must be (1) for goods, (2) that are received by the debtor within the 20 days prior to case commencement, and (3) that are sold to the debtor in the ordinary course of its business. In the case at bar, there is no dispute that the claims of the 503(b)(9) Claimants were incurred by Debtors in the ordinary course of their business. Though Debtors have contested some claims made pursuant to section 503(b)(9) based on the 20 day limit or for other reasons, the court is presently concerned only with whether the claims of the 503(b)(9) Claimants are for "goods received by" Debtors.

A. Goods Delivered

1. Definition of Goods

The word "goods," though used throughout the Code, is not defined anywhere within the Code. 4 COLLIER ON BANKRUPTCY ¶ 503.16(1) (15th ed. rev.2008). Because the term is not defined in the Code, courts must look elsewhere to find a definition.³ Many courts have looked to the Uniform Commercial Code's (the "UCC") Article 2 definition when determining what are "goods" for the purpose of section 503(b)(9). See, e.g., In re Goody's Family Clothing, Inc., 401 B.R. 131, 134 (Bankr. D.Del.2009); In re Plastech Engineered Prods., 397 B.R. 828 (Bankr.E.D.Mich. 2008); 4 COLLIER ON BANKRUPTCY ¶ 503.16(1) (15th ed. rev.2008).⁴

Many of the 503(b)(9) Claimants have argued that, in defining goods for purposes of their claims, the court must apply choice of law provisions and look to the definition of goods found within the UCC version adopted by the state with the most significant relationship to a given claim. The court disagrees. Federal law governs the interpretation of federal statutes.⁵ See Kamen v. Kemper Fin. Servs., 500 U.S. 90, 97, 111 S.Ct. 1711, 114 L.Ed.2d 152 (1991); In re Columbia Gas Sys., 997 F.2d 1039, 1056 (3d Cir.1993). While it may find guidance in the UCC in deciding what are "goods,"⁶ the court must also, in construing section 503(b)(9), take account of the need for uniform interpretation of the Code. As the Court of Appeals for the Fifth Circuit has stated, the court should not "apply state law when national uniformity is required." Cent. Pines Land Co. v. United States, 274 F.3d 881, 890 (5th Cir.2001).

Section 503(b)(9) is an extension of the scheme of priorities established by Congress in Code § 507. The constitutional grant of authority by which Congress enacted the Code is to "establish uniform Laws on the subject of Bankruptcies." U.S. Const. art. I § 8, cl. 4. One of the cardinal rules of bankruptcy law is that similarly situated claims should receive the same treatment. See, e.g., Till v. SCS Credit Corp., 541 U.S. 465, 477, 124 S.Ct. 1951, 158 L.Ed.2d 787 (2004); In re Combustion Eng'g, Inc., 391 F.3d 190, 239 (3d Cir.2004) ("The Bankruptcy Code furthers the policy of `equality of distribution among creditors' by requiring that a plan of reorganization provide similar treatment to similarly situated claims."). To apply differing state laws to determine entitlement to priority treatment under section 503(b)(9) would run contrary to the constitutional mandate for uniformity as well as violate this cardinal principle. Thus, while the court agrees that the UCC provides useful guidance in deciding what are "goods," it does not propose to give effect to any differences in local enactments of the UCC or the variances in its interpretation by the courts of the states. The court concludes that the appropriate definition of goods for the purpose of Code § 503(b)(9) is that found in the "model" UCC. Specifically, UCC § 2-105 states:

"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 (Article 8) 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 (Section 2-107).

2. Mixed Goods and Services

The definition of "goods" in Article 2 of the UCC is applicable to contracts for the sale of goods. Numerous courts have struggled with application of Article 2 to contracts where performance is a mixture of the supply of goods and the provision of services. See, e.g., Princess Cruises v. GE, 143 F.3d 828, 832-3 (4th Cir.1998); Triangle Underwriters, Inc. v. Honeywell, Inc., 604 F.2d 737, 742 (2d Cir.1979); Plastech, 397 B.R. at 837-38. As a general rule, many courts have adopted as a test "whether the predominant factor, thrust, or purpose of the contract is the sale of goods or the provision of services." 77A C.J.S. Sales § 12 (2009); see also Princess Cruises, 143 F.3d at 832-3; Triangle Underwriters, 604 F.2d at 742. If the contract is principally directed toward the sale of goods, Article 2 applies; if to the provision of services, it does not.

The court arguably could apply the same test and only find goods provided under a contract principally addressed to delivery of goods to fall within Code § 503(b)(9). This, however, would go beyond the extent to which the UCC may be utilized in construing the Code. Congress, in section 503(b)(9), did not provide any basis for excluding from the section's scope goods delivered pursuant to a contract the primary thrust of which is provision of services. Thus, while the court will look to UCC § 2-105 for the meaning of "goods," it will not limit section 503(b)(9) as do courts considering the term in construing Article 2.⁷

B. Application to 503(b)(9) Claimants

Having adopted a definition for "goods," the court...