Hudson Energy Denied Administrative Priority For Electricity Sold Pre-Bankruptcy

In a September 18, 2015 order, the U.S. District Court for the Southern District of New York affirmed a bankruptcy court order denying administrative claim treatment to Hudson Energy Services, LLC ("Hudson") for its retail sales of electricity to the debtor.1 The decision does not address any "safe-harbor" or forward contract issues, but is among a number of decisions providing for inconsistent treatment of such sales.

Hudson filed a claim for administrative priority related to its provision of $875,943.90 in electricity to Great Atlantic & Pacific Tea Company, Inc. ("GAPTC") and its affiliates. In affirming the bankruptcy court's order, the district court agreed that electricity is not a "good" for purposes of the administrative priority provisions of the Bankruptcy Code and, alternatively, that the principle that administrative priority claims should be narrowly construed dictated that Hudson's claim was properly denied.

Background

In April 2012, Hudson filed a motion in the GAPTC bankruptcy proceeding pursuant to 11 U.S.C. § 503(b)(9 seeking allowance and administrative priority for $875,943.90 in electricity it sold to GAPTC and its affiliates within the 20 days before the petition date. Section 503(b)(9) provides for "administrative expenses...[for] 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 business." GAPTC objected to Hudson's motion on the basis that electricity (at least when sold at retail) does not constitute a "good" under Section 503(b)(9) of the Bankruptcy Code. The bankruptcy court recognized that administrative priority claims are narrowly construed and held that electricity did not clearly fall within the definition of "goods" under the Bankruptcy Code. Accordingly, the bankruptcy court denied Hudson's motion for administrative priority. Hudson appealed the bankruptcy court's first ruling on the motion to the district court—which vacated the order and remanded the case for further factual development regarding the nature of electricity.2 Upon remand and evidentiary hearing, the bankruptcy court again denied Hudson's motion and found that electricity does not satisfy the definition of "goods" found in the UCC.3 Hudson once again appealed the bankruptcy court's order to the district court, as discussed below.

Hudson's Appeal

Hudson contended that the bankruptcy court had erred...