United States v. Ron Pair Enterprises, Inc.

PETITIONER: United States
RESPONDENT: Ron Pair Enterprises, Inc.
LOCATION: Kino Community Hospital

DOCKET NO.: 87-1043
DECIDED BY: Rehnquist Court (1988-1990)
LOWER COURT: United States Court of Appeals for the Sixth Circuit

CITATION: 489 US 235 (1989)
ARGUED: Oct 31, 1988
DECIDED: Feb 22, 1989

I. William Cohen - on behalf of the Respondent
Lawrence G. Wallace - on behalf of the Petitioner

Facts of the case


Media for United States v. Ron Pair Enterprises, Inc.

Audio Transcription for Oral Argument - October 31, 1988 in United States v. Ron Pair Enterprises, Inc.

William H. Rehnquist:

We'll hear argument first this morning in No. 87-1043, United States v. Ron Pair Enterprises.

Mr. Wallace, you may proceed whenever you're ready.

Lawrence G. Wallace:

Thank you, Mr. Chief Justice, and may it please the Court:

This case presents a narrow question of statutory construction dealing with the rights of secured creditors under the Bankruptcy Code in the collateral securing their claims.

The question is to be distinguished from any question of priorities under the Code because the Code treats secured claims separately, and to the extent the collateral is consumed meeting the rights of secured creditors, it does not pass into the general assets of the estate available for distribution to other creditors, priority or general creditors.

The particular question concerns post-petition interest allowed to holders of secured claims by Section 506(b) of the Code.

The general rule under the Code is that all claimants who would have a basis for it in the absence of bankruptcy are allowed pre-petition interest.

This is memorialized by negative implication in Section 502(b)(2), and the general rule further is that the right to interest is then cut off upon the filing of the petition in bankruptcy, except as the Code otherwise provides.

The right to interest, incidentally, resumes again after the confirmation of the plan of the debtor in possession or of the trustee by the Bankruptcy Court.

This is provided by Section 1129 of the Code, which created the possibility of stretching out payments under the plan, and in return for that, all creditors whose payments are stretched out are given a right to interest, and the right to interest for federal tax creditors under the tax liens is in 1129(a)(9)(C).

So what we are really talking about is whether there is a right to interest during this intervening period, the post-petition, pre-confirmation period.

And that's what we mean by post-petition interest.

Now, the provision at issue is set forth on page 2 of the government's brief, and Section 502(b) is one of the provisions, and indeed, the most important provision in the Code that allows post-petition interest, and the precise question here which... and the Code in this provision deals with this question by statute for the first time.

It was previously just a matter of judge-made rules.

The question is whether Section 506(b) applies to all secured claims with respect to the right to post-petition interest, or whether it carries forward a distinction that had been recognized by some courts of appeals prior to the Code between consensual and nonconsensual secured claims, with only the consensual ones being awarded post-petition interest.

The consensual ones are those created by contract, typically, secured claims of financial institutions or other business institutions.

The nonconsensual claims, in addition to the tax lien claims such as are involved here, would include mechanics' liens or workmen's liens or liens arising from the execution of a judgment, in favor of a judgment creditor such as a tort victim.

And the question is whether this category of claimants, including the government tax liens, benefit from the same rule that some courts previously applied only to claims created by agreement.

In the particular case it is stipulated that the collateral securing the government's tax lien which has been perfected is amply sufficient to cover both the claim and any interest that would be accrued under Section 506(b).

William H. Rehnquist:

Mr. Wallace, to what kinds of property does the government's tax lien extend?

Lawrence G. Wallace:

Well, typically to real property and any other assets to which a security interest could attach, the same as is true of many commercial liens today that are created by agreement.

There was a time when it was typical for the commercial lien to attach to only one particular piece of property, but it is much more commonplace in commercial practice now for the lien to be as oversecured as the secured creditor can make it.

And this is what is known in the pariance as an oversecured claim as well because it is secured by more than the value of the claim plus any interest that would be accrued.

The starting point for any question of statutory interpretation is, of course the statutory language, and if we look at Section 506(b), it seems apparent from the language that two categories of rights to payments are set up in the final several lines of the provision.

There shall be allowed to the holder of such claim interest on such claim, set off by commas then from

"and any reasonable fees, costs or charges. "

provided for under the agreement under which such claim arose.

Facially, that seems to provide for two different categories, a more comprehensive right to interest on any oversecured claim, and a qualified right to fees, costs or charges provided under an agreement, if the claim arises from an agreement, if those fees, costs or charges are reasonable.

That would be the ordinary way to read the language.

The Respondent, in order to adapt the language of--