United States v. Ron Pair Enters., Inc.
489 U.S. 235 (1989)
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Rule of Law:
Section 506(b) of the Bankruptcy Code allows a holder of an oversecured claim to recover postpetition interest, regardless of whether the lien securing the claim is consensual (created by agreement) or nonconsensual (created by statute, like a tax lien).
Facts:
- Ron Pair Enterprises, Inc. had an outstanding tax liability to the United States Government for unpaid withholding and Social Security taxes.
- The Government's claim for the unpaid taxes, penalties, and prepetition interest was perfected through a tax lien on property owned by Ron Pair Enterprises.
- The value of the property subject to the tax lien was greater than the amount of the tax claim, making the Government's claim oversecured.
- On May 1, 1984, Ron Pair Enterprises filed a petition for reorganization under Chapter 11 of the Bankruptcy Code.
- In its reorganization plan, Ron Pair Enterprises provided for full payment of the Government's prepetition tax claim but did not include any provision for postpetition interest on that claim.
Procedural Posture:
- The United States Government filed a proof of claim for unpaid taxes in Ron Pair Enterprises' Chapter 11 case in the U.S. Bankruptcy Court for the Eastern District of Michigan.
- The Government objected to Ron Pair's reorganization plan because it failed to provide for postpetition interest on the Government's oversecured tax claim.
- The Bankruptcy Court overruled the Government's objection.
- The Government appealed to the U.S. District Court for the Eastern District of Michigan.
- The District Court reversed the Bankruptcy Court, holding that the plain language of § 506(b) entitled the Government to postpetition interest.
- Ron Pair Enterprises (appellee in the District Court) appealed to the U.S. Court of Appeals for the Sixth Circuit.
- The Sixth Circuit reversed the District Court, holding that § 506(b) codified pre-Code law and did not allow postpetition interest on nonconsensual liens.
- The United States (the Government) petitioned the U.S. Supreme Court for a writ of certiorari, which was granted.
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Issue:
Does § 506(b) of the Bankruptcy Code entitle a creditor to receive postpetition interest on a nonconsensual oversecured claim?
Opinions:
Majority - Justice Blackmun
Yes. Section 506(b) of the Bankruptcy Code entitles a creditor to receive postpetition interest on a nonconsensual oversecured claim. The plain language of the statute is unambiguous and controls the outcome. The phrase 'interest on such claim' is set off by commas and separated from the subsequent clause 'and any reasonable fees, costs, or charges provided for under the agreement under which such claim arose.' This grammatical structure demonstrates that the entitlement to interest is independent of the existence of an agreement, while the recovery of fees, costs, and charges is conditioned upon one. Where the statute's language is plain, the court's function is to enforce it according to its terms, without resorting to pre-Code practice or legislative history unless a literal application would produce a result demonstrably at odds with the drafters' intentions, which is not the case here.
Dissenting - Justice O'Connor
No. Section 506(b) should not be interpreted to allow postpetition interest on nonconsensual oversecured claims because doing so silently abrogates a well-established pre-Code bankruptcy practice. The majority's interpretation relies too heavily on a single comma, which is a 'fallible standard' for statutory construction. Under the precedent of Midlantic National Bank, courts should not infer that Congress intended to change a judicially created concept without specific legislative intent. Pre-Code practice uniformly denied postpetition interest on nonconsensual tax liens based on equitable considerations. Since the legislative history of § 506(b) contains no evidence that Congress intended to overturn this established rule, the pre-Code practice should continue to govern.
Analysis:
This case is a landmark decision in statutory interpretation, championing the doctrine of textualism. The Court's reliance on the 'plain meaning' of the statute's text and grammar over pre-Code judicial practice set a strong precedent for how bankruptcy and other federal statutes should be read. By creating a uniform rule for all oversecured creditors, the decision enhances the recovery for holders of statutory liens, such as government tax authorities, potentially at the expense of unsecured creditors. The ruling also clarifies and limits the scope of the Midlantic doctrine, reserving inquiry into pre-Code practice for cases involving statutory ambiguity or significant conflicts with other major public policies.
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