Chapman Law Review
INTERPRETING THE BANKRUPTCY CODE: AN EMPIRICAL STUDY OF THE SUPREME COURT’S BANKRUPTCY DECISIONS
Copyright (c) 2000 Chapman Law Review; Karen M. Gebbia-Pinetti
I. Introduction: Interpretive Conflict And The Bankruptcy Code
The Supreme Court has issued forty-eight bankruptcy decisions in the two decades since the Bankruptcy Code became law. In at least thirty of these cases, the Supreme Court granted certiorari to mediate conflicts among the circuit courts of appeal.
Although the Court resolved the specific questions presented in each, or at least most, of these cases, critics have long complained that the Court has not consistently applied a coherent interpretive method in Bankruptcy Code cases. Bankruptcy experts contend that the Court’s use of divergent, and/or inappropriate, interpretive methods undermines predictability and stability, increases costs, ignores congressional intent, impairs bankruptcy law by preventing the Court from developing a coherent bankruptcy policy and jurisprudence, leaves the lower courts with inadequate guidance concerning how to interpret the Bankruptcy Code, and contributes to confusion and split decisions among the lower courts.
These problems are particularly troubling in the bankruptcy context because the Bankruptcy Code’s commercial and remedial provisions affect society in pervasive and important ways.
As a commercial statute, the Bankruptcy Code serves as the backdrop for planning and negotiation in a wide variety of non-bankruptcy commercial transactions involving both businesses and consumers. These transactions, which include financing, corporate restructuring, consumer credit, acquisitions, mergers, workouts, sales, investments, and many other types of transactions, involve incalculable amounts of money, goods, and services. Uncertainty increases the risks and costs of commercial transactions for borrowers and lenders, buyers and sellers, creditors and debtors, businesses and consumers.
The Bankruptcy Code is also an important remedial statute. The Bankruptcy Code’s broad relief chapters apply to a wide variety of debtors, from impoverished individuals, to multi-million and -billion dollar businesses, to municipalities. For example, in each of the past three years, over one million debtors have filed for bankruptcy protection. Each year, bankruptcy filings also affect tens of millions of non-debtors. These non-debtors include not only individuals, businesses, and governmental entities that hold claims against individual and business debtors, but also the employees, retirees, customers, and stockholders of business debtors.
Bankruptcy also affects society in less direct ways. For example, the failure of a major employer may significantly impair a community’s social services and tax base. Similarly, large numbers of financially distressed individuals may severely strain social services. When interpretive disputes lead to litigation in bankruptcy cases, everyone suffers. The cost of litigation may spell the difference between liquidation and reorganization. Every dollar spent litigating is a dollar removed from an asset base that is already inadequate to satisfy claims.
Although the costs of uncertainty may be particularly high in bankruptcy cases, interpretive uncertainty is by no means unique to bankruptcy. For the past twenty years, a virulent debate over interpretive method has plagued courts, interpreters, and scholars in virtually every field of law governed by statutes. This debate raises important and extraordinarily intractable questions concerning the proper relationship between courts and legislatures; the motives of legislators, judges, and interpreters; the determinacy of language; that nature of interpretation; the role of intrinsic values (such as predictability, stability over time, and coherence throughout the law); and the very objectives of interpretation (which may include legislative intent, statutory purpose, linguistic meaning, best results, or a shared understanding between the drafter and interpreter).
Disputes over these fundamentals have led scholars to advocate a variety of divergent interpretive models. Moreover, scholars cannot even reach accord on the end goal. Even as some struggle to prove the superiority of their preferred interpretive models, others contend that the goal of defining one, consistent, comprehensive, and uniformly applicable interpretive method is unrealistic and unachievable.
Perhaps the only certainty is that interpretive theory is in a time of turbulent upheaval and transition. Scholars of interpretive theory will likely not achieve consensus for years, if ever. In the meantime, today’s interpreters face a formidable challenge. We must determine how to preserve the greatest possible degree of interpretive certainty despite the fact that eminent scholars and jurists urge us to employ incompatible interpretive methods.
If we hope to identify an effective interpretive model for this time of transition, we must consider and attempt to reconcile the empirical, practical, and theoretical aspects of Bankruptcy Code interpretation.
First, empirical studies are the only way to discern current interpretive practice in bankruptcy cases. A study of the Supreme Court’s interpretive practices is critical because the lower courts look to the Court for direction concerning interpretive method, and the Court is the ultimate arbiter of cases in which the lower courts have split. When the circuit courts reach conflicting holdings because they have applied conflicting interpretive methods (such as textual meaning versus congressional intent as discerned in pre-Code practice or legislative history), the Court’s resolution of the split is a comment on interpretive method. Predicting the Court’s holding in the next bankruptcy case (and, consequently, understanding which lower court decisions are at risk of being overruled) depends more on understanding the Court’s patterns of reasoning than on knowing the substantive holdings of each Supreme Court bankruptcy decision. Consequently, interpreters should carefully consider the Court’s rationale, which is inextricably interwoven with the Court’s interpretive method.
This article studies the Court’s interpretive methods. Studies of lower court bankruptcy decisions might also provide valuable information concerning interpretive method, particularly if such studies examine whether conflicting decisions arise from conflicting interpretive methods, whether appellate courts and bankruptcy courts apply divergent interpretive methods, and whether textual or non-textual decisions are more frequently overruled by higher courts or legislative action.
In a time of interpretive consensus, interpreters might have achieved certainty by applying the method that conformed to current practice. In this time of interpretive upheaval, however, an empirical analysis is unlikely to reveal a single, universally accepted and applied interpretive method. Moreover, an empirical analysis cannot per se ensure interpreters that the Court’s current methods are practically or theoretically optimal, or even legitimate. Nevertheless, an empirical study is critical, for two reasons. First, it is the only way to determine whether the Court’s opinions reveal either a consistent interpretive method or consistent patterns of interpretation, including patterns of agreement and disagreement among the Justices. Only by identifying these patterns can interpreters begin to predict the Court’s approach in future cases. Second, an empirical study will establish a foundation of current practice that interpreters can test against practically and theoretically ideal interpretive models. Simply stated, if the Court is issuing “bad” decisions in bankruptcy cases, an empirical study may reveal why.
Second, as a practical matter, interpreters should consider which interpretive method would be most appropriate for a statute that has the unique nature and mix of characteristics of the Bankruptcy Code. Of course, interpreters cannot achieve certainty simply by adopting the practically optimal approach, unless that approach happens to conform to current interpretive practice. Only a practical inquiry, however, will reveal whether the Court’s current interpretive method is well-suited to the Bankruptcy Code. Moreover, only a practical inquiry will reveal whether any of the competing interpretive models that theorists claim are optimal, in the abstract, would work well in the specific context of the Bankruptcy Code.
Third, a theoretical analysis is necessary to determine whether either the Court’s current interpretive methods, or an interpretive model that appears to be well-suited to the characteristics of the Bankruptcy Code, satisfies the fundamental objectives of statutory interpretation and the mandates of interpretive theory. Theory alone will not permit interpreters to predict consequences if the courts do not, in fact, apply the theoretically optimal approach. Nevertheless, theory is the only basis for testing the validity of current interpretive methods and practically desirable interpretive methods.
Interpreters operating during today’s period of interpretive discord must begin by understanding current interpretive practices, identifying practically desirable interpretive methods, and determining whether a single, optimal interpretive model is theoretically possible. They must then determine whether current interpretive practices and desirable interpretive practices can be reconciled. If these divergent practices cannot be reconciled, interpreters must determine whether it is possible to move incrementally toward an interpretive ideal while hewing closely enough to current practice to maintain certainty.
The empirical, practical, and theoretical study necessary to answer these questions cannot be accomplished within the confines of a single law review article. This article embodies the first, fundamental step of the requisite inquiry, which is a comprehensive, empirical analysis of the interpretive methods the Supreme Court has employed in its Bankruptcy Code decisions. A separate work will consider how the results of this empirical study comport with the practical and theoretical components of Bankruptcy Code interpretation.
Part II of this article briefly identifies the essential components of interpretive method. These components include interpretive objectives, sources, and guides. This section is designed to provide context for an empirical study of the Supreme Court’s interpretive approach.
Part III examines the interpretive methods the Court has employed in each of its Bankruptcy Code decisions. This study differs in three ways from other studies that have undertaken empirical analyses of limited numbers of the Court’s bankruptcy decisions. First, it focuses exclusively on interpretive method. Second, it comprehensively examines all of the Court’s Bankruptcy Code decisions. Third, it examines the Court’s majority, concurring, and dissenting opinions in order to determine the import of interpretive disputes among the Justices. It does not simply on the interpretive methods the Court has used in its majority opinions.
For example, if substantive bankruptcy policy is the linchpin of the Court’s bankruptcy jurisprudence, then one would expect the Court to issue unanimous opinions when the Justices agree on substantive bankruptcy policy and to issue divided opinions when the Justices disagree on substantive bankruptcy policy. One would also expect disputes among the Justices, as revealed in separate concurring and dissenting opinions, to turn on matters of bankruptcy policy.
In contrast, to the extent that interpretive method is the linchpin of the Court’s bankruptcy jurisprudence, one would expect that disputes among the Justices concerning the choice and application of interpretive method would lead to separate opinions.
Finally, if other considerations affect the Justices’ approach to bankruptcy jurisprudence, if the Court balances interpretive method and substantive results, or if some Justices decide bankruptcy cases based upon substantive bankruptcy policy while others decide bankruptcy cases based upon interpretive method, one would expect the Justices’ separate opinions to reflect these considerations. In other words, an examination of the reasons the Justices agree and disagree with each other may reveal more about the Justices’ vision for the Bankruptcy Code than an examination of either the substantive results in bankruptcy cases, alone, or the interpretive methods the Court has used in its majority opinions, alone.
To test this hypothesis and determine the extent to which interpretive method drives the Court’s bankruptcy jurisprudence, Part III analyzes separately the Court’s unanimous, unanimous with concurrence, minor split, and major split bankruptcy decisions. Part IV summarizes the results and elaborates the implications of this empirical study. Among the observations that Part IV discusses are the following:
*In one-half of the Court’s Bankruptcy Code decisions, all Justices agreed on the result.
*Nevertheless, in more than two-thirds of the Court’s Bankruptcy Code cases, one or more Justices wrote separate opinions.
*The Justices generally decided bankruptcy cases based upon principles of statutory interpretation rather than, for example, based upon substantive bankruptcy policy.
*Nevertheless, even the Court’s unanimous cases did not consistently employ one, single interpretive method. The Court’s unanimous opinions do not reveal any obvious criteria for choosing among these divergent methods.
*Disputes among the Justices over interpretive method led to a substantial majority of the Justices’ separate opinions. These separate opinions reveal two significant patterns of discord. First, particular Justices disagreed strongly and consistently with other Justices concerning interpretive method. Second, these disputes centered upon two prominent components of bankruptcy interpretation – the plain meaning canon and the pre-Code practice canon.
*The overwhelming majority of cases in which the Justices disagreed with each other for reasons unrelated to interpretive method involved either constitutional, or quasi-constitutional, questions or tensions between the Bankruptcy Code and other applicable non-bankruptcy law. An inordinately large percentage of the Court’s major splits arose from constitutional questions. A substantial number of the cases involving tensions between the Bankruptcy Code and other law caused disputes among the Justices concerning how to reconcile the Bankruptcy Code’s plain language, pre-Code law, and a “canon” of deference to important federal or state laws or governmental interests.
Part IV elaborates these and other observations and considers how bankruptcy judges, practitioners, and scholars might approach bankruptcy cases in light of these results. Seven Appendices present compilations of this study’s data. Finally, Part V summarizes my conclusions and makes recommendations for further study.
II. Mechanics of Interpretation
The modern interpretive debate is characterized by a dizzying array of competing interpretive theories and models. Some of the more commonly discussed models include textualism, originalism, intentionalism, purposivism, pragmatism, legal process, holistic interpretation, dynamic interpretation, and integrity in interpretation.
Competing views of interpretative theory, political theory, legal theory, and practical reasoning drive these models. The complexity of these underlying philosophical motivations leads to multiple shades, variations, and combinations within each of these general models and frequent overlap among these models. Consequently, a particular interpreter’s approach may fit within more than one of these categories.
Despite the complexities and nuances of interpretive theory, the mechanics of interpretation are relatively simple. Three primary components define every interpretive model. These are the (i) interpreter’s goals or objectives, (ii) sources the interpreter consults, and (iii) interpretive guides the interpreter employs to understand the relationships among these sources and to wield these sources in a way that achieves the interpreter’s objective. The theoretical or philosophical criteria that drive the different interpretive models direct interpreters to pursue different objectives, consult different sources, and apply different interpretive guides.
Part II briefly identifies the primary mechanical components of interpretation in order to provide the reader with some context for this article’s examination of the Court’s interpretive methods.
A. Interpreters’ Objectives
When an interpreter applies a statute, she typically has in mind a particular objective that defines her task. She may seek to determine and implement the legislature’s actual, subjective intent (intentionalist), the statute’s objective purpose (purposive), the text’s meaning (textualist, formalist), or the best result (consequentialist). Alternatively, she may view interpretation not as a search for a specific objective, but rather, as a dialogue through which the drafter and interpreter achieve a common understanding.
Within each of these categories of inquiry, the interpreter’s approach will depend upon the breadth and temporal focus of her inquiry. First, an interpreter might focus on the intent, purpose, or meaning of the statute as a whole (holistic), or of only one particular phrase or section of the statute (narrow or non-holistic). Second, the interpreter may seek to implement the original intent, purpose, or meaning (originalist) or she may view the original intent, purpose, or meaning in light of the contexts that surrounded the enactment of the statute and the manner in which those contexts have changed since the statute was enacted (dynamic).
Although there are exceptions and gradations, intentionalists generally tend to apply originalist interpretation. Consequentialists are dynamic. Textualists typically claim to be originalist, but when they apply a current rather than original meaning, they are dynamic. Purposivists tend to search for the statute’s original purpose, but their efforts to discern how that purpose applies in the current day often appear to be dynamic. Interpreters may apply both non-holistic and holistic interpretation in either an originalist or dynamic manner.
In most of the Court’s Bankruptcy Code cases, the Court either expressly or impliedly searches for legislative intent. In some of these cases, however, the Court’s reference to subjective legislative “intent” seems to refer, more objectively, to the purposes of the statute. A full examination of the Court’s interpretive objective in bankruptcy cases is beyond the scope of this article.
Interpreters may consult a variety of sources in their efforts to implement the legislature’s intent, statute’s purpose, text’s meaning, best result, or other objective. This section categorizes interpretive sources according to the following criteria. First, sources may have existed before the enactment of the statute (historic), may have been created contemporaneous with the enactment of the statute (contemporaneous), or may have been created after the statute was enacted (subsequent). Second, in each of these three categories, sources may be either internal or external to the statute. Finally, external sources may be closely and integrally related to the statute (intrinsic) or only remotely related to the statute (extrinsic).
The purpose of this list is simply to identify sources that interpreters might consult and to categorize those sources in a way that may be helpful as readers consider the interpretive methods the Court has applied in bankruptcy cases. This list is not designed as a comprehensive review or as a commentary on the legitimacy of these sources.
1. Internal sources
Internal to the statute and contemporaneous with the provision being applied:
(1) Text: language of the particular provision
(2) Definitions: statutory definitions of terms and phrases
(3) Formalist holistic (or structural) analysis: use of the term or phrase in other sections of the statute
(4) Substantive holistic (or structural) analysis: substantive effect of the provision and of related provisions
(5) Overarching substantive holistic (or structural) analysis: the substantive effect, design, object, or policy of the statute as a whole. The Court has recognized two overarching policies that animate the Bankruptcy Code: (a) the rehabilitation of debtors, and (b) the maximization of value and fair and equitable treatment of similarly situated creditors.
(6) Prior law (i.e., the Bankruptcy Act)
(7) Prior versions of the Bankruptcy Code (i.e., how the provision in question altered an earlier version of the provision)
Internal to the statute and subsequent to the provision being applied:
(8) Amendments made to the provision after the provision was enacted
(9) Amendments made to other provisions that affect or are related to the provision
2. Sources that are external but intrinsic to the statute
External, intrinsic, and contemporaneous with the provision being applied:
(10) Legislative history of the enactment (committee reports, floor statements, speeches, debates)
External, intrinsic, and historic in relation to the provision being applied:
(11) Legislative history of Bankruptcy Code and Bankruptcy Act predecessors to the provision
(12) Judicial precedents interpreting and pre-Code judicial doctrines elaborating the Bankruptcy Act predecessor to the Bankruptcy Code provision
(13) Judicial precedents interpreting and judicial doctrines elaborating prior versions of the Bankruptcy Code provision
(14) Legislative history of prior, proposed bills that were not enacted
External, intrinsic, and subsequent to the provision being applied:
(15) Legislative history of subsequently enacted amendments
(16) Proposed amendments rejected after the provision was enacted
(17) Legislative history of subsequent, proposed bills that were not enacted
(18) Judicial precedent interpreting the provision
3. Sources that are external and extrinsic to the statute
External, extrinsic, and contemporaneous with the provision being applied:
(19) Dictionaries and similar textual aids dated contemporaneous with the statute
(20) Contemporaneous non-bankruptcy statutes, their text, structure, and policy
(21) Other contemporaneous non-statutory law (its substance and policy)
(22) Public debate, popular press, scholarly writings, other commentary contemporaneous with the enactment of the provision External, extrinsic, and historic in relation to the provision being applied:
(23) Dictionaries and similar textual aids dated prior to the statute
(24) Non-bankruptcy statutes (their text, structure, policy) that pre-date the Bankruptcy Code provision
(25) Other non-statutory law (its substance and policy) that pre-dates the enactment of the Bankruptcy Code provision
(26) Public debate, popular press, scholarly writings, other commentary that pre-dates the enactment of the provision
External, extrinsic, subsequent to the provision being applied:
(27) Dictionaries and similar textual aids dated later than the statute
(28) Non-bankruptcy statutes (their text, structure, policy) that were enacted after the Bankruptcy Code provision
(29) Other non-statutory law (its substance and policy) that was developed after the enactment of the Bankruptcy Code provision
(30) Public debate, popular press, scholarly writings, other commentary subsequent to the enactment of the provision
(31) Changes in social and legal contexts; changes in the legislature
(32) Consequences in the case and projected consequences in subsequent cases
Three observations concerning these sources are appropriate. First, for purposes of this article, it will rarely be necessary to elaborate the nuances of the competing interpretive models except to differentiate textual from non-textual interpretation. This distinction, however, is far from simple. Different commentators hold different views concerning what constitutes textual interpretation. For purposes of this article, the Court’s interpretation will be deemed “textual” only if the Court consults no sources other than those listed above as sources (1) (text), (2) (textual definitions), (3) (formalist holistic analysis), and (19), (23) and (27) (dictionaries). If the Court considers any other source, for any reason, even simply to confirm textual meaning, the analysis is not purely textual.
Second, although any consideration of post-enactment sources, including subsequent amendments and subsequently enacted, related laws is considered dynamic, the preceding list reveals a rich variety of dynamic sources, many of which courts consult regularly. The more controversial uses of dynamic interpretation involve importing broader changes in the social fabric and self-consciously protecting interests not protected by the legislature.
Third, “history” encompasses a broad array of sources other than “legislative history.” Many of these sources, such as prior law and judicial interpretations of prior law, are intrinsic to the historical development of the doctrines embodied in the current Bankruptcy Code.
C. Interpretive Canons, Guides, and Aids
Interpretive canons, guides, and aids are tools or criteria that interpreters use to determine which sources to consult, how to construe those sources, the import, meaning and relationships among interpretive sources, and how to wield those sources to achieve the interpretive objective.
Courts employ an enormous variety of interpretive canons, guides, and aids. For simplicity, the article will refer to all of these devices as “canons.” For purposes of this article, the reader should simply be alert to four distinct categories of interpretive canons that appear with some regularity in the Supreme Court’s bankruptcy cases.
First, textual guides include general rules of grammar and linguistic construction. Other, more specific, textual canons direct the interpreter when to consider only the text and when to look beyond the text.
Second, structural or holistic canons encourage the interpreter to consider the statute’s words in the context of other components of the statute, including the use of the same or similar words and phrases elsewhere in the statute (linguistic or textual), and the structure, design, object, policy, or purpose of the statute (substantive).
Fourth, the Court occasionally has applied other, bankruptcy-specific canons. Bankruptcy-specific canons include, for example, suggestions that interpreters defer to important state, federal, or governmental interests, or that interpreters construe discharge exceptions narrowly in favor of the debtor.
Part III examines the interpretive methods the Supreme Court has employed in its Bankruptcy Code decisions.
III. The Bankruptcy Code In The Supreme Court
This article separately analyzes the Court’s unanimous (Part B), unanimous with concurrence (Part C), minor split (Part D), and major split (Part E) Bankruptcy Code decisions.
For purposes of this article, a decision is “unanimous” only if the Justices agreed on a single opinion, and no Justice wrote a separate concurring or dissenting opinion. In “unanimous with concurrence” cases, one or more Justices wrote concurring opinions. Together, the unanimous decisions and unanimous with concurrence decisions are referred to as the “non-split decisions.”
The cases in which the Justices did not agree on the result (the “split decisions”) are separated into “minor split” and “major split” decisions. Major splits occurred when at least three Justices dissented. Minor splits occurred when one or two Justices dissented.
Where appropriate, the analysis separates cases decided prior to the 1986 Term from cases decided in the 1986 and subsequent Terms. This division is designed to isolate and consider the extent to which the addition of Justice Scalia (whose iconoclastic interpretive methods are legendary) to the Court in 1986 may have affected the Court’s interpretive splits.
The first of the Court’s forty-eight Bankruptcy Code cases came before the Court during the 1981 Term. Appendix I, post, reveals that the number of Supreme Court bankruptcy cases increased dramatically from the 1981 through 1985 period to the 1986 through 1998 period.
Despite this increase, however, the raw numbers show little distinction between either the non-split decisions and the split decisions or the pre-Justice Scalia period decisions and the Justice Scalia period decisions. Appendix III, post, reveals that the Court decided one-half of its forty-eight aggregate bankruptcy cases by split decisions, and one-half by non-split decisions. The allocation between split and non-split decisions did not change when Justice Scalia joined the Court. One-half of the eight cases decided during the 1981 through 1985 Terms were split; one-half were not split. One-half of the forty cases decided during the 1986 through 1989 terms were split; one-half were not split.
The simple statistics, however, reveal nothing about the reasons the Justices agreed and disagreed with each other in bankruptcy cases. The following analysis examines the areas of accord and discord among the Justices in order to discern the role and significance of interpretive method in the Court’s bankruptcy jurisprudence. Because this analysis focuses on interpretive method rather than substantive law, the facts and holdings are explained only in sufficient detail for the reader to understand the Court’s interpretive method.
B. The Unanimous Decisions
During the 1981 through 1998 Terms, the Supreme Court issued fifteen unanimous Bankruptcy Code opinions. In these cases, each Justice agreed not only with the Court’s result, but also (presumably) with the Court’s reasoning, including its interpretive method. At the least, no Justice disagreed strongly enough with the Court’s reasoning to write a separate concurrence.
This Part concludes that the Court has not applied one, identical interpretive approach in its unanimous bankruptcy cases. These cases do, however, provide interpreters with useful information concerning the components of the Court’s interpretative approach.
2. Unanimous decisions in the 1981 through 1985 Terms
The Court issued two unanimous decisions during the 1981 through 1985 Terms. In Commodity Futures Trading Commission v. Weintraub, the Court authorized the bankruptcy trustee to waive the corporate debtor’s attorney-client privilege with respect to communications that occurred before the filing of the bankruptcy case. In United States v. Whiting Pools, Inc., the Court held that the Bankruptcy Code required the Internal Revenue Service to turn over to the bankruptcy estate property seized prior to the filing of the debtor’s chapter 11 case.
In a third case, NLRB v. Bildisco & Bildisco, the Court unanimously held that the Bankruptcy Code authorized a chapter 11 debtor-in-possession to reject a union contract, if certain conditions were satisfied. The Bildisco Court split five-to-four, however, on whether the debtor-in-possession committed an unfair labor practice when it unilaterally modified the contract after the debtor filed bankruptcy but before it rejected the contract.
Weintraub, Whiting Pools, and the unanimous portion of Bildisco all sought to implement legislative intent or statutory purpose, as revealed in the statutory text and legislative history. Each decision also drew upon some aspect of bankruptcy policy. In both Whiting Pools and the unanimous portion of Bildisco, the Court supported its conclusions by reference to the Bankruptcy Code’s general policy of encouraging reorganization. The Bildisco majority also referred to the Bankruptcy Code’s equitable policy. The Weintraub Court sought to ensure that any non-bankruptcy rule it applied in the bankruptcy context would be consistent with bankruptcy policy, including the general policy of maximizing value for creditors.
Only Whiting Pools, however, applied a pre-Code practice interpretive canon. The Court stated the canon mildly when it noted that its holding was consistent with judicial precedent under the Bankruptcy Act and that “[n]othing in the legislative history evinces a congressional intent to depart from that practice.” In essence, the Court presumed that Congress knew the practice under the former law and would have signaled its intent to alter that practice.
Four aspects of the pre-Code canon, as stated and applied in Whiting Pools, are significant. First, the Court apparently found nothing in the text that evidenced a congressional intent to alter pre-Code practice. Consequently, it applied the canon solely to consider whether the Bankruptcy Code’s legislative history evidenced a congressional intent to change prior practice. Second, the canon refers to judicial practice under the Bankruptcy Act. The Court considered whether Congress intended to alter an existing judicial doctrine that the courts had developed to interpret the former Bankruptcy Act, but which was not codified as part of the Bankruptcy Act. Third, the Court applied the canon in a supporting role, not as the core of its rationale. Fourth, Whiting Pools was the first Bankruptcy Code case in which the Court applied such a canon. Although the Court applied a mild form of the canon, the fact that the Court employed this canon during the 1982 Term (the second Term in which the Court considered Bankruptcy Code cases) reflects the canon’s established pedigree.
In summary, in these early unanimous decisions, the Court did not rely solely on the statutory text to interpret the Bankruptcy Code. Rather, in each case, the Court professed a search for congressional intent, began with the text, checked legislative history to confirm textual meaning, and verified that its holding was consistent with the statute’s purposes or policies. Whiting Pools further bolstered its conclusions by considering whether Congress had evinced an intent to alter pre-Code practice.
3. Unanimous decisions in the 1986 through 1998 Terms
During the 1986 through 1998 Terms, the Court issued thirteen unanimous Bankruptcy Code decisions. In chronological order, these are: United Savings Ass’n v. Timbers of Inwood Forest Associates, Ltd. (per Justice Scalia, 1988), Norwest Bank Worthington v. Ahlers (per Justice White, 1988), Langenkamp v. Culp (per curiam, 1990), Grogan v. Garner (per Justice Stevens, 1991), Johnson v. Home State Bank (per Justice Marshall, 1991), Board of Governors of the Federal Reserve v. MCorp Financial, Inc. (per Justice Stevens, 1991), Holywell Corp. v. Smith (per Justice Thomas, 1992), Rake v. Wade (per Justice Thomas, 1993), Citizens Bank v. Strumpf (per Justice Scalia, 1995), United States v. Noland (per Justice Souter, 1996), Fidelity Financial Services, Inc. v. Fink (per Justice Souter, 1998), Kawaauhau v. Geiger (per Justice Ginsburg, 1998), and Cohen v. de la Cruz (per Justice O’Connor, 1998).
Notice that eight different Justices, including six of the nine currently sitting Justices, authored the opinions in these cases. Justices Blackmun and Marshall, neither of whom remains on the Court today, authored the unanimous opinions in the pre-1986 bankruptcy cases. Of the nine sitting Justices, only Chief Justice Rehnquist and Justices Breyer and Kennedy have not authored a unanimous opinion in a Bankruptcy Code case. Consequently, these cases should, at least in theory, provide a fair cross-section of two-thirds of the Justices’ interpretive styles.
In each of these thirteen cases except Langenkamp v. Culp, the Court interpreted a provision of the Bankruptcy Code. Langenkamp was a per curiam opinion in which the Court addressed the circumstances in which a preference defendant is entitled to a jury trial. Because Langenkamp focussed on a constitutional question, it adds little to our analysis of the Court’s interpretation of the Bankruptcy Code.
The twelve remaining unanimous cases employed divergent interpretive methods. The Court decided four of these cases by a primarily textual analysis (Holywell, MCorp, Rake, Strumpf). Justices Scalia (Strumpf), Stevens (MCorp), and Thomas (Rake, Holywell) wrote these opinions. The Court decided four cases by text, structure, and history (Fink, Grogan, Johnson, Kawaauhau). Justices Ginsburg (Kawaauhau), Marshall (Johnson), Souter (Fink), and Stevens (Grogan) wrote these opinions. Finally, the Court decided four cases by reference to pre-Code practice (Ahlers, Cohen, Noland, Timbers). Justices O’Connor (Cohen), Scalia (Timbers), Souter (Noland), and White (Ahlers) wrote these opinions.
Parts (b) through (d) elaborate the Court’s interpretive approach in each of these cases. Part (4) considers whether the Court’s apparently conflicting interpretive approaches can be reconciled.
b. Unanimous opinions that consider only text
In two of the four cases in which the Court applied a primarily textual analysis, the Court interpreted the Bankruptcy Code (Rake, Strumpf). In the other two, the Court based its holding primarily on the interpretation of another federal statute (Holywell, MCorp).
In Rake v. Wade, the Court held that a debtor must pay an oversecured creditor pre-confirmation and post-confirmation interest on a home mortgage arrearage that the debtor proposes to cure under a chapter 13 plan. The Court began by applying a text-oriented canon to three Bankruptcy Code sections. The canon provides that “[w]here the statutory language is clear, our ‘sole function . . . is to enforce it according to its terms.’”
Rake’s textualist author, Justice Thomas, might indeed believe that the Court should never look beyond the text. Notice, however, that the canon he employed is not a purely “textualist” dictate that forbids the Court ever to look beyond the language. Rather, it is a classic statement of the “plain meaning” rule, which directs the Court to apply the language if the language is plain and unambiguous. This canon, which is a common feature of most interpretative models, implies that the Court may, and indeed perhaps must, look beyond the language, typically in a search for intent or purpose, if the language is ambiguous.
Consequently, Rake’s textualist approach may mean simply that all of the Justices believed that the language was, in fact, plain, and not that all of the Justices embraced textualism. Indeed, note that Rake quoted the plain language canon from the Court’s five-to-four split decision in United States v. Ron Pair Enterprises, Inc., in which the dissenters vehemently disagreed with the majority’s textual analysis. This observation demonstrates that the Justices do not always agree on what constitutes ambiguity or on when the Court should look beyond the language.
In Rake, Justice Thomas supported his plain meaning analysis with a classic textual aid: the dictionary. He consulted a standard dictionary to discern the “natural reading” of the phrase “provide for.”
The Court also applied a structural or “holistic” interpretation canon borrowed from the Court’s unanimous opinion in United Savings Ass’n v. Timbers of Inwood Forest Associates, Ltd. That canon urges interpreters to examine the entire statute because “statutory terms are often ‘clarified by the remainder of the statutory scheme – because the same terminology is used elsewhere in a context that makes [their] meaning clear, or because only one of the permissible meanings produces a substantive effect that is compatible with the rest of the law.’” Notice that this canon contains both a linguistic component (the same terminology used elsewhere) and a substantive component (the substantive effect). In Timbers, the Court applied this canon to compare the substantive effect of related provisions of the Bankruptcy Code. In Rake, in contrast, Justice Thomas applied this canon in a narrow, textual manner to reconcile the meanings of several uses of the phrase “provide for” and similar phrases throughout the Bankruptcy Code.
The Court relied upon its conclusion that the language was plain to dismiss summarily the petitioner’s legislative history argument. It did not consider congressional intent, statutory purpose, legislative history, or pre-Code practice.
The Court’s other leading textualist, Justice Scalia, wrote the strongly textual, unanimous opinion in Citizens Bank v. Strumpf. In Strumpf, the Court held that the automatic stay did not prohibit a bank from imposing an administrative hold on the debtor’s account and refusing to turn the account over to the debtor.
The Court concluded that this interpretation was the “most naturally read [[ing]” of the Bankruptcy Code and that nothing in the Bankruptcy Code’s language expressly prohibited the administrative hold. The Court referred to state law where relevant, but did not refer to congressional intent, statutory purpose, legislative history, or pre-Code practice. As in Rake, all of the Justices agreed that the language was, in fact, plain.
In each of the other two unanimous, textual decisions, Board of Governors of the Federal Reserve v. MCorp Financial, Inc., and Holywell Corp. v. Smith, the Court based its holding primarily on the interpretation of another federal law that interacted with the Bankruptcy Code.
In MCorp, the Court held that the automatic stay did not authorize the bankruptcy court to enjoin the Federal Reserve from prosecuting an administrative enforcement proceeding against the debtor, which was a bank holding company. The Court based its holding on the language of the Financial Institutions Supervisory Act, the language of the Bankruptcy Code’s automatic stay, and an explanation of an earlier Supreme Court case upon which the circuit court had erroneously relied. Justice Stevens, who is not known as a textualist and who generally consults legislative history to confirm textual meaning, wrote MCorp.
In Holywell Corp. v. Smith, the debtors’ confirmed chapter 11 plan had assigned property to a trust. The Court required the trustee to file tax returns and pay taxes that the debtors would have been required to file and pay if the property had not been assigned to the trust. Although the Court based its decision primarily on the Internal Revenue Code, it also considered the Bankruptcy Code section that elaborates the effects of confirmation. In its brief discussion of that provision, the Court relied solely on the statute’s language. Justice Thomas, a textualist, wrote Holywell.
Because MCorp and Holywell focussed primarily on non-bankruptcy law, they add little to our understanding of the Court’s interpretation of the Bankruptcy Code. Notice, however, that in each of these cases, the Court undertook a non-bankruptcy-centric analysis. In other words, it first considered how other federal law applied, then considered whether the Bankruptcy Code altered the application of that other federal law. In each case, the Court held, essentially, that nothing in the Bankruptcy Code barred the federal government from enforcing its rights under another federal law. Although the Court did not suggest that the Bankruptcy Code is subordinate to other federal law, these cases are consistent with a pattern of cases in which the Court has deferred to “important governmental interests” in the bankruptcy context.
Despite these four text-based opinions, two-thirds of the Court’s unanimous bankruptcy decisions issued during and after the 1986 Term looked beyond the statutory language. Subparts (c) and (d) examine these non-textual opinions.
c. Unanimous opinions that consider text, structure, and history
In four post-1986 unanimous decisions, the Court considered the Bankruptcy Code’s text, structure, and history. The Court decided Grogan v. Garner (per Justice Stevens) and Johnson v. Home State Bank (per Justice Marshall) in 1991, after Justice Scalia joined the Court but before Justice Thomas joined the Court. The Court decided Fidelity Financial Services, Inc. v. Fink (per Justice Souter) and Kawaauhau v. Geiger (per Justice Ginsburg) in 1998, during the Court’s most recent Term.
None of the authors of these opinions is generally regarded as a textualist. Despite Justices Scalia’s and Thomas’s reputations as textualists, Justice Scalia joined all four of these opinions and Justice Thomas joined the two opinions that were issued after he joined the Court. Presumably, even these textualist Justices agreed that the language was sufficiently ambiguous to merit consideration of other, non-textual sources.
Justice Stevens examined the text and the legislative history, but determined that neither expressly provided a standard of proof for dischargeability actions. Faced with a gap, both the lower court and the Supreme Court reasoned from silence, bankruptcy policy, and negative inferences. The Supreme Court, however, relied more heavily on a substantive, structural analysis of the Bankruptcy Code than had the lower court.
First, the circuit court had reasoned that prior law had required a higher standard, at least in fraud cases, and that Congress’s silence suggested that Congress was not likely to have intended to change existing law. In contrast, the Supreme Court rejected pre-Code practice because, when Congress added fraud as a basis for nondischargeability, the courts were split over which common law evidentiary standard applied. The Court then inferred from Congress’s silence that Congress probably had not “intended to require a special, heightened standard of proof.”
At first glance, this aspect of Grogan may seem to be inconsistent with the cases in which the Court deferred to pre-Code judicial practice. Grogan, however, may simply suggest that the Court will rely upon pre-Code judicial practices only if those practices were well-established before the Bankruptcy Code was enacted. Absent a well-established practice, the Court may have deemed it inappropriate to presume that Congress knew of the practice and intended to incorporate the practice into the Bankruptcy Code.
Second, the Court concluded that the Bankruptcy Code’s structure supported the Court’s inference. Two holistic interpretation canons guided the Court’s structural analysis. First, “[i]n ascertaining the plain meaning of the statute, the court must look to the particular statutory language at issue, as well as the language and design of the statute as a whole.” Second, “[i]n determining the meaning of the statute, we look not only to the particular statutory language but to the design of the statute as a whole and to its object and policy.” Three important observations flow from these canons.
First, these canons view “policy” as an essential embodiment of the statute’s object and design, which is discerned through a substantive, holistic analysis of the statute. Policy is not an external source that stands in contraposition to the text. This approach is consistent with a purposive, legal process analysis.
Second, although the Grogan Court was required to fill a statutory gap, these canons do not expressly require the Court to find a gap or even an ambiguity before the Court undertakes a holistic analysis of the statute’s design, object, and policy.
The Court first applied these canons to analyze the Bankruptcy Code’s structure. The Court reasoned that, because the exceptions to discharge are all in the same Bankruptcy Code section and nothing in that section indicates that any one exception is subject to a special standard, each exception must carry the same standard.
The Court then applied these canons to analyze the Bankruptcy Code’s purposes. The circuit court had reasoned that the Bankruptcy Code’s policy of giving debtors a “fresh start” justified a higher evidentiary standard in dischargeability matters. The Supreme Court countered that an unencumbered fresh start is available only to the “honest but unfortunate debtor.” By implication, the fresh start is not available to a dishonest debtor who has committed fraud. The Court discerned in the Bankruptcy Code’s general history, rather than in specific legislative history, a “policy” of preventing discharge of all fraud judgments. The Court reasoned that it should follow this policy absent a clear congressional expression of a change in policy. It concluded that a lower burden of proof would be consistent with this policy. Notice how this reasoning parallels the canon of deference to pre-Code laws or practices.
As in Grogan, the Court in Kawaauhau v. Geiger relied upon the Bankruptcy Code’s text, structure, and history to resolve a dischargeability question. While the Grogan Court considered a gap in the statute, however, the Kawaauhau Court considered the meaning of an undefined term (“willful”).
In Kawaauhau, the Court held that a personal injury, medical malpractice claim arising from the debtor’s reckless or negligent conduct was not a claim arising from “willful and malicious injury by the debtor.”
The Court referred to both a dictionary and legislative history to determine the meaning of the term “willful.” The Court compared these definitions to the statutory language, and concluded that Congress might have worded the statute differently if it had meant to include reckless or negligent injuries. The Court added that interpreting the willful and malicious injury exception broadly to include negligent injuries would render other discharge exceptions superfluous. The Court reasoned that a broad interpretation “would be incompatible with the ‘well-known’ guide that exceptions to discharge ‘should be confined to those plainly expressed.’” Here, the Court employed as an “interpretive guide” the well-recognized “policy” that discharge exceptions should be narrowly construed in favor of the debtor. This policy, which derives from and implements the fresh start policy, is not expressly stated in the Bankruptcy Code.
Finally, the Kawaauhau Court declined to adopt a substantive policy that was not expressed in the Bankruptcy Code. The creditor argued that the Court should not allow a reckless or uninsured debtor to discharge a malpractice judgment, but the Court deferred this policy question to Congress.
Similarly, in Johnson v. Home State Bank, the Court relied upon the Bankruptcy Code’s text, history, and structure, and rejected an invitation to create bankruptcy policy. Johnson had filed a chapter 7 case, in which he had discharged his personal liability on his farm mortgage debt. He then filed a chapter 13 case, in which he sought to pay the in rem mortgage under a five-year plan. The creditor argued that, because the debtor’s personal liability had been discharged, the mortgage was not a “claim” subject to treatment under chapter 13. The Court disagreed.
The Court viewed the question as “a straightforward issue of statutory construction to be resolved by reference to ‘the text, history, and purpose’ of the Bankruptcy Code.” The Court relied upon (i) the broad definition of “claim” in the text of the Bankruptcy Code, (ii) the broad definition of “claim” in the text, legislative history, and construction of the former Bankruptcy Act, (iii) Bankruptcy Code legislative history that suggested that Congress had intended to expand the Bankruptcy Act’s already broad definition of “claim,” and (iv) other legislative history that confirmed the broad meaning of “claim.”
Although the Court did not cite a pre-Code canon, note the similarity between the Court’s broad use of history and the use of a pre-Code canon. In Johnson, the Court consulted the Bankruptcy Act and judicial precedent interpreting the Bankruptcy Act to shed light upon the Bankruptcy Code. Under a pre-Code canon, the Court consults judicial practice under the Bankruptcy Act. In each case, the Court is seeking to determine whether Congress, in enacting the Bankruptcy Code, intended to depart from prior practice. Part of this analysis requires the Court to determine whether Congress was aware of the existing practice. In referring to history, the Court assumes that Congress was aware of prior statutory provisions. In referring to pre-Code practice, the Court assumes that Congress also was aware of established judicial interpretations of these provisions and of established judicial doctrines that developed in the absence of express statutory provisions.
Finally, although Johnson seemed to present a narrow question concerning the meaning of the term “claim,” it also presented a broader question concerning the propriety of a so-called chapter 20 case. The creditor argued that the debtor was using an improper serial filing to evade the limits of chapter 7 and chapter 13. The Court applied a structural analysis to reject this appeal to the presumed purposes of the Bankruptcy Code. It reasoned that Congress had specifically prohibited other types of serial filings, but had not categorically prohibited the filing of a chapter 7 case followed by a chapter 13 case.
Finally, in Fidelity Financial Services, Inc. v. Fink the debtor filed a preference action to avoid a late-perfected security interest. The Court held that, in order to escape avoidance, a security interest must be perfected within the Bankruptcy Code’s twenty-day grace period, not the longer state law grace period.
The Court based its holding upon congressional intent, which it discerned in the “text, structure, and history of the preference provisions.” First, the text expressly provided a specific grace period. Second, the structure of the Bankruptcy Code suggested, by negative implication, that Congress did not intend to allow state law relation-back provisions to govern this preference defense. Third, the creditor’s reliance upon “an isolated piece of legislative history” was misplaced because the creditor had misinterpreted the legislative history and the legislative history was inconsistent with the text and the broader history. Fourth, the Court relied upon “broader statutory history,” including the preference rules and defenses under the former Bankruptcy Act, the subsequent development of those rules and defenses, and the circumstances surrounding the 1994 Bankruptcy Code amendments. Again, the Court’s consideration of broad statutory history, including prior practice under the Bankruptcy Act and Bankruptcy Code predecessor provisions, is similar to reliance upon a pre-Code practice canon.
In all four of these cases, the Court consulted the text, structure, and history of the statute. None of these cases, however, contained an extensive analysis of legislative history. Instead, the Court consulted the Bankruptcy Code’s broad “history,” including prior Bankruptcy Act provisions, case precedent interpreting the Bankruptcy Act provisions, changes the Bankruptcy Code had made to the Bankruptcy Act rules, and changes that amendments to the Bankruptcy Code made to earlier versions of the Bankruptcy Code. Although none of these cases applied a pre-Code canon, three of the cases (Grogan, Johnson, and Fink) applied analogous reasoning when they considered whether Congress had intended to change prior practices.
d. Unanimous opinions that consider pre-Code practice
In the four remaining unanimous decisions, the Court expressly relied upon pre-Code practice. The Court decided two of these cases based upon text, structure, history, and pre-Code practice (Cohen v. de la Cruz, United Savings Association v. Timbers of Inwood Forest Associates, Ltd. ), and two based primarily upon an analysis of pre-Code practice (Norwest Bank Worthington v. Ahlers, United States v. Noland ).
As in Kawaauhau v. Geiger and Grogan v. Garner, the Court in Cohen v. de la Cruz interpreted the Bankruptcy Code’s non-dischargeability provisions. The Court held that the fraud exception prevented discharge of all damages assessed on account of the debtor’s fraud, including treble damages, attorneys’ fees, and costs.
The Court relied upon the “text of § 523(a)(2)(A), the meaning of parallel provisions in the statute, the historical pedigree of the fraud exception, and the general policy underlying the exceptions to discharge” to discern congressional intent. Pre-Code practice came into consideration as part of the fraud exception’s history.
Justice O’Connor established the context by identifying the overarching purposes and policies of the Bankruptcy Code. The non-dischargeability provisions, she noted, were a component of the “basic policy animating the Code of affording relief only to an ‘honest but unfortunate debtor.’”
Turning to the text, the Court reasoned that the “most straightforward reading” of the statutory language required that all damages be included. The Court referred to a standard dictionary and a law dictionary (textual aids) to confirm its definitions.
The Court supported this textual interpretation with a holistic, textual analysis that compared the use of the phrase “debt . . . for” in the fraud exception to the use of that same phrase in the other dischargeability exceptions. The Court reasoned that, because the phrase served the same function in each subsection, the “presumption that equivalent words have equivalent meaning when repeated in the same statute . . . has particular resonance here.”
Up to this point, the Court’s consideration of text and structure had a strongly textual emphasis. As in Johnson v. Home State Bank and Grogan v. Garner, however, the Court reinforced its textual analysis with an analysis of the statute’s broad history. Unlike Johnson and Grogan, however, the Court in Cohen expressly applied a pre-Code canon. Under this canon, the Court “will not read the Bankruptcy Code to erode past bankruptcy practice absent a clear indication that Congress intended such a departure.” The Court considered, as part of the fraud exception’s broad history, the pre-Code judicial construction of the fraud exception and the similarity between the Bankruptcy Code exception and the Bankruptcy Act exception. As in Fidelity Financial Services, Inc. v. Fink, the Court rejected the debtor’s appeal to statements in the narrow legislative history of the section.
Finally, the Court returned to the policy considerations with which it had begun its discussion. The Court concluded that the debtor’s construction of the fraud exception was contrary to the congressional policy of compensating a creditor fully for its loss or injury, and of protecting the victim rather than giving the debtor a fresh start. Recall the Court’s similar, creditor-oriented reasoning in Grogan v. Garner. In contrast, the Kawaauhau v. Geiger Court applied a debtor-oriented “policy” of construing discharge exceptions narrowly in favor of the debtor. Neither Grogan nor Cohen v. de la Cruz mentioned this policy, perhaps because both Grogan and Cohen involved the debtor’s fraud. Both cases noted that the discharge was designed for the “honest but unfortunate” debtor, not for the dishonest (fraudulent) debtor. Kawaauhau, in contrast, involved no question of fraud or dishonesty.
The Court applied a similar text, structure, history, and pre-Code canon analysis in United Savings Association v. Timbers of Inwood Forest Associates, Ltd. The Court held that an under-secured creditor was not entitled to “lost opportunity costs” as adequate protection for the delay in foreclosure caused by the automatic stay. The case turned on whether such costs were included in the creditor’s “interest in property,” as that phrase was used in the Bankruptcy Code.
Justice Scalia began by examining the text. He noted that the phrase in question, “viewed in the isolated context of § 362(d)(1)” might include the right to foreclose. Nevertheless, in an often-quoted passage, he noted that:
[s]tatutory construction . . . is a holistic endeavor. A provision that may seem ambiguous in isolation is often clarified by the remainder of the statutory scheme – because the same terminology is used elsewhere in a context that makes its meaning clear, . . . or because only one of the permissible meanings produces a substantive effect that is compatible with the rest of the law. . . .
As previously noted, this holistic/structural interpretive canon contains both a linguistic component (the same terminology used elsewhere) and a substantive component (the substantive effect of the language). In contrast to the Court’s linguistic, holistic interpretation in Rake v. Wade, and despite Justice Scalia’s textualist reputation, the Timbers Court engaged in an admirable exercise of substantive, holistic interpretation. First, the Court recognized that:
[s]ection 362(d)(1) is only one of a series of provisions in the Bankruptcy Code dealing with the rights of secured creditors. The language in those other provisions, and the substantive dispositions that they effect, persuade us that the “interest in property” protected by § 362(d)(1) does not include a secured party’s right to immediate foreclosure.
The Court based this conclusion on its analysis of the substantive effect of several other Bankruptcy Code provisions that govern secured creditors’ rights, principally including section 506. For example, the Court dismissed one possible interpretation of section 506 as unsupported by legislative intent and inconsistent with legislative history. The Court then stated that:
[e]ven more important for our purposes than § 506’s use of terminology is its substantive effect of denying undersecured creditors postpetition interest on their claims – just as it denies oversecured creditors postpetition interest to the extent that such interest, when added to the principal amount of the claim, will exceed the value of the collateral.
The Court then moved beyond the text and structure and applied a pre-Code interpretive canon. The Court noted that section 506(b)’s denial of post-petition interest to undersecured creditors merely codified pre-Code law. The Court reasoned that “a major change in the existing rules would not likely have been made without specific provision in the text of the statute, . . . [and] it is most improbable that it would have been made without even any mention in the legislative history.” The creditor’s alternate interpretation, therefore, was “implausible even in the abstract, but even more so in light of the historical principles of bankruptcy law.”
In this iteration of the pre-Code canon, Justice Scalia implied that Congress should signal its intent to alter existing practice in the text of the Bankruptcy Code, but that Congress might evidence its intent in the legislative history. According to Justice Scalia, however, generalizations in legislative history, “are inadequate to overcome the plain textual indication . . . .” Because the text seemed to be clear, and was consistent with the pre-Code rule, the Court followed the pre-Code rule.
Timbers, which was the first bankruptcy opinion that Justice Scalia wrote, does not comport with the commonly held view of Justice Scalia as a formalistic wordsmith. Despite the Justices’ lack of bankruptcy expertise and despite their apparent discomfort with the Bankruptcy Code, the Timbers opinion embodies a thoughtful understanding of the substantive effect of related provisions of the Bankruptcy Code. The Timbers Court clearly benefited from a superb Fifth Circuit opinion and briefs written by some of the country’s leading bankruptcy scholars and practitioners. In contrast, in more recent cases, Justice Scalia has castigated the Court for relying on pre-Code practice. It is not clear whether Justice Scalia saw some distinction between Timbers and these later cases, whether he has changed his method over time, or whether he simply has applied inconsistent interpretive methods.
In the two remaining unanimous opinions, the Court relied even more heavily on pre-Code practice than it had in Cohen and Timbers. Both of these cases involved judicial doctrines that had been developed under the Bankruptcy Act.
In United States v. Noland, the Court held that the Bankruptcy Code did not allow the courts categorically to subordinate tax penalty priority claims. Justice Souter began not by analyzing the statutory text but by considering the pre-Code judicial development of the doctrine of equitable subordination. He applied a pre-Code canon under which “[t]he normal rule of statutory construction is that if Congress intends for legislation to change the interpretation of a judicially created concept, it makes that intent specific. The Court has followed this rule with particular care in construing the scope of bankruptcy codifications.” In the absence of any indication that Congress intended to change pre-Code practice, the Court concluded that the Bankruptcy Code’s undefined reference to “principles of equitable subordination” must have been designed to embody the pre-Code doctrine.
Legislative history stating that Congress intended to embrace the existing doctrine and leave its continued development to case law bolstered the Court’s deference to pre-Code practice. A conflicting legislative statement was not authoritative, however, because it was not an accurate statement of pre-Code law.
In the final unanimous case, Norwest Bank Worthington v. Ahlers, the Court considered whether the pre-Code, judicially developed “new value” exception to the judicially developed “absolute priority” doctrine retained its viability after the Bankruptcy Code codified a modified absolute priority rule that did not contain an express new value exception.
After stating the Bankruptcy Code rule, the Ahlers Court reviewed the history of the judicially developed absolute priority rule under the former Bankruptcy Act. That rule essentially required that creditors be paid in full before equity holders would be entitled to receive any distribution. The Court then discussed Bankruptcy Act case law precedent that allowed equity holders to retain interests in a reorganized debtor in exchange for “new value.”
The Court expressly declined to determine whether the new value exception (or corollary) had survived the codification of a modified absolute priority rule in the Bankruptcy Code. It held, however, that even if the new value exception had survived, the debtors’ promise to contribute future “labor, experience, and expertise” to the reorganization effort would be inadequate because the Court had found a virtually identical contribution to be inadequate in a case interpreting the Bankruptcy Act rule.
In essence, the Ahlers Court engaged in a common-law-type analysis in which it compared the facts of the case at bar to the facts of the leading pre-Code case. To justify using pre-Code case law to interpret the Bankruptcy Code, the Court reviewed the Bankruptcy Code’s history and confirmed that the Bankruptcy Code had not liberalized the pre-Code doctrine.
The Court rejected the debtor’s argument that the bankruptcy court’s equitable powers permitted the Court to effectuate a result that was in the best interests of all creditors and the debtors. The Court also declined to implement a result that would foster Congress’s broad policy of assisting family farmers in financial distress.
4. Summary of unanimous decisions
The Court’s unanimous Bankruptcy Code opinions seem to apply three distinct interpretive methods: text only; text, structure, and history; and pre-Code practice, with or without reference to text, structure, and history.
It is not surprising that the Court’s most prominent textualists, Justices Scalia and Thomas, wrote three of the Court’s four unanimous textual opinions. Nevertheless, non-textualist Justices joined these opinions, apparently because they agreed that the language was so plain that there was no need to consult sources other than the text.
The Court’s unanimous opinions do not, however, provide any definitive guidance concerning when the Court will consider the statutory language to be plain. For example, in cases where the Bankruptcy Code clearly contains a gap, undefined term, or ambiguity, such as Weintraub, Grogan, Kawaauhau, and Noland, the Court’s reliance on sources other than the language is understandable. It is not immediately clear, however, why the Court considered structure, history and/or pre-Code practice to confirm an apparently clear meaning in Johnson, Fink, and Whiting Pools, but declined to consult these sources to confirm an apparently clear textual meaning in Rake and Strumpf.
Similarly, no obvious reason explains why the Court consulted only text, structure, and history in some cases, but added pre-Code practice in other cases. The Court’s review of the Bankruptcy Code’s “broad history,” including provisions of the former Bankruptcy Act and judicial interpretations of the Bankruptcy Act, is similar to the Court’s review of “pre-Code” law and judicial practices. Although some of the cases in which the Court applied the pre-Code canon involved judicially developed doctrines rather than prior statutory provisions (Timbers, Noland), this postulate is not true of all of the Court’s pre-Code canon cases (Cohen, Ahlers). It is unclear, therefore, whether broad history and pre-Code practice are distinct concepts or merely gradations of the same continuum.
Several possible explanations exist for the Court’s use of different interpretive methods:
2) Perhaps the author of each opinion chooses his or her preferred interpretive method, and other Justices join the opinion if they agree with the substantive results, without regard to the interpretive method.
3) Perhaps the Court, as a body, applies some not immediately apparent criteria, rules, or guidelines to determine when to consider only the statutory text, when to consult the text, structure, and history, and when to consult pre-Code practice.
4) Perhaps different Justices employ different criteria to determine when to apply these apparently diverse interpretive methods.
If either of the first two explanations are accurate, then critics are correct to lament a lack of clear direction concerning how the Court will interpret the Bankruptcy Code. In the first case, interpreters cannot predict results unless they understand the criteria the Court applies to determine what is a desirable substantive result (and, perhaps, understand the Justices’ personal agendas). In the second case, interpreters cannot predict results unless each Justice applies a consistent interpretive approach, interpreters know in advance which Justice will author each opinion, and interpreters know what interpretive approach that each Justice generally employs. Moreover, in either case, interpreters will be unable to predict how lower courts will interpret the Bankruptcy Code because the Supreme Court’s random choice of interpretive method leaves the lower courts with inadequate guidance.
If either of the first two explanations are correct, however, we would not expect to find Justices writing separate concurring opinions based upon methodological disputes. Consequently, if we do find methodological disputes raised in separate concurring opinions, we must conclude that at least some of the Justices care about the interpretative method the Court has employed in those cases as much as or more than they care about the results in those cases.
If the fourth explanation is correct, then we should expect to see the Justices writing separate opinions to voice their methodological disputes. If the third explanation is correct, we might hope that the Court would elaborate on its methods in cases we have not yet examined.
Legal scholars (or at least those versed in hermeneutics) understand that interpretation is a fluid process in which meaning is not fully developed until a statute is applied, in context, by an interpreter. We also suspect that there may never be one definitive set of interpretive rules. We nevertheless refuse to believe that results are random and completely unpredictable. We cling to the belief that courts, or at least individual Justices, apply coherent criteria when they interpret statutes.
Assume for a moment, therefore, that either the third or fourth explanation is accurate; that is, there are some criteria that distinguish the Court’s three apparently divergent interpretive methods, even though the Justices may not be in accord concerning those criteria. Can we define a set of guidelines that would explain the divergent methods in the Court’s unanimous opinions? Suppose we make the following somewhat imprecise observations concerning the Court’s unanimous opinions:
Corollary 1 concerning the text: The court need not, or perhaps should not, or perhaps may not, consider the statute’s structure and history if the text is “clear,” or perhaps “plain,” or perhaps “unambiguous,” or perhaps not the product of an obvious “scrivener’s error.” This corollary reveals three criteria that are unclear from an examination of only the Court’s unanimous cases. First, is the rule permissive (need not or should not look beyond the text) or prohibitive (may not look beyond the text)? Second, what level of textual indeterminacy is required to trigger an examination of the sources other than the text? Third, what does it mean for text to be plain, clear, or unambiguous?
Corollary 2 concerning statutory structure: When the Court considers the structure of the Bankruptcy Code, it may, or perhaps should, or perhaps must, undertake a linguistic holistic analysis and a substantive holistic analysis. In a linguistic holistic analysis, the Court considers the meaning of the same term or phrase used throughout the Bankruptcy Code. In a substantive holistic analysis, the Court considers the substantive effect or function of the applicable provision and related provisions. In a substantive holistic analysis, the Court might also consider the broad statutory design, object, purpose or policy. This corollary leaves open questions concerning (i) whether a structural analysis is required, permitted, or encouraged, and (ii) what criteria, if any, guide the Court’s decision to employ a linguistic versus a substantive holistic analysis.
Corollary 3 concerning statutory history: History includes both legislative history and broader statutory history. This broader history includes prior practice, including prior codifications and well-established judicial practices and interpretations. When the Court considers the statutory history, it may, or perhaps must, or perhaps should, consider the statute’s broader history. The line between broad history and pre-Code practice is indefinite. Although the Court spurns isolated and general statements in the legislative history, none of these cases presents an in-depth analysis of legislative history. Therefore, the weight and import of legislative history is unclear.
These observations explain the Court’s unanimous decisions, but leave important questions open concerning the Court’s choice of interpretive method. By examining the cases in which the Justices wrote separate opinions, we can determine whether (i) those opinions confirm these basic observations, (ii) disputes among the Justices arise from the use of different interpretive methods, and (iii) disputes among the Justices center upon the questions left open in the foregoing general observations about the Court’s interpretive method.
Section C reviews the Court’s unanimous with concurrence decisions.
C. The Unanimous with Concurrence Decisions
In nine Bankruptcy Code cases decided during the 1981 through 1998 Terms, all of the Justices agreed on the result, but one or more Justices wrote a separate concurring opinion. In chronological order these are: United States v. Security Industrial Bank, Ohio v. Kovacs, Begier v. Internal Revenue Service, Farrey v. Sanderfoot, Union Bank v. Wolas, Connecticut National Bank v. Germain, Patterson v. Shumate, Nobleman v. American Savings Bank, and Things Remembered, Inc. v. Petrarca.
The Court decided two of these cases before Justice Scalia joined the Court. In these two cases, the Justices who wrote or joined a concurrence did so for reasons other than disagreement with the majority’s statutory interpretation methods. In contrast, in all but one of the seven cases decided after Justice Scalia joined the Court, disputes concerning interpretive method were at the heart of the disagreements among the majority Justices and the concurring Justices.
2. Concurring decisions in the 1981 through 1985 Terms
First, in Ohio v. Kovacs, the Court held that a debtor’s obligation under an injunction that required the debtor to clean up a hazardous waste site was a “debt” that was dischargeable in the debtor’s bankruptcy case. In an opinion written by Justice White, the majority implemented congressional intent, which it discerned from the Bankruptcy Code’s text, structure, and legislative history. In this pre-Justice Scalia and pre-Justice Thomas opinion, none of the Justices objected to the Court’s reference to legislative history.
Justice O’Connor joined the majority, but wrote a separate concurrence “to address the petitioner’s concern that the Court’s action will impede States in enforcing their environmental laws” and explain why the majority’s holding was not hostile to state enforcement of environmental laws. She did not challenge the majority’s interpretive method. Query whether Justice O’Connor and the other Justices might have reached a different result if they had believed that the application of the Bankruptcy Code was detrimental to environmental law policy.
Second, in United States v. Security Industrial Bank, Chief Justice Rehnquist, writing for six Justices, held that the Bankruptcy Code did not permit the trustee to avoid liens that were perfected before the Bankruptcy Code was enacted. The Court reasoned that retroactive application might violate the Fifth Amendment. In order to avoid the constitutional question, the Court relied upon two “canons” of construction. The first urges the Court to read a statute to avoid a constitutional question, if such a reading is “fairly possible.” The second favors prospective application of a statute absent a clear indication that the legislature intended that the statute be applied retroactively. In applying these two canons, the Court found no clear expression that Congress intended the applicable Bankruptcy Code section to apply retroactively.
In an opinion written by Justice Blackmun, three concurring Justices agreed that Supreme Court precedent mandated the result. Absent that precedent, however, they would have concluded that the section did apply retroactively and that retroactive application did not violate the Fifth Amendment.
The separate opinions in Kovacs and Security Industrial do not embody disputes concerning the method the majority used to interpret the Bankruptcy Code. Kovacs is consistent with the observation that the Court considers the Bankruptcy Code’s text, structure, and history. Security Industrial is a constitutional case, which adds little to our understanding of how the Court will interpret the Bankruptcy Code.
3. Concurring decisions in the 1986 through 1998 Terms
a. Single Justice concurrence decisions
In four of these cases, a single Justice concurred: Begier v. Internal Revenue Service, Union Bank v. Wolas, Patterson v. Shumate, and Nobleman v. American Savings Bank. In three of these cases, Justice Scalia was the lone concurring Justice (Begier, Wolas, and Patterson). In the fourth, Justice Stevens was the lone concurring Justice (Nobleman).
In all four of these cases, the concurring Justice wrote separately solely to criticize the majority’s interpretive method. In both Begier and Wolas, Justice Scalia wrote separately to castigate the Court for considering legislative history. In Nobleman, in contrast, Justice Stevens wrote separately to complain of the Court’s failure to consult legislative history to confirm the textual meaning. In Patterson, Justice Scalia wrote separately to praise the Court for using a “holistic,” textual interpretation and to criticize the Court for having failed to do so in another case decided earlier in the same Term.
In Begier v. Internal Revenue Service, the Court held that the trustee could not recover as preferential transfers certain of the debtor’s pre-petition tax payments because the payments had been made from funds held in trust for the Internal Revenue Service. The Court relied upon the language of the Bankruptcy Code, the language of relevant provisions of the Internal Revenue Code, the history of the Bankruptcy Code, including the legislative history and the broader history of how the Bankruptcy Code had modified pre-Code law, and the legislative history of the Internal Revenue Code. The Court interpreted these sources in the context of the preference provisions’ role in furthering the overarching bankruptcy policy of equitable distribution among creditors. The Court’s approach is consistent with the observation that the Court will consider the statute’s text, structure, and history.
Justice Scalia, concurring, excoriated the Court for relying upon legislative history. He argued that “[i]f the Court had applied to the text of the statute the standard tools of legal reasoning, instead of scouring the legislative history for some scrap that is on point . . ., it would have reached the same result it does today . . . .” Justice Scalia did not, however, clearly state a “test” for when, if ever, the Court might consider legislative history. He also did not expressly object to the Court’s references to the Bankruptcy Code’s purposes and overarching policies.
In Union Bank v. Wolas, Justice Stevens, writing for eight Justices, held that the “ordinary course” of business preference defense applied to payments on long-term debts as well as short-term debts. Although the Court reasoned that the text of the Bankruptcy Code led clearly to this result, the Court did not stop with the text. It also considered the legislative history and bankruptcy policy.
As for legislative history, however, the Court noted that “[g]iven the clarity of the statutory text, respondent’s burden of persuading us that Congress intended to create or to preserve a special rule for long-term debt is exceptionally heavy.” The respondent failed to meet this burden.
As for policy, the Court considered how the rule it announced would foster the fundamental bankruptcy policies served by the preference rules, which include providing equitable distribution among similarly situated creditors, and deterring a race to the courthouse.
Justice Scalia concurred, including in the portions of the opinion that “respond[ed] persuasively to legislative-history and policy arguments made by respondent.” He argued, however, that “[s]ince there was here no contention of a ‘scrivener’s error’ producing an absurd result, the plain text of the statute should have made this litigation unnecessary and unmaintainable.”
Wolas reveals a clash between the majority’s test for looking beyond the plain text (may look beyond the text but with an exceptionally heavy burden to overcome plain meaning), and Justice Scalia’s test (do not look beyond the text absent a scrivener’s error that produces an absurd result). It also reflects a dispute between Justice Scalia and the other Justices concerning what it means for the text to be plain.
In Patterson, the Court was asked to determine whether the bankruptcy estate included the debtor’s interest in an Employee Retirement Income Security Act (“ERISA”) qualified pension plan. The issue arose because the Bankruptcy Code excludes from the debtor’s estate the debtor’s interest in a trust that contains a transfer restriction enforceable under “applicable non-bankruptcy law.” The Court held that the phrase “applicable non-bankruptcy law” included both state spendthrift trust law, which the legislative history expressly mentioned, and federal law, such as ERISA, which the legislative history did not expressly mention.
Justice Blackmun, writing for eight Justices, began by stating that “the plain language of the Bankruptcy Code and ERISA is our determinant.” In an exemplary use of holistic, textual interpretation, he considered not only the language of the applicable Bankruptcy Code section, but also the uses of the phrases “state law” and “applicable non-bankruptcy law” throughout the Bankruptcy Code.
With respect to the legislative history’s reference to state spendthrift trust law, Justice Blackmun quoted Wolas for the proposition that, because the text was clear, the petitioner carried an “exceptionally heavy” burden to convince the Court the Congress intended a result other than the result that followed from the plain language.
Finally, the Court explained why its holding was consistent with both the Bankruptcy Code’s policy of broadly including assets in the estate, and ERISA’s policies of fully protecting pension benefits and providing uniform national treatment of pension benefits. Once again, the Court supported an apparently clear textual statement with references to broad statutory design. Once again, the broad design and policy overcame a more particular statement in the legislative history.
Justice Scalia joined the majority opinion, but used a concurring opinion to comment on the Court’s interpretive method. Interestingly, Justice Scalia did not criticize the Court for applying in Patterson the same interpretive canon to which Justice Scalia had objected in Wolas. Instead, Justice Scalia praised the majority for using a “holistic” textual interpretation, in which a particular phrase means the same thing throughout the Bankruptcy Code. Justice Scalia used his concurrence primarily to castigate the Court for failing to follow this same approach in another case earlier in the same Term (Dewsnup v. Timm). In one of his more biting criticisms of the Court’s interpretive methodology, he wrote: “I trust that in our search for a neutral and rational interpretive methodology we have now come to rest, so that the symbol of our profession may remain the scales, not the seesaw.”
Justice Scalia did not expressly object to the Court’s consideration of the broad statutory design (i.e., “policy” inherent in the Bankruptcy Code’s structure). This suggests that Justice Scalia’s criticism in Wolas may have been addressed more to the Court’s discussion of legislative history than to the Court’s discussion of policies and purposes.
Finally, in Nobleman v. American Savings Bank, the Court held that the Bankruptcy Code prohibited a chapter 13 debtor from “lien-stripping” a claim secured solely by the debtor’s principal residence. In a heavily textual opinion written by Justice Thomas, the Court relied exclusively on the interplay between the language of two relevant sections of the Bankruptcy Code. The opinion made no reference to legislative history or bankruptcy policy.
In his Nobleman concurrence, Justice Stevens appeared as the other side of Justice Scalia’s legislative history mirror. Justice Scalia avoids considering legislative history whenever possible, whereas Justice Stevens prefers to consider legislative history whenever it might be helpful, particularly if the apparently plain meaning produces an odd result. In his concurrence, Justice Stevens explained that the majority’s interpretation created an apparent anomaly under which the Bankruptcy Code granted debtors less protection for their principal residences than for their other assets. The legislative history resolved this anomaly because it revealed that Congress had, indeed, intended to grant mortgage lenders favorable treatment in order to encourage them to make home loans.
In summary, each of the single-Justice concurring opinions decided after Justice Scalia joined the Court involves a dispute over interpretive method. In three of the majority opinions (Begier, Wolas, Patterson), the Court considered text, structure (including policy and purpose), and history (in Begier, including a reference to pre-Code practice). Justice Scalia objected to the Court’s reference to legislative history in two of these cases (Begier, Wolas), and commented on the Court’s use of a holistic analysis in the third (Patterson). In the fourth case (Nobleman), the Court considered only the text and textual structure. Justice Stevens concurred to confirm the textual meaning by reference to legislative history. These cases suggests that Justices Scalia and Stevens, at least, care enough, or disagree enough, about interpretive method to write separate opinions, even if they agree with the Court’s results.
b. Multiple Justice concurrence decisions
In the three remaining unanimous with concurrence decisions (Farrey v. Sanderfoot, Connecticut National Bank v. Germain, and Things Remembered, Inc. v. Petrarca ), three or four Justices diverged from the majority opinion.
Two of these cases (Germain and Things Remembered) involved the interaction between general jurisdiction statutes and bankruptcy jurisdiction statutes. Because neither case interpreted a provision of the Bankruptcy Code, neither adds to our understanding of how the Court will interpret the Bankruptcy Code, itself. Nevertheless, these cases are consistent with the pattern of cases in which disagreements over interpretive method have led to concurrences. In each case, Justice Thomas wrote a textual majority opinion. In each case, other Justices wrote non-textual concurrences. In each case, the Justices disagreed over aspects of the plain meaning rule, including what it means for language to be plain, and when the Court may or should look beyond the language.
In Connecticut National Bank v. Germain, the Court considered whether the federal circuit courts of appeals have power to review interlocutory orders issued by district courts in appeals from bankruptcy courts. The question arose because the bankruptcy appeals jurisdiction statute expressly grants the circuit courts power to hear only final orders issued by bankruptcy appellate panels and by district courts sitting as appellate courts in bankruptcy cases. The general jurisdiction statute grants the courts of appeal power to hear interlocutory orders issued by the district courts, in certain circumstances, but does not expressly refer to orders issued by district courts sitting as appellate courts in bankruptcy cases, rather than as trial courts.
Writing for the five-Justice majority, Justice Thomas held that the bankruptcy jurisdiction statute did not limit the courts of appeals’ power under the general jurisdiction statute. The Court reasoned that the language of the general jurisdiction statute was plain and unambiguous. Although the respondent argued that the legislative history of the bankruptcy jurisdiction statute suggested a different result, the Court refused to consider the legislative history: “When the words of a statute are unambiguous, then, this first canon is also the last: ‘judicial inquiry is complete’. . . . [J]udicial inquiry into the applicability of § 1292 begins and ends with what § 1292 does say and with what § 158(d) does not.”
The five Justices who joined this opinion embraced a prohibitive rule (the Court “may not” look beyond the text), and determined that this rule applied when the words were “unambiguous.”
In two separate concurrences, four Justices disagreed with the majority’s staunch refusal to look beyond the “plain” language. First, Justice Stevens’s concurrence began with a concise, classic statement of his interpretive philosophy: “Whenever there is some uncertainty about the meaning of a statute, it is prudent to examine its legislative history.” Justice Stevens argued that, if Congress had intended to alter appellate jurisdiction in the drastic way urged by the respondent, Congress is likely to have indicated that purpose in the legislative history. Consequently, the legislative history’s silence on the issue supported the Court’s holding. In these short statements, Justice Stevens disagreed with the majority on all three elements of the plain meaning rule. First, he rejected the prohibitive rule (may not look beyond the language), in favor of a persuasive rule (should look beyond the language if there is some uncertainty). Second, by rejecting the “unambiguous” test in favor of a “some uncertainty” test, he seemed to require a lesser degree of textual inexactitude. In contrast, the test Justice Scalia articulated in his Union Bank v. Wolas concurrence (do not look beyond the language absent a scrivener’s error that produces an absurd result) seems to be stricter than either Justice Stevens’s “some uncertainty” test or the Germain majority’s “unambiguous” test. Justice Stevens encouraged the Court to examine sources other than the text if the text contained “some uncertainty,” but cautioned that the parties would have a heavy burden of demonstrating that Congress’s intent was contrary to the plain text. Third, Justice Stevens disagreed with the majority’s conclusion that the language was plain. Finally, in reasoning that paralleled the pre-Code canon, Justice Stevens urged the Court to consider not only the legislative history, but also prior practice.
Second, Justice O’Connor wrote a separate concurrence that Justices White and Blackmun joined. These three Justices argued that the language was not plain. Rather, they reasoned that the language of the general jurisdiction statute rendered the bankruptcy jurisdiction statute largely superfluous. Nevertheless, because they did not believe that Congress “intended” this result, they agreed with the majority’s result. In this concurrence, congressional intent trumped the apparent textual meaning. Justices O’Connor, White and Blackmun agreed with Justice Stevens that the language was not plain.
Germain suggests that Justice Thomas required less clarity to deem the language unambiguous than did the four concurring Justices.
Things Remembered, Inc. v. Petrarca presented a similar dispute over the meaning of “plain” and the parameters of the plain meaning rule. Justice Thomas, writing for six Justices, held that the general federal remand statute prohibited review of a remand order, regardless of whether the proceeding had been removed under the general removal statute or the bankruptcy removal statute.
In a characteristically textual opinion, Justice Thomas relied solely on the text of the bankruptcy removal statute and the general remand statute. He found that these statutes comfortably co-existed in the bankruptcy context. He declined to rely on the (arguably ambiguous) bankruptcy remand statute.
Justice Ginsburg, in a concurrence that Justice Stevens joined, agreed with the result but argued that the Court should have considered the bankruptcy remand statute. She reconciled the two remand statutes using dictionaries and substantive holistic interpretive canons. She did not agree that the statutes, considered together, were “plain.”
In Things Remembered and Germain, Justice Thomas applied a narrow, textual interpretation to avoid considering sources that might have raised ambiguity.
Finally, in Farrey v. Sanderfoot, three Justices concurred for reasons unrelated to interpretive method. The Court held that a Bankruptcy Code lien avoidance provision did not apply if the property was subject to the lien when the debtor acquired the property. The Court discerned this rule in the language of the Bankruptcy Code, supported by the purposes and legislative history of the provision in issue. The decision turned on the Court’s factual finding that the lien had attached, under state law, at the same time the debtor acquired the property. This factual conclusion, and its broader implications for subsequent cases, raised concern among the concurring Justices.
In summary, in two of the three multiple Justice concurrence cases, interpretive disputes led to separate opinions. In these concurrences, five separate Justices (Justices Blackmun, Ginsburg, O’Connor, Stevens, and White) objected to Justice Thomas’s narrow, textual interpretation.
4. Summary of the unanimous with concurrence decisions
In all but three of the Court’s nine unanimous with concurrence decisions, Justices wrote separately because they disagreed with the majority’s interpretive method.
Two of these three cases were decided before Justice Scalia joined the Court. One, Security Industrial, involved a constitutional question; the other, Kovacs, involved a tension between bankruptcy law and environmental law. The third case, Farrey, decided after Justice Scalia joined the Court, involved the application of state law. These cases do not yet reveal any pattern.
The six cases in which Justices disagreed over interpretive method were all decided after Justice Scalia joined the Court (Begier, Wolas, Patterson, Nobleman, Germain, Things Remembered). All but one, Begier, were decided after Justice Thomas joined the Court. Three were textual opinions written by Justice Thomas, which spurred non-textual concurrences (Nobleman, Germain, Things Remembered). Two were non-textual opinions to which Justice Scalia wrote textual concurrences (Begier, Wolas). The sixth was a quasi-textual opinion to which Justice Scalia wrote a concurrence praising the Court’s holistic textualism (Patterson). It seems clear from these cases that Justices Scalia’s and Thomas’s interpretive methods have adversely affected the Court’s ability to reach consensus in bankruptcy cases.
One might argue that the disputes among the Justices in these cases have not undermined certainty because these disputes merely led to concurring opinions, rather than to disagreements over the results in these cases. These disputes, however, give the lower courts inconsistent signals concerning how to interpret the Bankruptcy Code. Moreover, Parts C (minor splits) and D (major splits) demonstrate that the Justices frequently have written dissents in Bankruptcy Code cases because disputes over interpretive method caused the Justices to reach different results.
D. The Minor Split Decisions
This article separates the minor splits and major splits simply to determine whether any pattern emerges that distinguishes those cases in which three or four Justices disagreed with the result from those cases in which only one of two Justices disagreed with the result.
The minor splits show a continuing pattern of divergent opinions arising from interpretive disputes, particularly between Justice Stevens, on the one hand, and Justices Scalia and Thomas, on the other. Other patterns also begin to emerge, including disputes arising in cases in which the Bankruptcy Code is in tension with other law.
2. Minor split decisions in the 1981 through 1985 Terms
In a per curiam opinion expressing the views of seven Justices, the Court held that a debtor could not dismiss a case filed under the former Bankruptcy Act in order to file a case under the new Bankruptcy Code. The Court based its holding on the plain language of the Bankruptcy Code.
It is elementary that the meaning of a statute must, in the first instance, be sought in the language in which the act is framed, and if that is plain, and if the law is within the constitutional authority of the law-making body which passed it, the sole function of the courts is to enforce it according to its terms.
Although the Court wrote a primarily textual opinion, and applied a textual canon, the Court, nevertheless, consulted legislative history. It noted that the legislative history supported the Court’s interpretation of the plain meaning. The Court did not, however, engage in a detailed analysis of the legislative history.
Justice Stevens dissented, in an opinion that Justice Marshall joined. The dissenters spurned the majority’s search for “meaning” in favor of a search for congressional intent. Justice Stevens discerned Congress’s intent in the purpose and spirit of the Bankruptcy Code and Bankruptcy Act. He supported his understanding of Congress’s intent through a plausible reading of the statute’s language. Finally, the dissent criticized the Court for accepting the case on an interlocutory appeal when the Court could have mooted the issue by denying certiorari.
Geiger is a good example of a case in which the Justices split (even before Justice Scalia joined the Court) in an interpretive dispute over the statute’s letter versus its presumed purpose and spirit. The dissenters discerned congressional intent by reconciling all of the sources that shed light on the statute’s meaning rather than by relying primarily, or exclusively, on the text.
3. Minor split decisions in the 1986 through 1998 terms
In fifteen Bankruptcy Code cases decided after Justice Scalia joined the Court, one or two Justices dissented. In chronological order, these cases are Kelly v. Robinson (seven-to-two, Justices Marshall and Stevens dissenting), Pennsylvania Department of Public Welfare v. Davenport (seven-to-two, Justices Blackmun and O’Connor dissenting), United States v. Energy Resources Co. (eight-to-one, Justice Blackmun dissenting), Owen v. Owen (eight-to-one, Justice Stevens dissenting), Toibb v. Radloff (eight-to-one, Justice Stevens dissenting), Dewsnup v. Timm (six-to-two, Justices Scalia and Souter dissenting), United States v. Nordic Village, Inc. (seven-to-two, Justices Stevens and Blackmun dissenting), Barnhill v. Johnson (seven-to-two, Justices Stevens and Blackmun dissenting), Taylor v. Freeland & Kronz (eight-to-one, Justice Stevens dissenting), Celotex Corp. v. Edwards (seven-to-two, Justices Stevens and Ginsburg dissenting), Field v. Mans (seven-to-two, Justices Breyer and Scalia dissenting, and Justice Ginsburg joining the majority but also writing a separate concurrence), United States v. Reorganized CF&I Fabricators of Utah, Inc. (eight-to-one, Justice Thomas concurring in part and dissenting in part), Associates Commercial Corp. v. Rash (eight-to-one, Justice Stevens dissenting and Justice Scalia joining the majority but declining to join in one footnote), and Bank of America National Trust & Savings Association v. 203 North LaSalle Street Partnership (six-to-one-to-two, Justice Stevens dissenting, and Justices Thomas and Scalia concurring).
To determine whether these dissents embody any patterns of disputes among the Justices, including patterns of disputes concerning interpretive method, this section separates the dissents according to their authors. Part (a) discusses Justice Stevens’s dissents, Part (b) discusses Justices Marshall’s and Blackmun’s dissents, Part (c) discusses Justices Thomas’s, Scalia’s, and Breyer’s dissents, and Part (d) discusses a case in which Justice Stevens dissented and Justices Thomas and Scalia concurred.
Notice that only six Justices wrote dissents in these fifteen minor split cases. Of these, only four, Justices Breyer, Scalia, Stevens, and Thomas, remain on the Court today. The analysis below reveals that most of Justices Scalia’s, Stevens’s, and Thomas’s dissents arose from disagreements among these three Justices over interpretive method. Not surprisingly, Justices Scalia and Thomas prefer textual interpretive methods whereas Justice Stevens prefers more flexible interpretive methods.
a. Justice Stevens’s dissents
Justice Stevens dissented in nine of the fifteen minor splits during the 1986 through 1998 Terms. He wrote the dissents in the following eight cases: Owen v. Owen, Toibb v. Radloff, United States v. Nordic Village, Inc., (joined by Justice Blackmun), Barnhill v. Johnson, (joined by Justice Blackmun), Taylor v. Freeland & Kronz, Celotex Corp. v. Edwards, (joined by Justice Ginsburg), Associates Commercial Corp. v. Rash, and Bank of America National Trust & Savings Association v. 203 North LaSalle Street Partnership. In the ninth case, Kelly v. Robinson, Justice Stevens joined a dissent that Justice Marshall wrote. Kelly is discussed in Part (b) together with Justices Marshall’s and Blackmun’s other dissents.
In six of the eight dissents that he wrote, Justice Stevens disagreed with the majority over interpretive method. The two remaining cases each involved some disagreement over interpretive method; however, these cases are better understood as disputes concerning constitutional or quasi-constitutional issues that simply happened to arise in the bankruptcy context.
In five of the six cases involving Bankruptcy Code interpretation disputes, the majority relied primarily on the text of the Bankruptcy Code. These are Owen v. Owen, Barnhill v. Johnson, Taylor v. Freeland & Kronz, Toibb v. Radloff, and Associates Commercial Corp. v. Rash. In each of these cases, Justice Stevens would have reached a different result by applying an interpretive method that relied less exclusively on the text and more flexibly on other sources. Specifically, Justice Stevens would have relied on (i) the text viewed in the context of the function of the Bankruptcy Code sections in issue (Owens); (ii) the text, holistic interpretive canons, consistency with commercial practice, and legislative history (Barnhill); (iii) policy, equity, and the common law, supported by the text (Taylor); (iv) a holistic reading of the Bankruptcy Code, supported by the legislative history (Toibb); and (v) the text, supported by the context of the entire Bankruptcy Code, and a comparison of similar substantive bankruptcy concepts in different Bankruptcy Code chapters (Rash).
These cases demonstrate Justice Stevens’s standard approach of reviewing all relevant sources of meaning and determining congressional intent through the best justification of these sources, rather than giving primacy to one source, such as the text. In the majority opinions, the Court generally deferred to the text because the text was clear. Two of the majority opinions employed a textual canon that prohibited the Court from consulting legislative history because the text was unambiguous.
The sixth Justice Stevens dissent, in Bank of America National Trust & Savings Association v. 203 North LaSalle Street Partnership, will be discussed in Part (d). This discussion will allow the reader to review Justices’ Thomas’s and Scalia’s dissents in Part (c) and then compare Justice Stevens’s dissent in LaSalle to Justice Thomas’s and Justice Scalia’s concurrence in LaSalle.
The two remaining minor split cases in which Justice Stevens wrote a dissent involve interpretive disputes; however, they are best understood not as Bankruptcy Code interpretive disputes but as constitutional or quasi-constitutional questions that simply happened to arise in the bankruptcy context.
The seventh case, United States v. Nordic Village, Inc. presented a quasi-constitutional question that is clearly explained as a part of the Court’s sovereign immunity jurisprudence. The majority’s reading of the text in Nordic Village was heavily influenced by a judicially created rule applied exclusively to sovereign immunity cases. This rule requires that Congress make an “unequivocal statement” in order to waive the federal government’s immunity from suit. The Court held that the statement in the Bankruptcy Code was not sufficiently unequivocal.
Justice Stevens, joined by Justice Blackmun, disagreed. He argued that the Court’s result was not only unjust, but also unnecessary because the text plainly provided a waiver and the legislative history suggested that Congress had intended to effect a waiver. The dissent also castigated the majority for insisting that Congress make a “clear statement” in order to waive sovereign immunity.
The eighth, and final, Justice Stevens dissent occurred in Celotex Corp. v. Edwards. In Celotex, the Court held that creditors could not collaterally attack a bankruptcy court injunction that prohibited the creditors from executing upon a bond issued by the debtor’s surety. The dissent argued that the non-Article III bankruptcy court had no jurisdiction to enjoin an Article III court. Even if bankruptcy courts did have such jurisdiction, the dissent argued, the injunction should have been voided because it had only a frivolous pretense to validity. Celotex raised a constitutional question – not a question of statutory interpretation.
b. Justices Blackmun’s and Marshall’s dissents
Justices Stevens’s, Blackmun’s, and Marshall’s dissents overlap. Justice Blackmun joined Justice Stevens’ dissent in Barnhill v. Johnson. Justice Blackmun wrote the dissent in two other minor split decisions, namely Pennsylvania Department of Public Welfare v. Davenport and United States v. Energy Resources Co. In another minor split decision, Kelly v. Robinson, Justice Marshall wrote the dissent, which Justice Stevens joined. Part (b) discusses Justices Marshall’s and Blackmun’s dissents in Kelly, Davenport, and Energy Resources.
In Kelly, the Court held that a state criminal restitution obligation imposed as a condition of probation was not dischargeable in an individual’s chapter 7 case. The Court concluded that such an obligation fits within the exception to discharge for fines and penalties that are payable to or for the benefit of the government and that are not “compensation for actual pecuniary loss.” In dictum, the Court also suggested that, even if this exception to discharge did not apply, a restitution penalty might be enforceable notwithstanding the bankruptcy case because the Court had “serious doubts whether Congress intended to make criminal penalties ‘debts’” under the Bankruptcy Code.
The Court based its holding on the “language . . . in light of the history of bankruptcy court deference to criminal judgments and in light of the interests of the States in unfettered administration of their criminal justice systems.” Faced with a perceived tension between bankruptcy law and states’ interests, the Court heavily favored the states’ interests. The Court reasoned that the bankruptcy courts had always deferred to state criminal proceedings and judgments, both under the Bankruptcy Code and prior law, even where that deference seemed inconsistent with the bankruptcy law’s plain language.
The Court applied a pre-Code canon to justify its reliance on prior practice. This canon states that “’if Congress intends for legislation to change the interpretation of a judicially created concept, it makes that intent specific. The Court has followed this rule with particular care in construing the scope of bankruptcy codifications.’”
Kelly embodies the Court’s broadest application of the pre-Code canon. In Kelly, the Court applied the canon not simply to embrace a judicial interpretation of the Bankruptcy Act, nor simply to trace the historical development of a Bankruptcy Code concept. Instead, the Court applied the canon broadly to comment on the historical relationship between the Bankruptcy Code and state criminal law, and to incorporate into the federal Bankruptcy Code an implied principle of deference to an important state interest, despite the Supremacy Clause.
The dissenters (Justices Marshall and Stevens) argued that, according to the language and history of the Bankruptcy Code, restitution claims were indeed “debts” under the Bankruptcy Code. They also argued that, on its face, the discharge exception, upon which the Court relied, did not apply to restitution obligations. The dissenters expressed sympathy for the policy interests that drove the Court’s reasoning, but argued that separation of powers prohibited the Court from pre-empting congressional action in favor of the Court’s own view of good policy.
Finally, the Kelly dissenters warned that the restitution issue was likely to arise again because the discharge exception upon which the Court had relied in Kelly applies only in chapter 7 cases. A chapter 13 case would force the Court to revisit the dicta in which the Court had suggested that restitution obligations might not be “debts.”
Four years after Kelly, the Court was required to revisit the restitution question in a chapter 13 case, Pennsylvania Department of Public Welfare v. Davenport. In Davenport, the Court abandoned the Kelly dicta. Instead, the Court relied upon the language and structure of the Bankruptcy Code to hold that criminal restitution obligations do, indeed, constitute “debts” for purposes of the Bankruptcy Code. Because the discharge exception upon which the Court had relied in Kelly does not apply in chapter 13 cases, the Court held that restitution debts are dischargeable in chapter 13 cases.
The Court embraced the same pre-Code practice canon that it had applied in Kelly: “We will not read the Bankruptcy Code to erode past bankruptcy practice absent a clear indication that Congress intended such a departure.” Nevertheless, the Court concluded that the plain language of the Bankruptcy Code did, indeed, clearly evince Congress’s intent to change prior practice. The Court reasoned that concerns for the administration of states’ criminal justice systems could not justify rewriting the plain language of the Bankruptcy Code in order to defer to state criminal law.
Justice Blackmun’s dissent, which Justice O’Connor joined, heartily embraced Kelly’s states’ rights dicta and concluded that the Bankruptcy Code does not permit the discharge of criminal restitution obligations in chapter 13 cases. Both Justices had joined the majority opinion in Kelly.
The dissent’s attempt to justify its deference to state law despite the Bankruptcy Code’s plain language provides a fascinating reconciliation of the Court’s prior decisions and a revealing insight into the interpretive method that at least two Justices consider proper for the Bankruptcy Code. The dissent lamented the majority’s approach, stating:
This Court carefully has set forth a method for statutory analysis of the Bankruptcy Code. . . . When analyzing a bankruptcy statute, the Court, of course, looks to its plain language. But the Court has warned against an overly literal interpretation of the Bankruptcy Code. “‘[W]e must not be guided by a single sentence or member of a sentence, but look to the provisions of the whole law, and to its object and policy.” ’ The strict language of the Bankruptcy Code does not control, even if the statutory language has a “plain” meaning, if the application of that language ‘will produce a result demonstrably at odds with the intention of its drafters’. . . . To determine the drafters’ intent, the Court presumes that Congress intended to keep continuity between pre-Code judicial practice and the enactment of the Bankruptcy Code in 1978. . . . For me, the statutory language, the consistent authority treating criminal sanctions as nondischargeable under the Bankruptcy Act of 1898, the absence of any legislative history suggesting that the Code was intended to change that established principle, and the strong policy of deference to state criminal judgments all compel the conclusion that a restitution order is not a dischargeable debt.
This statement raises three critical issues concerning the plain meaning canon and the relationship between that canon and the pre-Code practice canon. First, in the unique context of the Bankruptcy Code, Justices Blackmun and O’Connor would have required very little evidence of “ambiguity” before looking beyond the text. Indeed, they suggested that the Court should be chary of accepting a textual interpretation that fails to reconcile the statute’s language with the statute’s structure, object, policy, and history. Second, in this iteration of the pre-Code canon, Justices Blackmun and O’Connor seemed to suggest that, if Congress intends to alter pre-Code practice, it will do more than indicate its intent in the text. It will also confirm, through statements in the legislative history, that it knew it was making a change and that it intended to make that change. In contrast, for the majority, a clear statement in the text was adequate evidence of Congress’s intent to change pre-Code practice. Third, like the Kelly majority, the Davenport dissent linked the pre-Code canon with deference to state criminal processes. The Kelly majority and the Davenport dissent did not go so far as to suggest, in contravention of the Supremacy Clause, that federal bankruptcy law is subordinate to state criminal law. Rather, they suggested that the history and practice of federal bankruptcy law, itself, embodied a principle of deference.
A similar question of deference to important governmental interests arose, although more subtly, in United States v. Energy Resources Co. The Court held that the bankruptcy court has authority to order the Internal Revenue Service to treat tax payments made by a chapter 11 debtor as trust fund payments. The Court found that this power was consistent with the bankruptcy courts’ broad equitable powers to adjust debtor-creditor relationships, and that this power did not conflict with other laws protecting important governmental interests. The latter part of this reasoning implies that the Court might have balked if the exercise of this power had conflicted with important governmental interests. The Court also noted that the bankruptcy court had the power to designate trust fund taxes if the court concluded that such an order was necessary for the success of the reorganization.
Justice Blackmun dissented. Because Justice Blackmun did not write an opinion, it is difficult to classify the nature of his disagreement with the majority. The dissent appears, however, to be consistent with Justice Blackmun’s view that bankruptcy law should defer to important governmental interests. This speculation follows from the fact that Justice Blackmun joined the states’ rights oriented Kelly majority and wrote the states’ rights-oriented Davenport dissent. Each of these opinions required that the Court read the Bankruptcy Code to defer to state governmental interests. By dissenting in Energy Resources, Justice Blackmun recorded his opposition to the Court’s refusal to defer to the federal government’s interest in designating the treatment of tax payments. Because the Court issued Energy Resources and Davenport on the same day, Justice Blackmun may have had inadequate time to write a separate opinion in Energy Resources, and may have believed that his opinion in Davenport adequately conveyed his views concerning the Bankruptcy Code’s deference to important governmental interests.
Kelly, Davenport, and Energy Resources introduce questions concerning the manner in which the Court will interpret the Bankruptcy Code when the Bankruptcy Code interacts with important state and federal governmental interests. We shall see this pattern arise again in the major splits.
c. Justices Scalia’s, Thomas’s and Breyer’s dissents
Justices Scalia, Thomas, and Breyer dissented in three minor split cases. In United States v. Reorganized CF&I Fabricators of Utah, Inc., Justice Scalia declined to join a portion of the majority opinion, and Justice Thomas concurred, in part, and dissented, in part. In Dewsnup v. Timm, Justice Scalia dissented. In Field v. Mans, Justice Breyer wrote a dissent, which Justice Scalia joined. In Field, Justice Ginsburg joined the majority but also wrote a concurrence.
In CF&I Fabricators, the Court held that (i) for purposes of the Bankruptcy Code’s priority scheme, certain payments required under the Internal Revenue Code (“IRC”) in connection with pension plan funding deficiencies were penalties rather than priority excise taxes, and (ii) the Bankruptcy Code did not allow the courts categorically to subordinate all such penalty obligations.
In the absence of any clear textual guidance, Justice Souter based his analysis primarily on Supreme Court Bankruptcy Act precedents, which required the courts to apply a “functional analysis” to determine whether an exaction was a “tax” for Bankruptcy Code priority purposes. In an unusual twist on the pre-Code canon, he noted that “Congress could, of course, have intended a different interpretive method for reading terms used in the Bankruptcy Code it created in 1978. But if it had so intended we would expect some statutory indication . . . .” The Court relied upon its Bankruptcy Code precedent, United States v. Noland, to conclude that the bankruptcy court could not categorically subordinate tax penalties.
Justice Scalia, true to his textualist leanings, declined to join the portion of the majority opinion that discussed the IRC’s legislative history. He did not, however, object to the Court’s examination of other sources beyond the text. Presumably, he concurred in this examination because he agreed that the text was ambiguous.
Justice Thomas concurred in part and dissented in part. He argued that, if Congress imposes a “tax” that is generally considered to be an excise tax, then it is an excise tax for Bankruptcy Code priority purposes. Although the bankruptcy court can apply a functional analysis to determine whether a statutory obligation that a state calls a “tax” is a “tax” for federal Bankruptcy Code priority purposes, the bankruptcy court must view any “tax” that Congress imposes in a federal statute as a “tax” for bankruptcy purposes.
Second, in Dewsnup v. Timm, as in Kelly v. Robinson and Pennsylvania Department of Public Welfare v. Davenport, the Justices split again over the scope, application, and interaction between the plain-meaning rule and the pre-Code practice canon.
In Dewsnup, the Court considered the interplay between Bankruptcy Code subsections 506(a) and (d). Under section 506(a), a secured creditor’s “allowed secured claim” is equal to the lesser of the amount of the claim or the value of the collateral. Consequently, if an “undersecured” creditor holds a claim for one million dollars, but the collateral is worth only seven hundred thousand dollars, the creditor will have an allowed secured claim of seven hundred thousand dollars and an unsecured claim of three hundred thousand dollars. The creditor in Dewsnup held such an undersecured claim.
Section 506(d) allows a debtor to avoid a lien to the extent that the lien secures a claim that is not an “allowed secured claim.” This section allows the debtor to avoid a lien when the underlying claim has been found to be invalid. The debtor argued that section 506(d) also allowed the Court to “strip down” an undersecured creditor’s lien to the judicially determined value of the property. Avoiding the lien would make it easier for the debtor to confirm a plan of reorganization over the creditor’s objection.
The Court denied the strip down, even though only the “secured” portion of the claim was an “allowed secured claim” under section 506(a). The Court reached this result by declining to apply section 506(a)’s definition of “allowed secured claim” to section 506(d). Instead, the Court concluded that the debtor could not avoid the lien if the creditor’s claim was both “allowed” (i.e., was a valid claim not subject to disallowance or avoidance) and “secured” (i.e., any portion of the allowed claim was secured by any of the debtor’s property).
The Court reasoned that the divergent views espoused by the parties and amici demonstrated that the language was ambiguous. The Court then rejected the “words have the same meaning throughout the statute” canon in favor of a pre-Code practice canon.
Were we writing on a clean slate, we might be inclined to agree with petitioner that the words allowed secured claim must take the same meaning in § 506(d) as in § 506(a). But, given the ambiguity in the text, we are not convinced that Congress intended to depart from the pre-Code rule that liens pass through bankruptcy unaffected.
In perhaps the strongest statement yet of the Court’s pre-Code practice canon, the Court explained that:
[w]hen Congress amends the bankruptcy laws, it does not write “on a clean slate.” [citations omitted] Furthermore, this Court has been reluctant to accept arguments that would interpret the Code, however vague the particular language under consideration might be, to effect a major change in pre-Code practice that is not the subject of at least some discussion in the legislative history. [citations omitted] Of course, where the language is unambiguous, silence in the legislative history cannot be controlling. But, given the ambiguity here, to attribute to Congress the intention to grant a debtor the broad new remedy . . . without the new remedy’s being mentioned somewhere in the Code itself or in the annals of Congress is not plausible, in our view, and is contrary to basic bankruptcy principles.
Notice the similarity between this iteration of the manner in which the Court will reconcile the text and pre-Code practice and the interpretive philosophy stated in the Davenport dissent. Not surprisingly, the same Justice, Justice Blackmun, wrote both. Because Justice Blackmun is no longer on the Court, the continued viability of his flexible test is unclear. Only four of the Justices who joined Justice Blackmun’s majority opinion in Dewsnup remain on the Court today. These are Chief Justice Rehnquist, and Justices Kennedy, O’Connor, and Stevens. Justices Blackmun and White, who also joined the Dewsnup majority, have been replaced by Justices Thomas, Ginsburg, and Breyer.
Justice Scalia answered with a stinging dissent, which Justice Souter joined. The dissenters castigated the majority for “replac[ing] what Congress said with what it thinks Congress ought to have said – and in the process disregard[ing], and hence impair[ing] for future use, well-established principles of statutory construction.” Similarly, the dissent complained that:
[t]he principal harm caused by today’s decision is not the misinterpretation of § 506(d) of the Bankruptcy Code. . . . The greater and more enduring damage of today’s opinion consists in its destruction of predictability, in the Bankruptcy Code and elsewhere. By disregarding well-established and oft-repeated principles of statutory construction, it renders those principles less secure and the certainty they are designed to achieve less attainable. When a seemingly clear provision can be pronounced ambiguous sans textual and structural analysis, and when the assumption of uniform meaning is replaced by ‘one-subsection-at-a-time’ interpretation, innumerable statutory texts become worth litigating.
In this concise statement of his interpretive philosophy, Justice Scalia objected to three aspects of the Court’s interpretive method. He argued that the Court manufactured an ambiguity, failed to apply holistic textualism, and improperly considered pre-Code practice and legislative history.
First, the dissent undertook a natural or plain meaning reading. According to the dissent, section 506(d) “[r]ead naturally and in accordance with other provisions of the statute” “unambiguously provides” that the lien is avoidable. Disagreement among self-interested litigants cannot create an ambiguity because “[t]his mode of analysis makes every litigated statute ambiguous.”
Second, the dissent applied a holistic textual analysis. The dissent argued that the phrase “allowed secured claim,” used in section 506(d) “obviously bears” the meaning set forth in section 506(a) and “inevitably means” the same thing when that phrase is used throughout the Bankruptcy Code. In a “clear and unmistakable pattern of usage,” the Bankruptcy Code is similarly consistent in its use of the phrases “allowed unsecured claim” and “allowed claim.” The dissent argued that “the normal rule of statutory construction that identical words used in different parts of the same act are intended to have the same meaning . . . . must surely apply, a fortiori, to use of identical words in the same section of the same enactment.” According to the dissent, the majority replaced this “normal and sensible” rule with a “one-section-at-a time” approach.
Third, the dissent challenged the majority’s application of the pre-Code canon. The dissent did not absolutely prohibit all uses of the pre-Code canon, but it articulated a narrower canon under which the Court may consult pre-Code practice only if the statute contains a gap or true ambiguity. The dissent acknowledged that:
[w]e have, of course, often consulted pre-Code behavior in the course of interpreting gaps in the express coverage of the Code, or genuinely ambiguous provisions. And we have often said in such cases that, absent a textual footing, we will not presume a departure from longstanding pre-Code practice [citing Midlantic National Bank v. New Jersey Department of Environmental Protection, and Kelly v. Robinson ]. But we have never held pre-Code practice to be determinative in the face of what we have here: contradictory statutory text. To the contrary, where “the statutory language plainly reveals Congress’ intent” to alter pre-Code regimes [citing Pennsylvania Department of Public Welfare v. Davenport ], we have simply enforced the new Code according to its terms, without insisting upon “at least some discussion [of the change from prior law] in the legislative history,” . . . . Congress’ careful reexamination and entire rewriting of those provisions supports the conclusion that, regardless of whether pre-Code practice is retained or abandoned, the text means precisely what it says.
Finally, in an innocuous but intriguing comment, the dissent quoted from United States v. Ron Pair Enterprises, Inc. The dissent noted that, in Ron Pair, “[h]aving found a ‘natural interpretation of the statutory language [that] does not conflict with any significant state or federal interest, nor with any other aspect of the Code,’ . . . we deemed the pre-Code practice to be irrelevant.” This passage suggests that Justice Scalia might allow language, textual canons, and structure to be overridden when the Bankruptcy Code clashes with some important state or federal interest.
The circuit courts of appeal were split over the level of reliance required under the fraud exception to discharge. As in Grogan v. Garner, the statute contained a gap – it did not expressly state what type of reliance was required. The Court held that the exception required “justifiable reliance,” which it defined as being a lower standard than “reasonable reliance,” but a higher standard than “actual reliance.” The Court reasoned that, when Congress uses a term that had a settled meaning under the common law (i.e., the term “fraud”), Congress intends to incorporate the common law meaning. The Court concluded that, under the common law in effect in 1978 (when the relevant provision was enacted), a party was required to show justifiable reliance in order to prove fraud. In essence, the Court defined a Bankruptcy Code term by reference to its established pre-Code, common law meaning.
Justice Breyer dissented, joined by Justice Scalia. The dissenters agreed that justifiable reliance was the proper standard. They argued, however, that the bankruptcy court had, in fact, applied a justifiable reliance standard, even though it had used the phrase “reasonable reliance.”
The questions raised in Kelly, Davenport, and Dewsnup concerning the scope of and relationship between the plain meaning rule and the pre-Code canon arose again in the final minor split.
d. Justices Scalia’s and Thomas’s concurrence with Justice Stevens’s dissent
Bank of America National Trust & Savings Assoc. v. 203 North LaSalle Street Partnership, was the final minor split of the 1986 through 1998 Terms. LaSalle, which is the Court’s most recent Bankruptcy Code decision, represents a culmination of the Court’s bankruptcy jurisprudence, in several ways.
First, the separate opinions are based upon disputes concerning interpretive method. Second, these disputes relate to the major interpretive elements that have caused rifts among the Justices in other cases, including what constitutes plain meaning, when the Court may consider legislative history (if ever), and what role pre-Code law and practice should play in Bankruptcy Code interpretation. Third, the Justices who have carried the banner for more formalistic interpretation (Justices Scalia and Thomas) and more flexible interpretation (Justice Stevens), concurred and dissented in LaSalle. Fourth, LaSalle raised a hotly contested issue that has widely split the circuit courts of appeal and that has come before the Court three times without a definitive resolution.
In LaSalle, the Court once again considered, and once again refused to determine, whether the so-called new value corollary (or exception) to the absolute priority rule had survived the enactment of the Bankruptcy Code.
Because the Bankruptcy Code’s language was “inexact,” the Court did not rely solely upon the text. The Court, nevertheless, declined to rely upon an out of context reading of seemingly absolute statements in legislative history. Instead, the majority examined the pre-Code judicial development of the absolute priority rule and the new value corollary. It characterized the corollary as an “observation” that the Court had made in dictum in a pre-Code case. LaSalle, in its own dictum, seemed to embrace this “observation” when it stated that:
[t]he upshot is that this history does nothing to disparage the possibility apparent in the statutory text, that the absolute priority rule now on the books as subsection  (b)(2)(B)(ii) may carry a new value corollary. Although there is no literal reference to new value in the phrase on account of such junior claim, the phrase could arguably carry such an implication in modifying the prohibition against receipt by junior claimants of any interest under a plan while a senior class of nonconsenting creditors goes less than fully paid.
This passage suggests that, when old equity receives property in exchange for a new contribution, it does not violate the absolute priority rule because old equity does not receive property “on account of” its prior equity interest. The Court found that this interpretation, which was suggested by the text, context, and practical considerations, was consistent with Bankruptcy Code policy because it read section 1129 “as intended to reconcile the two recognized policies underlying Chapter 11, of preserving going concerns and maximizing property available to satisfy creditors . . . .”
Nevertheless, the Court concluded that old equity would be receiving property “on account of” its old interest if it received the exclusive opportunity to acquire the new ownership interest. Stated simply, the opportunity to acquire ownership is valuable “property,” similar to a purchase option, for which someone might pay. Even if the ownership is acquired for market value (like an option exercised at market value), the exclusive right to buy has value.
Because the old equity holders in LaSalle had, in fact, been given the exclusive opportunity to acquire the new equity interest, the Court concluded that the plan did not satisfy the elements of any new value corollary that might have survived the enactment of the Bankruptcy Code. The Court declined to offer suggestions on the type of marketing or bidding that would meet the requisite opportunity for competition.
Justice Thomas, in a concurrence that Justice Scalia joined, agreed that the plan should not be confirmed. These two formalist Justices wrote separately, however, to object to the Court’s “approach to interpretation.” They advocated textual interpretation in place of the Court’s more flexible reliance on history and pre-Code practice.
First, they argued that the Bankruptcy Code’s text does not expressly authorize pre-petition equity holders to receive or retain property in exchange for an infusion of new value. Rather, it provides that a plan is fair and equitable if either the objecting senior class is paid in full or no junior class retains any property “on account of” its junior interest. After consulting two dictionaries, the concurring Justices concluded that the “common understanding” of the phrase “on account of” denoted some type of causal relationship between the junior interest and the property retained. Applying this definition, they concluded that the equity holders undoubtedly received property on account of their prior interests.
Second, they launched a more general criticism in which they complained that:
[t]he majority also underestimates the need for a clear method for interpreting the Bankruptcy Code. It extensively surveys pre-Code practice and legislative history, . . . but fails to explain the relevance of these sources to the interpretive question apart from the conclusory assertion that the Code’s language is “inexact” and the history is “helpful.” . . . This sort of approach to interpretation of the Bankruptcy Code repeats a methodological error committed by this Court in Dewsnup v. Timm.
Dewsnup’s approach to statutory interpretation enables litigants to undermine the Code by creating “ambiguous” statutory language and then cramming into the Code any good idea that can be garnered from pre-Code practice or legislative history.
The concurrence argued that the Court should not refer to pre-Code practice unless the statute truly is ambiguous. Even then, the concurring Justices suggested that the Court should not engraft onto the Bankruptcy Code concepts developed in a pre-Code era because the Bankruptcy Code had substantially changed pre-Code law.
Recall that Justice Scalia raised three principal complaints in his Dewsnup v. Timm dissent. First, he complained that the Court had creating ambiguity where none existed. Second, he argued that the Court should have applied a holistic, textual analysis. Third, he complained that the Court had rejected the plain meaning in favor of pre-Code practice. Justice Scalia had agreed, in his Dewsnup dissent, that the Court could consider pre-Code practice if the Bankruptcy Code’s language was ambiguous. When Justices Scalia and Thomas, in LaSalle, criticized the Court for applying a method like the one the Court had applied in Dewsnup, they were complaining that the Court found ambiguity where there was none. In LaSalle, however, the dissenters read the language narrowly to avoid finding ambiguity. This observation suggests that Justices Scalia and Thomas embrace a more formalistic view of what it means for the language to be plain.
In striking contrast, Justice Stevens’s LaSalle dissent reflects impatience with the Court’s continued refusal to resolve the new value question. First, he argued that the Court should have held, rather than merely observed in dictum, that the holder of a junior interest does not receive property “on account of” his prior interest when he receives property based upon adequate new value. To Justice Stevens, this result was obvious because the Court had unequivocally accepted the new value corollary in pre-Code case law.
Second, Justice Stevens argued that the Court’s objections to the plan because of lack of bidding were “unsupported by either the text of 11 U.S.C. § 1129(b)(2)(B)(ii) or the record in this case.” According to Justice Stevens, the sole issue should have been the fairness of the price. If the price was fair, it should not have mattered whether the old equity or a third party made the offer.
LaSalle both complicates and clarifies the Court’s interpretation of the Bankruptcy Code. It complicates the Court’s method because it creates greater uncertainty concerning when the Court will rely upon only the text, and when it will consider pre-Code law. It clarifies the Court’s approach because it suggests that the majority of the Court employs an interpretive method that is both less rigid that Justices Thomas’s and Scalia’s formalist approach, and less dynamic that Justice Stevens’s flexible approach. In other words, six of the Justices are more liberal than Justices Scalia and Thomas in their willingness to find ambiguity and to consult Bankruptcy Code history, including pre-Code practice, to clarify that ambiguity. These same Justices, however, are more conservative than Justice Stevens in their reluctance to embrace a definitive rule when the facts allow them to avoid doing so. This conclusion suggests that the Court may have a six-Justice interpretive center, a two-Justice interpretive “right,” and a single-Justice interpretive “left.”
4. Summary of the minor split decisions
First, the minor split decisions display a continuing strong pattern of disputes among the Justices over interpretive method. Consequently, interpretive method matters to the Justices, particularly to Justices Scalia, Stevens, and Thomas.
Second, these cases reveal more clearly the parameters of these disputes. The principal elements over which the Justices disagree relate to the parameters of the plain meaning canon and the relationship between that canon and the pre-Code canon.
Third, some of these cases reveal an emerging pattern of disputes among the Justices concerning deference to non-bankruptcy, state and federal law or important governmental interests.
Part D considers whether these emerging patterns continue in the major split decisions.
E. The Major Split Decisions
Since the Bankruptcy Code was enacted, the Court has issued only nine major split decisions.
The Court has issued five five-to-four split decisions: NLRB v. Bildisco & Bildisco, Midlantic National Bank v. New Jersey Department of Environmental Protection, United States v. Ron Pair Enterprises, Inc., Pioneer Investment Services Co. v. Brunswick Associates Limited Partnership, and BFP v. Resolution Trust Corp.
The Court decided three of these nine cases (Marathon, Bildisco, and Midlantic) before Justice Scalia joined the Court. Because no obvious pattern distinguishes the major split decisions issued before Justice Scalia joined the Court from those issued after he joined the Court, analyzing the opinions based upon when they were decided will not be useful.
Instead, these cases reveal an interesting pattern rooted primarily in the nature of the questions presented. Three of the cases raise constitutional or quasi-constitutional questions. Four involve tensions between the Bankruptcy Code and other law. The remaining two continue the pattern of cases in which the Justices split over interpretive method.
2. The constitutional and quasi-constitutional questions
Each of the two plurality decisions (Marathon, Hoffman) and one of the two six-to-three splits (Granfinanciera) turned on a constitutional or quasi-constitutional question, not a bankruptcy question.
In Northern Pipeline Construction Co. v. Marathon Pipe Line Co., the Court considered the constitutionality of the Bankruptcy Code’s original jurisdictional structure, which granted broad powers to non-Article III judges. Four Justices joined the plurality opinion, which held that the grant was overbroad. Two Justices joined a concurrence. Three Justices joined two separate dissents.
In Hoffman v. Connecticut Department of Income Maintenance, the Court considered whether the Bankruptcy Code provided an unmistakably clear waiver of states’ immunity from suits filed in bankruptcy courts to recover money damages and, if so, whether Congress had constitutional power to effect such a waiver in a federal statute. Although the four-Justice plurality opinion avoided the constitutional question by holding that the Bankruptcy Code did not provide a clear waiver, all six of the concurring and dissenting Justices would have reached the constitutional question. This case, like United States v. Nordic Village, is best understood as a quasi-constitutional question that arises from the Court’s sovereign immunity jurisprudence.
In Granfinanciera v. Nordberg, the Court held that the Seventh Amendment entitles a person who has not filed a claim against the bankruptcy estate to a jury trial when the trustee sues that person to recover an allegedly fraudulent transfer, even though fraudulent transfer actions are “core proceedings” in bankruptcy cases.
Justice Scalia concurred in the judgment and concurred in the opinion, except for the Court’s discussion of “private rights” and “public rights” for purposes of determining which matters Congress may assign to non-Article III tribunals.
Three dissenting Justices argued that the Seventh Amendment does not prohibit Congress from assigning avoidance power actions to the bankruptcy courts without giving the defendants a right to a jury trial.
3. The Bankruptcy Code interaction with other law cases
In three of the five-to-four split decisions (NLRB v. Bildisco & Bildisco, Midlantic National Bank v. New Jersey Department of Environmental Protection, and BFP v. Resolution Trust Corp. ), and one of the six-to-three split decisions (California State Board of Equalization v. Sierra Summit, Inc. ), the Justices disagreed among themselves concerning how to reconcile the Bankruptcy Code and other non-bankruptcy law. In each case, the split arose when one group of Justices took a bankruptcy-centric view and the other group of Justices took a non-bankruptcy-centric view of the question presented.
First, in Midlantic National Bank v. New Jersey Department of Environmental Protection, the trustee sought to abandon contaminated properties over the objection of two state environmental protection agencies. The agencies demanded a clean-up and argued that abandonment would threaten the public health and safety and violate federal environmental law.
The majority ruled in favor of the states in an opinion that attempted to reconcile the Bankruptcy Code with federal environmental law and policy. The majority relied heavily upon a liberal application of the pre-Code interpretive canon and deference to environmental policy.
First, the Court noted that “[t]he normal rule of statutory construction is that if Congress intends for legislation to change the interpretation of a judicially created concept, it makes that intent specific,” and that the Court has followed this rule with “particular care” in interpreting bankruptcy legislation. The Court reasoned that the pre-Code judicially developed abandonment doctrine was subject to well-recognized, judicially developed limitations designed to protect important federal or state interests. The Court concluded that Congress had not clearly abrogated those limitations on abandonment when it codified the abandonment power.
This reasoning is quite similar to that employed by the Kelly v. Robinson majority. In both cases, the pre-Code practice that the Court adopted embraced a policy of deference to non-bankruptcy law that had a substantial impact on an important governmental interest.
Second, the Court acknowledged Congress’s “undisputed” concern over hazardous waste disposal, and concluded that Congress had not intended to undermine its goal of environmental protection when it expressly codified the abandonment power without also expressly codifying the established common-law restrictions on abandonment.
The dissenters, in contrast, took a bankruptcy-centric view of the question. They argued that the clear text of the Bankruptcy Code allowed abandonment without restrictions, the scant legislative history did not reflect a congressional intent to limit the abandonment power, and the few pre-Code cases on which the majority relied did not support the Court’s conclusion that there were broad, well-established limitations on abandonment before the Bankruptcy Code was enacted. The dissent further suggested that imposing limits on the abandonment power and forcing the debtor to clean up hazardous waste sites violated the purposes of the Bankruptcy Code. Finally, the dissent argued that the Court had improperly employed equitable powers to enforce its own view of sound public policy.
In NLRB v. Bildisco & Bildisco, the Court struggled to reconcile bankruptcy policy with the policies underlying federal labor law. In Bildisco, however, unlike Midlantic, the Court viewed the non-bankruptcy federal law from a bankruptcy law perspective.
Five Justices concluded that the debtor-in-possession had not committed an unfair labor practice when it had unilaterally modified a collective bargaining agreement before rejecting it. The majority relied heavily on bankruptcy policy, and briefly noted that honoring the Bankruptcy Code’s language and policies would not violate labor policy.
The Court reasoned that the authority to reject an executory contract was vital to the “fundamental purpose of reorganization . . . to prevent a debtor from going into liquidation, with an attendant loss of jobs and possible misuse of economic resources.” The Court concluded that allowing the NLRB to pursue an action for unfair labor practices would “run directly counter to the express provisions of the Bankruptcy Code and to the Code’s overall effort to give a debtor-in-possession some flexibility and breathing space.”
Permitting a debtor in possession unilaterally to alter a collective-bargaining agreement in order to further the goals of the Bankruptcy Code seriously undermines the goals of the NLRA. We thus have the duty to decide the issue before us in a way that accommodates the policies of both federal statutes. That cannot properly be done, in the Court’s fashion, by concentrating on the Bankruptcy Code alone . . . .
Rather than beginning with the Bankruptcy Code, the dissent relied heavily on the language and policies underlying the NLRA. It concluded that the NLRA’s unfair labor practice provisions applied to debtors seeking to modify union contracts in bankruptcy cases. The dissent concluded that, if one were to consider only the NLRA’s language and policy, one would necessarily conclude that it was intended to apply in a bankruptcy case. The dissent then considered whether any Bankruptcy Code provisions or policies altered this conclusion.
The question then is whether application of § 8(d) would so undermine the goals of the Bankruptcy Code that, despite the deleterious effect on the policies of the NLRA, Congress could not have intended that § 8(d) remain applicable once a bankruptcy petition has been filed.
Applying this labor-law-centric test, the dissent concluded that not applying NLRA section 8(d) in bankruptcy “strikes at the very heart of the policies underlying that section and the NLRA,” but that applying NLRA section 8(d) in bankruptcy would not “seriously impair” bankruptcy policies or debtors’ prospects for a successful reorganization.
In BFP v. Resolution Trust Corp., the Court considered the interaction between bankruptcy law and state foreclosure law. Both the majority and dissent claimed the mantle of plain language. The majority, however, deferred strongly to states’ interests, and the dissent appealed to structure, history, and policy to confirm its reading of the text.
The majority held that the price received in a pre-bankruptcy foreclosure sale conducted in accordance with state law was conclusively deemed to constitute the “reasonably equivalent value” of the property for purposes of bankruptcy fraudulent transfer law. As a result, the trustee could not avoid the sale.
Writing for the majority, Justice Scalia began with a primarily textual analysis that examined the three-word phrase “reasonably equivalent value.” The Bankruptcy Code defined only one of these words, “value.” Justice Scalia reasoned that “reasonably equivalent” could not mean “fair market” or Congress would have used the phrase “fair market,” as it did elsewhere. With little textual support, he concluded that the price received at a non-collusive foreclosure sale was “reasonably equivalent” value. He did not engage in a substantive, holistic analysis of the purposes of the fraudulent transfer provisions or their role as part of a group of provisions designed to maximize value, equitably distribute assets, and foster rehabilitation. In other words, his analysis was not bankruptcy-centric.
Instead, he based his conclusion primarily on the relationship between state foreclosure law, on the one hand, and fraudulent transfer law (including as embodied in the Bankruptcy Code), on the other hand. Because these two bodies of law had coexisted for centuries, he argued that bankruptcy and fraudulent transfer law were not meant to usurp state law foreclosure processes. As in Midlantic National Bank v. New Jersey Department of Environmental Protection and Kelly v. Robinson, the majority deferred to important state interests, despite the Supremacy Clause.
Although the BFP majority did not cite a pre-Code canon, its review of the historic relationship between foreclosure law and fraudulent transfer law was similar to the review the Court undertook in Midlantic and Kelly, with the support of the pre-Code canon.
It was too narrow because it read the text out of context. “Closer familiarity with the text, structure, and history of the disputed provision (and relevant amendments) confirms the soundness of the plain reading,” the dissent argued. According to the dissent, the text, viewed in light of the Bankruptcy Code’s structure, was plain. The historic development of fraudulent transfer law in the bankruptcy context, particularly including Congress’s rejection of an amendment that would have allowed avoidance of foreclosure sales only if such sales were collusive, and Congress’s adoption of amendments designed to include foreclosure sales, supported the textual meaning. Finally, bankruptcy policy supported the avoidance of foreclosure sales if the price received was too low.
The majority’s analysis was too broad because it disingenuously manufactured an ambiguity, then used that ambiguity to depart from the plain meaning in order to vindicate important state interests, despite the preemption of state law by federal law.
In BFP, as in Kelly, the Justices split concerning the interaction between the Bankruptcy Code and other law, and the proper degree of deference, if any, that bankruptcy courts should accord to state or federal law, especially if that law protects important governmental interests.
Finally, California State Board of Equalization v. Sierra Summit, Inc., also involved the application of non-bankruptcy law in the bankruptcy context. The six-Justice majority resolved a conflict among the circuits when it ruled that the states could impose sales and use taxes on bankruptcy liquidation sales. These taxes applied because “[n] othing in the plain language of the statute, its legislative history, or the structure of the Bankruptcy Code indicates that Congress intended to exclude taxes on the liquidation process from those taxes the States may impose on the bankruptcy estate.”
The dissent did not challenge the majority’s reasoning. Instead, it argued that the bankruptcy court’s order prohibiting the state from collecting certain taxes was res judicata because the state had allowed the order to become final and had then attempted to collect the taxes and attack the order collaterally.
4. The interpretive dispute cases
The final two major split decisions return to the pattern of cases in which the Justices disagreed among themselves over interpretive method.
The Court viewed the case as one involving a “narrow statutory issue.” Often cited, frequently with derision, as the case establishing a rigid, grammatical, plain meaning rule for Bankruptcy Code interpretation, the Ron Pair decision ultimately turned on the placement of a comma.
Section 506(b) provides that “there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement under which such claim arose.” Under this provision, only creditors who hold consensual liens are entitled to receive fees, costs, and charges because only those creditors are parties to “agreements.” Because a comma appears after the phrase “interest on such claim,” the Court concluded that interest was allowable without regard to whether the creditor held a consensual lien under an agreement, or a non-consensual lien without an agreement.
The Court argued that this analysis of the Bankruptcy Code’s grammatical structure was the “natural reading,” “plain language,” and “natural interpretation” of the statute. The Court based its analysis on a plain meaning canon, which provides that:
[t]he plain meaning of legislation should be conclusive, except in the “rare cases [in which] the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters.” . . . In such cases, the intention of the drafters, rather than the strict language, controls.
Ron Pair offered a restrictive statement of the plain-meaning rule and a sweeping rejection of both legislative history and pre-Code practice.
The task of resolving the dispute over the meaning of § 506(b) begins where all such inquiries must begin: with the language of the statute itself. . . . In this case it is also where the inquiry should end, for where, as here, the statute’s language is plain, “the sole function of the courts is to enforce it according to its terms.” . . . The language before us expresses Congress’ intent . . . with sufficient precision so that reference to legislative history and to pre-Code practice is hardly necessary.
Applying these interpretive directives, the Court concluded that its plain meaning, grammatical analysis did “not conflict with any other section of the Code, or with any important state or federal interest; nor is a contrary view suggested by the legislative history.” Again, note the Court’s nod to competing state and federal interests.
The Court foreclosed any discussion of pre-Code practice with the comment that:
Congress worked on the formulation of the Code for nearly a decade. It was intended to modernize the bankruptcy laws, . . . and as a result made significant changes in both the substantive and procedural laws of bankruptcy. . . . In such a substantial overhaul of the system, it is not appropriate or realistic to expect Congress to have explained with particularity each step it took. Rather, as long as the statutory scheme is coherent and consistent, there generally is no need for a court to inquire beyond the plain language of the statute.
In an attempt to reconcile this interpretive approach with the interpretive approach of recent cases, the Court argued that both Midlantic and Kelly had looked to pre-Code practice only because the language in those cases had been open to interpretation; the literal application of the statute in those cases would have produced a result demonstrably at odds with the intentions of the drafters; the proposed plain meaning interpretations in those cases would have placed bankruptcy law in clear conflict with state or federal laws of great importance; and the pre-Code practice in those cases “reflected policy considerations of great longevity and importance.” In Ron Pair, in contrast, the majority reasoned that the language was clear, the result was not at odds with the drafters’ intentions, and there were no important, conflicting state or federal laws.
Even though Ron Pair rejected pre-Code practice, the Court’s explanation confirms the trend seen in earlier cases of deference to important, competing federal or state interests. The major cases in which the Court has deferred to such interests have been widely split decisions in which the Justices disagreed over the results and the reasoning.
First, the dissenters castigated the majority’s reliance on the comma. They quoted Justice Frankfurter’s classic statement that: “[t]he notion that because the words of a statute are plain, its meaning is also plain, is merely pernicious oversimplification.”
Second, the dissenters argued that “Midlantic counsels against inferring congressional intent to change pre-Code bankruptcy law.” According to the dissenters, even though the statutory language allowing abandonment was “unequivocal,” “[t]he rule of Midlantic is that bankruptcy statutes will not be deemed to have changed pre-Code law unless there is some indication that Congress thought that it was effecting such a change.” This excerpt suggests that these Justices expect Congress to indicate in the legislative history that it is changing pre-Code law.
The proper application of the pre-Code canon, according to the dissent, is for the Court to determine whether there was a pre-Code practice, then “look for some indicia that Congress knew it was changing pre-Code law.” Because the dissent found no evidence that Congress knew it was changing the pre-Code practice of prohibiting interest on non-consensual claims, the dissent would not have allowed a silent abrogation of this pre-Code practice.
The dissenters, in essence, took a neutral view of the pre-Code canon. They deemed it appropriate regardless of the nature of the underlying bankruptcy issue. The majority, in contrast, viewed the pre-Code canon as a device for allowing the Court to defer to important non-bankruptcy interests. The majority distinguished Ron Pair from Midlantic almost exclusively on the basis that Midlantic involved a clash between bankruptcy law and an important state or federal law interest, whereas Ron Pair presented no such clash. In Midlantic, the Court justified its deference to important non-bankruptcy interests by reasoning that pre-Code practice had embodied such deference. The Court followed this same approach in the Kelly majority and the Davenport dissent.
Justice Blackmun wrote the Ron Pair majority, the Kelly majority, and the Davenport dissent. In the Ron Pair majority, he suggested that deference to pre-Code practice would be appropriate not only when the Bankruptcy Code clashed with other state or federal laws of great importance, but also when the Bankruptcy Code’s language was not clear. In practice, however, he embraced the plain language when no conflicting laws were at stake (Ron Pair), but rejected apparently plain language in favor of pre-Code practice when important, conflicting laws were at stake and pre-Code practice justified deference to those conflicting laws (Kelly, Davenport dissent). Similarly, the two textualist Justices who joined Justice Blackmun’s Ron Pair majority opinion have virtually never found ambiguity except when the Bankruptcy Code clashed with other law.
Finally, in Pioneer Investment Services Co. v. Brunswick Associates Ltd. Partnership, the Court was asked to determine the scope of the Bankruptcy Rule phrase “excusable neglect,” for purposes of allowing the late filing of a claim. Once again, the Justices disagreed over interpretive method.
With the assistance of a collegiate dictionary, the majority defined the “ordinary meaning” of the term “neglect” to include both careless omissions caused by negligence within the party’s control and blameless omissions caused by intervening circumstances beyond the party’s control. The Court supported this “flexible” reading by reference to the policies underlying chapter 11, the bankruptcy courts’ broad equitable powers, the history of the relevant bankruptcy rules, and a review of the parallel federal rules.
The Court then identified a list of equitable factors the Court would consider to determine whether a party’s neglect was “excusable.” These factors encompassed not only the party’s conduct, but also the consequences of the delay in filing, such as prejudice to the debtor and disruption of efficient judicial administration.
The dissent argued that the majority had “replace[d] the straightforward analysis commended by the language of Bankruptcy Rule 9006(b)(1) with a balancing test.” Bankruptcy Rule 9006 provides that a court “may” permit late filing if there is “excusable neglect.” According to the dissent, this provision requires that the party first satisfy the threshold standard of “excusable neglect.” If this threshold has been satisfied, then the court might or might not, in its discretion, allow the late filing. Judicial discretion might include factors such as the consequences of the delay. If, however, the threshold of excusable neglect has not been satisfied, then the court has no basis for allowing the filing, and the consequences of the delay are not relevant.
The dissent defined the phrase “excusable neglect” as a legal term of art. It referred to a law dictionary, rather than a collegiate dictionary, to determine the accepted meaning of excusable neglect. It concluded that excusable neglect required that the party’s actions be blameless. Using reasoning parallel to the pre-Code canon, the dissent adopted this meaning because Congress did not indicate its intent to depart from this established meaning.
Ron Pair and Pioneer are consistent with the pattern of cases in which the Justices disagree over interpretive method. In each case, the majority and dissent disagreed on what it means for statutory language to be plain, and on where to look for guidance concerning the meaning of the language. Because both of these cases were decided by a deeply divided Court, interpreters should be wary of relying too heavily on either case as a predictor of the Court’s interpretive method in bankruptcy cases. The Justices clearly were not in accord on either the results or the interpretive methods in these two cases. In Ron Pair, only five Justices accepted the majority’s grammatical interpretation. Moreover, although the Ron Pair majority applied a “plain meaning” rule, it based its holding on presumed legislative intent, not linguistic meaning. Although the majority opinion did not rely upon pre-Code practice, its author, Justice Blackmun, has frequently relied upon pre-Code practice to discern congressional intent, in appropriate cases. Consequently, Ron Pair can hardly be considered a shining beacon of textualism.
The Pioneer majority also searched for congressional intent. It found intent, however, by examining statutory language, policy, equitable powers, and history. Although it is difficult to reconcile Pioneer’s flexible method with Ron Pair’s restrictive method, four Justices (Rehnquist, White, Kennedy, and Blackmun) joined both majority opinions. Justice O’Connor wrote both the pre-Code practice oriented dissent in Ron Pair and the arguably more textual dissent in Pioneer. From an interpretive method perspective, perhaps the most principled Justices in these cases were Justice Stevens, who joined the more flexible opinion in each case, as we would expect, and Justice Scalia, who joined the more textual opinion in each case, as we would expect.
5. Summary of the major split decisions
The interpretive approaches the Court applied in the major split decisions should be discounted, to some degree, because the Justices disagreed so strongly over interpretive method. These cases, however, are extraordinarily important because they reveal the parameters of the Justices’ internecine disputes over interpretive method.
The major split decisions reflect three distinct interpretive patterns. First, the Justices split widely on constitutional questions. Secondly, the Justices split widely in cases in which the Bankruptcy Code came into conflict with other federal or state laws, particularly when those laws protect important governmental interests. In these cases, the Justices disagree among themselves concerning the interaction among three fundamental interpretive guides: the plain meaning canon, the pre-Code practice canon, and the emerging “canon” of deference to important federal or state laws or governmental interests.
Third, the major split cases that did not involve constitutional questions or clashes with other law (i.e., Ron Pair and Pioneer) continued the strong trend of cases in which the Justices disagreed over interpretive method, particularly concerning the scope and application of the plain meaning rule.
Part IV examines each of these trends in greater detail.
IV. Interpretive Method And The Bankruptcy Code
Does the Court apply the same interpretive method in every Bankruptcy Code case? The answer is “no.” Nevertheless, the Court’s Bankruptcy Code decisions reveal several strong interpretive patterns. Part IV.A summarizes these patterns. Part IV.B considers what these patterns suggest for interpreters, bankruptcy practitioners, bankruptcy judges, and scholars of interpretive theory.
A. Patterns That Emerge From the Supreme Court’s Bankruptcy Code Decisions
Scholars of the Court’s bankruptcy jurisprudence generally agree that the Court has not demonstrated any particular bankruptcy ideology, nor much of a sense that it even understands or cares about the Bankruptcy Code. Some have argued that the Court’s decisions are driven by results; others have argued that the decisions are driven by interpretive method, albeit an incoherent method.
Scholars who have examined the Supreme Court’s interpretive methods in bankruptcy cases have concluded either that the Court has shifted towards textualism, has pulled away from textualism, has employed no consistent, coherent interpretive method, or has employed whatever method allows the Court to reach its desired result. Critics have castigated the Court for employing textualism; for failing to employ textualism; for ignoring congressional intent; and for failing to develop a coherent bankruptcy ideology.
Although these studies may seem to be inconsistent, most are accurate, as far as they go. They are limited, however, by two factors. First, they examine only limited groups of the Court’s opinions. During any several-year period, the Court may, indeed, have seemed to move toward or away from textualism or to apply an incoherent interpretive method. Second, they focus only on the interpretive methods the Court employed in its majority opinions.
In this comprehensive study of all of the Court’s Bankruptcy Code decisions, I have sought to determine the extent to which interpretive method has been a driving force in the Supreme Court’s bankruptcy jurisprudence. This study was rooted in the hypothesis that interpreters could learn at least as much, if not more, about the Court’s interpretive method by considering the types of issues that caused the Justices to agree and disagree among themselves, as they could learn by examining only the Court’s majority opinions. To test this hypothesis, this study focused not simply on the Court’s majority opinions, but rather on the extent to which disputes over interpretive method caused Justices to diverge from the majority and write separate concurring or dissenting opinions.
This study has revealed several strong patterns woven throughout the Court’s bankruptcy decisions. These patterns emerge when we examine the (i) varied interpretive tools and canons the majority, concurring, and dissenting Justices have employed in the Court’s unanimous and split decisions (Part IV.A.1), and (ii) patterns of disputes among the Justices (Part IV.A.2).
1. Patterns that emerge from the Supreme Court’s split and non-split Bankruptcy Code decisions
The Court has decided forty-eight Bankruptcy Code cases. Seven presented constitutional or quasi-constitutional questions (subpart 1.a.). Of the remaining forty-one cases, fourteen were unanimous (subpart 1.b.). In twenty of the twenty-seven non-unanimous cases, Justices wrote separately because they disagreed with the majority’s interpretive method (subpart 1.c.). Two of the seven remaining cases involved tensions between the Bankruptcy Code and other law (subpart 1.d.). Three involved governmental claims or enforcement proceedings (subpart 1.e.). The final two cases presented disputes concerning the application of the law to the facts (subpart 1.f.)
a. The constitutional and quasi-constitutional question cases
Interestingly, however, these cases represent an inordinately large percentage of the Court’s major split decisions. Three of the seven constitutional questions (43%) caused major splits among the Justices. Five (71%) caused either minor or major splits among the Justices. Six (86%) caused Justices to diverge from the majority opinion (in dissenting or concurring opinions). Only one of the seven cases resulted in a completely unanimous opinion (14%) and only two resulted in opinions in which the Justices all agreed on the result (29%).
In contrast, of the forty-one non-constitutional cases, only six (15%) caused major splits among the Justices. Only nineteen (46%) caused either minor or major splits among the Justices. Twenty-seven (66%) caused Justices to diverge from the majority opinion. Fourteen of the forty-one non-constitutional cases resulted in unanimous opinions (34%), and twenty-two resulted in opinions in which all of the Justices agreed on the result (54%).
In other words, the Justices disagreed among themselves more widely when they considered bankruptcy-related constitutional questions than when they interpreted the Bankruptcy Code.
b. The unanimous cases
Four of these cases relied only on the text of the statute. All four of these cases were decided after Justice Scalia joined the Court, and three of these cases were written by the Court’s leading textualists, Justices Scalia and Thomas. In two of these four cases, however, the Court primarily interpreted a statute other than the Bankruptcy Code. If these cases were excluded, only two, unanimous, textualist Bankruptcy Code opinions would remain (one written by Justice Scalia, one written by Justice Thomas).
Ten of the fourteen unanimous opinions relied upon more than the text. Five of these opinions relied upon the text, structure, and history. The Court decided one of these cases before Justice Scalia joined the Court, and four after he joined the Court. The other five cases deferred to pre-Code practice. The Court decided one of these cases before Justice Scalia joined the Court, and four after he joined the Court.
Even if one argued that some of these ten cases were “primarily” textual, and that analysis of “structure” is a holistic way of considering the text, references to history (whether legislative history or broad pre-Code history) remove these cases from the textual fold. Moreover, many of these cases considered structure in a substantive way, which included the broad design, object, and policy of the statute. These cannot be categorized together with the narrow, linguistic, holistic analysis favored by textualists.
Viewed from the perspective of the Court’s unanimous cases, the much-discussed trend toward textualism is weak, at best. Although Justices Scalia and Thomas clearly favor textualism, textualism rarely draws unanimous support among the Justices.
Instead, the unanimous opinions identify three basic elements of Bankruptcy Code interpretation – the text, structure (linguistic and substantive), and history (including legislative history, broad history, and pre-Code practice). None of these fourteen unanimous cases, however, applied a canon of deference to important federal, state, or governmental interests. Cases involving such interests tend to create rifts among the Justices.
Because the unanimous cases provide little guidance concerning when the Court will chose one interpretive method over another, we next consider whether disputes among the Justices provide any insight into this question.
c. The interpretive dispute cases
In the twenty-seven remaining non-constitutional, non-unanimous cases, one or more Justices wrote a separate opinion. Disagreements among the Justices over interpretive method caused the separate opinions in at least twenty of these twenty-seven cases, that is, seventy-four percent of the cases in which one or more Justices wrote a separate opinion. The conclusion that interpretive method lies at the heart of disputes among the Justices in Bankruptcy Code cases is inescapable.
Interestingly, before Justice Scalia joined the Court, only two Bankruptcy Code cases were decided in which a Justice wrote separately to criticize the majority’s interpretive method. After Justice Scalia joined the Court, Justices wrote separately to criticize the majority’s interpretive methods in at least eighteen of the Court’s forty bankruptcy cases.
What do these cases tell us, if anything, about the Court’s interpretive method?
1. The Justices care about method
First, the Court’s Bankruptcy Code cases reveal that the Justices care about interpretive method. This observation is clear from the large numbers of separate opinions in which the Justices criticize the majority’s interpretive methods. It is highlighted when individual Justices struggle to define a coherent interpretive method for the Bankruptcy Code, and lament that other Justices’ opinions impair interpretive coherence. Justices Blackmun, Scalia, Stevens, Thomas, and O’Connor have more actively sought to define a desirable Bankruptcy Code interpretive method than have the other Justices.
The problem is not that the Justices have no interest in employing a consistent interpretive method. They likely would prefer nothing more. The Justices are not bankruptcy experts and show little desire to become bankruptcy experts. They are forced to review bankruptcy cases because there is no other forum for resolving splits among the circuit courts of appeal. These splits, which are the single largest source of Supreme Court bankruptcy cases, often arise from the circuit courts’ use of conflicting interpretive methods. Although bankruptcy experts might prefer that the Court take a substantive, policy-oriented view of the Bankruptcy Code, the Court likely would prefer simply to view the Bankruptcy Code as a statute subject to accepted interpretive rules. Many of the Justices are striving to achieve just this goal. The analysis in Part III of this article reveals that most of the Justices decide bankruptcy cases based upon principles of statutory interpretation, rather than substantive bankruptcy policy. The problem is that the Justices disagree among themselves concerning what those interpretive rules should be.
The Justices have been unable to convince each other of the wisdom of their varied interpretive approaches. Let us consider the status of the Justices’ efforts to define the parameters of the three interpretive elements identified in the unanimous opinions: text, structure, and history.
2. The statutory text
As previously noted, the Court issued four unanimous textual opinions. Appendix VI reveals that, in eleven other cases, the Court issued a primarily textual majority opinion, but one or more Justices responded with a separate, non-textual concurrence or dissent. In other words, the Court decided fifteen of its forty-one non-constitutional cases by textual opinions (37%) and twenty-six by non-textual opinions (63%). In eight of the fifteen textual opinions, either Justice Scalia or Justice Thomas wrote the majority opinion. Justice Blackmun wrote two of the seven remaining textual majority opinions. No other Justice wrote more than one textual majority opinion.
In eight of the twenty-six cases decided by non-textual majority opinions (31%), one or more Justices wrote a textual concurrence or dissent. Justice Scalia wrote four of these separate, textual opinions (one of which Justice Souter joined), Justice Thomas wrote two (one of which Justice Scalia joined), Justice O’Connor wrote one (which Justices Scalia, Thomas, and Souter joined), and Justice Marshall wrote one (which Justice Stevens joined).
These cases reflect a substantial number of textual majority opinions and separate opinions, despite the very limited numbers of bankruptcy cases in which the Justices have unanimously applied textual interpretation. These cases also confirm that Justices Scalia and Thomas have written most of the textual opinions, and that textual interpretation has significantly impaired the Court’s ability to reach accord in bankruptcy cases.
Three issues drive the Justices’ disputes concerning the application of textual interpretation. First, what degree of inexactitude is required to trigger consultation of sources other than the text? Will the Court limit its inquiry to the text if the language is clear, unambiguous, plain, free of a scrivener’s error, or consistent with the drafters’ intent? Second, how does the Court determine whether the language is, in fact, plain (or unambiguous, et cetera)? Third, if the language meets whatever clarity test the Court applies, is the interpreter prohibited from looking beyond the text, discouraged from looking beyond the text, or encouraged to look beyond the text but cautioned that little weight will be given to sources that contradict the text?
Let us consider how the interpretive guidelines advocated by different Justices answer these three questions.
First, the formalists search for the meaning of the text rather than the intentions of the drafters. Consistent with this narrow focus, they employ interpretive rules that are designed to squeeze as much meaning as possible from the words, in order to obviate any need to look beyond the words. They prohibit interpreters from considering sources other than the text unless the text is ambiguous, they require a high level of ambiguity, and they rarely find ambiguity. More specifically, Justice Thomas employs a prohibitive test. He will not look beyond the language if the language is “clear” or “unambiguous.” Justice Scalia also employs a prohibitive test. He will not look beyond the language unless there is a “scrivener’s error” that produces “an absurd result.” Justice Scalia’s test, on its face, appears to be more restrictive than Justice Thomas’s test. Justices Thomas and Scalia are far less willing to find ambiguity than are the other Justices.
Second, at the other end of the spectrum, Justice Stevens searches for congressional intent or statutory purpose. To ensure that the apparent meaning of the text accurately conveys such intents or purposes, he encourages the Court to consider sources other than the text if the statute contains “some uncertainty.” He will find “sufficient ambiguity” to consult sources other than the text far more readily than will Justices Thomas and Scalia. Moreover, Justice Stevens seems to advocate a permissive test under which the Court may consult non-textual sources even when the language is “plain.” In those cases, however, the party encouraging the Court to adopt a meaning contrary to the plain text will carry an “exceptionally heavy” burden.
The other Justice’s views lay somewhere between these two extremes. Like Justice Stevens, they generally claim to be searching for congressional intent or statutory purpose. They are more willing than Justice Stevens, however, to apply a plain meaning rule. Such a rule presumes that the plain text accurately conveys Congress’s intent and prohibits examination of other sources if the language is plain. Nevertheless, they are more reluctant than Justices Thomas and Scalia to find (or force) a “plain” meaning when the language is the subject of serious dispute (among the Justices, the advocates, or the lower courts). Some of the Justices are particularly reluctant to find plain meaning to be determinative if the text conflicts with established judicial practices. Consequently, the Court’s opinions that rely solely upon the Bankruptcy Code’s text typically are the product of a voting block comprising the two textualist Justices, who rarely look beyond the text, and several legal process Justices, who embrace a plain meaning rule in their search for intent or purpose. For example, three of the sitting Justices (Chief Justice Rehnquist and Justices Scalia and Kennedy) joined the textual opinion in United States v. Ron Pair Enterprises, Inc. The late Justice Blackmun wrote Ron Pair. Justice White, who also joined the Ron Pair majority, is no longer on the Court. Arguably, the three remaining Ron Pair majority Justices together with Justice Thomas (who later joined the Court) create a textualist block that would prohibit the Court from looking beyond the text except in the “rare” case in which “literal” application of the language will produce a result “demonstrably at odds with the intentions of its drafters.” Justice Blackmun, however, also wrote decidedly non-textual opinions, including two of the Court’s strongest pre-Code practice opinions, one of which Chief Justice Rehnquist and Justice Kennedy also joined. These opinions urge the Court to be chary of finding the text to be plain if the text seems to be inconsistent with established prior practices or policies. Notice that Justice Blackmun’s “demonstrably at odds with the intentions of its drafters” test in Ron Pair is not a textualist interpretive device; rather, it is device for discerning congressional intent. Cases such as this reflect that, although all of the Justices have joined or written a “textual” opinion, the non-textualist Justices (i.e., all of the sitting Justices except Justices Scalia and Thomas) typically have done so only when they are convinced that the plain meaning accurately embodies Congress’s intent.
Similar incongruous results appear when we consider which Justices joined textual and non-textual opinions in other cases. For example, five Justices joined both the heavily pre-Code majority in Kelly v. Robinson, in which the Court deferred to state criminal restitution proceedings, and the anti-pre-Code majority in Pennsylvania Department of Public Welfare v. Davenport, in which the Court declined to defer to such proceedings.
The import of these cases is unclear. Perhaps the incongruity arises simply because cases that implicate pre-Code law or tensions between the Bankruptcy Code and other law present more difficult interpretive issues. The Justices’ comments on interpretive method often address the relationship between the plain meaning canon and the pre-Code canon. Perhaps a solid core of Justices (i.e., Justices Thomas, Scalia, and Stevens, and, perhaps to a lesser extent, Blackmun and O’Connor) care more about interpretive method than do the other Justices. Perhaps the other Justices are more willing to join an opinion if they agree with the result, even if they do not agree with the method. If this latter supposition is true, however, it is not clear what criteria those Justices use to determine that the result is correct, if the criteria is not that the Court applied the proper interpretive method.
Although many of the Court’s textual bankruptcy opinions embrace the prohibitive test of the standard plain meaning rule, other opinions shy from this rule in favor of two alternatives. The first allows the Court to consult other sources, but subjects the parties to a heavy burden to demonstrate that Congress intended a result other than the result the language suggests. The second, which presents the greatest area of discord, urges the Court to be wary of finding the language to be plain if the language conflicts with prior practice. Parts IV.A.1.c.4 and IV.A.1.d examine the relationship between the plain meaning rule and the pre-Code canon.
3. Structure and policy
The Court’s holistic (or structural) canons contain both linguistic and substantive components. Both components urge interpreters to examine the entire statute to determine the meaning of a particular phrase. Structural analysis presents an intriguing challenge for textualists because it considers only internal sources of meaning – i.e., the words of the statute. Its broad examination of the text, however, raises questions concerning how internal, textual “meaning” should be defined. Textualists argue that interpreters should not consult sources external to the statute (such as legislative history) to discern congressional intent or statutory purpose because only the enacted text is law. External sources, therefore, are not democratically legitimate sources of meaning. Because structural analysis consults only internal sources of meaning, it obviates this concern. Structural analysis is a critical aspect of interpretation that holds great promise for reconciling the tension between “text” and “policy,” particularly in the context of a comprehensive statute such as the Bankruptcy Code. To date, however, structural analysis has received inadequate attention in the modern interpretative debate.
The linguistic component urges the Court to read words to mean the same thing throughout the Bankruptcy Code. When Justice Thomas engages in holistic analysis, he focuses primarily on this aspect of holistic interpretation. This is consistent with a formalist search for textual meaning.
The substantive component contains two elements. The narrower element encourages the Court to consider the substantive effect, rather than just the language, of related Bankruptcy Code provisions. Justice Scalia has employed this aspect of holistic interpretation as well as the linguistic aspect of holistic interpretation.
Second, the broader element of the substantive holistic canon encourages the Court to interpret the language in light of the Bankruptcy Code’s broader design, object, and policy. These two components of the substantive holistic canon suggest that different levels of generality (i.e., the meaning or purpose of the section, the related group of sections, and the Bankruptcy Code as a whole) are important and should be harmonized.
The broader aspect of the substantive holistic canon also suggests that “policy” or “purpose” is an integral part of the statute and that the contraposition of “text” and “policy” is a false dichotomy. The question is not whether to consider policy, but rather, where to find it. The canon suggests that the structure of the statute will reveal its purposes and policies, even if the text does not expressly state those policies. Consequently, interpreters need not consult “external” sources, such as legislative history, to identify a statute’s policies. Justices Thomas and Scalia have not advocated this type of holistic analysis. Justice Stevens, however, has.
For example, consider the effect of a rule that instructs interpreters to apply the Bankruptcy Code’s text but prohibits them from applying unexpressed “policies.” One might argue that such a rule prohibits the Court from considering the Bankruptcy Code’s policies of rehabilitation or equitable distribution. These policies, however, reveal themselves throughout the language, structure, and design of the Bankruptcy Code, although they are never expressly stated.
When an interpreter considers the discharge provisions or the very existence of chapter 11, how can she help but see the fresh start policy at work? The difference between saying that (i) the text grants certain debtors a discharge, (ii) the text reveals a congressional intent to grant certain debtors a discharge or fresh start, (iii) the purpose of the discharge is to grant certain debtors a discharge or fresh start, and (iv) the Bankruptcy Code embodies a fresh start “policy,” is semantic. The same reasoning applies to the “policy” of rehabilitating business debtors (expressed in the structure of chapter 11), the “policy” of equitable distribution (expressed in the automatic stay, avoidance powers, distribution provisions, et cetera), and the “policy” of maximizing value (expressed in avoidance powers, executory contract powers, turnover provisions, et cetera). Of course each of these “policies” is subject to limitations; but those limitations are also found in the Bankruptcy Code’s text and structure, such as the provisions prohibiting the discharge of the debtor and of various debts in specified circumstances.
Consequently, to argue that interpreters may only consult the text and may not consider policy is incongruous. The Bankruptcy Code’s policies reveal themselves to anyone who reads the Bankruptcy Code’s text and listens closely enough to hear its music. Although bankruptcy experts intrinsically understand how the complicated provisions of the Bankruptcy Code interact, the Supreme Court understands this interaction only when bankruptcy experts clearly explain it to the Court in each case. Absent such an explanation, the Court may be able to locate the use of similar terms throughout the Bankruptcy Code, but bankruptcy experts cannot expect the Court to employ thoughtful, substantive, structural analysis.
4. History, including legislative history and pre-Code practice
The Court’s Bankruptcy Code opinions refer to two distinct aspects of the statute’s history: legislative history, and broader Bankruptcy Code history. This broader history includes “pre-Code practice” and the development of bankruptcy doctrine over time.
(a) Legislative history
A large number of the Court’s decisions have referred to legislative history, at least in passing. Very few opinions, however, have engaged in a lengthy and pivotal analysis of legislative history. In bankruptcy cases, the Court generally prefers to engage in a tracing of the historical development of bankruptcy doctrines (through broad history and pre-Code practice) rather than to rely upon isolated statements in the legislative history.
Not surprisingly, Justice Scalia has written concurring opinions objecting to the use of legislative history in Bankruptcy Code interpretation. These opinions, however, found no joiners. Justice Stevens tends to consult legislative history to confirm textual meaning even when other Justices find no need to consult sources other than the text. He wrote one concurring opinion objecting to the Court’s failure to examine legislative history, but this concurrence went without joiners.
Disputes over legislative history have not created the level of histrionics typically seen in other fields of law. In the bankruptcy context, at least, the tension between text and pre-Code practice has apparently surpassed the tension between text and legislative history as a flash point for interpretive disputes among the Justices.
(b) Broad history and pre-Code practice
Broad history and pre-Code practice play a significant role in Bankruptcy Code interpretation.
In a significant number of the Court’s non-constitutional bankruptcy opinions, the Court considered the broad history of the Bankruptcy Code provisions in issue, but did not expressly refer or defer to pre-Code practice. In these cases, the Court typically examined prior law, amendments, and judicial interpretations, and considered how the relevant bankruptcy doctrine had developed over time.
In approximately one-fourth of the Court’s non-constitutional Bankruptcy Code cases, the Court expressly considered pre-Code practice as part of its review of the Bankruptcy Code’s history. Five of these were unanimous decisions. In addition, in two cases in which the Court did not defer to pre-Code practice, dissenters argued that Court should have deferred to pre-Code practice.
Broad history and pre-Code practice appear to exist on a continuum of the same line of interpretive inquiry. An interpreter examines both as part of a progression that considers the provisions of prior law (either the Bankruptcy Act or prior versions of the Bankruptcy Code), judicial interpretations of those provisions, judicial doctrines created to fill gaps in prior law, prior congressional action (including enactment of the Bankruptcy Code and of amendments to the Bankruptcy Code), and judicial interpretations of the Bankruptcy Code.
The Justices disagree, however, concerning whether and when the Court should consult broad history or pre-Code law. These disputes are particularly evident in tensions between the plain meaning canon and pre-Code practice. Some Justices discount the text if the text seems to be inconsistent with pre-Code practice and Congress has not expressly stated in the legislative history that it intended to alter pre-Code practice. Others consider pre-Code practice only if the text contains a gap or ambiguity.
For example, in Kelly v. Robinson, the Court relied upon pre-Code practice to defer to state criminal processes. In contrast, in Pennsylvania Department of Public Welfare v. Davenport the Court embraced the same pre-Code canon that it had applied in Kelly, but concluded that Congress had, indeed, evinced in the language an intent to alter the pre-Code practice of deference to state criminal processes. Both cases were decided over strident dissents.
Similarly, in Dewsnup v. Timm, the majority rejected a seemingly “plain” textual meaning because that meaning conflicted with pre-Code practice, and Congress had not clearly evinced an intent to change pre-Code practice. The Dewsnup dissent castigated the Court for deferring to pre-Code practice when the text was clear.
These disputes have left the lower courts without adequate guidance concerning the Court’s perspective on pre-Code practice. A striking demonstration of this confusion occurred in 1991 in the Fifth Circuit case of Phoenix Mutual Life Insurance Company v. Greystone III Joint Venture (In re Greystone III Joint Venture). In Greystone, the court was asked to consider whether the so-called “new value exception” to the “absolute priority rule” had survived the enactment of the Bankruptcy Code. When Congress enacted the Bankruptcy Code, it modified the absolute priority rule, but made no express mention of the exception. In an opinion that relied on a perceived trend toward textualism in the Supreme Court, the Fifth Circuit held that “[n]either in the Code’s language, nor in the context of a previous, different reorganization law, nor in legislative history, nor in policy is there room for a ‘new value exception’ to the absolute priority rule now defined by § 1129(b)(2)(B).”
Less than two months later, however, the Supreme Court issued its opinion in Dewsnup, which relied heavily on pre-Code practice. Within forty-three days after the Court issued Dewsnup, the Fifth Circuit had received a petition for rehearing, granted it, and issued a terse withdrawal of the portion of its Greystone opinion that had resolved the absolute priority question. Although the Fifth Circuit did not expressly state the reason for withdrawing the opinion, Judge Jones, the author of the original opinion, identified Dewsnup as the culprit in her dissent from the rehearing. She noted that:
[h]ow one should approach issues of a statutory construction arising from the Bankruptcy Code has been clouded, in my view, by Dewsnup v. Timm [ [citation omitted]. Nevertheless, in reaffirming what I wrote about the “new value exception” in Part IV of the original opinion, and therefore in voting against a rehearing, I would hope to stand with Galileo, who, rebuffed by a higher temporal authority, muttered under his breath, “Eppur si muove.” (“And yet it moves.”).
Eight years later, Justices Scalia and Thomas commented on Greystone in their concurrence in Bank of America National Trust & Savings Ass’n v. 203 North LaSalle Street Partnership. They noted that the interpretive confusion created by Dewsnup apparently had prompted the Fifth Circuit to withdraw its decision on the new value issue, and argued that the majority’s interpretive method in LaSalle “only thickens the fog.”
The relationship between plain meaning and pre-Code practice is complicated by the fact that many of the clashes between these two canons have arisen when Bankruptcy Code was in tension with other state or federal law. Part IV.A.1.d considers the Court’s use of the pre-Code practice canon to defer to important state or federal laws or governmental interests.
(c) The interaction with other law cases
Finally, there are seven remaining non-constitutional, non-unanimous cases. Two of these cases involved a clash between the Bankruptcy Code and other law. Three involved governmental tax claims or enforcement proceedings. Two involved disputes concerning the application of the law to the facts.
In addition to the two bankruptcy/other law cases that did not lead to interpretive disputes, at least four of the Court’s interpretive dispute split decisions also involved tensions between the bankruptcy and other law. Similarly, in addition to the three governmental interest cases that did not lead to interpretive disputes, several of the cases that did give rise to interpretive disputes also involved governmental tax claims and enforcement proceedings. This Part will compare all of these interaction with other law and governmental interest cases.
First, in the six cases in which the Bankruptcy Code came into tension with other state or federal law, the Court resolved these tensions as follows:
Midlantic National Bank v. New Jersey Department of Environmental Protection presented a tension between the bankruptcy abandonment power and environmental law. The Court identified a pre-Code canon that limited the abandonment power, and used the pre-Code canon to defer to environmental law.
Kelly v. Robinson presented a tension between bankruptcy and criminal restitution law. The Court identified a pre-Code practice of deference to criminal processes, and applied the pre-Code canon to defer to state criminal restitution law.
Pennsylvania Department of Public Welfare v. Davenport presented a tension between bankruptcy and criminal restitution law. The Court declined to defer to criminal restitution law. The Court cited the pre-Code canon, but concluded that Congress had evinced in the Bankruptcy Code’s language its intent to alter the pre-Code practice of deference to state criminal processes.
BFP v. Resolution Trust Corp. presented a tension between bankruptcy avoidance powers and state foreclosure law. The Court, using reasoning analogous to the pre-Code canon, found that the two bodies of law had coexisted for centuries. Therefore, the Court found that bankruptcy fraudulent conveyance law could not be used to set aside a regularly conducted state foreclosure sale.
These cases reveal a three-to-three split. Three common factors characterize the three cases in which non-bankruptcy law trumped bankruptcy law. First, in each of these cases, the Court relied heavily on a pre-Code practice of bankruptcy law deference to the other law. In other words, the Court essentially assumed that Congress knew of this deferential practice and intended to continue this practice. This type of finding was critical because each case presented a tension between bankruptcy law and state law. The Supremacy Clause makes federal law superior to state law. The Court, therefore, could only defer to state law if the federal law, itself, embodied a policy or practice of deference. Each case preserved state law, despite the Bankruptcy Code. Second, in each of these cases, the Court employed non-bankruptcy-centric reasoning. Third, in each of these cases, the Court’s holding favored a governmental entity. In Kelly, the Court permitted the state to force a restitution order. In Midlantic, the Court prohibited the trustee from abandoning polluted property. Two state environmental agencies, that night otherwise have incurred the costs of cleanup, had opposed abandonment. In BFP, the Court’s refusal to set aside the foreclosure sale favored both the buyer (a private party) and the federal governmental successor to the saving and loan association that had conducted the foreclosure sale (the Resolution Trust Corporation).
In contrast, in the three cases in which the Court held that bankruptcy law trumped non-bankruptcy law, the Court employed bankruptcy-centric reasoning and found no pre-Code practice of deference. In all three cases, the Court ruled against a governmental entity.
For example, compare Bildisco and Midlantic. In Bildisco, bankruptcy policy, supported by an arguably plain reading of the Bankruptcy Code, overcame labor law policy. In Midlantic, environmental policy, incorporated through a pre-Code canon, overcame an arguably plain reading of the Bankruptcy Code. Bildisco allowed a debtor to modify a union contract without complying with labor law. Midlantic allowed a debtor to abandon property only if it first complied with environmental law. The Bankruptcy Code allowed rejection of contracts without an express exception for union contracts, just as the Bankruptcy Code allowed abandonment of property without an express exception for polluted property. The only significant distinction between these cases is that, in Midlantic, the Court identified a pre-Code practice of deference to environmental law. In other words, according to the Court, deference to environmental law was codified as a limitation on the abandonment power. In contrast, the concept of rejecting contracts was codified without a policy of deference to labor law.
Unfortunately, no easy formula exists by which interpreters can determine whether the Court will discover a pre-Code practice of deference to other laws. Following the Court’s approach in Kelly and Midlantic, one might search pre-Code bankruptcy cases for judicial expressions of a policy of deference. This approach would not, however, have enabled an interpreter to predict the result in BFP, in which the Court deferred to state foreclosure law simply because such law had co-existed for centuries with fraudulent transfer law. Bankruptcy law and labor law have also co-existed, yet the Court in Bildisco declined to defer to labor law. These interpretive problems arise because the Justices hold conflicting views concerning the role of pre-Code practices in Bankruptcy Code interpretation and concerning how to reconcile the Bankruptcy Code with other state or federal law. The challenge of discerning the Justices’ views on these interpretive issues is further complicated by the fact that some Justices who generally reject appeals to pre-Code practice (notably Justices Scalia and Thomas), will go to interpretive extremes to defer to state law. This deference apparently is rooted in some ill-defined, unarticulated, and doctrinally suspect notion of federalism.
The cases in which the Court considered a governmental tax claim or enforcement proceeding arguably show more consistent interpretive patterns. Although some commentators have suggested that the Court defers unreasonably to governmental claims, the cases suggest a coherent jurisprudence.
The government won all three of the cases in which the debtor argued that bankruptcy law exempted the estate from compliance with governmental enforcement proceedings, and the one case in which the debtor sought to recover trust fund tax payments that the debtor could not have recovered out of bankruptcy. The government also won the two cases in which the debtor sought to subordinate governmental tax claims. The government was not, however, exempt from the Bankruptcy Code’s turnover provision. Similarly, in one case, the Court held that the government’s interest in designating payments as non-trust-fund taxes did not overcome the debtor’s interest in designating payments as trust fund taxes. These cases suggest that the Bankruptcy Code does not exempt the estate from complying with governmental enforcement proceedings, and that the government’s status as tax collector neither exempts it from Bankruptcy Code rules (such as turnover) nor subjects it to special burdens (such as equitable subordination).
(d) The application of the law cases
Only two of the cases in which Justices wrote separate opinions involved neither constitutional questions, nor conflicts with non-bankruptcy law, nor interpretive disputes. In both of these cases, Justices wrote separately because they questioned the application of the law to the facts.
In summary, the Court’s Bankruptcy Code cases reveal that interpretive disputes drive most of the Court’s separate opinions. Interpretive disputes among the Justices in these cases have generally followed predictable patterns. Part 2 summarizes these patterns.
2. Patterns of disputes among the Justices
First, although no single Justice has consistently applied the same interpretive method in each case, certain Justices favor textual interpretation while other Justices favor more flexible interpretive methods. Second, particular Justices disagree regularly with the other Justices over interpretive method.
First, Appendix VI records the interpretive method used in each decision that each Justice joined. Appendix VII, which summarizes the data from Appendix VI, reveals each Justice’s rates of joining textual, non-textual, and pre-Code practice cases.
At the other end of the spectrum, Justices Stevens (15%) and Brennan (14%) joined textual opinions far less frequently than the other Justices. Former Chief Justice Burger and Justices Ginsburg, Marshall, and Powell joined textual opinions in 17-21% of the cases in which they participated.
In the center, leaning toward textualism, we find Justices Kennedy (42%) and White (37%), and Chief Justice Rehnquist (37%). Justices O’Connor (32%), Breyer (30%) and Blackmun (29%) lean slightly further away from textualism.
The Justices’ rates of joining opinions that defer to pre-Code practice reflect a similar, but slightly less regular, pattern.
At the textualist end, Justices Thomas, Scalia, and Souter joined pre-Code practice opinions in only 14-15% of the cases in which they participated. Justice White joined pre-Code practice opinions in 17% of his cases. Former Chief Justice Burger did not join any pre-Code practice opinions.
The six remaining Justices, Chief Justice Rehnquist and Justices Kennedy, O’Connor, Blackmun, Marshall, and Stevens joined pre-Code practice opinions in 20-29% of the cases in which they participated.
In summary, Justices Scalia, Thomas, and Souter have generally joined textual, anti-pre-Code practice opinions. Justices Ginsburg, Powell, and Brennan have generally joined non-textual, pre-Code practice opinions. Justice Stevens is strongly non-textual, but less strongly pre-Code practice oriented. The remaining Justices fall in the center of this spectrum.
Although these data reveal individual Justices’ interpretive proclivities, they also reflect that none of the Justices have joined exclusively textual or exclusively non-textual opinions. We can either accuse the Justices of interpretive dishonesty, or we can surmise that even the textualists occasionally find enough ambiguity to consult sources other than the text, and that even the non-textualists occasionally find the text to be so plain that no reference to other sources is appropriate. Some Justices clearly lean toward textualism while others lean away from textualism. The Justices’ varied interpretive preferences clearly cause many of the Court’s split decisions in bankruptcy cases and contribute to the sense that the Court has no coherent interpretive strategy.
Second, Appendix IV records whether each Justice joined a majority, concurring, or dissenting opinion in each case. Appendix V, which summarizes the data from Appendix IV, shows each Justice’s rate of dissent and divergence (i.e., joining a non-majority opinion) in the Court’s Bankruptcy Code cases.
Not surprisingly, Appendix V reveals that Justices Stevens and Scalia diverged from the majority frequently. Justice Scalia joined non-majority opinions in 25% of the cases in which he participated. Justice Stevens joined non-majority opinions 33% of his cases. Justice Ginsburg is the only other sitting Justice who diverged from the majority opinion in more than 25% of the cases in which she participated. The retired Justices who joined non-majority opinions in more than 25% of the cases in which they participated are Justices Brennan, Blackmun, and Marshall.
At the other end of the spectrum, Former Chief Justice Burger, Chief Justice Rehnquist, and Justices Powell, Kennedy, and Thomas diverged from the majority in fewer than 10% of the cases in which they participated.
A review of the Court’s separate opinions demonstrates that Justices Scalia and Stevens not only joined separate opinions more frequently than most of the other Justices, but that they also typically authored those separate opinions. Consider the cases in which only one Justice wrote a separate opinion (concurrence or dissent).
After Justice Scalia joined the Court, the Court issued ten cases in which a single Justice diverged from the majority’s opinion. In eight of these cases, the lone Justice was Justice Scalia or Stevens. In the other two cases, Justice Thomas dissented, in part, from a Justice Souter opinion and Justice Blackmun dissented from a Justice White opinion.
A similar pattern emerges from the cases in which two Justices wrote or joined separate opinions.
After Justice Scalia joined the Court, the Court issued seven seven-to-two decisions. In four of these, either Justice Scalia or Justice Stevens wrote the dissent. In two, either Justice Stevens or Justice Scalia joined a dissent that another Justice wrote. In the seventh case, Justice Blackmun wrote a dissent, which Justice O’Connor joined. In an eighth case, Justice Stevens dissented and Justices Scalia and Thomas concurred.
The cases in which three or four Justices diverged from the majority, which often involved constitutional questions or tensions between the Bankruptcy Code and other law rather than pure interpretive disputes, do not reflect such a clear pattern of divergence.
In summary, the Justices disagree among themselves concerning what interpretive method is proper for the Bankruptcy Code. Most apparently, Justice Stevens favors more flexible interpretation, while Justices Scalia and Thomas favor textual interpretation. The other Justices tend to be less textual than Justices Thomas and Scalia but also less flexible than Justice Stevens. The Justices struggle not only to determine when textual interpretation resolves a case, but also when the Court should consult and defer to pre-Code laws or practices. As a result of these interpretive disputes among the Justices, the Court does not act as a body when it interprets Bankruptcy Code cases. Consequently, it often appears to be shifting between competing interpretive methods.
B. Advice for Courts, Advocates, and Interpreters
How can this study help interpreters achieve greater certainty during this time of upheaval in interpretive theory?
First, an understanding of the Court’s interpretive methods should help interpreters predict the Court’s rulings in future cases. Predictability is important not only for advocates who argue before the Court but also for lower courts, advocates who argue before the lower courts, and attorneys who counsel clients concerning how to proceed in the face of open bankruptcy law questions. The Court’s opinions provide these players not only with substantive rules of law, but also with guidance concerning how the Court will interpret the Bankruptcy Code. The interpretive methods the Court employs are inextricable from the Court’s rationale. Consequently, when lower courts reach conflicting rulings by applying different interpretive methods (such as text versus legislative history), an examination of the Court’s interpretive approach in bankruptcy cases may help predict which of the lower court decisions will be overruled. Of course, the lower courts cannot always follow the interpretive approach that the Court’s bankruptcy decisions seem to suggest. For example, even if a bankruptcy judge concludes that the Court would not rely heavily upon legislative history, the judge may be bound by a circuit precedent that relies heavily on legislative history.
Second, this study should allow interpreters to determine whether deficiencies in the Court’s interpretive approach have resulted in either “bad” decisions or split decisions. Whether an interpreter sees deficiencies will depend upon her perspective. For example, a bankruptcy expert may argue that the Court has issued “bad” decisions or split decisions because some Justices failed to appreciate the unique characteristics and structure of the Bankruptcy Code. An interpretive theory expert may argue that the Court has issued “bad” decisions or split decisions because some Justices employed interpretive methods that violate basic precepts of interpretive theory. However one might define errors in the Court’s Bankruptcy Code decisions, this study invites critics to open a two-way dialogue with the Court. One aspect of this dialogue, obviously, lies in the Court’s guidance to lower courts and interpreters concerning how to interpret the Bankruptcy Code. The other aspect lies in critics’ response. If interpreters understand how the Court interprets bankruptcy cases, and see flaws in the Court’s approach, those interpreters have an opportunity to improve the Court’s bankruptcy jurisprudence by communicating their concerns to the Court. For example, critics can write law review articles that comment on the Court’s interpretive deficiencies. Critics can also attempt to obviate bad decisions in future cases by writing amicus briefs that explain to the Court (for example) how the Bankruptcy Code’s substantive structure mandates a certain result or how interpretive theory mandates a certain result.
This study has revealed that text, structure, and history are relevant to Bankruptcy Code interpretation.
First, the Justices disagree concerning when to look beyond the text. Cases in which one or more Justices insist that the meaning is plain and that no other sources should be examined usually split the Court. In contrast, cases in which the Court confirms apparent textual meaning through an analysis of the Bankruptcy Code’s structure and the development of bankruptcy doctrine over time, more often result in unanimous or near-unanimous opinions. Consequently, interpreters are well-advised to consider the text in the context of the Bankruptcy Code’s structure and the development of bankruptcy doctrine.
Second, as for structure, the Court’s jurisprudence is not yet adequately developed. The Court’s bankruptcy opinions show an interest in structural analysis, but do have always display a sophisticated understanding of the substantive interactions among different provisions of the Bankruptcy Code. Even the textualist Justices are willing to consider the Bankruptcy Code’s structure, as part of their holistic interpretation of the Bankruptcy Code, although Justice Thomas tends to focus almost exclusively on linguistic structure. The Justices will consider the Bankruptcy Code’s design, if they perceive that design within the Bankruptcy Code’s language. They are less willing to consider unsupported appeals to “good policy.” Consequently, interpreters should locate bankruptcy “policy” not in external pronouncements, but rather, in the substantive structure of the Bankruptcy Code. The Court’s most thoughtful decisions understand the substantive structure, or music, of the Bankruptcy Code. Some of these opinions have benefited from the guidance of briefs submitted by leading bankruptcy luminaries. Several of the opinions in which the Court failed to engage in a thoughtful analysis of the substantive structure of the Bankruptcy Code were decided without the benefit of such input.
Third, as for history, the Court’s Bankruptcy Code opinions (particularly those decided after Justice Scalia joined the Court) generally disfavor a detailed parsing of legislative history. They do, however, often engage in a thoughtful analysis of how the Bankruptcy Code’s current text and structure are consistent with the development of bankruptcy doctrine over time.
As for the pre-Code canon, its future is unclear. Many cases consider pre-Code practice as a part of the Bankruptcy Code’s broad history. It is clear from the Court’s Bankruptcy Code opinions that pre-Code practices are most relevant when the Bankruptcy Code’s text is ambiguous, the pre-Code practices were well-established, and the Bankruptcy Code has not obviously and significantly altered those practices. The complicated relationship between the plain meaning rule, pre-Code practice, and “policies” of deference to state and federal law or important governmental interests, however, seriously cloud attempts to define a coherent pattern in the Court’s pre-Code jurisprudence. The Court’s seemingly inconsistent decisions in this area may also have been affected by federalism concerns and state’s interests philosophy of some of the more conservative Justices.
In summary, interpreters seeking to understand the Court’s likely ruling in future cases would be well-advised to engage in a thoughtful analysis of the text and structure of the Bankruptcy Code. They should also examine the development of bankruptcy doctrine, including pre-Code practices, but they should be cautious about relying heavily on pre-Code practices if those practices were not well-established or the Bankruptcy Code seems to have altered those practices. In those situations, interpreters must examine the substantive structure of the Bankruptcy Code to determine how the Bankruptcy Code modified pre-Code practices. Interpreters should consult legislative history to enhance their understanding of the development of bankruptcy doctrine; however, they should be chary of relying heavily on detailed analyses of specific statements in the legislative history. Finally, although the Court frequently refers to bankruptcy policy, its recent Bankruptcy Code opinions generally mention policy only in a supporting role, usually refer only to bankruptcy’s two over-arching policies (fresh start/rehabilitation and equitable distribution), and often ground those policies in the Bankruptcy Code’s structure.
Advocates, lower court judges, and bankruptcy scholars can, and should, help the Court better understand the music of the Bankruptcy Code. They can accomplish this through thoughtfully written briefs, opinions, and law review articles that place the text of disputed Bankruptcy Code provisions in the context of the linguistic and substantive structure of the Bankruptcy Code. They should also place the text in the context of the development of bankruptcy doctrine over time. When bankruptcy judges write bankruptcy opinions, particularly concerning controversial bankruptcy issues, they are encouraged to elaborate each of these elements (text, context, development of bankruptcy doctrine). Bankruptcy judges have a profound depth of understanding of the Bankruptcy Code. Even if they believe that the text answers a question, they can educate the higher courts, which lack such expertise, by explaining why the text is consistent with the Bankruptcy Code’s linguistic and substantive structure and with the development of bankruptcy doctrine over time.
Finally, the bankruptcy bar (which includes several official organizations of diverse groups of bankruptcy attorneys) should consider becoming more involved in Supreme Court bankruptcy cases (for example, by submitting amicus briefs).
V. Conclusions And Recommendations
This study has demonstrated that the Court does not apply a single interpretive method in its Bankruptcy Code cases. Nevertheless, this study reveals several strong interpretive patterns that should guide interpreters. Interpreters should study these patterns to enhance their understanding of the Court’s interpretive methods. Advocates, judges, and scholars who study these patterns and address the varied elements of bankruptcy interpretation in their briefs, opinions, and scholarly works can help the Court better understand the music of the Bankruptcy Code.
Having identified the Court’s current interpretive practices, we must next consider whether the Court’s somewhat inconsistent group of interpretive practices provides a desirable method of Bankruptcy Code interpretation. This can be done by considering what interpretive methods seem well-suited to a complex statute with the unique characteristics of the Bankruptcy Code, and by determining whether either the Court’s current practices or practically desirable practices satisfy the complicated requirements of interpretive theory.
The Supreme Court’s Bankruptcy Code Decisions (Listed By Term 1981-1998)
Central Trust Co. v. Official Creditors’ Committee of Geiger Enterprises, Inc., 454 U.S. 354 (1982).
Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982).
United States v. Security Industrial Bank, 459 U.S. 70 (1982).
United States v. Whiting Pools, Inc., 462 U.S. 198 (1983).
NLRB v. Bildisco & Bildisco, 465 U.S. 513 (1984).
Commodity Futures Trading Commission v. Weintraub, 471 U.S. 343 (1985).
Ohio v. Kovacs, 469 U.S. 274 (1985).
Midlantic National Bank v. New Jersey Department of Environmental Protection, 474 U.S. 494 (1986).
Kelly v. Robinson, 479 U.S. 36 (1986).
Norwest Bank Worthington v. Ahlers, 485 U.S. 197 (1988).
United Savings Ass’n v. Timbers of Inwood Forest Associates, Ltd., 484 U.S. 365 (1988).
California State Board of Equalization v. Sierra Summit, Inc., 490 U.S. 844 (1989).
Granfinanciera v. Nordberg, 492 U.S. 33 (1989).
Hoffman v. Connecticut Department of Income Maintenance, 492 U.S. 96 (1989).
United States v. Ron Pair Enterprises, Inc., 489 U.S. 235 (1989).
Begier v. Internal Revenue Service, 496 U.S. 53 (1990).
Pennsylvania Department of Public Welfare v. Davenport, 495 U.S. 522 (1990).
United States v. Energy Resources Co., 495 U.S. 545 (1990).
Farrey v. Sanderfoot, 500 U.S. 291 (1991).
Grogan v. Garner, 498 U.S. 279 (1991).
Johnson v. Home State Bank, 501 U.S. 78 (1991).
Langenkamp v. Culp, 498 U.S. 42 (1990).
Owen v. Owen, 500 U.S. 305 (1991).
Toibb v. Radloff, 501 U.S. 157 (1991).
Barnhill v. Johnson, 503 U.S. 393 (1992).
Board of Governors of the Federal Reserve v. MCorp Financial, Inc., 502 U.S. 32 (1991).
Connecticut National Bank v. Germain, 503 U.S. 249 (1992).
Dewsnup v. Timm, 502 U.S. 410 (1992).
Holywell Corp. v. Smith, 503 U.S. 47 (1992).
Patterson v. Shumate, 504 U.S. 753 (1992).
Taylor v. Freeland & Kronz, 503 U.S. 638 (1992).
United States v. Nordic Village, Inc., 503 U.S. 30 (1992).
Union Bank v. Wolas, 502 U.S. 151 (1991).
Pioneer Investment Services Co. v. Brunswick Associates Ltd. Partnership, 507 U.S. 380 (1993).
Nobelman v. American Savings Bank, 508 U.S. 324 (1993).
Rake v. Wade, 508 U.S. 464 (1993).
BFP v. Resolution Trust Corp., 511 U.S. 531 (1994).
Celotex Corp. v. Edwards, 514 U.S. 300 (1995).
Citizens Bank v. Strumpf, 516 U.S. 16 (1995).
Field v. Mans, 516 U.S. 59 (1995).
Things Remembered, Inc. v. Petrarca, 516 U.S. 124 (1995).
United States v. Noland, 517 U.S. 535 (1996).
United States v. Reorganized CF & I Fabricators of Utah, Inc., 518 U.S. 213 (1996).
Associates Commercial Corp. v. Rash, 520 U.S. 953 (1997).
Cohen v. de la Cruz, 523 U.S. 213 (1998).
Fidelity Financial Services, Inc. v. Fink, 522 U.S. 211 (1998).
Kawaauhau v. Geiger, 523 U.S. 57 (1998).
Bank of America National Trust & Savings Ass’n v. 203 North LaSalle Street Partnership, 526 U.S. 434 (1999).
This article benefited from the able and always cheerful research assistance of Daniel Chen, Kaleen Hasegawa, Sat Khalsa, and Philip Miyoshi. Research assistance was funded, in part, by the Gregory P. Conlan Memorial Endowment Fund for bankruptcy research, which was established at the University of Hawai‘i by the generosity of the law firm of Chun, Kerr, Dodd, Beaman & Wong. The author also thanks Chapman Law School and Chapman Law Review for their many accommodations.
The Bankruptcy Code was enacted in 1978 and became effective on October 1, 1979. See Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, § 402, 92 Stat. 2549, 2682 (1978). It has been amended numerous times since its enactment. See The Bankruptcy Reform Act of 1978 (Pub. L. No. 95-598, 92 Stat. 2549), as amended by Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub. L. No. 98-353, 98 Stat. 333 (1984); Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986, Pub. L. No. 99-554, 100 Stat. 3114 (1986); Retiree Benefits Bankruptcy Protection Act of 1988, Pub. L. No. 100-334, 102 Stat. 610 (1988); Crime Control Act of 1990, Pub. L. No. 101-647, 104 Stat. 4789 (1990); Energy Policy Act of 1992, Pub. L. No. 102-486, 106 Stat. 2776 (1992); Rail Safety Enforcement and Review Act of 1992, Pub. L. No. 102-365, 106 Stat. 972 (1992); Violent Crime Control and Law Enforcement Act of 1994, Pub. L. No. 103-322, 108 Stat. 1796 (1994); Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, 108 Stat. 4106 (1994); ICC Termination Act of 1995, Pub. L. No. 104-88, 109 Stat. 803 (1995), and other minor amendments.
The Bankruptcy Code superseded the former Bankruptcy Act of 1898. See Bankruptcy Act of 1898 (act July 1, 1898, ch. 541, 30 Stat. 544), as amended by the Chandler Act of 1938 (ch. 575, 52 stat. 840) (repealed 1979) (hereinafter, the “Bankruptcy Act”).
After the Bankruptcy Code was enacted, the Court issued opinions in three Bankruptcy Act cases. See Railway Labor Executives’ Ass’n v. Gibbons, 455 U.S. 457 (1982); Butner v. United States, 440 U.S. 48 (1979); United States v. Sotelo, 436 U.S. 268 (1978). This article does not discuss these cases.
This article omits decisions that arose from Bankruptcy Code cases that did not involve questions of bankruptcy law, see, e.g., Rivet v. Regions Bank of La., 522 U.S. 470 (1998) (clarifying the removal issues raised in Federated Dept. Stores, Inc. v. Moitie, 452 U.S. 394 (1981)), and cases in which the Court simply vacated and remanded or dismissed as moot a Bankruptcy Code decision, see, e.g., Christians v. Crystal Evangelical Free Church, 521 U.S. 1114 (1997) (vacating judgment and remanding for reconsideration in light of City of Boerne v. Flores, 521 U.S. 507 (1997)); In re Bonner Mall Partnership, 513 U.S. 18 (1994) (denying vacatur and dismissing the appeal as moot).
Studies examining the effectiveness of competing interpretive models are also critical. For example, in a recent study, Professor Daniel Bussel concluded that textualist decisions were overruled by legislative action more often than non-textualist decisions. See Daniel J. Bussel, Textualism’s Failures: A Study of Overruled Bankruptcy Decisions, 53 Vand. L. Rev. – (forthcoming April 2000).
See also Phoenix Mutual Life Ins. Co. v. Greystone III Joint Venture (In re Greystone III Joint Venture), 995 F.2d 1274, 1285 (5th Cir. 1991) (Jones, J., dissenting on rehearing) (quoted infra text accompanying note 761).
For an overview of the debate concerning the continued viability of chapter 11, see Michael Bradley & Michael Rosenzweig, The Untenable Case for Chapter 11, 101 Yale L.J. 1043 (1992) (discussing the debate concerning the continued viability of chapter 11); G. Eric Brunstead, Jr., et al., Review of the Proposals of the National Bankruptcy Review Commission Pertaining to Business Bankruptcies: Part One, 53 Bus. Law. 1381 (1998); Kenneth Klee, Adjusting Chapter 11: Fine Tuning the Plan Process, 69 Am. Bankr. L.J. 551 (1995); Lynn M. LoPucki, Chapter 11: An Agenda for Basic Reform, 69 Am Bankr. L.J. 573 (1995); Elizabeth Warren, The Untenable Case For Repeal of Chapter 11, 102 Yale L.J. 437 (1992).
For empirical data concerning individuals who have filed for bankruptcy relief, see Karen Gross, Re-Vision of the Bankruptcy System: New Images of Individual Debtors, 88 Mich. L. Rev. 1505 (1990); Teresa Sullivan et al., As We Forgive Our Debtors: Bankruptcy and Consumer Credit in America (1989); Teresa A. Sullivan, et al., The Use of Empirical Data in Formulating Bankruptcy Policy, 50 Law & Contemp. Probs. 195 (1987); Teresa Sullivan, et al., Consumer Debtors Ten Years Later: A Financial Comparison of Consumer Bankrupts, 1981-1991, 68 Am. Bankr. L.J. 121 (1994); Teresa Sullivan, et al., The Persistence of Local Legal Culture: Twenty Years of Experience from the Federal Bankruptcy Courts, 17 Harv. J.L. & Pub. Pol’y 801 (1994). For select empirical data concerning business bankruptcy filings, see Lynn M. LoPucki & William C. Whitford, Venue Choice and Forum Shopping in the Bankruptcy Reorganization of Publicly Held Companies, 1991 Wis. L. Rev. 11 (1991). For a discussion of bankruptcy’s impact on the community, see Karen Gross, Failure and Forgiveness: Rebalancing the Bankruptcy System (1997).
For other, and, in some instances, more detailed, analyses of limited groups of these cases, see Lowell P. Botrell, The Supreme Court and the “Plain Meaning” of the Bankruptcy Code: A Review of Recent And Pending Supreme Court Decisions, 69 N.D. L. Rev. 155 (1993); Carlos Cuevas, The Rehnquist Court, Strict Statutory Construction, and The Bankruptcy Code, 42 Clev. St. L. Rev. 435 (1994); Rasmussen, supra note 50; sources cited supra notes 7, 8, 50, infra notes 672-83.
The Grogan Court also may have found that its structural analysis obviated the need to consult pre-Code practice. See infra notes 147-49 and accompanying text.
In Grogan v. Garner, 498 U.S. 279 (1991), in contrast, the Court did not consider whether this policy might have warranted a higher evidentiary standard in nondischargeability actions. See supra notes 152-55 and accompanying text; see also infra note 138 and accompanying text (offering a suggestion why the Court applied this policy in Kawaauhau but not in Grogan).
Although a 1984 amendment had modified the fraud exception, this amendment did not deter the Court from relying upon pre-Code practice because the legislative history noted that the amendment had effected only a stylistic change. Id.
The Court applied a similar substantive inquiry when it concluded that the creditor’s reading was “structurally inconsistent with” Bankruptcy Code section 552, which governs the post-petition effect of a pre-petition security interest. Id. at 374. Section 552 states the general rule that a pre-petition security interest does not reach property the debtor acquires post-petition, unless that property is the proceeds of the creditor’s pre-petition collateral. See 11 U.S.C. § 552 (1994).
The Court also applied a structural analysis when it concluded that allowing interest would “make nonsense of 362(d)(2).” See Timbers, 484 U.S. at 374.
The Court applied structural and pragmatic reasoning when it commented that it would be “incomprehensible why Congress would want to favor undersecured creditors with interest if they move for it under 362(d)(1) at the inception of the reorganization process – thereby probably pushing the estate into liquidation – but not if they forebear and seek it only at the completion of the reorganization.” Id. at 374. Similarly, “petitioner offers no reason why Congress would want to provide relief for such an obstreperous and thoroughly unharmed creditor.” Id. at 375.
In recent years, bankruptcy scholars and commentators have argued that “new value” should be viewed as a “corollary” rather than an “exception” to the absolute priority rule. This view is based largely on the argument that a debtor who contributes money or money’s worth that is at least equivalent in value to the property or interest that the debtor receives, receives property “on account of” his new contribution, not “on account of” his old equity interest. One difficulty with this analysis is that old equity holders are often given the exclusive right to make such a contribution. A divided Court recently held that such an exclusive right, in and of itself, constituted value to the equity holders. See LaSalle, 119 S. Ct. 1411 (discussed infra at notes 520-53 and accompanying text).
For a discussion of the absolute priority rule and its new value exception/corollary, see generally Edward S. Adams, Toward a New Conceptualization of the Absolute Priority Rule and Its New Value Exception, 1993 Det. C.L. Rev. 1445 (1993); John D. Ayer, Rethinking Absolute Priority After Ahlers, 87 Mich. L. Rev. 963 (1989); G. Eric Brunstead, Jr. & Mike Sigal, Competitive Choice Theory and the Broader Implications of the Supreme Court’s Analysis in Bank of America v. 203 North LaSalle Street Partnership, 54 Bus. Law. 1475 (1999); 7 Collier, supra note 163, P 1129.04 [ [a], 1129-82 to 1129-126.3; P 1129.LH[a] 1129-187 to 1129-201 (15th ed. rev. 1996); Richard E. Coulson, “New Value” and the Absolute Priority Rule in Chapter 11 Cramdowns, 48 Consumer Fin. L. Q. Rep. 220 (1994); Kenneth N. Klee, Cram Down II, 64 Am. Bankr. L.J. 229 (1990); Bruce Markell, Owners, Auctions and Absolute Priority in Bankruptcy Reorganizations, 44 Stan. L. Rev. 69 (1991); Raymond T. Nimmer, Negotiated Bankruptcy Reorganization Plans: Absolute Priority and New Value Contributions, 36 Emory L.J. 1009 (1987); Linda J. Rusch, The New Value Exception to the Absolute Priority Rule in Chapter 11 Reorganizations: What Should the Rule Be?, 19 Pepp. L. Rev. 1311 (1992); Ronald Trost et al., Survey of the New Value Exception to the Absolute Priority Rule and the Preliminary Problem of Classification, SD24 ALI-ABA 401 (1998); Elizabeth Warren, A Theory of Absolute Priority, 1991 Ann. Surv. Am. L. 9 (1992); James J. White, Absolute Priority and New Value, 8 Cooley L. Rev. 1 (1991).
The Bankruptcy Code rule is a modified absolute priority rule because it does not absolutely prohibit equity from retaining an interest. The rule prohibits pre-petition equity holders from receiving or retaining property under a chapter 11 plan “on account of” their prior interests if (i) a senior class of claims rejects the plan, and (ii) the members of that senior class receive less than full payment on their claims. See 11 U.S.C. §§ 1129(b)(1), 1129(2)(B)(i), (ii), 1129(a)(8) (1994). Equity can retain an interest even if a senior class is not paid in full if the senior class accepts the plan and the plan satisfies the other requirements for confirmation. See 11 U.S.C. §§ 1129(a), (a)(8) (1994). The rule does not mention the rights of equity holders who contribute new value contributions.
The Court also turned to legislative history to determine whether the equity holder’s retention of ownership would deprive creditors of “property.” Id. at 207-08. Although the Bankruptcy Code does not define the term “property,” the legislative history suggests that “property” has a broad meaning. Id. at 208-09 (also reasoning that the company’s equity must have some value, otherwise the old equity holders would not be litigating to retain ownership).
Another general jurisdiction statute grants the courts of appeals power to hear appeals of final orders of the district courts. See 28 U.S.C. § 1291 (1994). The Court concluded that this statute did not render the bankruptcy jurisdiction statute superfluous. See Germain, 503 U.S. at 252-53.
Similarly, although Justice Scalia did not write a separate opinion, he declined to join in the one paragraph in which the Court presented a hypothetical case under which the debtor might have held an interest in the property, under state law, before the lien attached. Id. at 300 n.4.
The majority rejected an appeal to policy. It stated that the opt-out policy did not impel the Court to “create a distinction [between federal and state exemptions] that the words of the statute do not contain.” Owen, 500 U.S. at 313; see 11 U.S.C. § 522(b) (1994) (providing debtors with a choice between state and federal exemptions unless the debtor’s state has “opted out” of the federal exemption scheme and limited its residents to the state law exemptions). The Court also suggested that the opt-out policy was limited by the Bankruptcy Code’s policies. See Owen, 500 U.S. at 313.
The Court also rejected an appeal to policy considerations and warnings of dire consequences that would follow from allowing individuals to file chapter 11. Toibb, 501 U.S. at 163-65.
Viewed another way, of the Court’s fifteen unanimous Bankruptcy Code decisions, only one presented a constitutional question (6.66%). Similarly, of the Court’s nine unanimous with concurrence cases, only one presented a constitutional question (11.11%). Thus, constitutional questions resulted in an aggregate of only two of the twenty-four non-split decisions (8.33%). Two of the fifteen minor splits presented constitutional questions (13.33%). Three of the nine major splits presented constitutional questions (33.33%). Thus, constitutional questions resulted in an aggregate of five of the twenty-four split decisions (20.83%).
The separate opinions in NLRB v. Bildisco & Bildisco, 456 U.S. 513 (1984) also arguably apply different interpretive methods; however, the foregoing list is limited to those cases in which the separate opinions clearly reflect interpretive disputes.
BFP v. Resolution Trust Corp., 511 U.S. 531 (1994), is excluded because, although both the majority and dissent claim to have applied plain meaning, each considered sources other than the text. See supra notes 606-23.
Similarly, in those cases that implicated state law, but in which the Court found no direct conflict between the Bankruptcy Code and state law and no important state interest, the Court uniformly subordinated the state law to the Bankruptcy Code. See Fidelity Fin. Servs., Inc. v. Fink, 522 U.S. 211 (1998) (state law grace period for perfection of security interests versus Bankruptcy Code grace period for avoiding preferential perfection); Patterson v. Shumate, 504 U.S. 753 (1992) (state spendthrift trust law implicated in legislative history of exclusion from debtors’ estate of beneficial interests in certain trusts); Owen v. Owen, 500 U.S. 305 (1991) (state law definition of exempt property versus Bankruptcy Code lien avoidance provision). None of these cases involved governmental entities.