Defendant-appellant, Capital Poly Bag, Inc. (CPB) appeals the District Court's order affirming the Bankruptcy Court's denial of its claim for pre-petition rent.
In deciding a question of first impression, the Bankruptcy and District Courts held that the lessor could not claim pre-petition rent because the plain language of section 502(b)(6)(B) limits a lessor's claim under a rejected lease to the amount of rent "due under [the] lease"; the rent for the past 361 days was not yet "due and payable" for another four days under the specific terms of CPB's lease on the date of the bankruptcy filing. While the Bankruptcy and District Courts' reading of section 502(b)(6)(B) may be correct in a narrow and technical sense, their "plain meaning" analysis is not instructive in this case because the word "due" has two possible meanings — "matured and payable" or "owing" — and is inherently ambiguous. A broader and more reasonable interpretation of the statute is supported by the statutory language, legislative history, and avoiding an inequitable result that Congress clearly could not have intended. Accordingly, we reverse in part and affirm in part.
The relevant facts are not in dispute. The Vauses entered into a lease agreement with CPB to rent 420 acres of farm land and attendant buildings for the time period April 1, 1982 through December 31, 1987. The total rent obligation of $201,000 was payable in an initial installment of $21,000 on December 1, 1982, and thereafter in annual installments of $36,000 payable on December 1st of each year through 1987. As is typical in many farm leases, each rent payment was payable in arrears to allow the farmers to first harvest and sell their crops. As the District Court explained, "a farm lease is unique in that the lessee is permitted to occupy and make use of the land but not pay for such use until the end of occupancy." 105 B.R. at 400-01 (emphasis in original). See also 72 B.R. at 648.
The Vauses harvested and sold their crops for the 1985 season. On November 27, 1985, four days before they were to make their annual rent payment, they filed a joint Chapter 11 bankruptcy petition, and concurrently filed a petition to reject their farm lease with CPB. The Bankruptcy Court approved this rejection on January 14, 1986. The debtors abandoned the leased property in December 1985, subsequent to their bankruptcy filing.
CPB filed a proof of claim for damages arising from the lease rejection in the amount of $72,000. See 11 U.S.C. § 501(a). The two-part claim asserted past damages of $36,000 for 361 days' rent unpaid on the petition-filing date, 11 U.S.C. § 502(b)(6)(B), and future damages of $36,000 for one year's loss of future rent, the maximum allowed under 11 U.S.C. § 502(b)(6)(A). The debtors objected to the past damages
Accepting the Vauses' argument, the Bankruptcy Court found that, "the language of § 502(b)(6)(B) is unambiguous and specific in its meaning." 72 B.R. at 651. The District Court agreed with the Bankruptcy Court that,
105 B.R. at 401.
Before addressing the merits of the District Court's disposition of this case, we are obligated to determine sua sponte whether we are presented with a final order on appeal. See Bowers v. Connecticut Nat'l Bank, 847 F.2d 1019, 1022 (2d Cir.1988); In re Exennium, Inc., 715 F.2d 1401, 1402 (9th Cir.1983). This Court's jurisdiction is confined to "appeals from all final decisions, judgments, orders, and decrees" of district courts sitting in review of bankruptcy courts. 28 U.S.C. § 158(d) (emphasis added). Although the Bankruptcy Court explicitly reserved ruling on the claim for future damages, see note 2, supra, the District Court nevertheless concluded that the Bankruptcy Court's order was final under 28 U.S.C. § 158(a), "because the order conclusively determines a separable dispute over a creditor's claim. The ruling conclusively determined that appellant was not entitled to his separable claim of unpaid prepetition rent in the amount of $36,000. Accordingly, the matter is properly before this Court." 105 B.R. at 401.
The finality of the order, however, is put in doubt because CPB presented a single, two-part claim under 11 U.S.C. § 502(b)(6) for damages it suffered from the lease rejection. The claim sought past damages (pre-petition rent) under subsection 502(b)(6)(B), and future damages (the upcoming year's rent) under subsection 502(b)(6)(A). Only the past damages part of the two-part claim for past and future damages was ruled on by the Bankruptcy Court. The Seventh Circuit has explained that, "Finality of the order comes from the fact that it resolves all of [the creditor's] claims against the estate." In re Morse Elec. Co., 805 F.2d 262, 265 (7th Cir.1986) (emphasis in original). The mere fact that a dispute is "separable" does not automatically make it a final appealable order. The order sought to be appealed "must constitute final determination of the rights of the parties to secure the relief they seek in this suit." In re Texas Extrusion Corp., 844 F.2d 1142, 1155 (5th Cir.), cert. denied, ___ U.S. ___, 109 S.Ct. 311, 102 L.Ed.2d 330 (1988).
We nevertheless conclude that the future damages half of the claim is effectively final, and that this Court therefore has jurisdiction to decide the appeal on its merits. The parties informed the Court during oral argument that the debtors have never objected to CPB's future damages claim, and that the claim is currently a part of the debtors' reorganization plan. "A claim ... is deemed allowed, unless a party in interest ... objects." 11 U.S.C. § 502(a). Although the Bankruptcy Code does not place a time limit on objecting to a claim, it is doubtful that the debtors could raise such an objection at this late date. In
Our conclusion on jurisdiction is strengthened because courts may decide the merits in cases of "marginal" finality under the Supreme Court's Gillespie doctrine. Gillespie v. United States Steel Corp., 379 U.S. 148, 85 S.Ct. 308, 13 L.Ed.2d 199 (1964). In certain close cases where finality cannot be conclusively resolved, the "danger of denying justice by delay" outweighs "the inconvenience and costs of piecemeal review," particularly when the questions on appeal are "fundamental to the further outcome of the case." Id. at 152-54, 85 S.Ct. at 310-12. "The Gillespie doctrine, therefore, permits the courts of appeals to decide the merits in cases of marginal finality where the course of litigation would be impeded, rather than advanced, by dismissing the appeal." In re Exennium, 715 F.2d at 1402-03 (citations omitted).
In this case, the Bankruptcy Court decided the past damages part of the claim over two-and-one-half years ago, and the future damages part of the claim has been decided de facto through its participation without objection in debtors' reorganization plan. To dismiss the litigation now would impede rather than advance the litigation because the past-damages claim will be a fundamental component of the reorganization plan, affecting not only CPB's rights, but also those of other creditors and the Vauses. Moreover, effective finality of the future damages issue minimizes the prospect of piecemeal review.
III. The Merits
A. Standard of Review
Because this Court has jurisdiction, we must decide the proper interpretation of "any unpaid rent due under such lease" under section 502(b)(6)(B). Statutory interpretation is a question of law which this Court reviews de novo. In re Southwest Aircraft Servs., Inc., 831 F.2d 848, 849 (9th Cir.1987). See In re Caldwell, 851 F.2d 852, 857 (6th Cir.1988). The objective of statutory construction is to "ascertain the intent of Congress." 831 F.2d at 849 (citing Philbrook v. Glodgett, 421 U.S. 707, 713, 95 S.Ct. 1893, 1898, 44 L.Ed.2d 525 (1975)).
B. Statutory Language/Plain Meaning
The starting point in determining legislative intent is the language of the statute itself. Blum v. Stenson, 465 U.S. 886, 896, 104 S.Ct. 1541, 1547, 79 L.Ed.2d 891 (1984); Watt v. Alaska, 451 U.S. 259, 265, 101 S.Ct. 1673, 1677, 68 L.Ed.2d 80 (1981). The language of section 502(b)(6) provides:
11 U.S.C. § 502(b)(6) (emphasis added).
Section 502(b)(6) is not difficult to apply when a lease does not make rent
The lower courts accepted the Vauses' interpretation, holding that the pre-petition rent was not "due" at the time of the bankruptcy filing because the debtors had no obligation to pay until four days after the filing. This conclusion is based on a "plain meaning" analysis which compares the words "due" and "accrued" in Black's Law Dictionary (noting a dearth of legislative history), examines the specific lease terms (since section 502(b)(6)(B) specifies "unpaid rent due under such lease"), and distinguishes existing case law (in a clear case of first impression). After examining the three pillars of the lower courts' statutory construction, we conclude that their "plain meaning" analysis places too much weight on a word which is inherently ambiguous,
The first pillar of the lower courts' analysis is the comparison of the words "due" and "accrued." In its search for congressional intent, the Bankruptcy Court first noted that the wording proposed for section 502(b)(6)(B) was changed from its original formulation in 1973 as "unpaid rent ... accrued up to such date,"
72 B.R. at 650.
The Bankruptcy Court's analysis would generally be correct if we were forced to rely solely on the definitions in Black's Law Dictionary. However, as Judge Learned Hand has written, although "words used, even in their literal sense, are the primary, and ordinarily the most reliable, source of interpreting the meaning of any writing," nevertheless, "it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning." Cabell v. Markham, 148 F.2d 737, 739 (2d Cir.) (emphasis added), aff'd, 326 U.S. 404, 66 S.Ct. 193, 90 L.Ed. 165 (1945). See Public Citizen, 109 S.Ct. at 2566 (citing Cabell).
Reliance on a comparison of the definitions of "due" and "accrued" in Black's neglects that
28 C.J.S. Due 72 (1941) (emphasis added) (footnote omitted). See also State Bank of North Carolina, 31 U.S. (6 Pet.) at 36. Cf. Rumely v. United States, 293 F. 532, 549 (2d Cir.), cert. denied, 263 U.S. 713, 44 S.Ct. 38, 68 L.Ed. 520 (1923) (emphasis added) (making an opposite presumption from that of Black's Law Dictionary, stating, "The word `due' is sometimes used to express the idea of the maturity of the debt. This is to use the word in its secondary meaning.... It is evident `due' and `owed' have been used as equivalents."). One piece of sound advice in Black's Law Dictionary that we do accept is that, "there is considerable ambiguity in the use of the term ["due"], the precise signification being determined in each case from the context." Black's Law Dictionary 448 (5th ed. 1979) (emphasis added). The context in this case does not lend itself to a "plain meaning" analysis.
We should note, however, that our ultimate conclusion that Congress used the term "due" in the sense of "owing" is supported — when the legislative history is taken into account — by the statutory language when read in relevant context. Although the lower courts concentrated exhaustively on the statutory language of subsection 502(b)(6)(B), the language of subsections 502(b)(6)(B) and 502(b)(6)(A) must be read in pari materia. "[S]tatutory language is to be read in pertinent context rather than in isolation." Oates v. Oates, 866 F.2d 203, 206 (6th Cir.), cert. denied, ___ U.S. ___, 109 S.Ct. 3163, 104 L.Ed.2d 1025 (1989) (citing N. Singer, Sutherland
The second pillar of the Bankruptcy Court's analysis examines the specific CPB lease terms. The District Court concluded that the lease terms control because "the critical terminology in section 502(b)(6)(B) is `due under such lease.'" 105 B.R. at 402 (emphasis in original). The lower courts suggested that a different result would obtain if the lease had contained language requiring proration or accrual of rent for days of occupancy, or making rent due on one date and payable on a different date.
Were we to agree that section 502(b)(6)(B) requires courts to look to the specific terms of each lease, the lower courts' conclusion that the payments were not "due and payable" under the lease until December 1, 1985, is absolutely correct.
We agree with the lower courts on the final pillar of their plain meaning analysis that the existing case law is distinguishable. See 72 B.R. at 650-51; 105 B.R. at 401. We should point out, however, that although one case in particular, Oldden v. Tonto Realty Corp., 143 F.2d 916 (2d Cir.1944), may not decide the precise issue in the present case, it is nevertheless extremely instructive in explaining Congress' legislative intent regarding the concept of a "limited sacrifice" on the part of lessors, 143 F.2d at 920; Congress cited Oldden with approval in the 1978 Act's legislative history.
C. Legislative History
Because the language of section 502(b)(6)(B) is unclear, we must turn to the legislative history for guidance. See Blum, 465 U.S. at 896, 104 S.Ct. at 1547.
Id. at 353 (footnote added). See also 1973 Commission Report, supra note 7, at 106 (clause (b)(6) "codifies the decision in Oldden"); Weintraub, Bankruptcy Law Manual ¶ 5.05.
Our conclusion that Congress has assumed that lessors are compensated for past actual damages is rooted in the evolution of section 502(b)(6), whose genesis predates the 1978 Act and the 1973 Commission Report by over one hundred years. To fully understand Congress' intent to strike a balance between "compensat[ing] the landlord for his loss" together with a "limited sacrifice" to protect other creditors and the debtor's rehabilitation, we must review the predecessor provisions of subsection 502(b)(6), which are thoroughly discussed in 3A Collier on Bankruptcy (14th ed. 1988 Supp.).
The Bankruptcy Act of 1867, 14 Stat. 517, provided that,
Id. at § 19 (emphasis added), reprinted in Collier on Bankruptcy, Appendix Vol. 10 at 1758 (14th ed. 1978). In the 1867 Act, Congress thus provided for past actual damages without requiring reference to the specific due dates in a lease. Section 19 did not provide for losses from future rent, and until the 1930s the courts almost unanimously held that rent accruing after the inception of bankruptcy was not provable. 3A Collier at 1927 & n. 4 (citing cases); Oldden, 143 F.2d at 918 (citing cases).
The Act of 1898 did not expressly provide a provision on rent,
In sum, section 502(b)(6) has evolved. In the beginning, Congress compensated lessors solely for their past damages. Then, after Congress omitted a specific provision for lessors, the courts imposed a retrenchment,
D. Equitable Considerations
Finally, equitable considerations require interpreting "due" in the sense of "owing" in order to prevent the debtors, who had the use of CPB's land for 361 days, from receiving a windfall based on the fortuity of the filing date. The lower courts themselves acknowledged the inequities. The District Court stated that, although it "agree[d] with appellant that such a result may seem inequitable, such a matter is for Congress, not this Court, to correct." 105 B.R. at 403. See also 72 B.R. at 651 ("Although § 502(b)(6) either intentionally or inadvertently fails to address the apparent inequities resulting from the provisions of a lease rental covenant which is payable in arrears, ... without legislative history or appropriate case law, the [Bankruptcy] Court will not find that such omission was unintentional.").
We would agree with the lower courts' refusal to enlarge the statute if subsection 502(b)(6)(B) were susceptible only to the lower courts' interpretation.
Such a reading of the statute ignores a fundamental tenet of the Bankruptcy Code requiring equal treatment of similarly situated creditors. See, e.g., Sumy v. Schlossberg, 777 F.2d 921, 932 (4th Cir.1985); In re Brints Cotton Marketing, Inc., 737 F.2d 1338, 1342 (5th Cir.1984). The structure of the statutory language when read in pari materia and in conjunction with the legislative history allows a reasonable interpretation in this case which "strikes the balance between creditor protection and debtor relief that Congress intended, and is eminently reasonable, fair, and sensible." In re Southwest Aircraft Servs., Inc., 831 F.2d at 853.
For the reasons stated above, we REVERSE and REMAND the pre-petition rent issue to the District Court to in turn remand this case to the Bankruptcy Court for further proceedings consistent with this opinion. We AFFIRM the District Court's holding that the issue of CPB's right to interest was not properly before the Court on appeal.
B. Weintraub & A. Resnick, Bankruptcy Law Manual ¶ 5.05 (2d ed. 1985) (footnote omitted).
Bankruptcy Act of 1898, July 1, 1898, c. 541, 30 Stat. 562.