In Re World Imports, Ltd.

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________
No. 16-1357
___________
IN RE: WORLD IMPORTS, LTD., ET AL,
Debtors
HAINING WANSHENG SOFA CO., LTD,
FUJIAN ZHANGZHOU FOREIGN TRADE CO., LTD,
Appellants
__________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(E.D.Pa. No. 2-14-cv-04920)
District Judge: Honorable Petrese B. Tucker
___________
Argued March 8, 2017
Before: HARDIMAN, KRAUSE, Circuit Judges, and
STENGEL, District Judge.*
(Filed: July 10, 2017)
*
The Honorable Lawrence F. Stengel, United States
District Court for the Eastern District of Pennsylvania, sitting
by designation.
Kirk B. Burkley [Argued]
Daniel R. Schimizzi
Bernstein-Burkley
707 Grant Street
Suite 2200, Gulf Tower
Pittsburgh, PA 15219
Counsel for Appellants
David L. Braverman [Argued]
Helen M. Braverman
John E. Kaskey
Braverman Kaskey
1650 Market Street
One Liberty Place, 56th Floor
Philadelphia, PA 19103
Counsel for Appellees
____________
OPINION OF THE COURT
____________
HARDIMAN, Circuit Judge.
This appeal involves a question of bankruptcy law that
has important ramifications for a creditor that sells goods to a
debtor soon before the debtor files a Chapter 11 bankruptcy
petition. Under 11 U.S.C. § 503(b)(9), a creditor may recover
as a priority administrative expense the value of goods
“received by the debtor within 20 days before” the
bankruptcy petition is filed. In In re Marin Motor Oil, Inc.,
this Court interpreted a related provision of the Bankruptcy
Code (11 U.S.C. § 546(c)), and held that “receipt” occurs
when the buyer takes physical possession of the goods. 740
2
F.2d 220, 224–25 (3d Cir. 1984). Does the word “received” in
§ 503(b)(9) likewise require physical possession? We hold
that it does.
I
The facts of this appeal are undisputed. Appellants
Haining Wansheng Sofa Company and Fujian Zhangzhou
Foreign Trade Company (the Creditors) are Chinese
companies that sold furniture and similar goods to World
Imports (the Debtor) in the ordinary course of business.
Those goods were shipped via common carrier from China to
the United States “free on board” (FOB) at the port of origin,
so the risk of loss or damage passed to World Imports upon
transfer at the port.
The Haining shipment left Shanghai, China on May
26, 2013, and World Imports took physical possession of the
goods in the United States on June 21, 2013. Fujian’s goods
were shipped on three separate dates from Xiamen, China on
May 17, May 31, and June 7, 2013, and they were accepted in
the United States within 20 days of July 3, 2013, the day on
which World Imports filed its Chapter 11 petition.
Both Haining and Fujian filed Motions for Allowance
and Payment of Administrative Expense Claims under 11
U.S.C. § 503(b)(9). Such claims are allowed if: “(1) the
vendor sold ‘goods’ to the debtor; (2) the goods were
received by the debtor within twenty days [before the
bankruptcy] filing; and (3) the goods were sold . . . in the
ordinary course of business.” In re Goody’s Family Clothing,
Inc., 401 B.R. 131, 133 (Bankr. D. Del. 2009).
3
The dispositive question in the Bankruptcy Court was
whether World Imports “received the goods within 20 days
prior to the bankruptcy filing.” In re World Imports, Ltd.
(World Imports I), 511 B.R. 738, 741 (Bankr. E.D. Pa. 2014).
The parties agreed that Appellants shipped the goods from
China “more than 20 days before the July 3, 2013 bankruptcy
filing,” and that World Imports “took physical possession of
the goods in the United States fewer than 20 days before the
bankruptcy filing.” In re World Imports, Ltd. (World Imports
II), 549 B.R. 820, 822 (E.D. Pa. 2016). They disagreed,
however, about which action (shipment or physical
acceptance) constituted receipt under § 503(b)(9).
In evaluating the question, the Bankruptcy Court
began by acknowledging that the operative word “received”
in § 503(b)(9) is not defined. It then rejected the argument
advanced by Haining and Fujian that state law (i.e., the
Uniform Commercial Code) should “provide a rule of
decision for [the] gap[] in [this] federal statute[].” World
Imports I, 511 B.R. at 741. Instead, the Bankruptcy Court
looked to the Convention on Contracts for the International
Sale of Goods (CISG)—which it found governed disputes
arising between the Debtor and Creditors—as a treaty that
preempts the Uniform Commercial Code (UCC) in this case.
Like the Bankruptcy Code, the CISG does not define the term
“received,” so the Court looked to international commercial
terms (Incoterms), which are incorporated into the CISG. And
although no Incoterm defines “received,” the incoterm
governing FOB contracts makes clear that the risk of damage
or loss transfers to the buyer when the seller delivers the
goods to the common carrier’s vessel. Id. at 745 (quoting
FOB Incoterm). Because the risk of loss transferred at the
port, the Bankruptcy Court concluded that the goods were
4
“constructively received” when shipped from China. Id.
Appellants’ motions were denied accordingly. Id. at 746.
The District Court affirmed the Bankruptcy Court and
Haining and Fujian filed this appeal.
II
The Bankruptcy Court had jurisdiction under 28
U.S.C. § 157(b)(2)(B), and the District Court had appellate
jurisdiction under 28 U.S.C. § 158(a)(1). “We have
jurisdiction pursuant to 28 U.S.C. §§ 158(d), 1291 and
exercise the same standard of review as the District Court
when it reviewed the original appeal from the Bankruptcy
Court.” In re Handel, 570 F.3d 140, 141 (3d Cir. 2009).
“Thus, we . . . exercise plenary review over the Bankruptcy
Court’s legal determinations.” Id.III
At issue in this appeal is the definition of the term
“received” as used in 11 U.S.C. § 503(b)(9). If World Imports
received the goods when they were loaded onto the common
carrier in China, then Appellants’ claims for administrative
priority fail. But if the goods were received only when World
Imports took physical possession of them, then Appellants’
claims are entitled to “the highest priority.” World Imports I,
511 B.R. at 741. Based on the ordinary meaning of
“received,” the legislative context of the Bankruptcy Code,
and persuasive decisions finding that Congress meant to use
the UCC definitions for this particular amendment to the
Bankruptcy Code, we hold that goods are “received” when
the debtor or its agent takes physical possession of them.
5
A
1
We begin, as we always do, with the text and context
of the relevant statute: 11 U.S.C. § 503(b)(9). The Bankruptcy
Code does not define the word “received,” so “we normally
construe it in accord with its ordinary or natural meaning.”
Smith v. United States, 508 U.S. 223, 228 (1993). And if the
operative word “had at the time a well-known meaning at
common law or in the law of this country, [it is] presumed to
have been used in that sense unless the context compels to the
contrary.” Standard Oil Co. of N.J. v. United States, 221 U.S.
1, 59 (1911). The well-known meaning is especially salient
for bankruptcy law because the Supreme Court has
recognized that “[w]hen Congress amends the bankruptcy
laws, it does not write ‘on a clean slate.’” Dewsnup v. Timm,
502 U.S. 410, 419 (1992) (citation omitted).
The most recent edition of Black’s Law Dictionary
defines “receive” as “[t]o take . . . ; to come into possession
of or get from some outside source.” Black’s Law Dictionary
(10th ed. 2014). The 1990 edition of Black’s defined
“receive” as “[t]o take into possession and control; [to] accept
custody of.” Black’s Law Dictionary 1433 (6th ed. 1990).
The Oxford English Dictionary defines “receive,” with
respect to physical goods, as “[t]o take into one’s hands or
one’s possession (something offered or given by another); to
take delivery of (something) from another, either for oneself
or for a third party.” Oxford English Dictionary (3d ed. 2009).
Although these definitions are not identical, they all require
physical possession. Applying these definitions to
§ 503(b)(9), a debtor must “take” goods into its “possession,”
“custody,” or “hands” in order to receive them.
6
The legal and dictionary definitions comport with the
definition found in the UCC. Section 2–103(1)(c) defines
“receipt” of goods as “taking physical possession of them.”
And because Article 2 of the UCC governed sales of goods in
49 states when 11 U.S.C. § 503(b)(9) was adopted, see
Goody’s Family Clothing, 401 B.R. at 134, we infer that
Congress meant to adopt this “well-known meaning” of the
term, Standard Oil, 221 U.S. at 59. See In re Circuit City
Stores, Inc. (Circuit City II), 432 B.R. 225, 230 (Bankr. E.D.
Va. 2010) (finding near-unanimous adoption of the UCC may
have informed Congress’s intended definition of the term
“received”). World Imports has “presented [no]thing to
suggest that Congress meant to deviate from the common and
well known meaning of the word ‘received’ in drafting
§ 503(b)(9)” in 2005. Id. In fact, there is ample evidence from
the statutory context that Congress relied on the UCC
definition of the word. We turn to that context now.
2
Section 503(b)(9) was enacted as part of the
Bankruptcy Abuse Prevention and Consumer Protection Act
of 2005 (BAPCPA), Pub. L. No. 109-8, 119 Stat. 23 (2005).
Section 1227 of BAPCPA, entitled “Reclamation,” did two
things: (1) it amended § 546(c) to clarify the conditions
placed on trustees and sellers that seek to reclaim goods sold
to a debtor; and (2) it created § 503(b)(9) to add an
administrative expense claim as an exemption from § 546(c)’s
reclamation conditions. See BAPCPA § 1227.
The interrelationship between § 546(c) and § 503(b)(9)
is explicit in the Bankruptcy Code. Section 546(c)(2) states:
“If a seller of goods fails to provide notice . . . the seller still
may assert the rights contained in section 503(b)(9).” Because
7
§ 503(b)(9) provides “an alternative remedy to reclamation,”
In re Momenta, Inc., 455 B.R. 353, 357 (Bankr. D.N.H.
2011), it should be read and interpreted consistent with
§ 546(c).
In In re Marin Motor Oil, this Court held that the word
“receipt” in § 546(c) means the same thing as the UCC’s
definition, namely, “taking physical possession.” 740 F.2d at
224–25. In doing so, we found that Congress originally
adopted § 546(c) in 1978 “in order to resolve the question [of]
whether U.C.C. § 2–702(2) [(allowing reclamation)] applies
where the debtor files for bankruptcy.” Id. at 223 (footnote
omitted). The “drafters of the Bankruptcy Code” basically
“adopt[ed] 2–702(2) as part of the federal bankruptcy law,”
but with some procedural modifications. Id. We reasoned that
because “Congress essentially borrowed [the reclamation
provision] from the U.C.C.,” it “also borrowed the standard
definition of receipt.” Id. at 225 n.9. There was no indication
in Marin that the meaning of “receipt” could change
depending on the terms of the contract at issue. Rather, we
held that “receipt,” as used in § 546(c), means “taking
physical possession”—the UCC definition—as a matter of
federal law. Id. at 224–25.1
1
There is also a wide consensus among bankruptcy
courts that because the § 546 right of reclamation “arises
under § 2–702 of the UCC,” In re Circuit City Stores, Inc.
(Circuit City I), 416 B.R. 531, 536 (Bankr. E.D. Va. 2009),
Congress meant for undefined terms in § 546(c), including
“receipt,” to take the meaning ascribed to them in the UCC at
the time § 546 was enacted (“physical possession”). See, e.g.,
Circuit City II, 432 B.R. at 228–29 (citing, e.g., In re Trico
Steel Co., LLC, 282 B.R. 318, 324 (Bankr. D. Del. 2002)); In
8
“It is a ‘fundamental canon of statutory construction
that the words of a statute must be read in their context and
with a view to their place in the overall statutory scheme.’”
FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120,
133 (2000) (quoting Davis v. Mich. Dep’t of Treasury, 489
U.S. 803, 809 (1989)). When two terms are “functional[ly]
equivalent” and used in the same context, they should be
treated identically. Gomez-Perez v. Potter, 553 U.S. 474, 481
(2008).
The context of § 503(b)(9) is clear: it is an exemption
to the general bankruptcy reclamation scheme established by
§ 546(c). See § 546(c)(2). Given the interrelationship between
these two provisions and our holding that Congress meant for
terms used in § 546(c) to bear the definition used in the UCC
at the time of BAPCPA’s enactment, it follows that the UCC
definitions also apply to the § 503(b)(9) exception.2 It follows
that since we have already held in Marin that the term
“receipt” used in § 546(c) means “taking physical
re Bill’s Dollar Stores, Inc., 164 B.R. 471, 474 (Bankr. D.
Del. 1994).
2
We note as we did in Marin that “[o]ur reliance on
the [UCC] for determining the time of receipt does not mean
that the definition of receipt under [the Bankruptcy Code] is a
matter of state law and might change were an individual state
to alter its [laws].” 740 F.2d at 225 n.9. Rather, Congress
intended to use the UCC definition at that time (physical
possession) and it is not subject to change absent an
amendment to the Bankruptcy Code.
9
possession,” 740 F.2d at 224–25, “received” means the same
thing in § 503(b)(9).
Our conclusion is further supported by Congress’s
placement of §§ 546(c) and 503(b)(9) (and only those
sections) under the heading “Reclamation” in Section 1227 of
BAPCPA. See Fla. Dep’t of Revenue v. Piccadilly Cafeterias,
Inc., 554 U.S. 33, 47 (2008) (noting importance of subchapter
location for word’s meaning). World Imports and the lower
courts have pointed to nothing in the Bankruptcy Code that
indicates that Congress intended a different definition for
“received” between these two provisions in the same
subchapter. On the contrary, the statutory scheme warrants a
consistent interpretation of terms that appear in both § 546(c)
and § 503(b)(9), as several courts have already held.3
Under § 546(c), notice for reclamation must be made
within 45 days after goods are received, but §503(b)(9)
provides an exemption for goods received within 20 days
before bankruptcy. It strikes us as quite implausible that
Congress meant for the date of receipt to be different between
these provisions. Indeed, for this general-rule-and-exemption
3
See, e.g., Ningbo Chenglu Paper Prods. Mfg. Co. v.
Momenta, Inc., 2012 WL 3765171, at *6 (D.N.H. Aug. 29,
2012) (“Sections 503(b)(9) and 546 are related statutory
provisions [and] . . . the word ‘received’ should be given the
same meaning in both sections . . . .”); In re Wezbra Dairy,
LLC, 493 B.R. 768, 770–71 & n.3 (Bankr. N.D. Ind. 2013)
(relying on Marin and applying the UCC definition of
“receipt” to § 503(b)(9)); Circuit City I, 416 B.R. at 535–37
(applying UCC definition of “goods” to § 503(b)(9));
Goody’s Family Clothing, 401 B.R. at 135 (same).
10
scheme to make sense, the date of receipt must be fixed. The
rules point to two time periods defined with respect to a
fixed-date event: notice within 45 days of, or bankruptcy
filing within 20 days of, the goods being received. As such,
consistent with the statutory context and history,
§ 503(b)(9)—like § 546(c)—finds its definition in the UCC.
B
World Imports argues that despite the foregoing
reasons, the goods in this case were constructively received
upon delivery because they were delivered “FOB” to a
common carrier. While it is true that a buyer may be deemed
to have received goods when his agent takes physical
possession of them, common carriers are not agents.
Constructive receipt thus does not include “FOB delivery” to
a common carrier, as the Bankruptcy Court and District Court
assumed.
Delivery, or transfer of title or risk of loss, has been
treated as distinct from actual receipt of goods by the buyer.
The official comment to the UCC’s definition of receipt
makes this distinction:
“Receipt” must be distinguished from delivery
particularly in regard to the problems arising
out of shipment of goods, whether or not the
contract calls for making delivery by way of
documents of title, since the seller may
frequently fulfill his obligations to “deliver”
even though the buyer may never “receive” the
goods.
11
UCC § 2-103 cmt. 2 (emphasis added); see also In re Trico
Steel Co., LLC, 282 B.R. 318, 324 (Bankr. D. Del. 2002)
(describing this comment as “highlight[ing] the distinction
between ‘delivery’ (when title passes) and ‘receipt’”). A
seller may deliver goods to a common carrier—thereby
relinquishing title and risk of loss—some time before the
goods are received by the buyer or its agent.
This Court in Marin explicitly stated that delivery and
receipt of goods can occur at different times. See 740 F.2d at
225. We found that “the U.C.C. does not rely on the concept
of ‘title’ for purposes of establishing the rights of buyers and
sellers under the Code.” Id. After finding that “receipt” in 11
U.S.C. § 546(c) is defined the same way as in the UCC
(requiring physical possession), id. at 224–25 & n.9, we noted
that the UCC “views goods given by a seller to a common
carrier for delivery to a buyer as being in the possession of
the common carrier not the buyer,” id. at 225. Under this
framework, the seller has “the right to stop delivery of the
goods” while the common carrier remains in possession. Id.And “[t]his right to stop delivery applies regardless of which
party bears the risk of loss, and regardless of which party is
deemed to have ‘title’ to the goods while they are in the
carrier’s possession.” Id. Only upon the buyer’s physical
possession does the seller’s remedy convert to the “different
right” of reclamation (governed in bankruptcy cases by
§ 546(c)). Id.
In other words, regardless of FOB status, under the
UCC and Chapter 11, receipt does not occur until after the
seller’s ability to stop delivery ends—namely, upon the
buyer’s physical possession. See id. The upshot of all this is
that the transfer of risk is not the same thing as receipt. See,
e.g., Trico Steel, 282 B.R. at 324 (“Although title may have
12
passed to [the buyer] pursuant to the terms of the contract,
those terms did not transfer actual physical possession of the
[goods].”).
Rather than look to this precedent, the Bankruptcy
Court and District Court asserted that “goods are perforce
constructively received” when delivered to the common
carrier FOB. World Imports I, 511 B.R. at 745; accord World
Imports II, 549 B.R. at 824. In our view, that assertion
misapplies the concept of constructive receipt.4 While actual
4
The lower courts looked to the CISG and Incoterms
because they assumed the lack of definition for “received” in
the Bankruptcy Code created a gap in the statute that could
only be filled by reference to other federal law as the “rule of
decision.” See World Imports I, 511 B.R. at 741; accord
World Imports II, 549 B.R. at 823. However, the Bankruptcy
Code itself provides the relevant substantive law in this case,
and in interpreting Code terms, we do not necessarily assume
that Congress intended to adopt a definition from another
source of federal law in the “absence of any explicit
connector” between the Bankruptcy Code and a definition
contained in another statute. United States v. Reorganized CF
& I Fabricators of Utah, Inc., 518 U.S. 213, 219–20 (1996).
In addition, while the CISG and the Incoterm definition of
FOB would certainly be relevant in a contract dispute
between these parties, the relevant inquiry for this appeal is
meaning of the Bankruptcy Code, not the intent of the
parties. See In re Armstrong World Indus., Inc., 432 F.3d
507, 512 (3d Cir. 2005); see Appellants’ Br. 15. Finally,
while we sometimes presume that federal statutes are to be
interpreted consistent with treaties joined by the United
States, INS v. Cardoza-Fonseca, 480 U.S. 421, 437–39
13
possession by an agent on behalf of a buyer constitutes
constructive receipt, our caselaw is clear that common
carriers do not qualify as agents. When a buyer “arrange[s]
for a commercial barge operated by a common carrier to pick
up the” goods from the seller, Marin, 740 F.2d at 222, the
carrier does not act as an agent for purposes of receipt. See id.
at 226 & n.13; see also Trico Steel, 282 B.R. at 323 (finding
that “mere intermediaries in the transport” of goods do not
qualify as agents). Bankruptcy courts in the Third Circuit
have recognized this distinction since Marin. See, e.g., Mayer
Pollock Steel Corp., 157 B.R. 952, 960 (Bankr. E.D. Pa.
1993) (“It is true that a constructive receipt will satisfy the
requirements for reclamation if . . . the buyer’s bailee receives
possession of the goods . . . . However, receipt of the goods
by a common carrier is not deemed constructive possession
by a buyer, but rather is deemed to be possession by the
common carrier.” (citing Marin, 740 F.2d at 225)). Thus, the
common carrier in this case did not act as an agent for World
Imports.
In sum, there is no support for the idea that a buyer
constructively receives goods when they are delivered to a
common carrier, even if title and risk of loss pass at that time.
IV
Consistent with this Court’s holding in Marin, we now
hold that receipt as used in 11 U.S.C. § 503(b)(9) requires
physical possession by the buyer or his agent. And because
World Imports took physical possession within the 20-day
period prior to commencement of its bankruptcy case, we will
(1987), we perceive no potential conflict between our holding
here and the CISG. See Appellants’ Br. 21–23.
14
reverse the order of the District Court and remand for
proceedings consistent with this opinion.
15