SUPREME COURT OF THE UNITED STATES
_________________
No. 10–875
_________________
LYNWOOD D. HALL, et ux., PETITIONERS
v.
UNITED STATES
on writ of certiorari to the united states
court of appeals for the ninth circuit
[May 14, 2012]
Justice Breyer, with whom Justice Kennedy,
Justice Ginsburg, and Justice Kagan join, dissenting.
Chapter 12 of the Bankruptcy Code helps family
farmers in economic difficulty reorganize their debts without
losing their farms. Consistent with the chapter’s pur- poses,
Congress amended §1222(a) of the Code to enable the debtor to
treat certain capital gains tax claims as ordinary unsecured
claims. 11 U. S. C. §1222(a)(2)(A). The
Court’s holding prevents the Amendment from carrying out this
basic objective. I would read the statute differently, interpreting
it in a way that, in my view, both is consistent with its language
and allows the Amendment better to achieve its purposes.
I
A
Chapter 12 of the Bankruptcy Code helps
indebted family farmers (and fishermen) keep their farms by making
commitments to pay those debts (in part) out of future income. An
eligible farmer whose debts exceed his assets may enter Chapter 12
bankruptcy, at which point he must develop a detailed Plan setting
forth how he will pay his debts. That Plan must satisfy certain
statutory criteria. §§1221, 1222, 1225.
A brief overview of these requirements helps to
illuminate what is at stake in this case. Roughly speaking, the
chapter requires that a holder of a
secured claim receive
the full amount of that claim up to the value of the collateral
securing the loan. The claim may be paid over an extended period.
If the claim exceeds the value of the collateral, the creditor is
given an unsecured claim in the remainder. §§506(a),
1225(a)(5).
The holder of a
§507 priority
claim (a category that includes, among other things, domestic
support obligations, debts for taxes incurred before filing the
bankruptcy petition, and administrative expenses) must receive the
full amount of the priority claim in deferred cash payments paid
over the life of the Plan. §1222(a)(2).
The holder of an
ordinary unsecured
claim—
i.e., an unsecured claim of a kind not
listed in §507—may receive at least a partial payment
from the amount left over after the payment of the secured and
§507 priority claims. This amount may well be more than zero,
for the Plan must provide that the farmer will devote all
“disposable income” (as defined by §1225(b)(2)) or
property of equivalent value to the repayment of his debts over the
next three years (sometimes extended to five years).
§§1222(c), 1225(b)(1). And that amount must prove
sufficient to provide the un- secured creditor with no less than
that creditor would re- ceive in a Chapter 7 liquidation.
§1225(a)(4).
Once the farmer completes his Plan payments, he
will receive a discharge even if his payments did not
fully
satisfy all unsecured claims. The Code does not, however, permit
all debts to be discharged. There are categories of
nondischargeable debts (including, for example, secured
claims), which creditors can pursue after bankruptcy.
§1228(a).
For present purposes, it is important to
understand that if the debtor owes too much money to his §507
priority creditors, he may not have sufficient assets or future
income to pay all his secured creditors and his §507 prior-
ity creditors while leaving enough funds over to guarantee
unsecured creditors the minimum amounts that Chapter 12 requires.
If so, the farmer may not be able to proceed under Chapter 12. See
§§1225(a)(1), (6) (bankruptcy court will not confirm Plan
unless it satisfies statutory criteria and debtor will be able to
make good on his commitments under the Plan).
It is also important to understand that the same
kind of insufficient-assets-and-income problem might occur where
the debtor owes the Government a large
post-petition tax
debt. In general, postpetition claims are not part of the
bankruptcy proceedings. See 7 Norton Bankruptcy Law and Practice
§135:14 (3d ed. 2011) (hereinafter Norton). Unless the
Government’s debt falls within an exception to this general
rule, bankruptcy law would leave the Government to collect its
postpetition claim outside of bankruptcy as best it could. Again,
the result will be to leave the farmer with fewer assets and income
to devote to his Chapter 12 Plan—perhaps to the point where
he cannot proceed under Chapter 12 at all.
B
With this general summary in mind, it is
easier to understand the significance of the question this case
presents. The question arises out of an amendment to a Chapter 12
provision. The provision as amended says:
“
Contents of plan
“(a) The plan shall—
. . . . .
“(2) provide for the full payment, in
deferred cash payments, of all claims entitled to priority under
section 507, unless—
“(A) the claim is a claim owed to a
governmental unit that arises as a result of the sale, transfer,
exchange, or other disposition of any farm asset used in the
debtor’s farming operation,
in which case the claim shall
be treated as an unsecured claim that is not entitled to priority
under section 507, but the debt shall be treated in such manner
only if the debtor receives a discharge; or
“(B) the holder of a particular claim
agrees to a different treatment of that claim.” §1222(a)
(emphasis added).
The Amendment consists of subparagraph (A).
At first blush, the Amendment seems to relegate
the capital gains tax collector to the status of an ordinary
unsecured creditor. See
ibid. (exception applies to claims
“owed to a governmental unit that arises as a result of the
sale . . . of any farm asset”). If, as petitioners
claim, that is so, then it is unlikely that such a debt could stop
a farmer from proceeding under Chapter 12, since its treatment as
an ordinary unsecured claim means that the farmer will not
necessarily have to pay the debt in full.
But if the Government and the majority are
right, then the capital gains tax falls outside the category of
§507 priority claims—and therefore falls outside the
scope of the Amendment; in fact, it falls outside the bankruptcy
proceeding altogether. And the Government then might well be able
to collect the debt in full outside the bankruptcy
proceeding—even if doing so would reduce the farmer’s
assets and future income to the point where the farmer would not be
able to proceed under Chapter 12. The question before us is whether
we must interpret the Amendment in a way that could bring about
this result.
C
1
Congress did not intend this result. In a
significant number of instances a Chapter 12 farmer, in order to
have enough money to pay his creditors, might have to sell farmland
or other farm assets at a price that would give rise to
considerable capital gains taxes (particularly if the family has
held the land or assets for many years). If the resulting tax debt
were treated as a §507 priority claim, then it might well
absorb much of the money raised to the point where (depending upon
the size of his other debts) the farmer might be unable to proceed
under Chapter 12. The Amendment accordingly seeks to place the tax
authorities farther back in the creditor queue, requiring them,
like ordinary unsecured creditors, to seek payment from the funds
that remain after the §507 priority creditors (and secured
claim holders) have been paid.
The Amendment’s chief legislative sponsor,
Senator Charles Grassley, explained this well when he told the
Senate:
“Under current law, farmers often
face a crushing tax liability if they need to sell livestock or
land in order to reorganize their business
affairs. . . . [H]igh taxes have caused farmers to
lose their farms. Under the bankruptcy code, the I. R. S.
must be paid in full for any tax liabilities generated during a
bankruptcy reorganization. If the farmer can’t pay the
I. R. S. in full, then he can’t keep his farm. This
isn’t sound policy. Why should the I. R. S. be
allowed to veto a farmer’s reorganization plan? [The
Amendment] takes this power away from the I. R. S. by
reducing the priority of taxes during proceedings. This will free
up capital for investment in the farm, and help farmers stay in the
business of farming.” 145 Cong. Rec. 1113 (1999).
See also 14A J. Mertens, Law of Federal Income
Taxation §54:61, p. 11 (Oct. 2011 Supp.) (“This
provision attempts to mitigate the tax expense often incurred by
farmers who have significant taxable capital gains or depreciation
re- capture when their low basis farm assets are foreclosed, sold,
or otherwise disposed of by their creditors”).
2
The majority, following the Government’s
suggestion, interprets the relevant language in a way that denies
the Amendment its intended effect. It holds that the only income
tax claims to which §507 accords priority are claims for taxes
due for years
prior to the taxable year in which the farmer
filed for bankruptcy. (We shall call these “prepetition tax
claims.”) In the majority’s view, §507 does not
cover income tax liabilities that arise during the year of filing
or during the Chapter 12 proceedings. (We shall call these
“postpetition tax claims.”)
Ante, at 4–5;
see Brief for United States 8 (the Amendment “provides
farmers relief from [only] those tax claims that are otherwise
entitled to priority under 11 U. S. C. 507(a)(8), namely
pre-petition claims arising from the sale of farm as- sets”);
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005,
§705(1)(A), 119Stat. 126 (amending §507(a)(8) to clarify
that it only covers income tax claims for taxable years that end on
or before the date of the filing of the bankruptcy petition).
The majority then observes that the Amendment
creates an exception only in respect to §507 priority claims.
§1222(a) (“The plan shall . . . provide for
the full payment . . . of all claims entitled to priority
under section 507,
unless . . . .”
(Emphasis added.)).
Ante, at 2. Thus, if (without the
Amendment) §507 would not cover postpetition capital gains
taxes in the first place, the Amendment (creating only a §507
exception) cannot affect postpeti- tion tax claims. An exception
from nothing amounts to nothing.
Consequently, the majority concludes that
postpetition tax claims fall outside the bankruptcy proceeding
entirely; the tax authorities can collect them as if they were
ordinary tax debts; and the Government’s efforts to collect
them can lead to the very results (blocking the use of Chapter 12)
that the Amendment sought to avoid.
Therein lies the problem. These results are the
very opposite of what Congress intended. Congress did not want to
relegate to ordinary-unsecured-claim status only prepetition tax
claims,
i.e., tax claims that accrued well before the
Chapter 12 proceedings began. Rather, Congress was concerned about
the effect on the farmer of collecting capital gains tax debts that
arose during (and were connected with) the Chapter 12 proceedings
themselves. See 145 Cong. Rec. 1113 (the Amendment will have the
effect of “reducing the priority of taxes
during
proceedings” (emphasis added) (statement of Sen. Grassley
during a failed attempt to enact the Amendment)); Hearing on the
Bankruptcy Reform Act of 2001 before the Senate Committee on the
Judiciary, 107th Cong., 1st Sess., 121 (statement of Sen. Grassley)
(“[The Amendment] also reduces the priority of capital gains
tax liabilities for
farm assets sold as a part of a
reorganization plan” (emphasis added)). The majority does
not deny the importance of Congress’ objective. Rather, it
feels compelled to hold that Congress put the Amendment in the
wrong place.
II
Unlike the majority, I believe the relevant
Bankruptcy Code language can be and is better interpreted in a way
that would give full effect to the Amendment. In particular, the
relevant language is better interpreted so that in the absence of
the Amendment §507 would cover these postpetition tax claims.
Hence the Amendment creates an exception from what otherwise would
amount to a §507 priority claim. And it can take effect as
written.
It is common ground that subsection (a)(2) of
§507 cov- ers, and gives §507 priority to,
“administrative expenses allowed under section 503(b).”
§507(a)(2) (2006 ed., Supp. IV). It is also common ground that
the relevant definitional section, namely §503(b), defines
allowed “administrative expenses” as “including
. . . any tax . . . incurred by the
estate.” §503(b)(1)(B)(i) (2006 ed.). But after this
point, we part company.
The majority believes that the words any tax
“incur- red by the estate” cannot include postpetition
taxes. It emphasizes that
tax law does not treat a Chapter
12 bankruptcy estate as a “separate taxable entity,”
i.e., as separate from the farmer-debtor for federal income
tax purposes. 26 U. S. C. §§1398, 1399. This
means that there is just one entity—the debtor—for
these purposes. And §346 of the Bankruptcy Code makes clear
that any state and local income tax liabilities incurred by a
Chapter 12 estate must also be taxed to the
debtor. The
majority says that these provisions mean that only the debtor, and
not the estate, can “ ‘incu[r]’ ”
taxes within the meaning of 11 U. S. C.
§503(b)(1)(B)(i).
Ante, at 4–5.
In my view, however, these tax law circumstances
do not require the majority’s narrow reading of this
Bankruptcy Code provision. That is to say, the phrase tax
“incurred by the [bankruptcy] estate” can include a tax
incurred by the farmer while managing his estate in the midst of
his bankruptcy proceedings,
i.e., between the time the
farmer files for Chapter 12 bankruptcy and the time the bankruptcy
court confirms the farmer’s Chapter 12 Plan.
The bankruptcy estate is in existence during
this time. Cf. §1227(b) (property of the estate vests in the
debtor at confirmation unless the Plan provides otherwise). The
bankruptcy court has jurisdiction over the farmer’s assets
during this time. See §§541, 1207; 4 Norton §61:1,
at 61–2 (§541’s “broad definition of estate
property . . . centralizes all of the estate’s
assets under the jurisdiction of the bankruptcy court”). And,
as a matter of both the English language and bankruptcy principles,
one can consider a tax liability that the farmer incurs during this
period (such as a capital gains tax arising from a sale of a
portion of his farm assets to raise funds for creditors) as a
liability that, in a bankruptcy sense, the estate incurs.
The English language permits this reading of the
phrase tax “incurred by the estate.” When the farmer,
in the midst of Chapter 12 proceedings, sells a portion of his farm
to raise money to help pay his creditors, one can say, as a matter
of English, that the bankruptcy estate has “incurred”
the associated tax, even if it is ultimately taxed to the farmer,
just as one can say that an employee who makes purchases using a
company credit card “incurs costs” for which his
employer is liable.
As a matter of general bankruptcy principles (as
Congress understood them), the history of the 1978 Bank- ruptcy
Code revision is replete with statements to the effect that
“[t]axes arising from the operation of the estate
after bankruptcy are entitled to priority as administrative
expenses.” H. R. Rep. No. 95–595, p. 193
(1977) (emphasis added). See S. Rep. No. 95–1106, p. 13
(1978) (administrative expenses include “[t]axes incurred
during the administration of the estate” (emphasis
added)); S. Rep. No. 95–989, p. 66 (1978) (“In
general, administrative expenses include taxes which the trustee
incurs in administering the debtor’s estate, including
taxes on capital gains from sales of property by the trustee and
taxes on income earned by the estate
during the case”
(emphasis added)); 124 Cong. Rec. 32415 (1978) (“The
amendment generally follows the Senate amendment in providing
expressly that taxes incurred
during the administration of the
estate share the first priority given to administrative
expenses generally” (emphasis added));
id., at 34014
(Senate version of the joint floor statement saying exactly the
same).
And importantly, as the majority concedes,
ante, at 14–15, bankruptcy law treats taxes incurred
by corporate debtors while they are in bankruptcy proceedings as
“tax[es] incurred by the estate,” even though the Tax
Code does
not treat the bankruptcy estate of a corporate
debtor as a “separate taxable entity.” See,
e.g.,
United States v.
Noland,
517 U.S.
535, 543 (1996) (treating Chapter 11 corporate debtor’s
postpetition taxes as administrative expenses);
In re
Pacific-Atlantic Trading Co.,
64 F.3d 1292, 1298 (CA9 1995) (same);
In re L. J.
O’Neil Shoe Co.,
64 F.3d 1146, 1151–1152 (CA8 1995) (same);
In re
Hillsborough Holdings Corp., 156 B.R. 318, 320 (Bkrtcy. Ct. MD
Fla. 1993) (“[A]dministrative expenses should include taxes
which the trustee, and, in Chapter 11 cases, the
Debtor-in-Possession, incurs in administering the estate, including
taxes based on capital gains from sales of property and taxes on
income earned by the estate during the case
post-petition”).
Even though, as the majority says, corporate
bankruptcies have some special features (in particular, a trustee
in a corporate bankruptcy is required to file the estate’s
income tax return), it is unclear why these features should have
any bearing on the definition of administrative expenses. See
ante, at 15 (discussing 26 U. S. C.
§6012(b)(3)). Indeed, in many corporate Chapter 11
bankruptcies, there is no trustee, in which case the
debtor-in-possession, just like an individual Chapter 12 debtor,
must file the tax return. See 11 U. S. C.
§§1104, 1107 (2006 ed. and Supp. IV); 5 Norton
§§91:3, 93:1 (typically, no trustee is appointed in a
Chapter 11 bankruptcy, and the debtor-in-possession assumes most of
the duties and powers of a trustee, continuing in possession and
managing the business until the court determines, upon request of a
party in interest, that grounds exist for the appointment of a
trustee);
Holywell Corp. v.
Smith,
503 U.S.
47, 54 (1992) (“As the assignee of ‘all’ or
‘substantially all’ of the property of the corporate
debtors, the trustee must file
the re- turns that the
corporate debtors would have filed had the plan not assigned their
property to the trustee” (emphasis added)).
Consequently, I can find no strong bankruptcy
law reason for treating taxes incurred by a corporate debtor
differently from those incurred by an individual Chapter 12 debtor.
To the contrary, since corporations can file for bankruptcy under
Chapter 12, the majority’s argument implies that the
treatment of postpetition taxes in Chapter 12 proceedings turns on
whether the debtor happens to be a corporation. See
§101(18)(B) (2006 ed.) (defining “family farmer”
to include certain corporations); §109(f) (“Only a
family farmer or family fisherman with regular annual income may be
a debtor under chapter 12”); Brief for United States 26,
n. 9 (“[T]he estate of a corporate (as opposed to
individual) Chapter 12 debtor . . . could be viewed as
incurring post-petition income taxes . . . collectible as
administrative expenses . . . rather than outside the
bankruptcy case as required for an individual Chapter 12
debtor”).
The majority does not point to any adverse
consequences that might arise were bankruptcy law to treat taxes
incurred in administering the bankruptcy estate (
i.e., taxes
incurred after filing and before Plan confirmation) as
administrative expenses. The effect of doing so would simply be to
consider the debtor and estate as
merged for purposes of
determining which taxes fall within the Bankruptcy’s
Code’s definition of “administrative expenses,”
i.e., determining for that purpose that the estate may
“incur” tax liabilities on behalf of the whole (with
the ul- timate liability assigned to the debtor), much like a
married couple filing jointly, 26 U. S. C. §6013(a), or
an affiliated group of corporations filing a consolidated tax
return, §1501. Cf.
In re Lumara Foods of America, Inc.,
50 B.R. 809, 815 (Bkrtcy. Ct. ND Ohio 1985) (describing the history
of §503(b)(1)(B)(i) and concluding that “the elevation
[of a tax] to an administrative priority is dependent upon when the
tax accrued”). In fact, the very tax provisions that separate
the estate from the individual debtor in Chapter 7 and Chapter 11
proceedings, §§1398 and 1399, say that the Chapter 12
estate is
not separate from the debtor for tax
purposes—a concept consistent, not at odds, with merging the
two for this bankruptcy purpose.
Nor is the majority’s reading free of
conceptual problems. If we read the phrase tax “incurred by
the estate” as
excluding tax liabilities incurred
while the farmer is in Chapter 12 bankruptcy, we must read it as
excluding not only capital gains taxes but also other kinds of
taxes, such as an employer’s share of Social Security taxes,
Medicare taxes, or other employee taxes. But no one claims that
all of these taxes fall outside the scope of the term
“administrative expenses.” See
In re Ryan,
228 B.R. 746 (Bkrtcy. Ct. Ore. 1999) (treating postpetition
employment taxes as administrative expenses in a Chapter 12
proceeding); IRS Chief Counsel Advice No. 200518002 (May 6, 2005),
2005 WL 1060956 (assuming that some postpetition fed- eral taxes
can be treated as administrative expenses in a Chapter 12
bankruptcy).
In fact, the Government, realizing it cannot go
this far, concedes that many of these other (
e.g., employer)
taxes are “administrative expenses,” but only, it
suggests, because they fall within a different part of the
“administrative expenses” definition, namely 11
U. S. C. §503(b)(1)(A), which says that
“administrative expenses” include “the actual,
necessary costs and expenses of preserving the estate
including . . . wages, salaries, and commissions for
services rendered after the commencement of the case.”
(Emphasis added.) See Brief for United States 27–28,
n. 11. Employment taxes, however, do not fit easily within the
rubric “wages, salaries, and commissions.” They may
well be “necessary costs and expenses of preserving the
estate.” But then so are the capital gains taxes at issue
here.
Finally, the majority makes what I believe to be
its strongest argument.
Ante, at 9–12. Chapter 13, it
points out, allows individuals (typically those who are not farmers
or fishermen) to reorganize their debts in much the same way as
does Chapter 12. And there is authority holding that taxes on
income earned between the time the Chapter 13 debtor files for
bankruptcy and the time the bankruptcy Plan is confirmed are not
“tax[es] incurred by the estate.” See
In re
Whall, 391 B.R. 1, 5–6 (Bkrtcy. Ct. Mass. 2008);
In re Brown, No. 05–41071, 2006 WL 3370867, *3
(Bkrtcy. Ct. Mass. 2006);
In re Jagours, 236 B.R. 616,
620, n. 4 (Bkrtcy. Ct. ED Tex. 1999);
In re
Gyulafia, 65 B.R. 913, 916 (Bkrtcy. Ct. Kan. 1986). Why, asks
the majority, should the law treat Chapter 12 taxes
differently?
For one thing, the issue is less important in a
Chapter 13 case, for the relevant time period—between filing
and Plan confirmation—is typically very short. Compare
H. R. Rep. No. 95–595, at 276 (“most chapter 13
estates will only remain open for 1 or 2 months until confirmation
of the plan”), with Brief for Neil E. Harl et al. as
Amici Curiae 32–33 (survey of Chapter 12 bankruptcies
found the average time from filing to confirmation in a district
ranged from nearly five months to over three years). See also 7
Norton §122:14, at 122–27 (“In Chapter 13, the
plan must be filed within 15 days after the filing of the petition,
unless the time is extended for cause. A Chapter 12 Plan must be
filed no later than 90 days after the order for relief, unless the
court finds that an extension is substantially justified”
(footnote omitted)).
For another, the issue arises differently in a
Chapter 13 case. That chapter, unlike Chapter 12, contains a
special provision that permits the Government to seek §507
priority treatment of all taxes incurred while the bankruptcy case
is pending. §1305 (Government can file proof of claim to have
postpetition taxes treated as if they had arisen before the
petition was filed).
Finally, if uniformity of interpretation between
these two chapters is critical, I do not see the serious harm in
treating the relevant taxes as “administrative
expenses” in
both Chapter 12 and Chapter 13 cases
rather than in neither. The majority apparently believes that this
would render §1305 (the provision permitting the Government to
seek §507 priority treatment) superfluous.
Ante, at
10–12. But that is not so. This interpretation would simply
limit the scope of operation of §1305 to the period of time
after the Chapter 13 Plan is confirmed but while the Chapter
13 case is still pending. And that is likely to be a significant
period of time relative to the preconfirmation period. See
H. R. Rep. No. 95–595, at 276 (“[M]ost chapter 13
estates will only remain open for 1 or 2 months until confirmation
of the plan”); §§1325(b)(1), (4) (debtor must
commit all his projected disposable income over a 3-year period
(sometimes extended to five) to the Plan, unless all unsecured
claims can be paid off over a shorter period). The greatest Chapter
13 harm this interpretation could cause is to re- quire the
Government to pursue those tax liabilities as §507 priority
administrative expense claims (rather than allow it to choose
between §507 priority treatment and pursuing those claims
outside bankruptcy) during the relatively brief period of time
between the filing of a petition and the Plan’s
confirmation.
In sum, I would treat a
postpetition/preconfirmation tax liability as a tax “incurred
by the estate,” hence as an “administrative
expense,” hence as a “clai[m] entitled to priority
under section 507, unless . . . ,” hence as a
claim falling within the scope of the Amendment. Doing so would
allow the Amendment to take effect as Congress intended.
III
The Government argues that, even if tax
liabilities arising during the bankruptcy proceedings are
“administrative expenses,” they still do not fall
within the Amendment’s scope. It says that neither the
Amendment nor anything else in §1222(a) provides for the
payment of administrative expenses. Rather, that section and its
Amendment provide only for the payment of “claims.”
§1222(a)(2) (“The plan shall . . . provide for
the full payment . . . of all
claims entitled to
priority under section 507, unless . . .” (emphasis
added)). And administrative expenses, the Government says, like all
debts that are incurred postpetition, are not
“claims.”
The Government finds support for its view in the
fact that that §1222 deals with the contents of a
“plan,” while a later section, §1227(a), says that
the provisions of a “confirmed plan bind the debtor, each
creditor, [and certain others of no relevance here].”
(Emphasis added.) This is because the Code defines
“creditor” to include only hold- ers of
pre-petition claims, thus excluding holders of
post-petition claims, such as administrative expenses.
§101(10).
The Government points out that a
different Code section, namely §1226(b)(1), provides
for the payment of administrative expenses. That section says that
“[b]efore or at the time of each payment to creditors under
the plan, there shall be paid . . . any unpaid claim of
the kind specified in section 507(a)(2),” namely
“administrative ex- penses.” And Congress did not amend
§1226(b)(1); it amended the earlier section,
§1222(a).
In short, the Government says, the Plan only
covers those §507 priority “expenses and claims”
that are described as “claims” and can be held by
“creditors.” Section 1226(b)(1), not §1222, deals
with administrative expenses. The bottom line of the
Government’s chain of logic is, once again, that Congress put
the Amendment in the wrong place.
I concede that there is some text and
legislative history that supports the Government’s view that
the word “claim” in §1222(a) does not include
“administrative expenses.” See,
e.g.,
§507(a) (referring to “expenses and claims” as if
they are separate categories); S. Rep. No. 95–1106, at
20 (“The committee amendments contain several changes
designed to clarify the distinction between a ‘claim’
(which generally relates to a debt incurred before the bankruptcy
petition is filed) and an administrative expense (which is an
expense incurred by the trustee after the filing of the
petition)”).
But the language does not demand the
Government’s reading. For the Code also uses the word
“claim” to cover
both prepetition and
postpetition claims (such as administrative expenses).
E.g.,
§101(5)(A) (defining a claim as a “right to
payment”); §726(b) (2006 ed., Supp. IV) (refer- ring to
“claims” that include administrative expenses). In-
deed, the very section that the Government says permits separate
collection of administrative expenses, namely §1226(b)(1),
refers to “any unpaid
claim” for administrative
expenses. (Emphasis added.) And one can easily read that section as
setting forth
when, not
whether, administrative
expenses will be paid under the Plan (
i.e., as specifying
that the Plan must provide for the payment of administrative
expenses before payments to other creditors are made). Thus,
reading §1222(a)(2)’s reference to “claims”
as including administrative expenses need not render
§1226(b)(1) surplusage.
What about §1227(a), which refers only to
“creditor[s]”? One must read it in conjunction with
§1228(a), which provides that once the debtor has completed
all payments under the Plan, “the court shall grant the
debtor a discharge of [1] all debts provided for by the plan[,] [2]
allowed under section 503 of this title [which describes
‘administrative expenses’] or [3] disallowed under
section 502 of this title . . . .” (Emphasis
added.) (The first few words of §1227(a)—“[e]xcept
as provided in section 1228(a)”—explain why I say
“must”; the comma comes from 7 Norton §137:2, at
137–3, n. 1, which says that its omission was a
typographical error). Thus, by here referring to
“administrative expenses” (through its reference to
§503), Chapter 12 makes clear that at least
some
postpetition claims are to be discharged once the debtor has
completed his payments under the Plan. That fact, in turn, suggests
that the Plan may provide for their payment and that the holders of
such claims may be bound by the terms of a confirmed Plan.
The upshot is that the Government’s second
argument presents a plausible, but not the
only plausible,
interpretation of the Code’s language. And the
Government’s second argument, like the majority’s
argument, has a problem, namely that it reduces Congress’
Amendment to rubble. For that reason I believe it does not offer
the better interpretation of the relevant language.
IV
In sum the phrase tax “incurred by the
estate” in §503(b) (the “administrative
expense” section) and the word “claim” in
§1222(a) are open to different interpretations. Each of the
narrower interpretations advanced by the Government or adopted by
the Court would either exclude postpetition taxes from the phrase
taxes “incurred by the estate” or exclude all
postpetition debts, including administrative expenses, from the
word “claim.” In these ways, these interpretations
would, as I have said, prevent the Amendment from accomplishing its
basic purpose.
A broader interpretation of the word
“claim” may allow the Plan to include certain
postpetition debts. This, taken together with a broader
interpretation of the phrase tax “incurred by the
estate,” prevents the Government from collecting
postpetition/preconfirmation tax debts outside of Chapter 12,
requiring it to assume a place in the creditor queue. Together
these broader interpretations permit the Amendment to take effect
as intended.
I find this last-mentioned consideration
determinative. It seems to me unlikely that Congress, having worked
on revisions of the Code for many years with the help of Bankruptcy
experts, and having considered the Amendment several times over a
period of years, would have made the drafting mistake that the
Government and the majority necessarily imply that it made.
Moreover, I be- lieve it important that courts interpreting
statutes make significant efforts to allow the provisions of
congressional statutes to function in the ways that that the
elected branch of Government likely intended and for which it can
be held democratically accountable.
For these reasons, with respect, I dissent.