828 F.2d 367 (6th Cir. 1987), 86-1785, In re Ron Pair Enterprises

Docket Nº:86-1785.
Citation:828 F.2d 367
Party Name:17 Collier Bankr.Cas.2d In re: RON PAIR ENTERPRISES, INC., Debtor, UNITED STATES of America, Plaintiff-Appellee, v. RON PAIR ENTERPRISES, INC. d/b/a Midwest International Environmental Division and d/b/a Industrial Environmental Supply Company, Defendant-Appellant.
Case Date:September 04, 1987
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit
 
FREE EXCERPT

Page 367

828 F.2d 367 (6th Cir. 1987)

17 Collier Bankr.Cas.2d

In re: RON PAIR ENTERPRISES, INC., Debtor,

UNITED STATES of America, Plaintiff-Appellee,

v.

RON PAIR ENTERPRISES, INC. d/b/a Midwest International

Environmental Division and d/b/a Industrial

Environmental Supply Company, Defendant-Appellant.

No. 86-1785.

United States Court of Appeals, Sixth Circuit

September 4, 1987

Argued June 18, 1987.

Page 368

I. William Cohen, Hertzberg, Jacob, and Weingarden, P.C., Detroit, Mich., Jo Ann Stevenson, argued, for defendant-appellant.

David H. Dickieson, Dept. of Justice, Washington, D.C., Mark E. Rizik, Detroit, Mich., Michael L. Paup, Lead Counsel, Roger M. Olsen, Tax Div., Dept. of Justice, Washington, D.C., Wynette J. Hewett, Martha B. Brissette, argued, for plaintiff-appellee.

Before: KENNEDY and MILBURN, Circuit Judges; and CONTIE, Senior Circuit Judge.

CONTIE, Senior Circuit Judge.

Debtor Ron Pair Enterprises, Inc. appeals from the district court's order awarding postpetition interest on an oversecured prepetition federal tax lien. The district court, in reversing the bankruptcy court's ruling, held that section 506(b) of the 1978 Bankruptcy Code, 11 U.S.C. Sec. 506(b), provides for the payment of such interest by its plain terms. We conclude that the language of section 506(b) does not clearly provide for the payment of such interest and, in fact, it fails to explicitly overrule the pre-Code judicially created concept disallowing the payment of postpetition interest on nonconsensual prepetition oversecured claims. We therefore reverse the judgment of the district court.

I.

Debtor filed a bankruptcy petition pursuant to Chapter 11 of the Bankruptcy Code on May 1, 1984, in the United States Bankruptcy Court for the Eastern District of Michigan. The Government filed timely proof of a prepetition claim in the amount of $53,277.93, comprised of assessments for unpaid withholding and social security taxes, penalties and prepetition interest. The Government's claim was properly perfected through a tax lien.

Debtor's First Amended Plan of Reorganization was filed on October 1, 1985. The Plan provided for the payment of the Government's prepetition tax claim, including prepetition interest which had accrued on that claim, but it did not provide for the payment of postpetition interest on that claim. Accordingly, the Government filed a timely objection to the Plan claiming, among other things, that section 506(b) of the 1978 Bankruptcy Code allows for the payment of postpetition interest since the assets securing the Government's claim exceeded

Page 369

the amount of the principal debt. 1 A hearing was held before the Bankruptcy Court on December 3, 1985, at which time the parties stipulated that the collateral securing the Government's claim was adequate to pay that claim as well as postpetition interest on that claim; in other words, they stipulated that the claim was oversecured.

On December 6, 1985, the Bankruptcy Court denied the Government's objection, concluding that section 506(b) did not authorize the payment of postpetition interest on the Government's prepetition tax claim. The district court reversed the Bankruptcy Court's judgment on June 30, 1986, concluding that the "plain language" of section 506(b) entitled the Government to such interest, relying on the Fourth Circuit's decision in In re Best Repair Co., 789 F.2d 1080 (4th Cir.1986), and this court's decision in In re Colegrove, 771 F.2d 119 (6th Cir.1985). This timely appeal followed.

II.

The sole issue before this court is whether section 506(b) of the 1978 Bankruptcy Code, 11 U.S.C. Sec. 506(b), authorizes the payment of postpetition interest on an oversecured prepetition claim when that claim is nonconsensual in nature. Section 506(b) provides in full:

To the extent that an allowed secured claim is secured by property the value of which, after any recovery under subsection (c) of this section, is greater than the amount of such claim, there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement under which such claim arose.

(Emphasis added). Debtor argues that the emphasized clause above modified both "interest on such claim" as well as "any reasonable fees, costs, or charges," thereby codifying the judicially created pre-Code rule regarding postpetition interest on oversecured prepetition claims. Debtor asserts that there is no indication that Congress intended to deviate from the judicially created rule that postpetition interest could not be awarded on nonconsensual prepetition claims, arguing that the language in section 506(b) is too ambiguous to be considered an explicit departure from a well-established doctrine.

The Government counters by arguing that the language of section 506(b) is unambiguous in that the emphasized clause above only modifies "any reasonable fees, costs, or charges." The Government relies on the fact that the phrase "interest on such claim" is set off by commas and is followed by the words "and any," indicating that interest is to be treated differently from fees, costs, or charges. The Government argues that since the language is unambiguous and allows for postpetition interest to be awarded on any allowed secured prepetition claim regardless of whether it is consensual or not, this Court should not refer to pre-Code law to interpret section 506(b). The Government suggests further that even if this Court is inclined to review pre-Code law, the punctuation, phraseology and grammatical structure of section 506(b) plainly and unambiguously express Congress' intent to depart from pre-Code law. This is a case of first impression in this Circuit. 2

We first reject the Government's contention that pre-Code law should not be relied on in interpreting section 506(b) since the provision appears to be unambiguous. While the language of a statute is always the starting point when its construction is at issue, see Landreth Timber Co. v. Landreth, 471 U.S. 681, 685, 105 S.Ct. 2297, 2301-02, 85 L.Ed.2d 692 (1985), it is only

Page 370

the starting point. As in Midlantic National Bank v. New Jersey Department of Environmental Protection, 474 U.S. 494, 106 S.Ct. 755, 88 L.Ed.2d 859 (1986), and Kelly v. Robinson, --- U.S. ----, 107 S.Ct. 353, 93 L.Ed.2d 216 (1986), pre-Code law should be reviewed in order to better understand the context in which the provision was drafted and therefore the language itself. Midlantic, 106 S.Ct. at 759-60; Kelly, 107 S.Ct. at 358. 3 In fact,

[t]he normal rule of...

To continue reading

FREE SIGN UP