SEIBEL, District Judge.
Before the Court is the appeal of Hudson Energy Services, LLC ("Hudson") from the Bankruptcy Court's November 6, 2014 bench ruling and November 10, 2014 Order denying its request for administrative priority pursuant to 11 U.S.C. § 503(b)(9). (Bankr. Docs. 4584, 4589.)
For the reasons that follow, the Bankruptcy Court's Order is AFFIRMED.
On April 27, 2012, Hudson filed a Motion for Allowance of Administrative Claim pursuant to 11 U.S.C. § 503(b)(9),
On remand, the Bankruptcy Court entered a discovery scheduling order, (Bankr. Doc. 4549), and conducted an evidentiary hearing on November 6, 2014, (Bankr. Doc. 4589). After hearing expert testimony from both sides, the Bankruptcy Court, ruling from the bench, again denied Hudson's claim. (BR at 126.)
On January 20, 2015, Hudson filed a timely Notice of Appeal. (Doc. 1.) On appeal, Hudson argues that the Bankruptcy Court erred in (1) ignoring what Hudson characterizes as this Court's direction to apply the analytic framework of In re Erving Indus., Inc., 432 B.R. 354 (Bankr. D.Mass. 2010), and instead relying on Opco, 501 B.R. at 250; (2) finding that electricity is not moving as it passes through the
This Court has jurisdiction pursuant to 28 U.S.C. § 158(a)(1) to hear appeals from final judgments, orders, and decrees of a bankruptcy court. A district court reviews a bankruptcy court's findings of fact for clear error and reviews its legal conclusions de novo. Overbaugh v. Household Bank N.A. (In re Overbaugh), 559 F.3d 125, 129 (2d Cir.2009) (per curiam); see Fed. R. Bankr. P. 8013 (district court may "affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree," and "[f]indings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous"). "Mixed questions of fact and law are subject to de novo review." Babitt v. Vebeliunas (In re Vebeliunas), 332 F.3d 85, 90 (2d Cir.2003); see Parmalat Capital Fin. Ltd. v. Bank of Am. Corp. (In re Parmalat), 639 F.3d 572, 580 (2d Cir.2011).
A Bankruptcy Court's determination that a payment is or is not a proper administrative expense presents a question of law. In re Bethlehem Steel Corp., 479 F.3d 167, 172 (2d Cir.2007). Thus, the question of whether electricity is a good under Section 503(b)(9) is a question of law. See GFI Wisconsin, Inc. v. Reedsburg Util. Comm'n (In re Grede Foundries), 440 B.R. 791, 797 (W.D.Wis. 2010). Subsidiary questions, such as whether electricity is moving at the time it is metered, are questions of fact. See Id.
Hudson's first argument is premised on the interpretation that in my prior order, I adopted the reasoning of In re Erving, 432 B.R. at 369-71, and established a test for whether electricity was a good that the Bankruptcy Court was bound to follow. (See Hudson Mem. 3-4, 6-9, 12, 14-15.) In the prior order, in explaining why an evidentiary hearing was necessary, I stated
A & P I, 498 B.R. at 29-30 (citations omitted). As indicated by the words "it seems to me," this was an expression of my preliminary views, rather than a definitive ruling. The prior order is clear that the only thing decided and the only direction to the Bankruptcy Court was that further factual development was necessary. See id. at 29-31. But even if Hudson's view of the prior order were correct, the Bankruptcy Court has not violated it. The Bankruptcy Court found that Hudson's electricity was not identified to the contract at the moment it passed through the meter. (See BR at 123.) The Erving Court, by contrast, found that electricity was identified at the moment it passed through the meter, after which it "continue[d]
Hudson argues that the Bankruptcy Court erred in finding that electricity: 1) is not moving as it passes through the meter, (see Hudson Mem. 9-14); and 2) is not identified the instant it passes through the meter, (see id. 14-15). The Bankruptcy Court's factual determinations are reviewed for clear error. See Overbaugh, 559 F.3d at 129. "When reviewing for clear error, [the court] may reverse only if [it is] left with the definite and firm conviction that a mistake has been committed." United States v. Bershchansky, 788 F.3d 102, 110 (2d Cir.2015) (internal quotation marks and citation omitted). "`[W]here there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous.'" Id. (quoting United States v. Murphy, 703 F.3d 182, 188 (2d Cir.2012)).
As to Hudson's first point, the Bankruptcy Court did not find that electricity was not moving at the time it passed through the meter, (see BR at 123 (electricity "hits the meter before A & P uses the electricity")), and the Reorganized Debtors did not contest that point at the evidentiary hearing, (see id. at 111 ("We all agree electricity is moving.")). Instead, the Bankruptcy Court found that the electricity had ceased moving and become unmovable by the time the meter registered its passage because it had, at that point, been consumed. (See id. at 105 ("[T]he time by which it's registered is after it's already been used.").) The Bankruptcy Court did note that when electricity passes through the meter it "move[s] but is not movable beyond the circuit that it is on," (id. at 123-24), but I do not read that statement as necessary to the Bankruptcy Court's holding, and it is not necessary to this Court's decision.
Hudson next argues that the Bankruptcy Court erred in ruling that electricity is not identified before it is consumed. The parties have not addressed whether this is a question of law or fact. In my view, the question has two parts: first, the factual question of whether electricity is metered before or after consumption, and, second, the question of when electricity is identified to the contract under the UCC. This second question is likely a mixed question of law and fact, because it "`involve[s] the application of a legal standard to a particular set of facts.'" Ling Nan Zheng v. Liberty Apparel Co. Inc., 617 F.3d 182, 185 (2d Cir.2010) (quoting Richardson v. N.Y. State Dep't of Corr. Serv., 180 F.3d 426, 437 (2d Cir.1999)). The result, however, would be the same under clear error or de novo review.
As to the first question, I find no clear error. The record shows decisively that because electricity travels at speeds approaching the speed of light, and because of the limitations of metering technology, a meter—the device that measures the amount of electricity used by the Reorganized Debtors' stores—cannot record the amount of electricity passing through it before the electricity is consumed by the
As noted above, the UCC provides the definition of "goods" for the purpose of interpreting Section 503(b)(9). A & P I, 498 B.R. at 25. Under the UCC, goods are defined as "all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale." U.C.C. § 2-105(1). "`Identification of goods occurs when existing goods are designated, or agreed upon, as the goods to which the contract refers.'" Erving, 432 B.R. at 370 (quoting 2 Anderson U.C.C. § 2-501:4, at 734 (3d ed. 2004)).
Given the Bankruptcy Court's factual findings and the record below, I find that the electricity supplied by Hudson is identified for contractual purposes at the moment the meter records or displays the amount used, rather than at the moment electricity passes through the meter. Hudson's fact witness, James Brown, testified that Hudson uses meter readings to bill its clients, and that without a meter reading Hudson would not know how much electricity it provided to the Reorganized Debtors. (BR at 12-13.) Hudson's expert, Mr. Kresge, testified that a person cannot know how much electricity has passed through the meter unless the meter measures the electricity and displays it. (Id. at 37.) He also testified, as already noted, that at the moment the electricity passes through the meter, the meter reads "zero." (Id. at 57.) Accordingly, I agree with the Bankruptcy Court that electricity is identified not when it passes through the meter, but when it is measured and that measurement is registered and displayed by the meter. (See id. at 103 ("[The Erving Court] just assumes [that "passing through the meter"] means it's identified to the contract. And it really isn't.").)
Hudson has not argued that under the Bankruptcy Court's view of the facts—that electricity passes through the meter, is used by an end device, and is thereafter metered and identified—electricity is a good under Section 503(b)(9). I will note, however, that I agree with the Bankruptcy Court that under those facts it does not so qualify. Under the UCC definition, the electricity here is not movable at the time of identification because it has already been used. See In re Pilgrim's Pride Corp., 421 B.R. 231, 239 & n. 8 (Bankr. N.D.Tex. 2009) (electricity not a good because "[o]nce [it] has been `identified' by measurement at the meter, it has already been consumed by the end user").
Hudson does argue that the Bankruptcy Court was wrong to adopt the reasoning of Opco, 501 B.R. at 251, to the effect that the speed at which electricity moves from the meter to consumption renders its time as a movable thing meaningless, (see BR at 124). This reasoning, right or wrong, is inapposite because it assumes some lapse of time between identification and consumption. See Opco, 501 B.R. at 251 ("A difference of approximately 1/60th of 1/60th of 1/60th of a second between identification and consumption renders the separation between the two meaningless.") (footnote omitted). The Bankruptcy Court found, however, and I agree, that identification occurs after consumption, not—as Opco presumed—when the electricity passes through the meter, (see BR at 105, 123). Whether the Bankruptcy Court thought the meaningfulness argument was central to its ruling or an alternative basis is unclear, but in either event I find it unnecessary to resolution of this appeal and do not take up the issue.
Hudson also argues that the Bankruptcy Court erred in relying on the principle of narrow construction to deny its claim. Although it is unnecessary to resolve the issue given the foregoing, I noted in my prior ruling that I had no quarrel with application of the principle, and I find no error now. In Howard Delivery Service, the Supreme Court stated that the Bankruptcy Code's "provisions allowing preferences must be tightly construed" in order to effectuate the "equal distribution objective underlying" the Code. 547 U.S. at 667, 126 S.Ct. 2105. Thus where it is "far from clear" that a claim falls within the Bankruptcy Code's priority provisions, courts should "reject [an] expanded interpretation. . . [u]nless and until Congress otherwise directs." Id. at 668, 126 S.Ct. 2105. The Bankruptcy Court held that given the metaphysical, hair-splitting nature of the dispute here—the difference of nanoseconds, the mystery of the physical nature of energy—a more definitive statement was needed from Congress, and that the principle of narrow construction cautioned against granting Hudson's priority claim. (See BR at 125-26.)
For the reasons stated above, the Order of the Bankruptcy Court is AFFIRMED. The Clerk of the Court is respectfully directed to docket this decision and close the case.