In re Plastech Engineered Products, Inc.

• Decision Date: 16 September 2008
• Docket Number: No. 08-42417.,08-42417.
• Citation: 394 B.R. 147
• Parties: In re PLASTECH ENGINEERED PRODUCTS, INC., et al.,<SMALL><SUP>1</SUP></SMALL> Debtors.
• Court: U.S. Bankruptcy Court — Eastern District of Michigan

394 B.R. 147

In re PLASTECH ENGINEERED PRODUCTS, INC., et al.,¹ Debtors.

No. 08-42417.

United States Bankruptcy Court, E.D. Michigan, Southern Division.

September 16, 2008.

Angela Pappas, Gregg Galardi, Mark L. Desgrosseilliers, Matthew Ward, Sarah E. Pierce, Wilmington, DE, Deborah L. Fish, Detroit, MI, for Debtors.

Stephen Edward Spence, United States Trustee, Detroit, MI, for Trustee.

Joel D. Applebaum, Robert D. Gordon, Detroit, MI, for Creditor Committee.

OPINION DETERMINING THAT SECTION 502(d) DOES NOT APPLY TO ADMINISTRATIVE EXPENSES UNDER SECTION 503(b)(9)

PHILLIP J. SHEFFERLY, Bankruptcy Judge.

I. Introduction

This opinion addresses a single legal issue—whether § 502(d) of the Bankruptcy Code may be used to disallow an administrative expense under § 503(b)(9). For the reasons set forth in this opinion, the Court holds that § 502(d) may not be used to disallow a § 503(b)(9) administrative expense.

II. Jurisdiction

The Court has jurisdiction pursuant to 28 U.S.C. §§ 1334(a) and 157(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(B) and (O).

III. Facts

On February 1, 2008, Plastech Engineered Products, Inc. and a number of related entities filed for relief under chapter 11 of the Bankruptcy Code. (Plastech and its related entities are collectively referred to as the "Debtor."). The Debtor was engaged in business as a tier one automotive supplier, designer and maker of blow-molded and injection-molded plastic products. At the time of filing, the Debtor had annual sales approximating $1.2 to $1.3 billion. The Debtor had 36 manufacturing facilities in North America, employed over 7,700 individuals, and had thousands of creditors. This is a large chapter 11 case. In June and July, 2008, the Court approved the sale of most of the Debtor's business operations. Since then, the Debtor has filed a disclosure statement and plan of liquidation and is in the process of liquidating its remaining assets, prosecuting adversary proceedings, resolving claims and otherwise working to wind up this chapter 11 case. An important issue still facing the Debtor is the handling of administrative expenses under new § 503(b)(9) that was added to the Bankruptcy Code by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).

Shortly after filing this case, the Debtor filed a motion (docket entry # 671) requesting an order establishing a bar date for filing requests for payment of § 503(b)(9) administrative expenses, and approving certain procedures for the allowance and payment of such requests. After holding a hearing, the Court granted the Debtor's motion and entered an order (docket entry # 1083) that fixed May 30, 2008 as the bar date, and set forth the form, manner and procedures for filing and responding to these requests. Pursuant to this order (which was subsequently modified at the Debtor's request by order entered on August 1, 2008, docket entry # 2368), the Debtor sent out a notice informing parties of the deadline and procedures for filing § 503(b)(9) administrative expenses.

A number of parties filed motions for allowance and payment of § 503(b)(9) administrative expenses. The Debtor has objected to the § 503(b)(9) motions of the following parties, based upon the application of § 502(d): Vivatar, Inc., NB Coatings USA, Harman Becker Automotive Systems, Inc., Termax Corporation, Dow Chemical Company, Acord Holdings, LLC, KW Plastics, Recycling Division, and Michael A. Stevenson (collectively referred to as " § 503(b)(9) Parties"). Before addressing any other issues raised by the motions filed by the § 503(b)(9) Parties, or by the Debtor's objections to the motions including how § 502(d) might affect any particular § 503(b)(9) administrative expense, the Debtor and the § 503(b)(9) Parties requested that the Court resolve the threshold legal issue of whether § 502(d) even applies to § 503(b)(9) administrative expenses. After consultation with the Debtor and the § 503(b)(9) Parties on the record in open court, the Court fixed a procedure and set a briefing schedule for this issue, holding in reserve all other issues raised by the § 503(b)(9) Parties and the Debtor's objections to their motions. On August 21, 2008, the Court heard oral argument. This opinion addresses only this threshold matter, and is issued without prejudice to any of the other issues raised by the § 503(b)(9) Parties in their motions or in the Debtor's objections to those motions.

IV. The Statutory Framework

"In determining whether Congress has specifically addressed the question at issue, a reviewing 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. 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 an harmonious whole."

Greenbaum v. E.P.A., 370 F.3d 527, 535-36 (6th Cir.2004) (quoting F.D.A. v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 132-33, 120 S.Ct. 1291, 146 L.Ed.2d 121 (2000)).

A. What is a § 503(b)(9) administrative expense?

The starting point to resolve the legal issue before the Court is § 503 of the Bankruptcy Code entitled "Allowance of administrative expenses." Section 503(a) provides that "[a]n entity may timely file a request for payment of an administrative expense...." 11 U.S.C. § 503(a). "Administrative expense" is not defined in the Bankruptcy Code. Section 503(b) provides that, "[a]fter notice and a hearing, there shall be allowed administrative expenses, other than claims allowed under section 502(f) of this title...." Id. § 503(b). Prior to BAPCPA, § 503(b) contained six separate subparagraphs, each describing a category of claims entitled to administrative expense priority under § 503(b). The six categories were expressly made non-exclusive.² BAPCPA added § 503(b)(9) as a new category of administrative expense.³ It allows an administrative expense for "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." Id. § 503(b)(9).

There are a number of remarkable features about this new provision. Prior to BAPCPA, there were only very limited circumstances where a pre-petition obligation of a debtor was treated by § 503 as an administrative expense. For example, § 503(b)(3)(A) granted administrative expense priority to the actual and necessary expenses incurred by a petitioning creditor filing an involuntary bankruptcy petition against a debtor. Similarly, "reasonable compensation for professional services rendered by an attorney or an accountant" to a petitioning creditor was also treated as an expense of administration of a bankruptcy case under § 503(b)(4), even though such compensation was incurred pre-petition. These types of administrative expenses only occur in a very small percentage of cases and typically represent a relatively small portion of a debtor's pre-petition obligations.

In contrast, § 503(b)(9) departs significantly from pre-BAPCPA law by greatly expanding the expenses of administration of a bankruptcy estate. Section 503(b)(9) grants administrative expense priority for the value of goods received by a debtor within 20 days before the commencement of the case where such goods have been sold to the debtor in the ordinary course of its business. The presence of this type of pre-petition debt is far more pervasive than the relatively rare types of pre-petition debts that were previously elevated to expenses of administration under § 503(b)(3) and (4). Further, unlike the narrow application of § 503(b)(3) and (4), § 503(b)(9) applies to all cases, voluntary or involuntary.

A number of consequences flow from the Congressional decision to convert large sums of pre-petition debt to administrative expense priority. The cash needs for a debtor trying to exit chapter 11 by confirming a plan of reorganization are now significantly greater than pre-BAPCPA. This is because of the plan confirmation requirement in § 1129(a)(9)(A) that all administrative expenses be paid in full on the effective date of a plan. A debtor may no longer confirm a plan that provides for payment over time or partial payment for the value of goods received in the debtor's ordinary course of business and received within 20 days before the petition date over the dissent of the holders of such debts. Instead, a debtor must pay those debts in full on the effective date of the plan. In addition to creating a large and potentially insurmountable cash hurdle for a debtor to confirm a plan, § 503(b)(9) also results in significant differences in the treatment of pre-petition debts of creditors who otherwise appear to be similarly situated. Section 503(b)(9) administrative expense priority extends only to the value of goods received by a debtor in the ordinary course of its business within 20 days before the bankruptcy case. It does not extend to the value of services rendered to a debtor during this 20 day time frame. Nor does it extend to the value of goods that a debtor may have received in this time frame if such goods were not received in the ordinary course of a debtor's business. One of the bedrock policies of the Bankruptcy Code is to provide uniform and equal treatment to creditors that are similarly situated. Contrary to this policy, § 503(b)(9) results in disparate treatment to parties that have each extended prepetition unsecured credit to a debtor, although they otherwise appear to be similarly situated.

There is little legislative history to § 503(b)(9), although it is worth noting that the section of BAPCPA that created § 503(b)(9) is §...