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In re ADI Liquidation, Inc.

United States District Court, D. Delaware

January 16, 2019

IN RE ADI LIQUIDATION, INC., et al, Debtors.

          John Daniel McLaughlin, Jr., CIARDI CIARDI & ASTIN, Wilmington, Delaware; Geraldine E. Ponto, Tatiana Markel, BAKER & HOSTETLER LLP, New York, New York Counsel for Appellant

          David B. Stratum, Evelyn J. Meltzer, PEPPER HAMILTON LLP, Wilmington, Delaware Counsel for Appellee




         Appellant-creditor Bimbo Bakeries USA, Inc. ("BBU") has appealed the June 22, 2017 Opinion and Order of the United States Bankruptcy Court for the District of Delaware, In re ADI Liquidation, Inc., 572 B.R. 543 (Bankr. D. Del. 2017) ("Decision"), granting in part the summary judgment motion filed by debtor AW Liquidation, Inc. ("AWI") with respect to BBU's Motion for the Allowance and Payment of Administrative Expense Under 11 U.S.C. § 503(b)(9) ("Administrative Expense Motion"). (JA 1-22).[1] For the reasons set forth herein, the Court affirms the Decision.


         AWI was a cooperative food distributor that provided distribution and retail services to member retailers. BBU is a manufacturer and distributor of freshly baked goods. One of the retail services AWI provided was a "Bill Thru program," whereby AWI performed broker-type services by arranging for certain AWI members ("AWI Customers") to purchase goods directly from certain suppliers, such as BBU. Under this arrangement, AWI Customers would order goods from BBU, and BBU would deliver the goods directly to the AWI Customers. (JA810). In managing the Bill Thru Program, AWI would negotiate and oversee "pricing, incentive programs, account maintenance, product promotions, customer complaints or concerns, and ... vendor deals with BBU." (JA25-26 ¶ 13). As compensation for these efforts, AWI retained a 2% fee from the payments it collected from AWI Customers to remit to BBU for BBU's deliveries to AWI Customers. (Id.)

         On September 9, 2014 (the "Petition Date"), AWI and its affiliated debtors filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. Thereafter, BBU filed Proof of Claim No. 263 (the "Administrative Claim"), alleging an administrative priority claim pursuant to § 503(b)(9) of the Bankruptcy Code in the amount of $916, 452.48[2] for goods it delivered to AWI Customers within 20 days of the Petition Date. BBU attached to its Administrative Claim a spreadsheet identifying "customer names" to which BBU delivered its goods. (JA35-436). Every "customer name" listed in the spreadsheet is an AWI Customer. AWI is not identified on the customer spreadsheet. (Id.)

         Section 503(b)(9) provides that, after notice and a hearing, the bankruptcy court shall allow, as an administrative expense, "the value of any goods received by the debtor within 20 days before the date of commencement of a case under this title in which the goods have been sold to the debtor in the ordinary course of the debtor's business." 11 U.S.C. § 503(b)(9). Administrative expenses receive priority over other unsecured claims pursuant to § 507(a)(2). To receive such priority, a creditor must demonstrate that: (1) the goods in question were received by the debtor within 20 days before the petition date, (2) the goods were sold to the debtor, and (3) the goods were sold in the ordinary course of business. 11 U.S.C. § 503(b)(9).

         On February 5, 2016, BBU filed its Administrative Expense Motion, seeking allowance and payment of the Administrative Claim. (JA1-22). In support of its motion, BBU filed the Declaration of Basil Klipa (the "Klipa Declaration"), in which Mr. Klipa, BBU's manager for its account with AWI and AWI Customers, described the mechanics of the Bill Thru Program. (JA25-27). Mr. Klipa averred in his declaration that AWI was the "representative of the AWI Customers" in AWI's dealings with BBU. BBU similarly asserted in its motion that "AWI was the AWI Customers' representative with BBU." (JA4).

         AWI filed an objection to the Administrative Expense Motion, arguing that AWI never received-physically or constructively-the goods sent by BBU to AWI Customers and that, therefore, BBU's Administrative Expense Claim did not meet the requirements of § 503(b)(9) and should be reclassified as a general unsecured claim. (JA638-806). In a reply memorandum filed in further support of its Administrative Expense Motion, BBU argued that the AWI Customers' physical receipt of the goods in question constituted constructive receipt by AWI because of the integral role that AWI played in the cooperative and in AWI Customer operations. (JA25-26 ¶¶ 13-14).

         On July 8, 2016, AWI filed its summary judgment motion, arguing that BBU had not, and could not, provide sufficient facts to support conclusions that AWI had received goods or that BBU had sold AWI goods, as required for administrative priority under § 503(b)(9). BBU chose not to submit in response to the summary judgment motion an affidavit or declaration pursuant to Federal Rule of Civil Procedure 56(d) "to show ... for specified reasons, [that] it [could] not present facts essential to justify its opposition" to the motion. (See JA1012). Instead, BBU argued that the facts set forth in the Klipa Declaration and the existence of 64 purchase and supply agreements ("PSAs") between AWI and AWI Customers created material issues of disputed fact. (JA1000, 1016).

         On October 25, 2016, the Bankruptcy Court heard oral argument on the Summary Judgment Motion. (JA1415-57). On June 22, 2017, the Bankruptcy Court issued its Decision. The Bankruptcy Court held that AWI was entitled to summary judgment because there were no material facts in dispute and AWI had demonstrated that BBU was unable as a matter of law to show that it had received goods, as required by § 503(b)(9). 572 B.R. at 550. The Bankruptcy Court also noted that AWI had "ma[d]e a strong argument that the second section 503(b)(9) element-requiring that the goods were sold to AWI-ha[d] also not been satisfied[, ]" and that the facts asserted by BBU in support of its Administrative Expense Motion "indicate[d] that the goods were sold to and received by the AWI Customers, not AWI." Id.

         On July 5, 2017, BBU filed a timely notice of appeal. The appeal is fully briefed. (D.I. 10, 12, 13). The Court did not hear oral argument because the facts and legal arguments are adequately presented in the briefs and record, and ...

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