P.R. Elec. Power Auth. v. Rentas (In re PMC Mktg. Corp.)
| Decision Date | 23 September 2014 |
| Docket Number | Bankruptcy No. 09–02048–BKT.,BAP No. 13–050. |
| Citation | 517 B.R. 386 |
| Parties | PMC MARKETING CORP., a/k/a Farmacias El Amal, a/k/a COD Drugs, Debtor. Puerto Rico Electric Power Authority, Appellant, v. Noreen Wiscovitch Rentas, Chapter 7 Trustee, Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, First Circuit |
Eduardo J. Corretjer Reyes, Esq., San Juan, PR, on brief, for Appellant.
Rafael A. González Valiente, Esq., Santurce, PR, on brief, for Appellee.
Before HILLMAN, HOFFMAN, and FINKLE, United States Bankruptcy Appellate Panel Judges.
Puerto Rico Electric Power Authority (“PREPA”) appeals from a bankruptcy court order denying its motion for payment of administrative expenses under Bankruptcy Code § 503(b)(9)1 (the “Expense Motion”), as well as a subsequent order denying its motion for reconsideration (the “Reconsideration Motion”). For the reasons discussed below, we VACATE the order denying the Expense Motion and REMAND to the bankruptcy court for further proceedings consistent with this opinion. For the reasons discussed infra, the appeal of the order denying the Reconsideration Motion is waived.
PMC Marketing Corp. (“PMC”) filed a voluntary petition for chapter 11 relief on March 18, 2009. The bankruptcy court converted PMC's case to chapter 7 and appointed Noreen Wiscovitch Rentas as the chapter 7 trustee (the “Trustee”) in May 2010.
In April 2013, PREPA filed the Expense Motion, seeking administrative expense priority under § 503(b)(9) in the amount of $89,336.42, representing the value of its claim for electricity supplied to PMC during the twenty-day period preceding the petition date. In support, PREPA alleged that: (1) it supplied the electricity during PMC's ordinary course of business, as required for priority treatment as an administrative expense under § 503(b)(9) ; and (2) because electricity satisfies the Uniform Commercial Code (the “UCC”) definition of a “good,” it also qualifies as a good for purposes of § 503(b)(9).2
In opposition to the Expense Motion, the Trustee did not address the issue of whether electricity is a service or a good. Instead, she urged the court to disallow the Motion as a “disguised” and “extremely belated” proof of claim. In its reply, PREPA challenged the Trustee's characterization of the Expense Motion, maintaining that neither the Bankruptcy Code nor the Federal Rules of Bankruptcy Procedure prescribe a time limitation for the filing of administrative expense claims.
Without a hearing, the court denied the Expense Motion in its Opinion and Order dated September 4, 2013. See In re PMC Mktg., Corp., 501 B.R. 17 (Bankr.D.P.R.2013). At the outset, the court readily dispatched the Trustee's timeliness challenge, noting among other things, that the docket revealed PREPA had timely filed a proof of claim covering the amounts for which it sought administrative expense priority. The court concluded that there was no dispute that PREPA provided electricity to PMC within the twenty-day period preceding the bankruptcy filing and that PMC purchased that electricity in the ordinary course of its business. The only issue that remained was whether the electricity provided by PREPA was a “good” or a “service.”
In ruling that PREPA's provision of electricity to PMC was a service, and therefore outside the scope of § 503(b)(9), the bankruptcy court determined that it was necessary to consider the totality of the circumstances. The dominant focus of its analysis was PREPA's domination of the electricity supply in Puerto Rico and its status as a regulated public utility. The bankruptcy court found this factor crucial, contrasting PREPA with the electricity provider in In re Erving Indus., Inc., 432 B.R. 354 (Bankr.D.Mass.2010), where that court concluded electricity was a “good” rather than a “service.” The bankruptcy court elaborated:
In re PMC Mktg. Corp., 501 B.R. at 23–24 (footnote and citation omitted) (alterations added).
The bankruptcy court then turned to the meaning of “utility,” observing that while that term is not defined in the Bankruptcy Code, its ordinary meaning is “ ‘a service (such as light, power, or water) provided by a public utility.’ ” Id. at 24 (quoting Merriam–Webster's Collegiate Dictionary (10th ed. 2001)). Citing One Stop Realtour Place, Inc. v. Allegiance Telecom, Inc. (In re One Stop Realtour Place, Inc.), 268 B.R. 430, 435 (Bankr.E.D.Pa.2001), the bankruptcy court further observed that some courts have concluded that the term “utility” refers to a “business organization (as an electric company) performing a public service and subject to special governmental regulations, that has some special position with respect to the debtor, and has a monopoly in the area so that the debtor cannot easily obtain comparable service from another.” 501 B.R. at 24 (internal quotations and citation omitted). PREPA, the bankruptcy court found, qualified as a “utility provider” because:
(1) [I]t is subject to governmental regulation as are traditional utilities; (2) PREPA does fit the ordinary definition of a utility as it does enjoy a “special relationship” with the Debtor (PREPA is the sole provider of electricity in Puerto Rico) and it does have a monopoly; and (3) PREPA is a government owned corporation of Puerto Rico.
Id. The bankruptcy court ruled that as a regulated utility provider, PREPA provided a “service” rather than a “good” to PMC and, therefore, was not entitled to payment of prepetition priority expenses pursuant to § 503(b)(9). Id.
On September 5, 2013, PREPA filed the Reconsideration Motion pursuant to Fed. R. Bank. P. 9023, contending that the court committed an error of fact when it concluded that PREPA has a state-granted monopoly over the sale of electricity in Puerto Rico, and an error of law when it ruled that § 503(b)(9) does not apply to the electricity sold by PREPA to its customers because of that monopoly.
The Trustee opposed reconsideration, arguing “there can be no doubt that PREPA is a ‘utility,’ ” as “almost every person and/or entity in Puerto Rico has to purchase electricity from PREPA.” The bankruptcy court denied the Reconsideration Motion in its Opinion and Order dated October 1, 2013, on the grounds that PREPA had failed to present newly discovered evidence or any intervening change in the law. This appeal followed.
The sole issue on appeal is whether the bankruptcy court erred in concluding that the electricity PREPA supplied to PMC within the twenty days of the petition date is a “service” rather than a “good” entitled to receive priority treatment as an administrative expense under § 503(b)(9). Although PREPA identified in its notice of appeal the order denying reconsideration as one of the matters on appeal, it waived that aspect of the appeal by failing to discuss this order in its statement of issues and brief. See Eakin v. Goffe, Inc. (In re 110 Beaver St. P'ship), 355 Fed.Appx. 432, 436–37 (1st Cir.2009).
PREPA urges the Panel to follow Erving, supra, where the court determined that electricity satisfies the UCC definition of a “good” and therefore constitutes a “good” for purposes of § 503(b)(9). It contends that the electricity it sold to PMC “is just as moveable and just as identifiable when it passe[d] through the meter as was the electricity supplied by the electricity provider in” Erving. Challenging the bankruptcy court's “public utility” analysis and its emphasis on the relationship between the provider and its customer, PREPA further argues:
Electricity is electricity regardless of who sells it. Its nature and physical properties do not change depending on who is the seller. Either electricity is always a “good” or is always a “service” for purposes of the UCC and section 503(b)(9). Simply put, electricity does not cease to fall under the definition of “goods” of the UCC just because the seller happens to be a public utility.
Citing the principle that Bankruptcy Code provisions governing claims priority are to be “narrowly construed,” see Travelers Prop. Cas. Corp. v. Birmingham–Nashville Express, Inc. (In re Birmingham–Nashville Express, Inc.), 224 F.3d 511, 517 (6th Cir.2000), the Trustee counters that Puerto Rico did not adopt § 2–105(1)...
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