"Goods" For 503(b)(9) Purposes Must Be Movable
In re Goody’s Family Clothing, Inc., Case No. 08-11133 (CSS), Opinion (Bankr. D. Del., Feb. 6, 2009).
The Debtors filed an objection to Section 503(b)(9) (“503(b)(9)”) administrative claims they alleged were misclassified on the basis that the claimant, Added Value Services, Inc. (“AVS”) provided services and not goods, as is required under 503(b)(9) of the Bankruptcy Code. The Court, holding that goods must be “movable,” agreed with the Debtors and found that AVS’s claim was misclassified as a 503(b)(9) claim.
In this case, AVS had sought allowance of an administrative expense claim pursuant to Section 503(b)(9) of the Bankruptcy Code. 11 U.S.C. § 503(b)(9) provides that, after notice and a hearing, there shall be an allowed administrative expense for “the value of any goods received by the debtor within 20 days before the 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.” 11 U.S.C. § 503(b)(9).
AVS was one of the Debtors’ vendors who provided inspection, ticketing and repackaging of apparel that the Debtors purchased from other vendors. In the 20 day period prior to the Debtors’ bankruptcy filings, AVS invoiced the Debtors for $63,000 and sought administrative payment. The Debtors objected to AVS’s claim on the basis that it had been misclassified as a 503(b)(9) claim because AVS had provided “services” and not “goods” as required by the statute.
Examining the statute, the Court noted that to qualify for administrative expense claim treatment under the Bankruptcy Code, AVS had to provide “goods” to the Debtors. As there is no definition of goods contained in the Bankruptcy Code, the Court looked to other sources, noting “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.”
First, the Court looked to the Uniform Commercial Code governing sales of goods. The UCC defines goods as “all things . . . which are movable at the time of identification to the contract for sale . . . .” See generally, UCC 2-107. The Court also looked to the common dictionary definition of goods that also included “movable property.” Examining the Bankruptcy Code, the Court noted that the Code itself is replete with references to both goods and services in the disjunctive: “Since the term ‘goods’ and the term ‘services’ are disjunctively connected throughout the Bankruptcy Code, these terms must be ascribed separate meanings [according to canons of statutory construction]; ‘goods’ cannot include services.”
Considering that AVS’s claim was for inspection of goods, and unpacking and ticketing the goods received from other vendors, the Court concluded that AVS had provided services, and not goods: “Although AVS performed the activities that constitute the basis of the claim on ‘things that are movable,’ the actual activities AVS “sold” are properly characterized as intangible services.”
AVS attempted to argue that it was the value of goods that is recoverable under 503(b)(9). As AVS had provided value in that the goods were not salable without AVS’s work, it contributed to the “value of goods,” and should be entitled to an administrative claim. The Court dispensed with this argument by noting that a similar argument had been rejected by the Michigan bankruptcy court in In re Plastech Engineered Products, Inc., 2008 WL 5233014 (Bankr. E.D. Mich. 2008) (“It is the goods, and not the value that must be received by the debtor to trigger § 503(b)(9).”).
Although the court acknowledged that AVS had undoubtedly provided “value,” the Court held that AVS had not provided “goods,” and was therefore not entitled to an administrative claim under 503(b)(9).
