- BAP No. PR 13-050 (B.A.P. 1st Cir. Sept. 23, 2014)
- The Bankruptcy Appellate Panel vacated the bankruptcy’s court’s order denying Puerto Rico Electric Power Authority’s motion for payment of administrative expenses and remanded to the bankruptcy court to determine whether electricity constitutes a “good” entitled to administrative expense treatment under § 503(b)(9). To determine whether a claimed expense qualifies under § 503(b)(9), the trial court must analyze whether the expense is for a “good” or a “service” by applying a goods definition. The claimant’s status as a utility provider is irrelevant to the analysis. The bankruptcy court had applied the incorrect legal standard when it concluded that PREPA furnished a “service” rather than a “good” based on PREPA’s status as a regulated utility provider with a monopoly on supplying electricity to the debtor. The bankruptcy court also erroneously looked to § 366 in its § 503(b)(9) "goods" versus "services" determination. Under the prevailing case law, whether PREPA is a utility provider under § 366 has no bearing on the allowance of a § 503(b)(9) administrative expense claim. Ultimately, the bankruptcy court’s analysis “could potentially yield unpredictable and inconsistent results depending on the nature of the claimant rather than the substance of the product provided to a debtor.” The Bankruptcy Appellate Panel did not enunciate a goods definition for the bankruptcy court to apply on remand.
- Procedural context:
- Without a hearing, the bankruptcy court entered an opinion and order denying PREPA’s motion on the grounds that PREPA’s claimed expense was based on a “service” provided to the debtor. Consequently, the expense did not qualify for § 503(b)(9) treatment. The court considered the totality of circumstances between the debtor and PREPA, including PREPA’s monopoly of the electricity supply in Puerto Rico, PREPA’s status as a regulated public utility, and PREPA’s characterization of itself as a service provider on its own website. PREPA filed a motion for reconsideration pursuant to Fed. R. Bank. P. 9023, which was denied on the grounds that PREPA had failed to present newly discovered evidence or any intervening change in the law. PREPA appealed the bankruptcy court’s order.
- PREPA filed a motion seeking a 503(b)(9) administrative expense priority in the amount of $89,336.42 based on the value of electricity it supplied to the debtor during the twenty days prepetition.
- Hillman, Hoffman, and Finkle, United States Bankruptcy Appellate Panel Judges.
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