Further entrenching a nearly two-decade-old split, Judge Sean Lane of the U.S. Bankruptcy Court for the Southern District of New York on May 15, found that electricity is not a “good” under Section 503(b)(9) of the U.S. Bankruptcy Code. See In re Sears Holdings, No. 18-23538 (SHL), 2023 Bankr. LEXIS 1280, AT 6 (Bankr. S.D.N.Y. May 15, 2023). Enacted in 2005, Section 503(b)(9) dramatically changed the bankruptcy claim priority scheme by creating an administrative expense claim for the value of any goods received by the debtor within 20 days before the commencement of the bankruptcy case. Since then, numerous claims asserted by utility providers for unpaid electricity charges have been litigated, resulting in a split among bankruptcy courts. Currently, six bankruptcy court decisions from the District of Colorado, the District of Massachusetts, the District of Montana, the Western District of Wisconsin, and the District of Puerto Rico, have held that electricity is a “good.” With this ruling, six bankruptcy court decisions from the District of Oregon, the Eastern District of Kentucky, the District of Delaware, the Northern District of Texas, and the Southern District of New York have held that electricity is not a “good” and does not qualify under Section 503(b)(9). The ruling can make the differences between being paid in full as opposed to pennies (if any) on the dollar.

Sears Holdings involved more than 40 of the debtors’ affiliated Kmart and Sears retail stores that purchased “metered electric power” from the Puerto Rico Electric Power Authority (PREPA). Approximately a year after the Sears entities commenced Chapter 11, PREPA filed administrative expense claims totaling $530,672.45 for electricity supplied during the 20-day period prior to bankruptcy. Shortly thereafter, the debtors filed objections.

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