THOMAS J. TUCKER, Bankruptcy Judge.
The dispute now before the Court requires the Court to decide, among other things, whether an administrative expense request under 11 U.S.C. § 503(b)(9) may ever be disallowed based on 11 U.S.C. § 502(d). The answer is no, for the reasons stated below.
These two jointly-administered Chapter 11 cases are being administered under a confirmed plan of liquidation.
Before the Debtors filed these bankruptcy cases, Ameri-Source supplied steel to the Debtor United Solar Ovonic LLC ("USO"). Ameri-Source timely filed a proof of claim asserting a nonpriority, unsecured claim against USO for $3,167,876.20. The Debtors filed an objection to that claim, and Ameri-Source later amended the claim to an increased amount of $4,031,416.84. The Liquidation Trustee ("Trustee") has succeeded to the Debtors' objection to this claim, and it remains pending, in discovery, under a scheduling order.
In addition to its nonpriority unsecured claim, Ameri-Source timely filed a proof of claim for an administrative expense in the amount of $185,348.95, based on 11 U.S.C. § 503(b)(9).
Roughly four months after filing its administrative expense claim, and two months after Debtors' confirmed plan became effective, Ameri-Source filed its Motion, on October 24, 2012. The Motion seeks an order allowing Ameri-Source's § 503(b)(9) administrative expense and compelling the Trustee to pay it immediately.
This Court has subject matter jurisdiction over this bankruptcy case and
This proceeding also is "core" because it falls within the definition of a proceeding "arising under title 11" and of a proceeding "arising in" a case under title 11, within the meaning of 28 U.S.C. § 1334(b). Matters falling within either of these categories in § 1334(b) are deemed to be core proceedings. See Allard v. Coenen (In re Trans-Industries, Inc.), 419 B.R. 21, 27 (Bankr.E.D.Mich.2009). This is a proceeding "arising under title 11" because it is "created or determined by a statutory provision of title 11," see id., including Bankruptcy Code §§ 503(b)(9) and 502(d). And this is a proceeding "arising in" a case under title 11, because it is a proceeding that "by [its] very nature, could arise only in bankruptcy cases." See Allard v. Coenen, 419 B.R. at 27.
Section § 503(b)(9) provides:
The Trustee disputes Ameri-Source's right to allowance and payment of an administrative expense, on two grounds. Both grounds are premised on the Trustee's allegations that Ameri-Source received payments totaling $84,166.65 from USO during the 90-day period preceding the filing of USO's bankruptcy petition, and that these payments constitute preferential transfers avoidable under 11 U.S.C. § 547.
(emphasis added). Ameri-Source does not admit that the pre-petition payments it received from USO are avoidable transfers, but argues that even if they are, § 502(d) does not apply to, and cannot be used to disallow, a § 503(b)(9) administrative expense.
As a second ground of objection, the Trustee argues that even if § 502(d) does not apply to a § 503(b)(9) administrative expense claim, the Court has discretion to delay, and should delay, any requirement to pay Ameri-Source's administrative expense, until after the Trustee's preference claim against Ameri-Source has been adjudicated. According to the Trustee, this would protect the bankruptcy estate against any future failure or inability by Ameri-Source to pay to the estate any
The Trustee's § 502(d) argument presents a legal issue on which there is a split of authority, and the United States Court of Appeals for the Sixth Circuit has not ruled on the issue. The Trustee argues that § 502(d) may be used to disallow a § 503(b)(9) administrative expense. This argument is supported by some of the cases, including cases decided both before and after § 503(b)(9) was added to the Bankruptcy Code by the 2005 amendments, commonly known as BAPCPA.
But other pre-BAPCPA cases rejected this view, holding that § 503(b) administrative expense requests cannot be disallowed based on § 502(d). These cases, which include a decision of the United States Court of Appeals for the Second Circuit, held that § 503(b) administrative expense claims are not subject to the provisions of §§ 501 and 502, which apply to the allowance of claims generally. See ASM Capital, LP v. Ames Dep't Stores, Inc. (In re Ames Dep't Stores, Inc.), 582 F.3d 422, 427-32 (2d Cir.2009) ("[w]e hold that section 502(d) does not apply to administrative expenses under section 503(b).");
The pre-BAPCPA cases that apply § 502(d) to administrative expense requests rely heavily on the language in § 502(d) that "the court shall disallow any claim of any entity" that is a transferee of an avoidable transfer. Such cases say that the word "claim" as defined in the Bankruptcy Code
In taking a contrary view of § 502(d), however, the Second Circuit noted in the Ames Dep't Stores case that "other sections of the Bankruptcy Code distinguish between `claims' and requests for administrative expenses under section 503(b)." Ames Dep't Stores, 582 F.3d at 428 (citations and examples omitted). The Second Circuit explained at length its conclusion that:
Id. at 429. And the court reasoned that the opening phrase of § 502(d) makes clear that this subsection does not apply to § 503(b) administrative expenses:
Id. at 430. The court further reasoned that if § 502(d)'s "mandatory disallowance of claims" language were construed to apply to § 503(b) administrative claims, that would create a conflict with the "mandatory terms in which section 503(b) is drafted, requiring courts to allow requests for administrative expenses." See id. at 430-31. For these and other reasons, the Second Circuit held that § 502(d) does not apply to § 503(b) administrative expense requests. Id. at 432.
Several more recent cases have discussed § 503(b)(9) specifically, at length, and are not unanimous. At least one such case, In re Circuit City Stores, Inc., 426 B.R. 560 (Bankr.E.D.Va.2010), supports the Trustee's argument. That case reasoned that even if other types of § 503(b) administrative expenses are not subject to § 502(d), as held by "the majority of courts" including the Second Circuit in the Ames Dep't Stores case, § 503(b)(9) administrative expenses are different, because they are claims that arise pre-petition. As such, the court reasoned, they are subject to the provisions of both § 502 and § 503, and therefore are subject to § 502(d). See 426 B.R. at 569-71. In a supplemental opinion denying motions for reconsideration, the Circuit City Stores court summarized its reasoning this way:
426 B.R. at 574.
Several other cases, however, have held that § 502(d) does not apply to § 503(b)(9)
455 B.R. at 364. Similarly, the court in Plastech Engineered Products discussed at length whether the pre-petition nature of the § 503(b)(9) administrative expense makes it subject to § 502(d), and concluded that it does not. Plastech Engineered Products, 394 B.R. at 160-61, 163.
The Court has carefully reviewed all of the cases cited by the parties. The cases thoroughly discuss the issue, and there is no need to repeat that entire discussion here. The Court is persuaded that the correct reasoning and views are those taken by the Second Circuit in the Ames Dep't Stores case, regarding § 503(b) administrative expenses in general, and by the courts in the Plastech Engineered Products and Momenta cases, regarding § 503(b)(9) administrative expenses in particular. The Court holds, therefore, that § 502(d) does not apply to Ameri-Source's § 503(b)(9) administrative expense request.
The Trustee's second argument is that even if Ameri-Source's § 503(b)(9) administrative claim cannot be disallowed under § 502(d), as the Court has now ruled, the Court still has discretion to, and should, delay compelling the Trustee to pay the claim, until after the Trustee's § 547 preference claim against Ameri-Source
Id. (citations and footnote omitted).
The Trustee's reliance on the TI Acquisition case is misplaced. In the TI Acquisition case, unlike this case, the court made its ruling before any plan was confirmed. This is a crucial distinction, as the TI Acquisition court itself recognized. Immediately after the ruling quoted above, the court stated the following, in a footnote:
Id. at 751 n. 5.
Whatever discretion the Court may have to allow a Chapter 11 debtor to defer paying allowed administrative expenses before a plan is confirmed, such discretion no longer exists once a plan has been confirmed. At that point, the confirmed plan controls when allowed administrative expenses must be paid.
In pertinent part, the confirmed plan in this case says the following about the treatment of administrative claims, in Article II, § B.3.a.:
As noted in Part II of this opinion, the effective date of the confirmed plan was August 28, 2012. Under the Plan's definitions, Ameri-Source's § 503(b)(9) administrative expense claim will become an "Allowed Administrative Expense Claim," no later than the date on which the Court enters its order flowing from this opinion.
It might be possible to argue that clause (iv) of Article II, § B.3.a. of the confirmed plan, quoted above, gives the Court broad discretion even after confirmation to order a delay in the payment of an Allowed Administrative Expense Claim. This clause appears to allow for payment "at such time and upon such terms as set forth in an order of the Bankruptcy Court." But the Trustee has not made an argument for delay in payment based on clause (iv). And the Court does not interpret this clause so broadly as to give the Court discretion now to delay payment of Ameri-Source's allowed § 503(b)(9) claim. Such an interpretation would render illusory the requirements of clauses (i), (ii), and (iii) of this section of the plan, quoted above. And it would utterly defeat the reasonable expectations of all the administrative expense claimants in this case, who relied on clauses (i) through (iii) in deciding not to object to confirmation of the Debtors' plan. One of the requirements the Debtors had to meet in order to confirm their plan was that all administrative expense claims had to be paid in full in cash on the effective date of the plan, except to the extent particular holders of such claims agreed otherwise. See 11 U.S.C. § 1129(a)(9)(A).
Even if the Court did have discretion to delay payment to Ameri-Source, based on clause (iv) or otherwise, the Court would not delay the payment, for the following reasons. First, to delay payment of Ameri-Source's allowed § 503(b)(9) claim until determining the merits of the Trustee's preference claim would, as a practical matter, accomplish for the Trustee the very thing that § 502(d) would accomplish, if § 502(d) applied. But the Court has ruled that § 502(d) does not apply. So delaying payment in this way would be an improper evasion of Congressional intent that § 502(d) not be a basis to delay payment of § 503(b) administrative expenses.
Second, the Trustee has not yet even filed an adversary proceeding against Ameri-Source to avoid the alleged preferences.
Third, the Trustee has not demonstrated that he is likely to succeed in such an adversary proceeding, if he ever files it.
Fourth, even if the Trustee had shown that he is likely someday to avoid the $84,166.65 in alleged preferential transfers that Ameri-Source received from USO, the Trustee has not demonstrated that delaying payment of Ameri-Source's allowed § 503(b)(9) claim is necessary to protect the bankruptcy estate. The Trustee has not alleged any reason or facts that suggest that Ameri-Source will not be fully collectible, if and when the Trustee obtains a judgment against Ameri-Source for recovery of the alleged preferences.
Fifth, the Trustee has not demonstrated why the estate is not fully protected by virtue of the Trustee's ability to use § 502(d) as a defense against paying anything on Ameri-Source's nonpriority, unsecured claim, to the extent that claim is allowed. The amount of that claim is $4,031,416.84. As noted in Part II of this opinion, the Trustee has objected to that claim, and it remains to be seen what the allowed amount of that claim will be. But the allowed amount of Ameri-Source's general unsecured claim is likely to yield a dividend to Ameri-Source of approximately 50%, according to a recent projection by the Trustee.
For these reasons, the Court concludes that it does not have discretion to delay the payment of Ameri-Source's § 503(b)(9) claim, and that even if the Court did have such discretion, the Court still would not delay the payment. Rather, such administrative expense must be paid in full immediately.
For the reasons stated in this opinion, the Court will enter an order granting Ameri-Source's motion, allowing Ameri-Source's § 503(b)(9) administrative expense in full, in the amount of $185,348.95, and requiring the Liquidation Trustee to pay that amount to Ameri-Source within seven days.
