Colortex Industries, Inc., In re, 92-9159
| Decision Date | 02 May 1994 |
| Docket Number | No. 92-9159,92-9159 |
| Citation | 19 F.3d 1371 |
| Parties | , 25 Bankr.Ct.Dec. 929, Bankr. L. Rep. P 75,866 In re COLORTEX INDUSTRIES, INC., Debtor. VARSITY CARPET SERVICES, INC., Textile Coating, Ltd., Chemtech Finishers, Inc., Plaintiffs-Appellants, Cross-Appellees, v. Thomas D. RICHARDSON, Trustee in Bankruptcy for Colortex Industries, Inc., Defendant-Appellee, Cross-Appellant. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
John P. Neal, III, Michael J. Tuck, Minor, Bell & Neal, P.C., Dalton, GA, for appellants.
Thomas D. Richardson, Brinson, Askew, Berry, Seigler, Richardson & Davis, Rome, GA, for appellee.
Appeals from the United States District Court for the Northern District of Georgia.
Before ANDERSON and CARNES, Circuit Judges, and MERRYDAY *, District Judge.
This appeal presents two issues--an issue of first impression with respect to the appropriate priority in bankruptcy for interest on trade debts accruing during a Chapter 11 reorganization; and also an issue involving a claim for immediate payment. We affirm the district court with respect to both issues.
This case arises from the filing of a Chapter 11 petition in the United States Bankruptcy Court for the Northern District of Georgia, Rome Division by Colortex Industries, Inc. ("Debtor") on October 24, 1989. Subsequent to filing, Debtor sought the extension of postpetition credit from Varsity Carpet Services, Inc., Textile Coating, Ltd., and Chem-Tech Finishers, Inc. (collectively "Varsity" or "appellants"). Varsity performed the requested carpet finishing services on a credit basis between October 26, 1989 and February 1, 1990 while the Debtor operated under Chapter 11.
On April 17, 1990, the bankruptcy court approved conversion of Debtor's Chapter 11 case to a case under Chapter 7. Subsequently, on March 2, 1992, Varsity filed a motion pursuant to 11 U.S.C. Sec. 503(b)(1)(A) seeking immediate payment and administrative expense priority on the principal indebtedness incurred postpetition and interest accruing thereon to date. The trustee in bankruptcy for Debtor, Thomas D. Richardson, ("Trustee" or "appellee") filed a response and objection to Varsity's motion.
The bankruptcy court held a hearing on Varsity's claims on April 14, 1992. The parties Upon appeal, the district court reversed the bankruptcy court's determination regarding interest, holding that the interest accruing during the Chapter 11 period on Varsity's postpetition trade debt should be accorded first administrative expense priority under Sec. 503(b)(1)(A), but that upon conversion to Chapter 7, interest accruing thereafter should be accorded only fifth priority under Sec. 726(a)(5). Varsity Carpet Services, Inc. v. Richardson, 146 B.R. 881, 887 (N.D.Ga.1992). The district court affirmed the bankruptcy court's denial of Varsity's motion for immediate payment, concluding that the bankruptcy court had not abused its discretion in denying immediate payment where the record did not adequately reflect the total amount of claims against the estate. Id. at 888.
stipulated that the estate at the time of the hearing had $723,738.00 on deposit. Varsity argued that its claims should be paid immediately because the estate was solvent, stating that the Trustee's final report at the time of conversion to Chapter 7 reflected only $153,742.93 in unpaid debts. The Trustee argued that a number of outstanding Chapter 7 administrative expense claims, superpriority claims, and other Chapter 11 administrative expense claims against the estate precluded immediate payment. The bankruptcy court entered an order allowing the claims of Varsity as Chapter 11 administrative claims, representing principal indebtedness only. 1 Varsity's requests for interest and immediate payment were denied
The Trustee cross-appeals the district court's determination that interest is entitled to first priority as an administrative expense. The Trustee urges this Court to adopt the bankruptcy court's position--i.e., that only the principal debt is entitled to administrative expense priority. Varsity appeals the district court's denial of its motion for immediate payment. Varsity also argues that, in addition to administrative expense priority for interest during the Chapter 11 period, it should also be entitled to the same priority for interest accruing after the conversion to Chapter 7. For the reasons set out below, we affirm the district court; we hold that Varsity is entitled to administrative expense priority for interest accrued during the Chapter 11 period, but not for interest accruing after conversion; we also hold that the district court did not abuse its discretion in denying Varsity's claims for immediate payment.
Because the district court in reviewing the decision of a bankruptcy court functions as an appellate court, we are the second appellate court to consider this case. Capital Factors, Inc. v. Empire for Him, Inc., 1 F.3d 1156, 1159 (11th Cir.1993). Thus, this Court's review with regard to determinations of law, whether made by the bankruptcy court or by the district court, is de novo. Equitable Life Assurance Soc. v. Sublett, 895 F.2d 1381, 1383 (11th Cir.1990). The district court makes no independent factual findings; accordingly, we review solely the bankruptcy court's factual determinations under the "clearly erroneous" standard. Rush v. JLJ Inc., 988 F.2d 1112, 1116 (11th Cir.1993); Bankr.Rule 8013; Bankr.Rule 7052. Orders implicating the equitable discretion of the bankruptcy court in directing immediate payment of an administrative expense are reviewable for an abuse of discretion. In re Chips 'N Twigs, Inc., 58 B.R. 109, 110-11 (Bankr.E.D.Pa.1986); In re Robinson Truck Line, Inc., 47 B.R. 631, 638 (Bankr.N.D.Miss.1985); In re Callister, 15 B.R. 521, 534 n. 38 (Bankr.D.Utah 1981).
The Trustee argues that the district court erred in granting first administrative expense priority for interest on Varsity's postpetition trade claims. According to the Trustee, the plain language of the Code does not accord administrative expense priority (or first priority) for interest on postpetition administrative expense claims. The Trustee Varsity rejects the Trustee's construction of the Code, urging that 11 U.S.C. Secs. 503(b) and 507 should be read broadly to permit interest as an administrative expense priority, relying upon the Code's definition of the term "including" to suggest that the list in Sec. 503(b)(1)(A) enumerating allowed administrative expenses is non-exhaustive. Varsity urges that failure to accord priority for interest on credit extended to a debtor in Chapter 11 would discourage creditors from extending credit because according interest a lower priority would in essence constitute an interest-free loan to the debtor. Such a result is inimical to Chapter 11's goal of reorganization of the debtor, according to Varsity. Varsity relies upon this Court's decision in In re Allied Mechanical Services, Inc., 885 F.2d 837 (11th Cir.1989), in which this Court, concluding that the Supreme Court's decision in Nicholas had continuing vitality, accorded administrative expense priority (or first priority) for interest on postpetition tax claims.
relies upon the general rule in bankruptcy that accrual of interest is suspended upon the filing of a bankruptcy petition, with any exception to this general rule narrowly construed to maximize the value of the estate preserved for the benefit of all creditors. Although the Trustee concedes that some courts have accorded interest on postpetition tax liabilities priority as an administrative expense, the Trustee urges that those decisions be circumscribed to the tax area, due to specific legislative history. Specifically, the Trustee notes that prior law dictated that administrative expense priority be accorded interest on tax claims based upon the Supreme Court decision of Nicholas v. United States, 384 U.S. 678, 86 S.Ct. 1674, 16 L.Ed.2d 853 (1966). The Trustee argues that prior law would dictate that interest on trade debts, as opposed to tax liabilities, would receive a lower priority than the attendant administrative expense claim.
In determining this question of priority, we turn first to the Bankruptcy Code itself. Rules of statutory construction dictate that the plain meaning is conclusive, "except in the 'rare cases [in which] the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters.' " United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 242, 109 S.Ct. 1026, 1031, 103 L.Ed.2d 290 (1989) (quoting Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 571, 102 S.Ct. 3245, 3250, 73 L.Ed.2d 973 (1982)). " ' "In expounding a statute, we must not be guided by a single sentence or member of a sentence, but look to the provisions of the whole law, and to its policy." ' " Offshore Logistics, Inc. v. Tallentire, 477 U.S. 207, 222, 106 S.Ct. 2485, 2493, 91 L.Ed.2d 174 (1986) (quoting Mastro Plastics Corp. v. NLRB, 350 U.S. 270, 285, 76 S.Ct. 349, 359, 100 L.Ed. 309 (1956) (in turn quoting United States v. Heirs of Boisdore, 8 How. 113, 122, 12 L.Ed. 1009 (1849))). Finally, where a statute is ambiguous, we must analyze whether our interpretation accords with established precedent prior to the enactment of the Code, mindful that " 'no changes in law or policy are to be presumed from changes in language in [a statute's] revision unless an intent to make such changes is clearly expressed.' " Finley v. United States, 490 U.S. 545, 554, 109 S.Ct. 2003, 2009, 104 L.Ed.2d 593 (1989) (quoting Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 227, 77 S.Ct. 787, 791, 1 L.Ed.2d 786 (1957)). Silent abrogation of judicially created concepts is particularly disfavored when construing the Bankruptcy Code. Kelly v....
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