U.S. v. Ron Pair Enterprises,
489 U.S. 235 (1989)

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U.S. Supreme Court

U.S. v. Ron Pair Enterprises, 489 U.S. 235 (1989)

United States v. Ron Pair Enterprises, Inc.

No. 87-1043

Argued October 31, 1988

Decided February 22, 1989

489 U.S. 235


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

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