After respondent filed a petition under Chapter 11 of the
Bankruptcy Code of 1978 (Code), the Government filed proof of a
prepetition claim for unpaid withholding and social security taxes,
penalties, and prepetition interest. The claim was perfected
through a tax lien on property owned by respondent. Respondent's
ensuing reorganization plan provided for full payment of the claim,
but did not provide for post-petition interest. The Government
objected, contending that § 506(b) of the Code -- which allows the
holder of an oversecured claim to recover, in addition to the
prepetition amount of the claim, "interest on such claim, and any
reasonable fees, costs, or charges provided for under the agreement
under which such claim arose" -- allowed recovery of post-petition
interest, since the property securing its claim had a value greater
than the amount of the principal debt. The Bankruptcy Court
overruled this objection, but the District Court reversed. The
Court of Appeals reversed the District Court, holding that § 506(b)
codified the pre-Code standard that allowed post-petition interest
on an oversecured claim only where the lien on the claim was
consensual in nature.
Held: Section 506(b) entitles a creditor to receive
post-petition interest on a nonconsensual oversecured claim allowed
in a bankruptcy proceeding. Pp.
489 U. S.
238-249.
(a) The natural reading of the phrase in § 506(b) that
"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"
entitles the holder of an oversecured claim to post-petition
interest and, in addition, the holder of a secured claim pursuant
to an agreement the right to the specified fees, costs, and
charges. Recovery of post-petition interest is unqualified, whereas
recovery of those fees, costs, and charges is allowed only if they
are reasonable and provided for in the agreement under which the
claim arose. Therefore, in the absence of an agreement,
post-petition interest is the only added recovery available. This
reading of § 506(b) is also mandated by its grammatical structure.
Since the phrase "interest on such claim" is set aside by commas,
and separated from the reference to fees, costs, and charges by the
conjunctive words "and any," that phrase stands independent of the
language that follows. Pp.
489 U. S. 241-242.
Page 489 U. S. 236
(b) Allowing post-petition interest on nonconsensual oversecured
liens does not contravene the intent of the Code's framers, nor
does it conflict with any other section of the Code or any
important state or federal interest. The legislative history does
not suggest a contrary view. Pp.
489 U. S.
242-243.
(c) There is no significant reason why Congress would have
intended, or any policy reason would compel, that consensual and
nonconsensual liens be treated differently in allowing
post-petition interest. Section 506(b)'s language clearly directs
that post-petition interest be paid on all oversecured claims.
Midlantic National Bank v. New Jersey Dept. of Environmental
Protection, 474 U. S. 494, and
Kelly v. Robinson, 479 U. S. 36,
distinguished. Pp.
489 U. S.
243-246.
(d) The pre-Code practice of denying post-petition interest to
holders of nonconsensual liens, while allowing it to holders of
consensual liens, was an exception to the exception for oversecured
claims from the rule that the running of interest ceased when a
bankruptcy petition was filed, and was recognized by only a few
courts and often depended on particular circumstances. The fact
that this Court has never clearly acknowledged or relied upon the
refusal of some Courts of Appeals to apply the oversecured claim
exception to an oversecured federal tax claim counsels against
concluding that such limitation was well recognized. Also arguing
against considering this limitation a clear rule are the facts that
all cases that limited the exception were tax-lien cases, that the
"rule" has never been extended to other forms of nonconsensual
liens, and that, in the few cases where it was recognized, it was
only a guide to the bankruptcy trustee's exercise of his powers in
the particular circumstances of the case. Pp.
489 U. S.
246-249.
828 F.2d 367, reversed.
BLACKMUN, J., delivered the opinion of the Court, in which
REHNQUIST, C.J., and WHITE, SCALIA, and KENNEDY, JJ., joined.
O'CONNOR, J., filed a dissenting opinion, in which BRENNAN,
MARSHALL, and STEVENS, JJ., joined,
post, p.
489 U. S.
249
Page 489 U. S. 237
JUSTICE BLACKMUN delivered the opinion of the Court.
In this case, we must decide the narrow statutory issue whether
§ 506(b) of the Bankruptcy Code of 1978, 11 U.S.C. § 506(b) (1982
ed., Supp. IV), entitles a creditor to receive post-petition
interest on a nonconsensual oversecured claim allowed in a
bankruptcy proceeding. We conclude that it does, and we therefore
reverse the judgment of the Court of Appeals.
I
Respondent Ron Pair Enterprises, Inc., filed a petition for
reorganization under 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 of $52,277.93, comprised of assessments for
unpaid withholding and Social Security taxes, penalties, and
prepetition interest. The claim was perfected through a tax lien on
property owned by respondent. Respondent's First Amended Plan of
Reorganization, filed October 1, 1985, provided for full payment of
the prepetition claim, but did not provide for post-petition
interest on that claim. The Government filed a timely objection,
claiming that § 506(b) allowed recovery of post-petition interest,
since the property securing the claim had a value greater than the'
amount of the principal debt. At the Bankruptcy Court hearing, the
parties stipulated that the claim was oversecured, but the court
subsequently overruled the Government's objection. The Government
appealed to the United States District Court for the Eastern
District of Michigan. That court reversed the Bankruptcy Court's
judgment, concluding that the plain language of § 506(b) entitled
the Government to post-petition interest.
The United States Court of Appeals for the Sixth Circuit, in its
turn, reversed the District Court. 828 F.2d 367 (1987). While not
directly ruling that the language of § 506(b) was ambiguous, the
court reasoned that reference to pre-Code law was appropriate "in
order to better understand
Page 489 U. S. 238
the context in which the provision was drafted and therefore the
language itself."
Id. at 370. The court went on to note
that, under pre-Code law, the general rule was that post-petition
interest on an oversecured prepetition claim was allowable only
where the lien was consensual in nature. In light of this practice,
and of the lack of any legislative history evincing an intent to
change the standard, the court held that § 506(b) codified the
preexisting standard, and that post-petition interest was allowable
only on consensual claims. Because this result was in direct
conflict with the view of the Court of Appeals for the Fourth
Circuit,
see Best Repair Co. v. United States, 789 F.2d
1080 (CA4 1986), and with the views of other courts, [
Footnote 1] we granted certiorari, 485 U.S.
958 (1988), to resolve the conflict.
II
Section 506, [
Footnote 2]
enacted as part of the extensive 1978 revision of the bankruptcy
laws, governs the definition and treatment
Page 489 U. S. 239
of secured claims,
i.e., claims by creditors against
the estate that are secured by a lien on property in which the
estate has an interest. Subsection (a) of § 606 provides that a
claim is secured only to the extent of the value of the property on
which the lien is fixed; the remainder of that claim is considered
unsecured. [
Footnote 3]
Subsection (b) is concerned specifically with oversecured claims,
that is, any claim that is for an amount less than the value of the
property securing it. Thus, if a $50,000 claim were secured by a
lien on property having a value of $75,000, the claim would be
oversecured, provided the trustee's costs of preserving or
disposing of the property were less than $25,000. Section 506(b)
allows a
Page 489 U. S. 240
holder of an oversecured claim to recover, in addition to the
prepetition amount of the claim, "interest on such claim, and any
reasonable fees, costs, or charges provided for under the agreement
under which such claim arose."
The question before us today arises because there are two types
of secured claims: (1) voluntary (or consensual) secured claims,
each created by agreement between the debtor and the creditor and
called a "security interest" by the Code, 11 U.S.C. § 101(45) (1982
ed., Supp. IV), and (2) involuntary secured claims, such as a
judicial or statutory lien,
see 11 U.S.C. §§ 101(32) and
(47) (1982 ed., Supp. IV), which are fixed by operation of law and
do not require the consent of the debtor. The claim against
respondent's estate was of this latter kind. Prior to the passage
of the 1978 Code, some Courts of Appeals drew a distinction between
the two types for purposes of determining post-petition interest.
The question we must answer is whether the 1978 Code recognizes and
enforces this distinction, or whether Congress intended that all
oversecured claims be treated the same way for purposes of
post-petition interest.
III
Initially, it is worth recalling that Congress worked on the
formulation of the Code for nearly a decade. It was intended to
modernize the bankruptcy laws,
see H.R.Rep. No. 95-595, p.
3 (1977) (Report), and as a result made significant changes in both
the substantive and procedural laws of bankruptcy.
See Northern
Pipeline Construction Co. v. Marathon Pipe Line Co.,
458 U. S. 50,
458 U. S. 52-53
(1982) (plurality opinion). In particular, Congress intended
"significant changes from current law in . . . the treatment of
secured creditors and secured claims." Report, at 180. In such a
substantial overhaul of the system, it is not appropriate or
realistic to expect Congress to have explained with particularity
each step it took. Rather, as long as the statutory scheme is
coherent and consistent, there generally is no
Page 489 U. S. 241
need for a court to inquire beyond the plain language of the
statute.
A
The task of resolving the dispute over the meaning of § 506(b)
begins where all such inquiries must begin: with the language of
the statute itself.
Landreth Timber Co. v. Landreth,
471 U. S. 681,
471 U. S. 685
(1985). In this case, it is also where the inquiry should end, for
where, as here, the statute's language is plain, "the sole function
of the courts is to enforce it according to its terms."
Caminetti v. United States, 242 U.
S. 470,
242 U. S. 485
(1917). The language before us expresses Congress' intent -- that
post-petition interest be available -- with sufficient precision so
that reference to legislative history and to pre-Code practice is
hardly necessary.
The relevant phrase in § 506(b) is:
"[T]here 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."
"Such claim" refers to an oversecured claim. The natural reading
of the phrase entitles the holder of an oversecured claim to
post-petition interest and, in addition, gives one having a secured
claim created pursuant to an agreement the right to reasonable
fees, costs, and charges provided for in that agreement. Recovery
of post-petition interest is unqualified. Recovery of fees, costs,
and charges, however, is allowed only if they are reasonable and
provided for in the agreement under which the claim arose.
Therefore, in the absence of an agreement, post-petition interest
is the only added recovery available.
This reading is also mandated by the grammatical structure of
the statute. The phrase "interest on such claim" is set aside by
commas, and separated from the reference to fees, costs, and
charges by the conjunctive words "and any." As a result, the phrase
"interest on such claim" stands independent of the language that
follows. "[I]nterest on such claim" is not part of the list made up
of "fees, costs, or
Page 489 U. S. 242
charges," nor is it joined to the following clause so that the
final "provided for under the agreement" modifies it as well.
See Best Repair Co. v. United States, 789 F.2d at 1082.
The language and punctuation Congress used cannot be read in any
other way. [
Footnote 4] By the
plain language of the statute, the two types of recovery are
distinct. [
Footnote 5]
B
The plain meaning of legislation should be 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."
Griffin v. Oceanic Contractors, Inc., 458 U.
S. 564,
458 U. S. 571
(1982). In such cases, the intention of the drafters, rather than
the strict language, controls.
Ibid. It is clear that
allowing post-petition interest on
Page 489 U. S. 243
nonconsensual oversecured liens does not contravene the intent
of the framers of the Code. Allowing such interest does not
conflict with any other section of the Code, or with any important
state or federal interest, nor is a contrary view suggested by the
legislative history. [
Footnote
6] Respondent has not articulated, nor can we discern, any
significant reason why Congress would have intended, or any policy
reason would compel, that the two types of secured claims be
treated differently in allowing post-petition interest.
C
Respondent urges that pre-Code practice drew a distinction
between consensual and nonconsensual liens for the purpose of
determining entitlement to post-petition interest, and that
Congress' failure to repudiate that distinction requires us to
enforce it. It is respondent's view, as it was the view of the
Court of Appeals, that
Midlantic National Bank v. New Jersey
Dept. of Environmental Protection, 474 U.
S. 494 (1986), and
Kelly v. Robinson,
479 U. S. 36
(1986), so require. We disagree.
In
Midlantic, we held that § 554(a) of the Code, 11
U.S.C. § 554(a), which provides that "the trustee may abandon any
property of the estate that is burdensome to the estate," does not
give a trustee the authority to violate state health and safety
laws by abandoning property containing hazardous wastes. 474 U.S.
at
474 U. S. 507.
In reaching that conclusion, we noted that, according to pre-Code
doctrine, the trustee's authority
Page 489 U. S. 244
to dispose of property could be limited in order "to protect
legitimate state or federal interests."
Id. at
474 U. S. 500.
But we did not rest solely, or even primarily, on a presumption of
continuity with pre-Code practice. Rather, we concluded that a
contrary result would render abandonment doctrine inconsistent with
other provisions of the Code itself, which embody the principle
that "the trustee is not to have
carte blanche to ignore
nonbankruptcy law."
Id. at
474 U. S. 502.
We also recognized that the outcome sought would be not only a
departure from pre-Code practice, but also "an extraordinary
exemption from nonbankruptcy law,"
id. at
474 U. S. 501,
requiring some clearer expression of congressional intent. We
relied as well on Congress' repeated emphasis in environmental
legislation "on its
goal of protecting the environment against
toxic pollution.'" Id. at 474 U. S. 505,
quoting Chemical Manufacturers Assn. v. Natural Resources
Defense Council, Inc., 470 U. S. 116,
470 U. S. 143
(1985). To put it simply, we looked to pre-Code practice for
interpretive assistance, because it appeared that a literal
application of the statute would be "demonstrably at odds with the
intentions of its drafters." Griffin v. Oceanic Contractors,
Inc., 458 U.S. at 458 U. S.
571.
A similar issue presented itself in
Kelly v. Robinson,
supra, where we held that a restitution obligation, imposed as
part of a state criminal sentence, was not dischargeable in
bankruptcy. We reached this conclusion by interpreting § 523(a)(7)
of the Code, [
Footnote 7] 11
U.S.C. § 523(a)(7), as "preserv[ing] from discharge any condition a
state criminal court imposes as part of a criminal sentence." 479
U.S. at
479 U. S. 50. We
noted that the Code provision was "subject to interpretation,"
ibid., and considered both legislative history and
pre-Code practice in aid of that interpretation. But in
determining
Page 489 U. S. 245
that Congress had not intended to depart from pre-Code practice
in this regard, we did not rely on a pale presumption to that
effect. We concluded that the pre-Code practice had been animated
by "a deep conviction that federal bankruptcy courts should not
invalidate the results of state criminal proceedings,"
id.
at
479 U. S. 47,
which has its source in the basis principle of our federalism
that
"the States' interest in administering their criminal justice
systems free from federal interference is one of the most powerful
of the considerations that should influence a court considering
equitable types of relief."
Id. at
479 U. S. 49. In
Kelly, as in
Midlantic, pre-Code practice was
significant because it reflected policy considerations of great
longevity and importance. [
Footnote
8]
Kelly and
Midlantic make clear that, in an
appropriate case, a court must determine whether Congress has
expressed an intent to change the interpretation of a judicially
created concept in enacting the Code. But
Midlantic and
Kelly suggest that there are limits to what may constitute
an appropriate case. Both decisions concerned statutory language
which, at least to some degree, was open to interpretation. Each
involved a situation where bankruptcy law, under the proposed
interpretation, was in clear conflict with state or federal laws of
great importance. In the present case, in contrast, the language in
question is clearer than the language at issue in
Midlantic and
Kelly: as written it directs that
post-petition interest be paid on all oversecured claims. In
addition, this natural interpretation of the statutory language
does not conflict with any significant state or federal interest,
nor with any other aspect of the Code. Although the payment of
post-petition interest is arguably somewhat in tension with the
desirability of paying all creditors as uniformly
Page 489 U. S. 246
as practicable, Congress expressly chose to create that alleged
tension. There is no reason to suspect that Congress did not mean
what the language of the statute says.
D
But even if we saw the need to turn to pre-Code practice in this
case, it would be of little assistance. The practice of denying
post-petition interest to the holders of nonconsensual liens, while
allowing it to holders of consensual liens, was an exception to an
exception, recognized by only a few courts and often dependent on
particular circumstances. It was certainly not the type of "rule"
that we assume Congress was aware of when enacting the Code; nor
was it of such significance that Congress would have taken steps
other than enacting statutory language to the contrary.
There was, indeed, a pre-Code rule that the running of interest
ceased when a bankruptcy petition was filed.
See Sexton v.
Dreyfus, 219 U. S. 339,
219 U. S. 344
(1911). Two exceptions to this rule had been recognized under
pre-Code practice. The first allowed post-petition interest when
the debtor ultimately proved to be solvent; the second allowed
dividends and interest earned by securities held by the creditor as
collateral to be applied to post-petition interest.
See City of
New York v. Saper, 336 U. S. 328,
336 U. S. 330,
n. 7 (1949). Neither of these exceptions would be relevant to this
case. A third exception was of more doubtful provenance: an
exception for oversecured claims. At least one Court of Appeals
refused to apply this exception,
United States v.
Harrington, 269 F.2d 719, 722 (CA4 1959), and there was some
uncertainty among courts which did recognize it as to whether this
Court ever had done so.
United States v. Bass, 271 F.2d
129, 131, n. 3 (CA9 1959);
but see Vanston Bondholders
Protective Committee v. Green, 329 U.
S. 156,
329 U. S. 159
(1946).
What is at issue in this case is not the oversecured claim
exception
per se, but an exception to that exception.
Several Courts of Appeals refused to apply the oversecured
Page 489 U. S. 247
claim exception to an oversecured federal tax claim.
See
United States v. Harrington, 269 F.2d at 722-723 (holding
that, even if there were a general exception for oversecured
claims, it would not apply to tax liens);
United States v.
Bass, 271 F.2d at 132;
In re Kerber Packing Co., 276
F.2d 245, 247-248 (CA7 1960);
see also In re Boston and Maine
Corp., 719 F.2d 493, 496 (CA1 1983) (municipal property tax
claim),
cert. denied sub nom. City of Cambridge v.
Meserve, 466 U.S. 938 (1984).
But see In re
Parchem, 166 F.
Supp. 724, 730 (Minn.) (allowing post-petition interest on tax
claim),
appeal dism'd upon stipulation, 261 F.2d 839 (CA8
1958);
In re Ross Nursing Home, 2 B.R. 496, 499-500
(Bkrtcy., EDNY 1980) (same). It is this refusal to apply the
exception that the Court of Appeals thought constituted a
well-established judicially created rule.
The fact that this Court never clearly has acknowledged or
relied upon this limitation on the oversecured claim exception
counsels against concluding that the limitation was
well-recognized. Also arguing against considering this limitation a
clear rule is the fact that all the cases that limited the third
exception were tax lien cases. Each gave weight to
City of New
York v. Saper, supra, where this Court had ruled that
post-petition interest was not available on
unsecured tax
claims, and reasoned that the broad language of that case denied it
for all tax claims.
See United States v. Harrington, 269
F.2d at 721-722;
United States v. Bass, 271 F.2d at 132;
In re Kerber Packing Co., 276 F.2d at 247. [
Footnote 9] The rule
Page 489 U. S. 248
articulated in these cases never was extended to other forms of
nonconsensual liens. Obviously, there is no way to read § 506(b) as
allowing post-petition interest on all oversecured claims except
claims based on unpaid taxes. For this reason, the statute Congress
wrote is simply not subject to a reading that would harmonize it
with the supposed pre-Code rule.
More importantly, this "rule," in the few cases where it was
recognized, was only a guide to the trustee's exercise of his
powers in the particular circumstances of the case. We have noted
that
"the touchstone of each decision on allowance of interest in
bankruptcy . . . has been a balance of equities between creditor
and creditor or between creditors and the debtor."
Vanston Bondholders Protective Committee v. Green, 329
U.S. at
329 U. S. 165.
All the exceptions to the denial of post-petition interest
"are not rigid doctrinal categories. Rather, they are flexible
guidelines which have been developed by the courts in the exercise
of their equitable powers in insolvency proceedings."
In re Boston and Maine Corp., 719 F.2d at 496. None of
the cases cited by the Court of Appeals states that the doctrine
does anything more than provide a bankruptcy court with guidance in
the exercise of its equitable powers. As such, there is no reason
to think that Congress, in enacting a contrary standard, would have
felt the need expressly to repudiate it. The contrary view, which
is the view we adopt today, is more consistent with Congress'
stated intent, in enacting the Code, to
"codif[y] creditors' rights
more clearly than the case
law . . . [by] defin[ing] the protections to which a secured
creditor is entitled, and the means through which the court may
grant that protection."
Report at 4-5 (emphasis added). Whether or
Page 489 U. S. 249
not Congress took notice of the pre-Code standard, it acted with
sufficient clarity in enacting the statute.
The judgment of the Court of Appeals is reversed.
It is so ordered.
[
Footnote 1]
Most bankruptcy courts interpreting § 506(b) have permitted the
holder of an oversecured claim to recover post-petition interest.
These courts have considered both state and federal tax liens,
see, e.g., In re Brandenburg, 71 B.R. 719 (SD 1987);
In re Busone, 71 B.R. 201 (EDNY 1987);
In re
Gilliland, 67 B.R. 410 (ND Tex.1986);
In re Hoffman,
28 B.R. 503 (Md.1983), and private nonconsensual liens, such as
judicial and mechanic's liens,
see, e.g., In re Charter
Co., 63 B.R. 568 (MD Fla.1986);
In re Romano, 51 B.R.
813 (MD Fla.1985);
In re Morrissey, 37 B.R. 571 (ED
Va.1984). One other Court of Appeals and a leading commentator have
taken the position that § 506(b) codifies pre-Code law, and
distinguishes between consensual and nonconsensual liens in
determining the allowance of post-petition interest.
See In re
Newbury Cafe, Inc., 841 F.2d 20 (CA1 1988),
cert.
pending, No. 87-1784; 3 Collier on Bankruptcy � 506.05, p.
506-41, and n. 5b (15th ed.1988).
[
Footnote 2]
Section 506, as amended, reads:
"(a) An allowed claim of a creditor secured by a lien on
property in which the estate has an interest, or that is subject to
setoff under section 553 of this title, is a secured claim to the
extent of the value of such creditor's interest in the estate's
interest in such property, or to the extent of the amount subject
to setoff, as the case may be, and is an unsecured claim to the
extent that the value of such creditor's interest or the amount so
subject to setoff is less than the amount of such allowed claim.
Such value should be determined in light of the purpose of the
valuation and of the proposed disposition or use of such property,
and in conjunction with any hearing on such disposition or use or
on a plan affecting such creditor's interest."
"(b) 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."
"(c) The trustee may recover from property securing an allowed
secured claim the reasonable, necessary costs and expenses of
preserving, or disposing of, such property to the extent of any
benefit to the holder of such claim."
"(d) To the extent that a lien secures a claim against the
debtor that is not an allowed secured claim, such lien is void,
unless -- "
"(1) such claim was disallowed only under section 502(b)(5) or
502(e) of this title; or"
"(2) such claim is not an allowed secured claim due only to the
failure of any entity to file a proof of such claim under section
501 of this title."
11 U.S.C. § 506 (1982 ed. and Supp. IV).
[
Footnote 3]
Thus, a $100,000 claim, secured by a lien on property of a value
of $60,000, is considered to be a secured claim to the extent of
$60,000, and to be an unsecured claim for $40,000.
See 3
Collier on Bankruptcy � 506.04, p. 506-15 (15th ed.1988)
("[S]ection 506(a) requires a bifurcation of a
partially
secured' or `undersecured' claim into separate and independent
secured claim and unsecured claim components").
[
Footnote 4]
The United States Court of Appeals for the Fourth Circuit
pointed out in
Best Repair Co. that, had Congress intended
to limit post-petition interest to consensual liens, § 506(b) could
have said:
"there shall be allowed to the holder of such claim, as provided
for under the agreement under which such claim arose, interest on
such claim and any reasonable fees, costs or charges."
789 F.2d at 1082, n. 2. A less clear way of stating this, closer
to the actual language, would be:
"there shall be allowed to the holder of such claim, interest on
such claim and reasonable fees, costs, and charges provided for
under the agreement under which such claim arose."
Ibid.
[
Footnote 5]
It seems to us that the interpretation adopted by the Court of
Appeals in this case not only requires that the statutory language
be read in an unnatural way, but that it is inconsistent with the
remainder of § 506, and with terminology used throughout the Code.
Adopting the Court of Appeals' view would mean that § 506(b) is
operative only in regard to consensual liens,
i.e., that
only a holder of an oversecured claim arising from an agreement is
entitled to any added recovery. But the other portions of § 506
make no distinction between consensual and nonconsensual liens.
Moreover, had Congress intended § 506(b) to apply only to
consensual liens, it would have clarified its intent by using the
specific phrase, "security interest," which the Code employs to
refer to liens created by agreement. 11 U.S.C. § 101(45) (1982 ed.,
Supp. IV). When Congress wanted to restrict the application of a
particular provision of the Code to such liens, it used the term
"security interest."
See, e.g., 11 U.S.C. §§ 362(b)(12)
and (13), 363(a), 547(c)(3)-(5), 552, 752(c), 1110(a), 1168(a),
1322(b)(2) (1982 ed. and Supp. IV).
[
Footnote 6]
See H.R. 6, 95th Cong., 1st Sess. (1977); H.R. 8200,
95th Cong., 1st Sess. (1977); S. 2266, 95th Cong., 1st Sess.
(1977). Because the final version of the statute contained the same
language as that initially introduced, there was no change during
the legislative process that could shed light on the meaning of the
allowance of interest.
See generally 3 Collier on
Bankruptcy � 506.03, pp. 506-7 to 506-12. Neither the Committee
Reports nor the statements by the managers of the legislation
discuss the question of post-petition interest at all.
See
Report, at 356; S.Rep. No. 95-989, p. 68 (1978); 124 Cong.Rec.
32398 (1978) (statement of Rep. Edwards);
id. at 33997
(statement of Sen. DeConcini).
[
Footnote 7]
Section 523(a)(7) provides that a discharge in bankruptcy does
not affect any debt that
"is for a fine, penalty, or forfeiture payable to and for the
benefit of a governmental unit, and is not compensation for actual
pecuniary loss. . . ."
[
Footnote 8]
The rule preventing discharge of criminal fines was articulated
promptly after the Bankruptcy Act of 1898 was passed,
see In re
Moore, 111 F. 145, 148-149 (WD Ky.1901), and was uniformly
accepted at the time Congress was considering the Code.
See
Kelly v. Robinson, 479 U.S. at
479 U. S.
45-46.
[
Footnote 9]
Some pre-Code courts also distinguished between the two types of
liens because nonconsensual liens were often fixed to the entirety
of a debtor's property, while consensual liens usually were fixed
to a particular item of property. Whatever the merit of the
distinction, modern commercial lending practices have changed, and
it is not unusual for commercial lenders to obtain a lien on almost
all of the debtor's property. Congress, in enacting the Code, was
aware of this,
see Report, at 127, and in fact took
specific steps to deal with such blanket liens on household goods,
see 11 U.S.C. § 522(f)(2). On the other hand, not all
nonconsensual liens attach broadly to a debtor's property. A
typical mechanic's or construction lien is limited to the property
on which the improvement is made.
See T. Crandall, R.
Hagedorn, & F. Smith, Debtor-Creditor Law Manual � 9.02[2]
(1985).
JUSTICE O'CONNOR, with whom JUSTICE BRENNAN, JUSTICE MARSHALL,
and JUSTICE STEVENS join, dissenting.
The Court's decision is based on two distinct lines of argument.
First, the Court concludes that the language of § 506(b) of the
Bankruptcy Code, 11 U.S.C. § 506(b), is clear and unambiguous.
Second, the Court takes a very narrow view of
Midlantic
National Bank v. New Jersey Dept. of Environmental Protection,
474 U. S. 494
(1986), and its progeny. I disagree with both aspects of the
Court's opinion, and with the conclusion to which they lead.
The relevant portion of § 506(b) provides that
"there shall be allowed to the holder of [an oversecured] claim,
interest on such claim, and any reasonable fees, costs, or charges
provided
Page 489 U. S. 250
for under the agreement under which such claim arose."
The Court concludes that the only natural reading of § 506(b) is
that recovery of post-petition interest is "unqualified."
Ante at 241. As Justice Frankfurter remarked some time
ago, however, "[t]he notion that, because the words of a statute
are plain, its meaning is also plain, is merely pernicious
oversimplification."
United States v. Monia, 317 U.
S. 424,
317 U. S. 431
(1943) (dissenting opinion).
Although "the use of the comma is exceedingly arbitrary and
indefinite,"
United States v.
Palmer, 3 Wheat. 610,
16 U. S. 638
(1818) (separate opinion of Johnson, J.), the Court is able to read
§ 506(b) the way that it does only because of the comma following
the phrase "interest on such claim." Without this "capricious" bit
of punctuation,
In re Newbury Cafe, Inc., 841 F.2d 20, 22
(CA1 1988),
cert. pending, No. 87-1784, the relevant
portion of § 506(b) would read as follows:
"there shall be allowed to the holder of [an oversecured] claim,
interest on such claim and any reasonable fees, costs, or charges
provided for under the agreement under which such claim arose."
The phrase "interest on such claim" would be qualified by the
phrase "provided for under the agreement under which such claim
arose," and nonconsensual liens would not accrue post-petition
interest.
See Porto Rico Railway, Light & Power Co. v.
Mor, 253 U. S. 345,
253 U. S. 348
(1920) ("When several words are followed by a clause which is
applicable as much to the first and other words as to the last, the
natural construction of the language demands that the clause be
read as applicable to all"). This conclusion is not altered by the
fact that the words "and any" follow the phrase "interest on such
claim." Those words simply indicate that interest accrues only on
the amount of the claim, and not on "fees, costs, or charges" that
happen to be incurred by the creditor.
The Court's reliance on the comma is misplaced. "[P]unctuation
is not decisive of the construction of a statute."
Costanzo v.
Tillinghast, 287 U. S. 341,
287 U. S. 344
(1932).
See also Barrett v. Van Pelt, 268 U. S.
85,
268 U. S. 91
(1925) ("
Punctuation is a minor, and not a controlling, element
in interpretation, and courts will disregard the punctuation of a
statute, or re-punctuate it, if need be, to give effect to what
otherwise appears to be its purpose and true meaning"');
Ewing v.
Burnet, 11 Pet. 41, 36 U. S. 53-54
(1837) ("Punctuation is a most fallible standard by which to
interpret a writing; it may be resorted to when all other means
fail, but the court will first take the instrument by its four
corners, in order to ascertain its true meaning; if that is
apparent on judicially inspecting the whole, the punctuation will
not be suffered to change it"). Under this rule of construction,
the Court has not hesitated in the past to change or ignore the
punctuation in legislation in order to effectuate congressional
intent. See, e.g., Simpson v. United States, 435 U. S.
6, 435 U. S. 11-12,
n. 6 (1978) (ignoring
Page 489 U. S. 251
punctuation and conjunction so that qualifying phrase would
modify antecedent followed by comma and the word "or");
Stephens v. Cherokee Nation, 174 U.
S. 445,
174 U. S.
479-480 (1899) (ignoring punctuation so that qualifying
phrase would restrict antecedent set off by commas and followed by
the word "and").
Although punctuation is not controlling, it can provide useful
confirmation of conclusions drawn from the words of a statute.
United States v. Naftalin, 441 U.
S. 768,
441 U. S. 774,
n. 5 (1979). The Court attempts to buttress its interpretation of §
506(b) by suggesting that any other reading would be inconsistent
with the remaining portions of § 506, which "make no distinction
between consensual and nonconsensual liens."
Ante at
489 U. S. 242,
n. 5. But § 506(b), regardless of how it is read, does distinguish
between types of liens. The phrase "provided for under the
agreement under which such claim arose" certainly refers to
consensual liens, and must qualify some preceding language. Even
under the Court's interpretation, "reasonable fees, costs, or
charges" can only be awarded if provided for in a consensual lien.
Thus, limiting post-petition interest to consensual liens simply
reinforces a distinction that already exists in § 506(b). For the
same reason, I find unavailing the Court's assertion,
ante
at
489 U. S. 242,
n. 5, that Congress would have used the phrase "security interest"
if it wanted to limit post-petition interest to consensual
liens.
Even if I believed that the language of § 506(b) were clearer
than it is, I would disagree with the Court's conclusion, for
Midlantic counsels against inferring congressional intent
to change pre-Code bankruptcy law. At issue in
Midlantic
was § 554(a) of the Code, 11 U.S.C. § 554(a), which provided
that,
"[a]fter notice and a hearing, the trustee may abandon any
property of the estate that is burdensome to the estate or that is
of inconsequential value to the estate."
Despite this unequivocal language, the Court held that § 554(a)
does not authorize a trustee to abandon hazardous property in
contravention of a state statute or regulation reasonably designed
to protect the public health or safety. Relying on only three
pre-Code cases (one did not deal with state laws and in another the
relevant language was arguably dicta), the Court concluded that,
under pre-Code bankruptcy law, there
Page 489 U. S. 252
were restrictions on a trustee's power to abandon property. 474
U.S. at
474 U. S.
500-501. The Court stated that the
"normal rule of statutory construction is that, if Congress
intends for legislation to change the interpretation of a
judicially created concept, it makes that intent specific,"
and noted that it had "followed this rule with particular care
in construing the scope of bankruptcy codifications."
Id.
at
474 U. S. 501
(citations omitted). Given the pre-Code law and Congress' goal of
protecting the environment, the Court was
"unwilling to assume that by enactment of § 554(a), Congress
implicitly overturned longstanding restrictions on the common law
abandonment power."
Id. at
474 U. S.
506.
The Court characterizes
Midlantic as involving
"a situation where bankruptcy law, under the proposed
interpretation, was in clear conflict with state or federal laws of
great importance."
Ante at
489 U. S. 245.
Though I agree with that characterization, I think there is more to
Midlantic than conflict with state or federal laws.
Contrary to the Court's intimation,
Midlantic did not
"concer[n] statutory language which . . . was open to
interpretation."
Ante at
489 U. S. 245.
The language of § 554(a) is "absolute in its terms," 474 U.S. at
474 U. S. 509
(REHNQUIST, J., dissenting), and the Court in
Midlantic
did not attempt to argue otherwise. Nonetheless, the Court
concluded that such clear language was insufficient to demonstrate
specific congressional intent to change pre-Code law. The rule of
Midlantic is that bankruptcy statutes will not be deemed
to have changed pre-Code law unless there is some indication that
Congress thought that it was effecting such a change.
See Kelly
v. Robinson, 479 U. S. 36,
479 U. S. 50-51
(1986) ("Nowhere in the House and Senate Reports is there any
indication that this language should be read so intrusively. . . .
If Congress had intended, by § 523(a)(7) [of the Code] or by any
other provision, to discharge state criminal sentences,
we can
be certain that there would have been hearings, testimony, and
debate concerning consequences so wasteful, so inimical to purposes
previously deemed important, and so
Page 489 U. S.
253
likely to arouse public outrage'") (quoting TVA v.
Hill, 437 U. S. 153,
437 U. S. 209
(1978) (Powell, J., dissenting)).
The first step under
Midlantic is to ascertain whether
there was an established pre-Code bankruptcy practice.
See
474 U.S. at 500-501. That question is easily answered here. Prior
to the 1978 enactment of the Code, this Court, as well as every
Court of Appeals to address the question, had refused to allow
post-petition interest on nonconsensual liens such as the tax lien
involved in this case.
See City of New York v. Saper,
336 U. S. 328,
336 U. S.
329-341 (1949);
In re Kerber Packing Co., 276
F.2d 245, 246-248 (CA7 1960);
United States v. Mighell,
273 F.2d 682, 684 (CA10 1959);
United States v. Bass, 271
F.2d 129, 130-132 (CA9 1959);
United States v. Harrington,
269 F.2d 719, 723 (CA4 1959).
See also In re Boston and Maine
Corp., 719 F.2d 493, 495-498 (CA1 1983) (post-Code case not
allowing post-petition interest on municipal tax lien),
cert.
denied sub nom. City of Cambridge v. Meserve, 466 U.S. 938
(1984). In order to deflect this line of cases, the Court refers to
the practice "of denying post-petition interest to the holders of
nonconsensual liens, while allowing it to holders of consensual
liens," as "an exception to an exception."
Ante at
489 U. S. 246.
Regardless of how it is labeled,
cf. Henneford v. Silas Mason
Co., 300 U. S. 577,
300 U. S. 586
(1937) ("Catch words and labels . . . are subject to the dangers
that lurk in metaphors and symbols, and must be watched with
circumspection, lest they put us off our guard"), the practice was
more widespread and more well established than the practice in
Midlantic, and was certainly one that Congress "[would
have been] aware of when enacting the Code."
Ante at
489 U. S.
246.
The denial of post-petition interest on nonconsensual liens was
based on the distinction between types of liens, as well as
equitable considerations. Unlike consensual liens, to which the
parties voluntarily agree, nonconsensual liens depend for their
existence only on legislative fiat. Thus, the justification for the
allowance of post-petition interest on consensual
Page 489 U. S. 254
liens --
"that, when the creditor extended credit, he relied upon the
particular security given as collateral to secure both the
principal of the debt and interest until payment and, if the
collateral is sufficient to pay him, the contract between the
parties ought not be abrogated by bankruptcy,"
United States v. Harrington, 269 F.2d at 724 -- has no
application to nonconsensual liens. The allowance of interest on
nonconsensual liens is akin to a penalty on the debtor for the
nonpayment of taxes or other monetary obligations imposed by law.
Permitting post-petition interest on nonconsensual liens drains the
pool of assets to the detriment of lower priority creditors who are
not responsible for the debtor's inability to pay, and who cannot
avoid the imposition of post-petition interest.
See In re
Boston and Maine Corp., 719 F.2d at 497. Indeed, the Court
acknowledges that "the payment of post-petition interest is
arguably somewhat in tension with the desirability of paying all
creditors as uniformly as practicable."
Ante at
489 U. S.
245-246.
The second step under
Midlantic is to look for some
indicia that Congress knew it was changing pre-Code law.
See 474 U.S. at
474 U. S.
502-505. As the Court said only last Term,
"it is most improbable that [a change in the existing bankruptcy
rules] would have been made without even any mention in the
legislative history."
United Savings Association of Texas v. Timbers of Inwood
Forest Associates, 484 U. S. 365,
484 U. S. 380
(1988). The legislative history of § 506(b) is "wholly
inconclusive,"
Best Repair Co. v. United States, 789 F.2d
1080, 1082 (CA4 1986), and there is no statement in that history
acknowledging that § 506(b) was to work a major change in pre-Code
law. Because there is no evidence whatsoever that § 506(b) was
meant to allow post-petition interest on nonconsensual liens, it
should not be assumed that Congress "silently abrogated" the
pre-Code law.
Kelly v. Robinson, 479 U.S. at
479 U. S.
47.
For the reasons set forth above, I respectfully dissent.