Shortly before Reliable Drug Stores entered bankruptcy, Bindley Western Industries sold it more than a million dollars worth of goods. Bindley did not demand payment in advance, arrange for a letter of credit, or take a purchase-money security interest under § 9-312 of the Uniform Commercial Code, which Indiana (whose law governs) has adopted as I.C. § 26-1-9-312. (For simplicity we omit the “I.C. § 26-1” prefix from other citations.) Instead Bindley depended on Reliable’s history of prompt payment — a history that ended when the bankruptcy began. Bindley immediately made a demand under UCC § 2-702(2), which permits the seller to “reclaim” — that is, to retake possession of — goods delivered during the prior 10 days to an insolvent buyer. But the Bankruptcy Code qualifies the remedies available under the UCC. A bankruptcy court may deny reclamation if it “(A) grants the claim of such seller priority as a claim of a kind specified in section 503(b) of this title; or (B) secures such claim by a lien.” 11 U.S.C. § 546(c)(2). Section 503 governs claims for administrative expenses, and Bankruptcy Judge Vandivier took that route. He denied Bindley’s request to repossess the goods and substituted an administrative claim, with strings:
Bindley is hereby granted an administrative expense claim as follows: To the extent of the amount owing to Bindley by Reliable on account of Reliable’s credit purchase of the [goods], and it is hereafter determined that Bindley has a valid reclamation claim under Section 546(c) of the Bankruptcy Code as to the [goods], Bind-ley shall hold an administrative expense claim allowable under § 503(b) of the Bankruptcy Code.
When the court entered this order, two days after the filing of the petition, everyone assumed that Reliable could pay off its secured debts and satisfy all administrative claims in full. By the time the court confirmed a plan of reorganization, however, it had become clear that Reliable could not. It owed secured creditors some $79 million; the total realizable on Reliable’s assets came to about $62 million. The security included Reliable’s entire inventory, which meant that it included the goods Bindley had delivered.
What happens when a reclamation claimant and a secured creditor seek to satisfy debts from the same assets? Section 2-702(3) of the UCC provides that the “seller’s right to reclaim ... is subject to the rights of a buyer in ordinary course or other good faith purchaser under this Article (Section 2-403).” (Indiana’s version of the UCC substitutes “IC 26-1-2-403” for “this Article (Section 2-403)”; meaning is unaffected.) Is the holder of a security interest in inventory “a buyer in ordinary course or other good faith purchaser under this Article (Section 2-403)”? Security interests come under Article 9, not “this Article (Section 2-403).” Several courts have held, or assumed, that a security interest beats a reclamation claim, on the ground that the security interest equates to the rights of a good faith purchaser under UCC § 1-201(32) and (33). See
In re Pester Refining Co.,
When the shortfall in Reliable’s assets became clear, the bankruptcy judge concluded that Bindley did not have a “valid” reclamation claim. Then the judge confirmed a plan of reorganization over Bindley’s objection. This plan sets aside about $6 million for administrative claims, including $150,000 for reclamation claimants. Under the plan Bind-ley receives approximately 10% of its claim, and other trade creditors get nothing. The plan has since been implemented; to avoid upsetting other provisions, the secured creditors agreed to pay from their own coffers any amount that higher courts later found owing to Bindley. Bindley observed that other administrative claimholders received more than 10$ on the dollar and demanded equal treatment. The district judge thought that Bind-ley had a “valid” claim.
Chief Judge Barker correctly rejected cases, on which the bankruptcy judge had relied, rebuffing a reclamation claim just because there was
some
security interest in the goods. The validity of a reclamation claim depends on the criteria of § 2-703(2): Reliable was insolvent when Bindley delivered the goods; Bindley sought their return within 10 days; about $736,000 of the goods remained in Reliable’s inventory when Bind-ley made this demand; Reliable therefore had a substituted administrative claim with a $736,000 nominal value. To the extent
In re Shattuc Cable Corp.,
*951
According to Bindley, res judicata and the law of the case prevented the district court from reaching its conclusion, however justified it may have been as a matter of first principles. The bankruptcy court awarded it an administrative priority in lieu of possession; the district court held the reclamation claim “valid”; and that, Bindley insists, is that. Yet “res judicata” (Bindley must mean issue preclusion, or collateral estoppel) applies to successive litigation; it does not prevent a superior tribunal from examining an order on direct appeal. Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, 18
Federal Practice & Procedure
§ 4433 (1981). So too with “law of the ease,” which requires a court to respect its own decisions and the mandate of an appellate tribunal, but which never blocks a higher court from examining a decision of an inferior tribunal.
Williams v. CIR,
Bankruptcy law contains many doctrines that protect reliance interests generated during litigation. We explored some of these principles in
In re UNR Industries, Inc.,
Bindley was disappointed to learn that the secured creditors owned all of Reliable’s inventory, but bad breaks are common in bankruptcy. All Bindley ever possessed in this case — given its concession that it stands in line after secured debts — was a hope that the senior creditors would be generous. They turned out to be, perhaps hoping to cut their litigation costs and bring this case to a conclusion. The secured creditors’ willingness to grant the reclamation creditors something does not show that the inventory “really” was worth more than the debts it secured; the bankruptcy judge found the contrary.
Affirmed.