Petition for Writ of Certiorari — Massachusetts v. Gray, 109 S. Ct. 1305 (1989) (No. 87-1784)

ts, Supreme Court, U.S.

FILED

| apa 28 1988

8 ¢ 1 ¢ 8 4 JOSEPH F. SPANIOL, JR.

CLERK

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1987

COMMONWEALTH OF MASSACHUSETTS,

Petitioner,

v2

STEPHEN J. GRAY, TRUSTEE IN

BANKRUPTCY OF NEWBURY CAFE, INC.,

d/b/a 29 NEWBURY,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF

APPEALS FOR THE FIRST CIRCUIT

JAMES M. SHANNON

ATTORNEY GENERAL

Alice Daniel

Deputy Attorney General

Counsel of Record

Jane S. Schacter

Assistant Attorney General

One Ashburton Place

Boston, MA 02198

(617) 727-1020

ESTION PRESENTED

The question presented in this case

is the same as that presented in United

States v. Ron Pair Enterprises, Inc.

(No. 87-1043), in which this Court has

already granted a writ of certiorari:

Whether Section 506(b) of the Bank-

ruptcy Code entities a creditor to

receive post-petition interest on an

oversecured claim allowed in a bank-

ruptcy proceeding?

Page

QUESTION PRESENTED ......s..- 1

TABLE OF AUTHORITIES iv

GPiRiGee BELG «..« + « + @ Saas

Sune hee sé es Ae

STALUIG LMVObVEW «© « 6 te thule le 2

STATEMENT OF THE CASE << oie pac eee 2

A. Section 506(b) of the

Bankruptcy Code ..... 2

B. The Proceedings Below .. 4

REASONS FOR GRANTING THE

PETITION 12

A. This Court Should Grant

Certiorari to Resolve

the Conflict Among the

Circuits About This

Important Issue of

Bankruptcy Law... ... 413

B. This Court Should Grant

Certiorari to Clarify

the Relevance of Prior

Law in Interpreting the

Bankruptcy Code ..... 14

C. Plenary Review of This

TABLE OF CONTENTS

Case Is The Most Appropriate

Disposition .. 5s :s a «=

= to

(con't)

CONCLUSION

APPENDIX

Appendix

Appendix

Appendix

Appendix

Appendix

Appendix

Appendix

-iii-

ne.

>

61

63

Cases

TABLE OF AUTHORITIES

In re Berry, 30 B.R. 36

(Bankr. E.D. Mich. 1983)

In re Best Repair Company,

F. 2d 1080

(4th Cir. 1986)

In re Boston & Maine Corp.,

F. 2d 493 (lst Cir. 1983,

sub. nom. Cambridge v. Meserve,

cert. den. 466 U.S.

)

789

ll,

719

938 (1984)

In re Ron Pair Enterprises, Inc.,

828 F.2d 367 (6th Cir.

cert. granted sub. nom,

Vv

1987),

’

United States v. Ron Pair

Enterprises, Inc., __ U.S.

56 U.S.L.W. 3647 (No. 87-1043)

In_ re Russo, 63 B.R. 335

(Bankr. D. Mass. 1986)

In re Venable, 48 B.R. 853

(Bankr. S.D.N.Y. 1985)

70 (1984)

469 U.S.

Griffin v. Oceanic Contractors,

Inc., 458 U.S. 564 (1982)

Kelly v. Robinson, __ U.S.

107 S. Ct.

353 (1986

i hie

20,

21,

13, 16,

23,

passim

28

18

18

26

Cases (con't)

Midlantic National Bank v. New

Page

Jersey Department of Environmental

Protection, 474 U.S. 494

(1986) ‘ao ae Bk, S39, 20, 21,

Northern Pipeline Construction

Co, . 7 WT ee

458 7 S. De Civear +s «

Associates, — U.S. __,

108 S. Ct. 626

C3908). 2. + + Babee 12s 20a 2H,

WT Wey eee 441

U.S. 768 (1979) , ae

United States v. Whiting Pools,

462 U.S. 198 (1983)

Statutes

Bankruptcy Act of 1898

(ch. 541, 30 Stat. 544)

11 U.S.C. §103(a)

11 U.S.C. §362(d)(1)

23, 26

23

22, 26

-18, 19

-24, 29

15n.

Statutes (con't)

1l U.S.C. §§501, et seq.

11 U.S.C. §506

1l U.S.C. §506(b)

11 U.S.C. §522

11 U.S.C. §542(a)

11 U.S.C. §701, et seq. . 5, 27,

ll U.S.C. §1101, et seq. 4, 27,

28 U.S.C. §1254(1)

Mass.

Gen.

Laws Ann.

(West 1988 Supp.)

ch. 621, §32

Mass. Gen. Laws Ann. ch. 62C,

§50(a) (West 1988 Supp.)

Miscellaneous

H.R. Rep. 95-595 95th Cong.,

lst Sess. (1977) —s

S. Rep. 95-989, 95th Cong.,

2d Sess (1978) we

S. Rep. 95-1106, 95th Cong.,

2d Sess. (1978) sae

W. Strunk, Jr., The Elements of

Style (E.B. White 2d Ed. 1972)

28,

28,

28,

23,

29

passim

passim

29

29

30

30

25

24

24

Petitioner, the Commonwealth of Mass-

achusetts, respectfully requests that a

writ of certiorari issue to review the

judgment of the United States Court of

Appeals for the First Circuit in this

case. The issue of statutory inter-

pretation presented here is the same as

the one presented in No. 87-1043, United

States v. Ron Pair Enterprises, Inc., __

U.S. _., 56 U.S.L.W. 3647 (cert. granted

March 21, 1988) ("Ron Pair”).

OPINIONS BELCW

The opinion of the court of appeals

(Appendix ("A.") 1-11) is not yet rep-

orted. The opinion of the district

court (A. 14-39) is reported at 80 B.R.

259 (D. Mass. 1987). The opinion of the

bankruptcy court (A. 41-60) is reported

at 72 B.R. 478 (Bankr. D. Mass. 1987).

JURISDICTION

The judgment of the United States

Court of Appeals for the First Circuit

was entered on March 6&8, 1988. A.

12-13. The jurisdiction of this Court

is invoked under 28 U.S.C. §1254(1).

STATUTE INVOLVED

Section 506 of the Bankruptcy Code

(ll U.S.C.) is reprinted at A. 63-64.

STATEMENT OF THE CASE

A. Section 506(b) of the Bank-

ruptcy Code

The issue in this case is precisely

the same as the issue in Ron Pair --

namely, whether §506(b) of the Bank-

ruptcy Code (11 U.S.C.) permits an over-

secured creditor that is a taxing auth-

ority to collect “post-petition” in-

l/

terest on its claim against the

l/ Post-petition interest is interest

that accrues from the date the debtor

files in bankruptcy.

x

debtor by virtue of its statutory tax

lien. Section 506(b) provides generally

that where a creditor's claim against a

bankrupt debtor is oversecured, ~’

"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." Like the

United States in Ron Pair, Massachusetts

contends that an oversecured tax lien is

to be treated for purposes of post-

petition interest like any other over-

secured claim under §506(b).

2/ A claim is oversecured where it 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.” Section 506(c),

in turn, permits the trustee in bank-

ruptcy to recover “from property sec-

uring an allowed secured claim the reas-

onable, necessary costs and expenses of

preserving, or disposing of property to

the extent of any benefit to the holder

of such claim."

Respondent, Stephen J. Gray, Trustee in

Bankruptcy for Newbury Cafe, Inc. ("the

trustee") contends, and the court below

held, that §506(b) permits post-petition

interest only where the creditor's lien

arises from an agreement with the deb-

tor, and not where there is a "“non-

consensual" statutory lien, like the tax

lien at issue here.

B. The Proceedings Below

On October 9, 1985, Newbury Cafe,

Inc. filed a voluntary petition for re-

Organization under Chapter 1l of the

United States Bankruptcy Code, 11 U.S.C.

§§1101, et seq. Between October 1984

and April 1985 -- well before Newbury

Cafe filed its Chapter 11 petition

the ° Massachusetts Commissioner of

Revenue recorded written "Notice[s] of

Massachusetts Tax Lien" as prescribed by

state law, Mass. Gen. Laws Ann. ch. 62C,

§50(a) (West 1988 Supp.). The recording

of these notices perfected in favor of

the Department of Revenue liens” that

arose upon Newbury Cafe's refusal to pay

delinquent meals and withholding tax.

Some ten months after the Chapter ll

filing, in July 1986, the case was con-

verted to one under Chapter 7 of the

Bankruptcy Code, 1l U.S.C. §§701, et

seq. Conversion followed the bankruptcy

court's approval of a sale of all the

estate's assets for $305,000.

On September 17, 1986, Massachusetts

filed a timely proof of claim for the

unpaid meals and withholding taxes in

the bankruptcy court. The trustee has

not disputed Massachusetts' secured

claim to the extent of the tax due

($52,508.88), nor interest to the date

the petition was filed (i.2@.., pre-

petition interest) at the state

statutory rate prescribed by Mass. Gen.

Laws Ann. Ch. 62C, §32 (West 1988 Supp.)

(313,238.37) .« The trustee does dispute,

however, Massachusetts' claim to post-

petition interest at the state statutory

af

rate, which has been accruing at the

cate of 625.69. per day. 4

On Sep-

tember 26, 1986, the trustee instituted

an adversary proceeding by filing a

“Complaint for Determination of Secured

Claims and Allocation of Sale _ Pro-

ceeds." This complaint asserted _ the

trustee's objection to Massachusetts'

3/ The issue of what rate of post-

petition interest would be appropriate

has not been reached in this casé be-

cause the threshold question of entit-

lement to post-petition interest has

been decided against Massachusetts’ by

the courts below.

4/ As of the date this petition for

certiorari is filed, petitioner's post-

petition interest claim totals approx-

imately $21,853.00.

claim to post-petition interest, as well

as other claims against other creditors.

On April 16, 1987, the bankruptcy

court eanecna judgment for the trustee

on his complaint against Massachusetts.

The bankruptcy court relied largely on

the decision of the United States Court

of Appeals for the First Circuit in In

re B n Maj , 239 F. 24 49a;

(lst Cir. 1983), cert. den. sub. nom.

mbr ij Vv. ve, 466 U.S. 938

(1984), a case decided under the Bank-

ruptcy Act of 1898 (ch. 541, 30 Stat.

544), mot the Bankruptcy Code now in

effect. A. 49-51; S35; 37. Boston &

Maine held that, in the absence of any

statutory provision in the Bankruptcy

Act concerning post-petition interest on

secured claims, notions of equity sup-

ported allowing interest in the case of

"consensual" liens, but not in the

case of statutory liens -- such as tax

liens. Boston & Maine, 719 F. 2d at 496-

497. In following Boston & Maine, even

in the wake of the new statutory pro-

vision, the bankruptcy court expressly

rejected a recent decision by another

bankruptcy court Sitting in Massa-

chusetts that took the opposite view, In

re Russo, 63 B.R. 335 (Bankr. D. Mass.

1986). A. 59-60.

On appeal, the district court affi-

rmed. Conceding that “a majority of

courts appear to support [the Massa-

chusetts Department of] Revenue's posi-

tion,” A. 18, the district court none-

theless rejected Massachusetts’ claim.

The district court perceived a gram-

matical ambiguity in section 506(b), and

therefore concluded that "[t]o determine

the appropriate outcome in such a situ-

ation, the Court must closely

examine the relevant policies underlying

section 506(b)." A. 29. On that basis,

the district court found dispositive the

"policy" of the Code to disfavor "the

more rapid depletion of the bankrupt's

estate” that would result if “all over-

secured creditors should be allowed post-

petition interest” including "non-

consensual creditors." A. 30-31

(emphasis in original).

In a brief opinion, the court of

appeals affirmed. That court expressly

incorporated and relied upon the opinion

in In re Ron Pair Enterprises, Inc., 828

F. 2d 367 (6th Cir. 1987) -- the deci-

Sion that this Court has already granted

certiorari to review. A. 9; ll.

Just as in Ron Pair, the First Cir-

cuit placed heavy reliance on pre-Code

cases finding post-petition interest

payable only on "claims secured

by bargained-for or consensual liens."

| ae Just as in Ron Pair, the court

perceived ambiguity in the language of

§506(b), and accordingly "“look[ed] to

“legislative history, and to what seems

the more natural, and the more reaso-

nable, in light of the Code as_a

whole.” A. 6. Undertaking this. in-

quiry, the court, like the court in Ron

Pair, found that "“({nJothing [in the

legislative history] affirmatively

rebuts the initial inference that Con-

gress had no intention, in enacting sec-

tion 506(b), to change existing law."

A. 10. Even though the court cited not-

hing in the legislative history sup-

porting its view, it nonetheless’ found

that in the absence of such "“affir-

mative" evidence supporting the state's

view, this Court's decision in Mid-

lantic National Bank v. New Jersey

«ite

Department of Environmental Protection,

474 U.S. 494 (1986), compelled the con-

Clusion that pre-Code law must govern.

A. 9-10. Accordingly, just as in Ron

Pair, the court disagreed with the cont-

rary interpretation of the United States

Court of Appeals for the Fourth Circuit

in In re Best Repair Company, 789 F. 2d

1080 (4th Cir. 1986), and “(t]he majo-

rity of courts construing [s]ection

506," which took the view adopted in

Best Repair. A. 5. Instead, the court

invoked its own pre-Code decision in

Boston & Maine Corp., supra, where the

court had found “equitable” consid-

erations to favor a rule limiting

=

post-petition interest to consensual

liens. A. 7,2/

REASONS FOR GRANTING THE PETITION

Only one month~= ago, this Court

decided that the precise question pre-

sented in this case was worthy of review

when it granted certiorari in Ron Pair.

Certiorari should be granted in this

case for the same reasons marshalled by

the Solicitor General in support of cer-

tiorari in that case. Rather than bur-

den the Court by rehearsing at length

the arguments supporting review, peti-

tioner will present its reasons in sum-

mary form.

5/ As of the filing of this petition

for certiorari, Massachusetts has pen-

ding before the bankruptcy court a

motion for a partial stay of distri-

bution of the estate's assets. That

motion seeks an order preventing distri-

bution of the funds disputed here pen-

ding the conclusion of proceedings in

this Court.

alten

A. This Court Should Grant

Certiorari to Resolve the

Conflict Among the

Circuits About This

Important Issue of

Bankruptcy Law

The question whether the Bankruptcy

Code authorizes nonconsensual lien-

holders to collect post-petition in-

terest has sharply divided the lower

courts. Both the Sixth Circuit in Ron

Pair and the First Circuit in this case

have adopted a position directly at odds

with the view taken by the Fourth Cir-

cuit in Best Repair Co., supra. Nor is

this conflict limited to the courts of

appeals. Instead, as the First Circuit

itself recognized, "(t]he majority of

courts" construing §506(b) have agreed

with the conclusion in Best Repair. A.

5; see Best Repair, 789 F.2d at 1082

(collecting cases); Ron Pair, supra, 828

F.2d at 372, n.9 (same).

sida

Given this division, and the significant

fiscal consequences for federal, state

and local taxing authorities (as well as

non-governmental creditors holding other

nonconsensual liens), §506(b) should be

authoritatively construed by this Court.

B. This Court Should Grant

Certiorari to Clarify the

Relevance of Prior Law in

Interpreting the

Bankruptcy Code _

Similarly worthy of review is the

extent to which a court interpreting the

Bankruptcy Code should presume that Con-

gress intended no change in existing

law. Finding this Court's cases to

require a presumption that existing law

was preserved in the Code, the First

Circuit, just like the Sixth Circuit in

Ron Pair, gave short shrift to the ex-

press language of §506(b). That pro-

vision expressly says that “there shall

be allowed to the holder of such

aléea

(an oversecured] claim, interest on such

Claim, and any reasonable fees, costs,

Or charges provided for under the agree-

ment under which such claim arose."

Thus, on its face, §506(b) allows over-

secured creditors to collect post-

petition interest and admits of no ex-

6/

ceptions. The key clause --

6/ As this Court recently observed

about §506(b) in a different context,

this provision contains “intricate phra-

seology” that is part of its “carefully

drawn disposition” allowing post-

petition interest when there is a “sec-

urity cushion." United Savings Asso-

ati _ rim ; ?

Cc 4

j U.S. 108 Ss.

— —— 4

Forest Associates,

Ct. 626, 631 (1988). In Timbers of In-

wood, the Court held that undersecured

creditors are not entitled to com-

pensation under §362(d)(1) for delay in

foreclosing on their collateral, and

noted that authorizing interest for

undersecured creditors under that sec-

tion would be inconsistent with §506(b),

which clearly permits post-petition in-

terest to be paid “only out of the ‘sec-

urity cushion'" possessed by an over-

secured creditor. 108 Ss. Ct. at 631.

The Court further observed that “[sJec-

tion 506(b)'s denial of post-petition

interest to undersecured creditors

merely codified pre-Code

(footnote Contiaued)

“interest on such claim" -- is set off,

both by the word “and" and by a comma,

from the later clause providing for “any

reasonable fees, costs, or charges pro-

vided for under the agreement under

which such claim arose.“ The court in

Best Repair correctly recognized that

the grammatical structure of the pro-

vision plainly “make([s]) ‘interest on

such claim’ a separate and distinct

clause to which ‘provided for under the

agreement’ does not apply.“ 789 F.2d at

1082. Basic rules of grammar support

that conclusion. See W. Strunk, Jr.,

(footnote continued)

bankruptcy law . . ." Id. The Court in

j , however, had no occa-

sion to construe §506(b) directly, nor

to consider whether it codified pre-Code

law in all respects, including with res-

pect to the narrow issue presented here.

atin

The Elements of Style 4 (E.B. White 2a

ed. 1972) (requiring the placement of a

comma before a conjunction introducing

an independent clause). Best Repair

also correctly recognized that, had Con-

gress intended to limit post-petition

interest to oversecured consensual lien-

holders alone, it could easily have said

SO im any number of ways. Id., at 1082,

n.2; Cf. Timbers of Inwood, supra 108 S.

Ct. at 631 (if Congress meant to com-

pensate undersecured creditors for

delay, it would have included language

to that effect in §506(b)). Indeed,

there is no plausible explanation for

the two separate clauses, the “and” se-

parating the clauses, or the comma if,

indeed, “provided for under the agree-

ment" is intended to modify the “in-

terest" clause, as well.

nite

“he only explanation offered by the

court below was its observation that a

comma is “often a matter of personal

style." A. at 1ll (quotation omitted).

In so lightly disregarding Congress'

words and otherwise inexplicable se-

paration of clauses, however, the court

of appeals ignored basic principles of

statutory construction. See Griffin v.

Oceanic Contractors, Inc., 458 U.S. 564,

571, 574 (1982) (plain words of statute

to be followed unless to do so would

""thwart the obvious purpose of the sta-

tute’'" or produce “absurd and unjust re-

sult") (quotation omitted); Garcia v.

United States, 469 U.S. 70, 75 (1984)

(requiring "extraordinary showing of

contrary intentions from [legislative

history]" to limit plain meaning of sta-

tutory language); United States v.

oti.

Naftalin, 441 U.S. 768, 774 & n.6 (1979)

(relying on separation of clauses in in-

terpreting meaning of statute, and no-

ting that “while matters like ‘pun-

ctuation [are] not decisive of the cons-

truction of a statute’ . . . where they

reaffirm conclusions drawn from_~ the

words themselves they provide useful con-

firmation") (citation omitted).

As in Ron Pair, the error of the

court below is rooted in a misreading of

this Court's holding in nti Na-

tional Bank v. New Jersey Department of

Environmental Protection, supra. Acc-

ording to the First Circuit, that dec-

ision requires a court to presume that

Congress simply codified pre-Code jud-

icial law, unless something “affir-

matively rebuts the initial inference

that Congress had no intention, in en-

acting §506(b), to

cit.

change existing law." A. 10. Contrary

to that reading, however, this Court has

not imposed any unusual burden on Con-

gress to make especially clear an intent

to change prior bankruptcy law.

To be sure, Midlantic, as well as

this Court's decisions in Kel} v. Rob-

isees, U8. ., 3167. 8. Ce. 392 (1966)

and Timbers of Inwood, supra, recognize

the relevance of pre-Code law in cons-

truing Code provisions. Midlantic, 474

U.S. at SOl; Beliy. 107 &. Ct. @t 359~

60; Timbers of Inwood, 108 S. Ct. at

§64. The principle established by those

cases, however, is that the Code should

not lightly be read to “silently

abrogate[ ]," Kelly, 107 S. Ct. at 359

(emphasis added), well-established pre-

Code bankruptcy law -- that is, without

“specific provision in the text of the

statute” Or, failing

a=

that, “any mention in the legislative

history.” Timbers of Inwood, supra, 108

S. Ct. at 634. Midlantic and Kelly re-

cognize that a court should be espe-

Cially unwilling to find such a “silent

abrogation" where important, independent

interests in state law are implicated,

as they were in those cases. See Mid-

lantic, 474 U.S. at 502 (recognizing

state's interest in protecting “public

health and safety” and ruling that Code

does not permit bankruptcy trustee to

abandon toxic waste sites); Kelly, 107

S. Ct. at 360 (recognizing state's in-

terest in “formulat[{ing] and enforc[ing]

penal sanctions" and ruling that debtor

may not discharge obligation to make re-

Stitution payments imposed as part of

Criminal judgment). Nothing in these

cases, however, supports the analysis or

the result reached below.

=e

First, there simply was no “silent

abrogation" of the prior rule regarding

interest. Congress made “its intent

specific" by structurally separating the

two clauses in §506(b), by using the

word “and" between these clauses, and by

using a comma. Thus, the Code provides

ample "plain textual indication,"

Timbers of Inwood, supra, 108 S. Ct.

634, that post-petition interest is pay-

able to all oversecured creditors --

that is, whenever there is a “security

cushion" from which the interest may be

paid. if. #@ 64k, G32. The court of

appeals plainly strained the statutory

language to suggest its contrary inter-

pretation.

Second, even if the statutory lan-

guage were not alone dispositive, this

case presents no strong countervailing

interest, rooted in

a2.

longstanding, independent state (or fed-

eral) law, as in Midlantic or Kelly.

The issue of post-petition interest is

fundamentally a bankruptcy issue. In-

deed, to the extent that an important

state interest is at play here, it is

the Commonwealth's interest in pro-

tecting the efficacy of state tax col-

lection statutes, and in ensuring that

all revenues properly due and owing are

paid into the public fisc. |

Finally, wae more fundamentally, the

First Circuit's "initial inference" that

the Code simply codified prior law is

undermined by the very breadth and depth

of the "“overhaul{ ] and modernization"

of bankruptcy law Congress intended to

accomplish through the Bankruptcy Code.

v. Marathon Pipe Line Co., 458 U.S. 50,

52-53 (1962); H.R. Rep. 95-595, 95th

x;

Cong., lst Sess. 3-4 (1977); S. Rep. 95-

1106, 95th Cong., 2d Sess. 5 -. £39702

Certainly, in interpreting the 1978

Code, this Court has employed no mecha-

nistic presumption that Congress’ meant

only to catalogue, and not to revise,

existing law. See United States v. Whi-

ing P , 462 U.S. 198 (19863).

With respect to the treatment of tax

claims in particular, Congress set out

expressly to balance the interests of

debtors, creditors and taxing autho-

rities, S. Rep. 95-989, 95th Cong., 2d

Sess. 14 (1978); S. Rep. 95-1106, 95th

Cong., 2d Sess. 2 (1978); see Whiting

Pools, supra, 462 U.S. at 210, and appa-

rently chose to place the government on

an equal footing with other oversecured

creditors for purposes of post-petition

interest. In doing so, Congress re-

cognized that, contrary to

=o

pre-Code law that accorded special soli-

Citude to protecting the “expectation

interests" of private creditors holding

security agreements with the debtor, in

fact the government may be an especially

disadvantaged creditor, whose debts are

the first to be foresaken by a debtor

aware “that detection of nonpayment is

more difficult for the taxing authority

than it is for the supplier or lender,

and that an unpaid supplier quickly

stops shipping goods, though an unpaid

taxing authority is usually unable to

take collection action for months".

H.R. Rep. 95-595, 95th Cong., lst Sess.

B93 (1977).

Accordingly, even if it is appro-

priate to consult legislative history in

the face of §506(b)'s explicit terms,

that history Supports

= =

adoption of a rule that treats taxing

authorities like other oversecured cred-

itors, so long as a “security cushion,"

Timbers of Inwood, supra, 108 S. Ct. at

631, is present to justify the payment

of interest ._’

And that history does

not support the broad presumption that

the Code simply codified all existing

law, as suggested by the court below.

In short, the approach taken by the

First Circuit distorts traditional stat-

utory construction, gives Midlantic and

Kelly an unduly broad sweep, and, by im-

posing a particularly heavy burden on

parties claiming that the Code departed

from the earlier law, in effect

T/ Indeed, the court below could say

only that the legislative history con-

cerning §506(b) was "'wholly in-

conclusive,'" A. 9 (quoting Best Repair,

Supra). It cited no legislative history

supporting its view.

«26-

displaces congressional choices and leg-

islates prior law back into effect.

Thus, in this case, the court imperm-

issibly disregarded an explicit con-

gressional choice in favor of an earlier

judicial rule. This Court should grant

certiorari to clarify the principles

governing interpretation of the Code,

and to correct the erroneous’ result

reached in this case.

CG. Plenary Review of This

Case is The Most

‘ate Di ae date

The legal issue presented here is

the same one that will be decided in Ron

Pair, and this Court should accordingly

Grant certiorari or, at a minimum, hold

this petition pending resolution of Ron

Pair. Because this case involves a

Chapter 7 bankruptcy and Ron Pair in-

volves a Chapter 11l proceeding, however,

granting plenary review is a

all®s

aac

more appropriate course that will elim-

inate potential uncertainty about’ the

scope of the Court's ruling.

Section 103(a) of the Code expressly

makes §506(b) applicable to cases

arising under Chapters 7, ll, 12 and

13, 2” but some courts, including the

bankruptcy court in this case, have sug-

gested that the kind of bankruptcy pro-

ceeding involved may be relevant in in-

terpreting the scope of §506(b). See A.

59-60; In re Venable, 48 B.R. 853, 855

(Bankr. S.D.N.Y. 1985); cf£&. In re Russo,

63 B.R. 335 (Bankr. D. Mass 1986). Sim-

ilarly, other decisions construing diff-

erent administrative

8/ That provision states that, with ex-

ceptions not relevant here, “chapters l,

3 and 5 of this title apply in a case

under chapter 7, ll, 12, or 13 of this

title.” Section 506, in turn, is part

of Chapter 5 of the Code.

—) =

provisions in Chapter 5 of the Code (ll

U.S.C. §§501, et seq.) suggest -- even

in the face of §103(a) -- that the kind

of bankruptcy proceeding involved may be

a relevant consideration. See, e.g.,

United States v. Whiting Pools, supra,

462 U.S. at 208-209, n.17 (despite terms

of §103(a), “(wje express no view on the

issue whether §542(a) [of the Code] has

the same broad effect in liquidation or

adjustment of debt proceedings [as in

reorganization proceedings]"); In re

Berry, 30 B.R. 36 (Bankr. E.D. Mich.

1983) (despite terms of §103(a), lien

avoidance provisions in §522 of Code do

not apply to proceedings under chapter

13). Petitioner believes that there is

no justification for interpreting

§506(b) differently according to which

chapter of the Code is involved. Deci-

ding the question presented here in

atin

the context of both a Chapter 11 and a

Chapter 7 4bankruptcy proceeding will

permit this Court to eliminate potential

ambiguity about the reach of its ruling.

CONCLUSION

For the foregoing’ reasons, peti-

tioner respectfully requests that a writ

of certiorari be granted in this case.

Alternatively, petitioner requests that

this petition for certiorari be held

pending final disposition of United

States v. Ron Pair.

Respectfully submitted,

JAMES M. SHANNON

ATTORNEY GENERAL

Alice Daniel

Deputy Attorney General

Counsel of Record

Jane S. Schacter

Assistant Attorney General

One Ashburton Place

Boston, MA 02108

(617) 727-1020

Dated: April 26, 1988

«ite

—————————

APPENDIX

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

NO. 87-1964

IN RE NEWBURY CAFE, INC.,

d/b/a 29 NEWBURY

Debtor.

COMMONWEALTH OF MASSACHUSETTS,

Plaintiff, Appellant,

Vv.

NEWBURY CAFE, INC.,

Defendant, Appellee.

APPEAL FROM THE UNITED

STATES DISTRICT COURT

FOR THE DISTRICT OF

MASSACHUSETTS

{[Hon. A. David Mazzone,

U.S. District Judge]

Before

Coffin, Circuit Judge,

Aldrich, Senior Circuit Judge,

and Pettine,* Senior District Judge.

Leonard M. Goldberg, Massachusetts

Department of Revenue, Legal Bureau,

with whom Michael _E, Porter, Chief,

Legal Bureau, James M, Shannon, Attorney

General and Jane S. Schacter, Assistant

Attorney General, were on brief for

appellant.

Christopher W. Parker with whom

Hinckley, Allen, Snyder & Comen was on

brief for appellee.

MARCH 8, 1988

* Of the District of Rhode Island, sit-

ting by designation.

ALDRICH, Senior Circuit Judge. In

this case we are asked to decide whether

a so-called oversecured taxing authority

may recover from a bankrupt's estate in-

terest on its debt accruing during the

bankruptcy pxoceedings. Plaintiff Mass-

achusetts Department of Revenue ("DOR")

holds a statutory lien, Mass. G.L. c.

62C, §50, on the property of debtor New-

bury Cafe, Inc. (“Newbury”). The value

of the property subject to the lien

exceeds the sum of the principal amount

of the tax debt plus pre-petition in-

terest, and DOR sought in the bankruptcy

court a ruling that section 506(b) of

the Bankruptcy Code of 1978, as amended

in 1984 (ll U.S.C. § 506(b)), entitled

it to interest which accrued on its debt

after the filing of the petition.

The bankruptcy judge,

declining to follow the ruling of a fel-

low judge, In re Angelo Russo, 63 B.R.

335 (Bkrtcy. D. Mass. 1986), ruled in

favor of Newbury's' trustee. The dis-

trict court affirmed, construing section

506(b) consistently with judicial deci-

sions prior to the Code, hereinafter pre-

Code law, that restricted post-petition

interest to those oversecured creditors

whose liens were the product of a pre-

petition bargain. We affirm.

The dispute derives from the unfor-

tunate grammar of section 506(b), which,

with our additions of emphasis, provides,

To the extent that an allowed

secured claim is secured by

property the value of which

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.

The primary question is whether the em-

phasized proviso clause modifies all the

words beginning with "“interest," or,

instead, modifies only those words bet-

ween the two emphasized expressions,

thereby allowing interest without excep-

tion. The majority oof courtS con-

struing this section have held that the

initial comma insulates the word (and

the concept of) "“interest" from the

effect of the proviso clause, with the

result that interest is allowed to every

oversecured creditor, non-consensual

source of the lien notwithstanding. In

re Best Repair Company, Inc., 789 F.2d

1080 (4th Cir. 1986) (collecting cases).

The allowance of post-petition in-

terest to a creditor is an exception to

a fundamental tenet of bankruptcy law,

which, in effect, freezes the affairs of

the debtor at the time of the petition.

Under the 1978 Bankruptcy Code, the

freeze as to accrual of interest is ac-

complished by section 502(b)(2), dis-

allowing claims for unmatured interest.

Pre-Code law held post-petition interest

generally unrecoverable. In re Boston &

Maine Corp., 719 F.2d 493, 496 (lst Cir.

1983), cert. denied, 466 U.S. 938

(1984);_City of New York v. Saper, 336

U.S. 328, 332 (1949); Sexton v. Dreyfus,

219 U.S. 339, 3846 CaPRar. The courts

recognized three exceptions. Interest

might accrue: (1) where it eventuated

that the debtor is in fact solvent; (2)

where securities, held by the creditor

as security for the debt, produced in-

come after the filing of the petition;

and (3) where the value of the secured

creditor's contracted security was suff-

icient to satisfy both principal and in-

terest due on the secured claim. Bgoston

& Maine, 719 F.2d at 496 and cases

cited; I c k Hosier ills, 141

F. Supp. 895, 897 (S.D.N.Y. 1956).

As we observed in Boston & Maine,

the existence and scope of the three ex-

ceptions was a function of the equitable

powers of the bankruptcy court, and, in

light of equitable considerations, we

there joined four other circuits in hol-

ding that the third exception extended

only to claims secured by bargained-for

Or consensual liens. See In re Kerber

Packing, 276

F.2d 245, 247-48 (7th Cir. 1960); United

States v. Mighell, 273 F.2d 682, 684

(10th Cir. 1959); United States v. Bass,

27, F.2G 129, 131 (9th Cir. 1959);

United States v. Harrington, 269 F.2d

719, 723-4 (4th Cir. 1959). No court of

appeals took a contrary position. Our

question is whether section 506(b)'s co-

dification removed that limitation.

DOR goes so far as to tell us that

the limitation-removal language is

"clear and unambiguous." If anything

seems clear, it is that that is not so.

We accordingly look to legislative his-

tory, and to what seems the more nat-

ural, and the more reasonable, in light

of the Code as a whole.

W2 start with the fact that even

DOR's leading authority, Best Repair

Ce.» conceded that the legislative

history is “wholly inconclusive." 789

F.2d at 1082. In light of the uniform

and extensive pre-Code law, that void is

a serious obstacle for DOR, particularly

in a bankruptcy matter. In Midlantic

National Bank v. New Jersey Department

of Environmental Protection, 474 U.S.

494 (1986), the Court said, at 50l,

The normal rule of statutory

construction is that if Con-

gress intends for legislation

to change the interpretation of

a judicially created concept,

it makes that intent specific.

[citation omitted] The Court

has followed this rule with

particular care in construing

the scope of bankruptcy codi-

fications.

These words were quoted and relied on as

a, if not the, ground for disagreeing

with Best Repair in In re Ron Pair

Enterprises, Inc., 828 F.2d 367, 370,

372-73 (6th Cir. 1987)4%. Wwe find

that opinion persuasive. Nothing affir-

matively rebuts the initial inference

that Congress had no intention, in en-

acting section 506(b), to change exis-

ting law. Instead, it is to be noted

that the other two exceptions to post-

petition interest stated in Boston &

Maine were preserved intact. See sec-

tions 552(b) and 726(a)(5); Boston &

Maine, 719 F.2d at 496. It is only rea-

sonable to assume

l1/ In this matter of importance to the

bankruptcy bar the trustee's brief fails

to cite In re Ron Pair Enterprises,

though directly in point and published

four months before, and rests its argu-

ment (apart from a 70 line quotation

from our Boston & Maine opinion) on a

bankruptcy decision from another circuit

without noting that it had been reve-

rsed. We trust that the bankruptcy

trustee will bear the worth of this

brief in mind and the argument based

thereon, when it determines its value to

the estate.

that the drafters of the Code were fami-

liar with existing law, and would not,

without good cause, break up its

symmetry.

In this circumstance DOR is reduced

to pinning tts hopes on one, what one

court has termed “capricious,” comma.

See In re Dan-Ver Enters, Inc., 67 B.R.

951 (W.D. Pa. 1986). A comma, often a

matter of personal style, iS a very

small hook on which to hang a change in

the law of substantial proportions. Es-

pecially should this be so when the law

was so fully supported for the reasons

given in Boston & Maine. We need not

repeat them, finding ourselves in agree-

ment with In re Ron Pair Enterprises,

Inc., which, too, needs no elaboration.

Affirmed.

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

NO. 87-1964

IN RE NEWBURY CAFE, INC.,

d/b/a 29 NEWBURY,

Debtor,

COMMONWEALTH OF MASSACHUSETTS,

Plaintiff, Appellant,

Vv.

NEWBURY CAFE, INC.

Respondent, Appellee.

JUDGMENT

Entered: March 8, 1988

This cause came on to be heard on

appeal from the United States District

Court for the District of Massachusetts,

and was argued by counsel.

Upon consideration whereof, It is

now here ordered, adjudged and decreed

as follows: The judgment of the dist-

rict court is affirmed.

By the Court:

Zs

Francis P. Scigliano

Clerk.

[cc: Messrs Goldberg and Parker]

APPENDIX C

UNITED STATES DISTRICT COURT

DISTRICT OF MASSACHUSETTS

IN RE: NEWBURY CAFE, INC.

d/b/a 29 NEWBURY CIVIL ACTION

87-1382-MA

STEPHEN J. GRAY,

TRUSTEE IN BANKRUPTCY

VS.

PATRIOT BANK, ET AL.

MEMORANDUM AND ORDER

Mazzone, D.J. September 21, 1987

This appeal from the Bankruptcy

Court is brought by the Commissioner of

the Massachusetts Department of Revenue

("Revenue"). The appeal challenges the

ruling of the Bankruptcy Court that sec-

tion 506(b) of the Bankruptcy Code ("the

Code") did not change the law that exis-

ted prior to the adoption of the Code,

thereby denying the request of

Revenue for post-filing interest on its

oversecured claim against the debtor,

Newbury Cafe, Inc. ("Newbury").

On October 9, 1975, Newbury filed a

Chapter ll petition of the Bankruptcy

Code, ll U.S.C. Section 101 et seq.

That action was later converted to a

Chapter 7 proceeding. On June 6, 1986,

the Bankruptcy Court approved the sale

of the assets of Newbury for $305,000.

Approximately $203,404.38 of that sum

remains, less amounts to be paid by the

Trustee in Bankruptcy, Stephen J. Gray,

for utility bills. On September 26,

1986, the Trustee filed a complaint for

a Determination of Secured Claims and

Allocation of Sale Proceeds to dis-

tribute the proceeds between con-

flicting and allegedly secured

claims. Three taxing authorities made

claims to the proceeds, of which only

one, Revenue, claimed postpetition in-

terest on its secured claim of

$52,508.'88 at an 18% interest rate. As

of June 13, 1987, this claimed interest

amounted to $15,846.89, with interest

accruing at $25.89 per diem.

In a thorough opinion, dated April

16, 1987, Chief Judge Gabriel denied

Revenue's request for post-petition in-

terest. This opinion conflicts with an

equally well-reasoned opinion by Judge

Lavien in In Re Russo, 63 B.R. 335

(Bkrtcy. D. Mass. 1986). The only issue

presented is whether Chief Judge Gab-

riel's opinion is supported by the evol-

ving law of bankruptcy. The First Cir-

cuit has yet to rule on this issue.

Since the issue is a pure question of

law (i.e., the proper interpretation of

section 506(b)), the Court must deter-

INnine the issue de novo. Liebowitz v.

Columbia Packing Co., 56 B.R. 222 (D.

Mass. 1965), aff'd, 802 F.2d 439 (ist

Cir. 1986).

Section 506(b) of the Code concerns

the recovery allowed oversecured credi-

tors. It reads:

To the extent that an allowed

secured claim is secured _ by

property the value of which,

after any recovery under. sub-

section (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 the claim

arose.

The meaning of the comma following the

phrase "interest on such claim" is the

focus of this case. Newbury argues that

the phrase should be read along with the

following one, thereby engrafting the

limiting phrase “under the agreement

under which the claim arose" onto the

phrase concerning interest. Interest,

then, would be provided to an over-

secured party only when the security in-

terest is consensual and makes provision

for interest. Revenue, on the other

hand, interprets the comma as creating 4

separation between the phrase concerned

with interest from that establishing a

consensual right to fees, costs, and

charges, so that the section provides

interest to oversecured parties in both

consensual and nonconsensual sit-

uations. Both sides point to ample case

authority to support their eositions,

although a majority of courts appear to

Support Revenue's position. See, e.g.,

In Re Busone, 71 B.R. 201, 203 (Bkrtcy.

E.D.N.Y. 1987) ("Although

the question is still not entirely free

from doubt, the current weight of autho-

rity is to the effect that section

506(b) authorizes the allowance of post-

petition interest to all oversecured

creditors, regardless of whether’ the

creditor's lien arises from an agreement

Or, aS in the present case, by operation

of statute").

One of the clearest and most influ-

ential expositions of section 506(b) in

Support of Revenue's position is con-

tained in the Fourth Circuit's opinion

in Best Repair Co., Inc. v. United

States, 789 ’.2¢ 1080 (4th Cit.

1986) .2/” The Fourth Circuit found

l/ That decision was the basis for the

ruling of Bankruptcy Judge Lavien in In

Re Russo in coming to the opposite con-

clusion of Judge Gabriel in the instant

case.

that the

a

other claims that could be made by

oversecured creditor:

i@.

The phrase “interest on_ such

claim" is set off by commas,

and the following phrase is

introduced by “and any”. The

effect of this usage is to make

"interest on such claim" a sep-

arate and distinct clause to

which “provided for under the

agreement" does not apply. If

Congress had wanted the agree-

ment proviso to limit “interest

on such claim" to consensual

claims, it could... easily

have done so by listing seri-

atim and in parallel from the

different items an over-secured

creditor can recover subject to

an agreement. Though Congress

could have more clearly sep-

arated the interest clause from

the agreement clause, we think

that the natural meaning of its

chosen words is to permit post-

petition interest on non-

consensual oversecured claims.

at 1082 (footnotes omitted).

language of 506(b) established

distinction between interest and the

an

In footnotes, the Court discussed

alternative formulations . of 506(b)

Congress could have chosen that would

have clarified its meaning to demon-

strate the probable intention of

Congress. For instance, the Court noted

that had Congress merely eliminated one

comma and written the section to read

“there shall be allowed to the holder of

such claim, interest on such claim and

reasonable fees, costs and charges prov-

ided for under the agreement under which

such claim arose," the section would

clearly prohibit postpetition interest

unless it is consensual. Further, had

the phrase “provided for under’. the

agreement" been placed before the phrase

on interest, it, too, would have added

support to the argument that an

agreement on interest is necessary.

ta. o¢ 1002, 8.2. Congress did not do

that, reasons the Court, thus_ inter-

preting the section as if a clear separ-

ation was intended, in effect reading

into the section the bracketed mater-

ial: "there shall be allowed to the

holder of such claim [i] interest on

such claim, and [ii] any reasonable

fees, costs or charges ...” fg. a.3.

Since the Court found the legislative

history inconclusive, this latter read-

ing was adopted because "“[t]Jhere is,

therefore, no reason to depart from the

natural import of the language itself.”

Id at 1082.

Two points can be made about the

Court's opinion in Best Repair. First,

although the Court does a thorough job

of explaining alternative ways that

Congress may have expressed itself in

writing the section, it says little

about what Congress actually did mean by

the construction it chose. Secondly,

the Court could have highlighted one

other grammatical argument that it made

elsewhere in the opinion. If the inter-

pretation advanced by the debtor in Best

Repair is accepted, then the words "on

such claims" following “interest” become

superfluous. As it stands now, the in-

terest phrase is not merely separated by

a comma, it is also separated by the use

of the words “on such claim" which are

repeated in the following phrase con-

cerning reasonable fees, costs, and char-

ges. In other words, Newbury's argu-

ment would be stronger if the sen-

tence merely read “interest, and any

reasonable fees, costs or

charges...,”" eliminating only

the words “on such claim" following the

word “interest”. This would have the

gramnatical result of limiting the word

“reasonable” to modifying the terms

fees, costs and charges only, and would

add support to the argument that the

entire sentence is subject to the quali-

fying phrase “agreement under which such

claims arose. "*

Another court interpreted the

language of 506(b) in light of its

2/ The Court in Best Repair made a si-

milar argument in its opinion. Noting

that the district court cited 3 Collier

on Bankruptcy section 506.05 (L. King

15th ed. 1985) which suggested that "“in-

terest on such claim" is separated by a

comma from the [agreement phrase]...to

make clear that interest was to be allo-

wed only to the extent it accrued on the

claim (as opposed to any other amount)"

the Court of Appeals argued that the

above purpose “is sufficiently served by

qualifying ‘interest' with ‘on such

Cclaim.'“" 789 F.2d at 1082.

legislative history to decide in favor

of the position expounded by Newbury.

1 Re Dan-Ver Enterprises, 67 B.R.

—

~

‘a

=

951, 955 (W.D. Pa. 1986), the District

Court noted that, as originally drafted,

section 506(b) read:

To the extent that an allowed

secured claim is secured by

property the value of which,

after any recovery under sub-

section (c) of this section is

greater than the amount of such

Claim, there shall be allowed

to the holder of such claim, to

the extent collectible under

applicable law interest on such

claim, and any reasonable fees,

costs, Or charges provided

under the agreement under which

such claim arose.

Id. at 955, quoting H.R. 8200, 95th

Cong., lst Sess. (1977) (emphasis added

by the court). The Court, noting in its

Opinion that the underscored language

was deleted from the final version

of the section, interpreted this

legislative history as ultimately adding

support to the position advanced by New-

' bury. As the court wrote:

The bankruptcy court interprets

the phrase “to the extent coll-

ectible under applicable law”

as permitting post-petition in-

terest on nonconsensual liens.

Based on this’ interpretation,

the judge implies that deletion

of this language by Congress

indicates congressional intent

that such interest not be per-

mitted on mnonconsensual liens.

On the contrary, “applicable

law," which apparently refers

to the pre-Code law previously

discussed, would not permit

postpetition interest on non-

consensual liens. Therefore,

deletion of the aforementioned

phrase would arguably imply the

opposite; that is, Congress in-

tended to permit recovery of

postpetition interest regard-

less of whether a lien is con-

sensual or nonconsensual.

The reasoning behind the

delegation does not support

this latter implication, how-

ever...{Legislative history su-

ggests that] Congress was con-

cerned that the phrase "to

the extent collectible under

applicable law”, which lies be-

fore the insidious comma, would

contradict the phrase “provided

for under the agreement under

which the claim arose," which

lies after the comma and would

thereby obviate any written

provision for attorneys’ fees.

(The argument that the comma

was meant to separate interest

from fees, costs and charges

such that “agreement under

which such claims arose" only

modifies the latter three must

be rejected. ] Congress...could

not have viewed this comma as

Causing this separation [be-

cause]...the phrase “to the ex-

tent collectible under appli-

cable law” would have no bear-

ing on the provision for an

agreement under which such

claim arose,” because the comma

would also separate 506(b) so

that the “applicable law"

phrase would modify the

interest provision only. If

Congress had drafted 506(b)

with this intent in mind, the

reasoning provided for the

deletion of the applicable law

phrase would be rendered moot.

Id. at 955-56. Thus, concluded the

Court, Congress did not intend that the

requirement of an agreement apply only

to fees, costs and charges, “just as the

‘applicable law' provision would not

have applied only to interest,” 28. at

956, thus leaving intact pre-Code law

that distinguished between consensual

and noncensensual liens and rejected the

award of post-petition interest to non-

consensual lien creditors.>’

As the above discussion demon-

strates, there is judicial disagreement

as to the proper

3/7 Other courts dispute this latter co-

nclusion, however, For instance, the

Court in In Re Loveridge Machine & Tool

Co,, sApe,., 326 B.8. 199, 262 8.4 (Bkrtcy.

D. Utah 1983), focusing on the scant le-

gislative history contained in the House

and Senate Reports, noted that some have

argued it was Congress' intent to codify

current law (a phrase used in the rep-

Orts) only with respect to fees, costs

and charges. See also In Re Russo, 63

B.R. 335, 337 (Bkrtcy, D. Mass. 1986).

interpretation of the language of sec-

tion 506(b). To determine an appro-

priate outcome in such a situation, the

Court must closely examine the relevant

policies underlying section 506(b). In

conducting this analysis, the Court must

bear in mind the general policies under-

lying the bankruptcy law itself. As one

bankruptcy court noted, "“[t]he two major

purposes of the Code are to provide deb-

tors with a fresh start' and to provide

for the fair and equitable distribution

of assets to creditors.” In Re

Morrissey, 37 B.R. 571, 573 (Bkrtcy.

E.D. Va. 1984), citing 1 Bkr.L.Ed. Sum-

mary section 1.1 (1979).

Some notion of equity between gover-

nmental and private creditors seems to

be the major policy argument in support

of Revenue's position. As one

court noted, "“[t]he [government] should

be no better off nor worse off then any

other secured creditor. The [gover-

nment] deserves equal treatment when co-

mpared to any other oversecured cred-

stort .* In Re Gilliland, 67 B.R. 410,

411 (Bkrtcy. N.D. Tex. 1986) .4”

Although equating the positions of the

government with that of private cred-

itors has some surface plausibility,

closer analysis reveals the basic flaw

in the analogy. The practical effect of

accepting the premise of Revenue's argu-

ment -- that all oversecured creditors

should be allowed postpetition interest

on their claims -- would be the more

4/ This opinion was attacking the dist-

inction between consensual and non-

consensual lienholders discussed more

fully below.

rapid depletion of the bankrupt's

estate. Regardless of the other results

of and rationales behind this fact, one

result is clear -- unsecured creditors

and others with claims against’ the

estate (to include the debtor himself,

in the event that there is a surplus in

the estate after distribution) will be

less likely to obtain a fair return.

Such a result seems to cut against the

Code's policy of equitable treatment for

both debtor and creditor alike. As one

court noted, "“[t]o allow a nonconsensual

creditor to absorb the majority of the

Debtor's remaining assets, to the detr-

iment of other nonconsensual creditors,

merely for the purpose of awarding post-

petition interest, is not at all equi-

table." Matter of _Dan-Ver Enter-

prises, Inc., 60 B.R. 568, 970-71

(Bkrtcy. W.D. Pa. 1986), aff'd, In Re

Dan-Ver Enterprises, Inc., 67 B.R. 95l.

Advocates of Revenue's position also

argue that the granting of postpetition

interest would not be inequitable with

respect to the debtor himself. "TO

foster the policy of providing the deb-

tor with a fresh start, the general rule

is that unmatured interest at the time

of the filing of the petition is not al-

lowed as a part of a claim against the

debtor's estate. However, an allowance

of postpetition interest on an over-

secured claim does not have a ‘chilling

effect' on the debtor and provides a di-

stribution to the creditor of the full

and proper amount of its claim." In Re

Morrissey, 37 B.R. 571, 573 £=(Bkrtcy.

£.D. Va. 1984) (citations omitted).

Such an argument, although

again not without some appeal at first

blush, nevertheless ignores the effect

on the debtor of reducing the estate by

the granting of postpetition interest

while assuming that a distribution with-

out such interest to the creditor some-

how represents an inappropriate Or

unfair settlement of his claims. This

also appears to undercut the equitable

purposes underlying the Code.

Other policy considerations militate

in favor of the debtor Newbury's posi-

tion here. These seem grounded upon a

Simple fact -- that the minor change in

language adopted by Congress in the

recent revisions of the Bankruptcy Code

certainly meant to convey no shift in

meaning of those provisions themselves.

As the Bankruptcy Court put it so force-

fully in In Re Churchfield, 62 B.R.

399 (Bkrtcy. E.D. Mich. 1986), the poli-

cies motivating the Bankruptcy Act, the

precursor to the Bankruptcy Code, were

strong and long-standing ones. For in-

stance, the Court in Churchfield relied

heavily on the examination of these pol-

icies by the First Circuit in In Re

Boston & Maine Corp., 719 F.2d 493 (lst

Cir. 1983), where the circuit court drew

a clear distinction between consensual

and nonconsensual security interests

under the Bankruptcy Act:

[One of the exceptions to the

rule against the payment of

post-petition interest is]

where the amount of the secured

creditor's security is suffi-

cient to satisfy both the prin-

Cipal and the interest due on

the secured claim...Those cases

in which the courts have app-

lied [this] third excep-

tion...have generally involved

mortgages, trust deeds, pledges

Or conditional sales cont-

racts. In all of these

circumstances, the

creditor's security interest

arises from a voluntarily exec-

uted agreement between the deb-

tor and the creditor. The two

parties have bargained with re-

ference to a specific security

with the expectation that the

creditor may sell this security

and realize the entire amount

of the outstanding obligation,

including interest accrued _ to

the date of payment. To deny

such a creditor postpetition

interest, when the amount of

the security is sufficient. to

cover both the principal and

interest due, would undermine

the faith of lenders in the ef-

ficacy of credit arrangements.

Such_a loss of confidence could

result in a curtailing of the

free flow of capital in our ec-

onomy. Thus, granting of post-

petition interest to...holders

of contractual liens satisfies

the expectations of the parties

and strikes an equitable bal-

ance between the creditors and

the debtors...[Therefore a]

meaningful distinction can be

drawn between contractual

liens...and statutory liens...A

Statutory lien depends for its

existence solely on 3

legislative act creating the

lien...No bargaining takes

place between the

Id.

asis

debtor-taxpayer and the taxing

entity granted a lien; the lien

Cannot be classified as volun-

tary.

Further, the payment of

interest which is secured by

the lien, is not contemplated

by the parties at the beginning

of each tax year. Rather, the

imposition of interest on un-

paid taxes is more in the nat-

ure of an enforcement

device...In the context of an

insolvency proceeding, to grant

the taxing entity postpetition

interest on its tax lien would

impose the “enforcement device"

not on the insolvent debtor,

but on those lower priority

creditors whose claims will go

unpaid. Such creditors are not

innocent bystanders...[t]o pen-

alize these creditors for the

bankrupt's inability to pay its

taxes on time violates all

bah ;

at 496-97 (citations omitted, emph-

supplied), cited in In Re

hurchfield, 62 B.R. at 402.2% aAn-

other court expressed the reasons behind

the pre-Code rule denying postpetition

interest to monconsensual oversecured

creditors more succinctly:

Two reasons were given for this

rule:

(1) interest payments are pen-

alties or damages assessed

against the debtor for his

detention of the creditor's

money, and therefore it would

be unjust to allow the creditor

to recover such penalties or

damages from other’ creditors

who were not to blame for the

detention; and

5/ The Bankruptcy Court in In Re Russo

attempted to distinguish the Boston &

Maine case by noting that it “was deci-

ded under the old [Bankruptcy] Act which

had no specific provision on this

point.” 63 G.R. .8& 330. The court

added that the balance of equities was

different in the case as well, since it

"dealt with the reorganization of a rail-

road, naturally involving great public

concern and requiring the balancing of

the town's right or need for the inte-

rest on its real estate taxes with the

effect the payment of that interest

would have had on reorganizing the rail-

road." Id. at 336-37.

(2) the bankruptcy court it-

self, not the debtor, detains

the money after a petition is

filed.

ae mas Oe Foax

Lastly, the opinion of the court in

In Re Churchfield underscored an obvious

but helpful point that supports follow-

ing the above rationales in denying post-

petition interest. Under the old Bank-

ruptcy Act, observed the court, all five

Circuit courts which had considered the

postpetition interest issue had _ found

that such interest was not payable.

Judge Spector concluded from this that

[wle cannot believe that

Congress would overrule an un-

broken line of five court of

appeals decisions on an issue

involving the federal fisc

without even one word of expla-

nation of its intention. Like-

wise, we cannot find that the

mere placement of a comma

under the circumstances

A. 38

evidences such an_ intention.

Therefore, we agree with those

courts which found that Sec.

506(b) creates no material

change from prior practice, and

are persuaded to follow’ the

nearly unbroken line of cases

which hold that creditors hol-

ding nonconsensual liens are

not entitled to post-petition

interest thereon in bankruptcy

cases.

Id. at 403.

I, too, am persuaded that Congress

meant no such radical change in policy

by the placement of ae solitary un-

explained comma.

Accordingly, I conclude Chief Judge

Gabriel was correct in denying Revenue's

motion for postpetition interest on its

o.ersecured claim. The order of the

Bankruptcy Court is affirmed.

SO ORDERED

Zs/

A. David Mazzone

United States

District Judge

APPENDIX D

UNITED STATES DISTRICT COURT

DISTRICT OF MASSACHUSETTS

IN RE: NEWBURY CAFE, INC.

d/b/a 29 NEWBURY

STEPHEN J. GRAY, Trustee in Bankruptcy

Vv. C.A. No. 87~-1382-MA

PATRIOT BANK, ET AL.

JUDGMENT

MAZZONE, D.Jd.

In accordance with the Court's memo-

randum and order dated September 21,

1987 affirming the order of the Bank-

ruptcy Court in the above entitled

action, it is hereby ORDERED judgment

for the appellee.

By the Court,

/s/

Helen M. Costello

Deputy Clerk

September 25, 1987

APPENDIX E

UNITED STATES BANKRUPTCY “COURT

DISTRICT OF MASSACHUSETTS

Chapter 7

In re:

Case No. 85--

NEWBURY CAFE, INC., 0i113-JG

d/b/a 29 Newbury

Debtor

STEPHEN J. GRAY, Adv. No.

TRUSTEE in BANKRUPTCY 86-1394

of NEWBURY CAFE, INC.,

d/b/a 29 Newbury

Plaintiff

Vv .

PATRIOT BANK, UNITED

STATES OF AMERICA, JANE

BRODEY AND COMMONWEALTH

“OF MASSACHUSETTS

Defendants

meee ee

MEMORANDUM

INTRODUCTION

On October 9, 1985, Newbury Cafe,

| Inc. (the “Debtor” or “Newbury Cafe")

filed a voluntary petition under Chapter

ll of the Bankruptcy Code. Approx-

imately ten months later, on July 30,

1986, the Chapter ll case was converted

to a case under Chapter 7. The con-

version followed this Court's approval

of a sale of all the estate's assets for

$305,000 to George Lewis, Jr., the high-

est bidder in a sealed bid sale con-

ducted by the Court.

Following the sale, on September 26,

1986, the Trustee filed a Complaint for

Determination of Secured Claims and All-

ocation of Sale Proceeds in an attempt

to properly allocate the or from

the sale between conflicting and alle-

gedly secured parties. On January 5,

1987, the Court conducted a hearing to

determine the validity, nature

and extent of security

interests and liens. At the hearing,

the Triistee's counsel reported that set-

tlements had been reached with all the

defendants except the Commonwealth of

Massachusetts, Department of Revenue

(the "“DOR") and Jane Brodey. The matter

now before the court involves the DOR.

Two issues must be addressed: 1)

whether the DOR is entitled to post-

petition interest on its allowed secured

claim; and 2) if so, whether the appli-

cable rate of interest is the 18 percent

per annum rate established by Massa-

chusetts law.. Ct. BG... 6. 626.. Baex

FACTS

Prior to the filing of the Chapter

li petition, the DOR had assessed meals

and withholding taxes against the Deb-

tor, and it had recorded written

"Notices of Massachusetts Tax Lien" with

the Suffolk County Registry of Deeds,

the Secretary of State for the Common-

wealth of Massachusetts and the Boston

City Clerk. On September 17, 1986, the

DOR filed a Proof of Claim for the un-

paid meals and withholding taxes. on

which it stated: "CfJor purposes’ of

Section 506(b) of the Bankruptcy Code,

post-petition interest may be payable."

In its post-trial memorandum, the

DOR asserts that its secured tax claim

consists of tax in the amount of

$52,508.88 and pre-petition interest at

the 18 percent rate for a total claim of

$65,739.25. Also, according to the DOR,

the Trustee does not dispute the amount

of its secured tax claim except for Jan-

uary 1984 meals taxes. If the Court

allows the DOR post-petition interest on

its secured claim at the 18 percent

rate, the DOR notes that post-petition

interest on the tax of $52,508.88 is

$11,963.39 as of January 14, 1987. In-

terest continues to accrue at a per diem

rate of $25.89.

DISCUSSION

In the instant case, the Trustee

does not dispute that the taxes in ques-

tion were assessed against the Debtor,

that the DOR made demand for payment of

the tax and properly recorded its noti-

ces of lien and consequently that under

state law the tax claim against Newbury

Cafe is secured by a valid ‘ten on all

the Debtor's property, which lien is

enforceable against subsequent mort-

gagees, pledgees, purchasers and

judgment creditors.+’

1/ Section 50 of M.G.L. c. 62 governs

the creation and perfection of Massa-

chusetts tax liens. It provides in rel-

evant part:

(a) If any person liable to pay any

tax neglects or refuses to pay the

same after demand, the amount, incl-

uding any interest; additional

amount, addition to tax, assessable

penalty or forfeiture, together with

any costs that may accrue in addi-

tion thereto, shall be a lien in

favor of the commonwealth upon all

property and rights to property,

whether real or personal, belonging

to such - person. The lien shall

arise at the time the assessment is

made or deemed to be made and shall

continue until the liability for the

amount assessed or deemed to be ass-

essed is satisfied. Said lien shall

in any event terminate not later

than six years from the date it was

created.

(b) The lien imposed by this section

commissioner: (1) With respect to

real property or fixtures, in the

registry of deeds of the county

where such property is situated, and

(2) With respect to personal

property, in the office in which a

security or financing statement or

notice with respect to the property

However, the Trustee does dispute

the DOR's claim for post-petition inte-

rest. Resolution of that dispute invo-

lves an analysis of section 506(b) of

the Bankruptcy Code. Section 506(b)

provides:

To the extent that an allowed

secured claim iS secured by

property the value of which,

after any recovery under sub-

section (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

[footnote continued]

1/ would be filed in order to perfect a

mortgage Or comparable nonpossessory

security interest in tangible personal

property belonging to the person named

in the relevant notice. The filing of a

notice of any such lien or of a waiver

or release of any such lien shall be

received and registered or recorded with-

Out payment of any fee.

M.G.L. c. 62, §50(a) and (b).

any reasonable fees, costs, or

charges provided for under the

agreement under which such

claim arose.

li U.6.C. S06(h}'.

Under the Bankruptcy Act, all {five

Circuits that considered the issue of

whether oversecured tax claimants’ are

entitled to post-petition interest,

including the United States Court of

Appeals for the First Circuit, held that

such claimants were not entitled to post-

petition interest. According to Judge

Cohill, in In re Dan Ver Enterprises,

Inc., 67 8.R. 951 (W:0.Pe. i966), two

reasons were promulgated for that hol-

ding:

(1) interest payments are

penalties or damages assessed

against the debtor for his de-

tention of the creditor's

money, and therefore it would

be unjust to allow the creditor

to recover such penalties or

damages from other creditors

who were not to blame for the

detention; and (2) the

bankruptcy court itself, not

the debtor, detains the money

after a petition is filed.

67 B.R. at 953 (citations omitted). In

the First Circuit, the Court of Appeals

in In re Boston & Maine Corp., 719 F.2d

aoe teen 6 6ChE.6hCUC 983). cart, daden., 466

U.S. 938 (1984), explained the rationale

as follows:

Despite the general prohibition

on the payment of postpetition

interest, three exceptions have

been developed by the federal

courts. Interest may accrue:

(1) where the bankrupt ul-

timately proves to be solvent;

(2) where securities, held by

the creditor produced income

after the filing of the peti-

tion; and (3) where the amount

of the secured creditor's secu-

rity is sufficient to satisfy

both the principal and interest

due on the secured claim.

x xk ®

Those cases in which courts

have applied the third excep-

tion, permitting postpetition

interest to accrue, have

generally involved mortgages,

trust deeds, pledges Or

conditional sales contracts.

In all of these circum-

stances, the creditor's secu-

rity interest arises from a

voluntarily executed agreement

between the debtor and the cre-

ditor. The two parties have

bargained with reference to a

specific security with the

expectation that the creditor

may sell this security and rea-

lize the entire amount of the

outstanding obligation, inclu-

ding interest accrued to the

date of payment. To deny such

a creditor postpetition inte-

rest, when the amount of the

security is sufficient to cover

both the principal and interest

due, would undermine the faith

of lenders in the efficacy of

credit arrangements. Such a

loss of confidence could result

in a curtailing of the _ free

flow of capital in our economy.

s& & &

A meaningful distinction can be

drawn between contractual

liens, such as a mortgage or

deed of trust, and statutory

liens, such as Cambridge's per-

fected tax lien. A statutory

lien depends for its existence

solely on a legislative act

creating the lien in

specified circumstances. No

bargaining takes place between

the debtor-taxpayer and the

taxing entity which is granted

a lien; the lien cannot be

classified as voluntary.

Further, the payment of the in-

terest, which is secured by the

lien, is not contemplated by

the parties at the beginning of

each tax year. Rather, the im-

position of interest on unpaid

taxes is more in the nature of

an enforcement device assuring

the collection of delinquent

taxes. In the context of an

insolvency proceeding, to grant

the taxing entity postpetition

interest.-on its tax lien would

impose the “enforcement device”

not on the insolvent debtor,

but on those lower. priority

creditors whose claims will go

unpaid. Such creditors are but

innocent bystanders; they could

have done nothing to effect the

prompt payment of taxes~= and

avoid the imposition of post-

petition interest. To penalize

these creditors for the bank-

rupt's inability to pay its

taxes on time violates all

notions of equity.

719 F.2d 496-97 (emphasis

supplied) (citations and footnotes

omitted).

In the instant proceeding, the Trus-

tee argues that pre-Code law compeis the

conclusion that the _ DOR, as ao non-

consensual oversecured creditor, is not

entitled to post-petition interest. The

Trustee interprets the language of sec-

tion 506(b) to provide that the phrase,

"agreement under which such claim

arise,” applies equally to the phrases

"interest of such claim" and “any reaso-

nable fees, costs or charges,” regard-

less of the comma interposed between the

two phrases.

The DOR, relying on In re Russo, 63

B.R. 335 (Bankr. D. Mass. 1986), main-

tains that the qualifying language,

"provided for under the agreement under

which such claim arise," applies only to

"any reasonable fees, costs, or char-

ges," by virtue of the comma following

"the amount of such claim" and

applicable rules of statutory const-

ruction. Accordingly, the DOR argues

that a distinction between consensual

and nonconsensual liens with respect to

post-petition interest is invalid under

the Bankruptcy Code.

The divergent views of the Trustee

and the DOR are shared by courts con-

sidering the issue with respect to over-

secured nonconsensual lien claimants.

Compare In re Best Repair Company, Inc.,

789 F.2d 1080 (4th Cir. 1986) (post-

petition interest to oversecured non-

consensuat lienholders allowed); In re

Gilliland, 67 B.R. 410 (Bankr. N.D. Tex.

1986) (same); In re Russo, 63 B.R. 335

(Bankr. D. Mass. 1986) (same); In re

Henzler Manufacturing Co,, 55 B.R. 194

(Bankr. N.D. Ohio 1985) (same); In re

Morrissey, 37 B.R. 571 (Bankr. E.D. Va.

1984)

(same); In re Loveridge Machine & Tool,

Inc., 36 B.R. 159 (Bankr. Utah 1983)

(same); In re Hoffman, 28 B.R. 503

(Bankr. D. Md. 1983) (same); In re

Bormes, 14 B.R. 895 (Bankr. D.S.D. 1981)

(same); In re Busman, 5 B.R. 332 (Bankr.

E.D.N.Y. 1980) (same) with In re Dan-Ver

Enterprises, Inc., 67 B.R. 951 (W.D. Pa.

1986) (post-petition interest to over-

secured nonconsensual lienholders’- not

allowed); In re Churchfield, 62 B.R. 399.

(Bankr. E.D. Mich. 1986) (same); In re

Venable, 48 B.R. 853 (S.D.N.Y. 1985)

(same); In re Trent, 42 B.R. 279 (Bankr.

W.D. Va. 1984) (same). Cs. In re

Colegrove, 771 F.2d 119 (6th Cir. 1985);

In re Romano, 51 B.R. 813 (Bankr. M.D.

Fla. 1985); 3 L. King, Collier on

Bankruptcy 9506.05 (15th ed 1986) ("“Post-

petition interest, fees, costs and

charges are not allowable under section

506(b), notwithstanding the existence of

adequate collateral, in the absence of

any contractual entitlement thereto.

There is a split in authority as to

whether a statutory entitlement suffices

for the purpose of section 506(b).")

The reasoning used by courts to reach

such contradictory’ results is high-

lighted in two recent bankruptcy court

cases: In re Churchfield, 62 B.R. 399

(Bankr. E.D. Mich. 1986) and In re

Russo, 63 B.R. 335 (Bankr. D. Mass 1986).

In In re Russo, Judge Lavien noted

that the leading First Circuit case add-

cessing the issue under the Bankruptcy

Act, In re Boston & Maine Corp., 719

F.2d 493 (lst Cir. 1983), involved a

balancing of equities, a task made easy

by the absence in the Bankruptcy Act of

a section comparable to section 506(b)

of the Bankruptcy Code.

Accordingly, Judge Lavien declined to

give weight to the case, following the

Fourth's Circuit grammatical analysis of

section 506(b) in United States v. Best

Repair Company, Inc., 789 F.2d 1080 (4th

Cir. 1986), instead. He stated that in

the absence of some definitive

legislative history, "{Ct)jhe specific

wording of the new Sa (Wee Gs Sec.

506(b), given the natural import of the

language itself, supports che view that

seems to be held by a majority of the

courts that have considered the issue.

Namely, under the Code, no distinction

is made between consensual and statutory

liens as to interest which is to be paid

so long as there is an excess of col-

lateral." In re Russo, 63 B.R. at 337.

In contrast to Judge Lavien, Judge

Spector, in In re Churchfield, 62 B.R.

399 (Bankr. E.D. Mich. 1986), emphasized

cases deciding the issue under the Bank-

ruptcy Act, particularly In re Boston &

Maine Corp., 719 F.2d 493 (lst

1983). He stated:

Before there was a Bankruptcy

Code there was a Bankruptcy Act.

Many of the issues courts now stru-

ggle over were fought and resolved

decades ago. ) & a Congress dis-

approved of those decisions, it had

the opportunity in 1978 to undo

them in the Bankruptcy Code.

x * ®

All five circuits of the Courts

of Appeals which were called upon

to decide whether the Bankruptcy

Act provided for postpetition inte-

rest to be paid to fully secured

tax lien claimants held that it did

not.

era Tre SRE nina nn ae a eS a

}

We cannot believe that Congress

would overrule an unbroken line of

five court of appeals decisions on

an issue involving the federal fisc

without even one word of exp-

lanation of its intention. Like-

wise, we cannot find that the mere

placement of a comma under the cir-

Cumstances evidences such an inten-

tion. Therefore, we agree with

those courts which found that

§506(b) creates no material change

from prior practice, and are per-

suaded to follow the nearly un-

broken line of cases which hold

that creditors holding non-

consensual liens are not entitled

to post-petitions interest thereon

in bankruptcy cases.

In re Churchfield, 62 B.R. at 401i,

403.

The Court has carefully considered

the divergent views so ably articulated

by Judge Lavien and Judge Spector and

concludes that the award of post-

petition interest to oversecured non-

consensual lienholders is not mandated

under the Bankruptcy Code. Accordingly,

the Court need not address

the question regarding the applicable

rate of interest.

The Court is chagrinned by the fact

that its decision creates a split of

Opinion within the District of Massa-

chusetts, but feels compelled to follow

its philosophical convictions in an area

where there is clear ambiguity and with

respect to what the First Circuit des-

Ccribed as "notions of equity." Although

not determinative of the decision, the

Court observes that the instant case,

unlike the Russo case, is a Chapter 7

case. Here, there will be no _ oppor-

tunity for trade creditors to continue

to do business with the debtor thereby

mitigating, at least to some small

degree the losses occasioned by their

association with a bankrupt. In a

Chapter 7 case like this one,

creditors get one and only one dividend,

although that dividend may be paid in

installments. Despite the differences

between Russo and the instant case, how-

ever, the Court reiterates that it does

not believe that section 506(b) of the

Bankruptcy Code which applies equally to

Chapter 7 and Chapter 11 cases, requires

preferential treatment for oversecured,

nonconsensual lien creditors with res-

pect to the payment of post-petition in-

terest.

So ordered.

By the Court,

Zs/

James N. Gabriel

Chief Judge

Dated at Boston, in said District, this

16th day of April, 1987.

cc: Christopher W. Parker, Esquire

Julia E. Singleton, Esquire

Leonard Goldberg, Esquire

APPENDIX F

UNITED STATES BANKRUPTCY COURT

DISTRICT OF MASSACHUSETTS

In Re:

Chapter 7

NEWBURY CAFE, INC.

d/b/a 29 Newbury Case No.

we Oe”

Debtor 85-01113-JG

Adv. No.

STEPHEN J. GRAY, TRUSTEE) 86-1394

IN BANKRUPTCY of NEWBURY)

CAFE, INC., d/b/a

29 Newbury

Plaintiff

Vv .

PATRIOT BANK, UNITED

STATES OF AMERICA, JANE

BRODEY AND COMMONWEALTH

OF MASSACHUSETTS

Defendants

ee eee ee

ORDER

In accordance with the memorandum of

April 16, 1987,

it is hereby found that the DOR is

not entitled to post-petition in-

terest. Accordingly, judgment is

entered for the Trustee with respect

to its complaint against the DOR.

By the Court,

/sf ines

James N. Gabriel

Chief Judge

Dated at Boston, in said District, this

16th day of April, 1987.

APPENDIX G

§ 506. Determination of secured status

(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 svoject to

setoff is less than the amourt of such

allowed claim. Such value shall be det-

ermined in light of the purpose of the

valuation and of the proposed dis-

position or use of such property, and in

conjunction with any hearing on_= such

disposition or use or 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 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 allo-

wed secured claim due only to the fail-

ure of any entity to file a proof of

such claim under section 501 of this

title.