RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 10a0299p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
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X
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DEUTSCHE BANK NATIONAL TRUST
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COMPANY, as Trustee, by and through its
servicer Countrywide Home Loans, Inc., -
Petitioner-Appellant, -
No. 09-5867
,
>
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v.
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KATHERINE MARIE TUCKER; BEVERLY M.
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BURDEN, Trustee; OFFICE OF THE U.S.
Respondents-Appellees. -
TRUSTEE,
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N
Appeal from the United States District Court
for the Eastern District of Kentucky at Covington.
No. 08-00199—David L. Bunning, District Judge.
Argued: August 5, 2010
Decided and Filed: September 15, 2010
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Before: SUTTON and McKEAGUE, Circuit Judges; JONKER, District Judge.
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COUNSEL
ARGUED: Nathan L. Swehla, LERNER, SAMPSON & ROTHFUSS, Cincinnati, Ohio,
for Appellant. John M. Simms, ATKINSON, SIMMS & KERMODE, Lexington,
Kentucky, Anne Marie Regan, KENTUCKY EQUAL JUSTICE CENTER, Louisville,
Kentucky, for Appellees. ON BRIEF: Nathan L. Swehla, LERNER, SAMPSON &
ROTHFUSS, Cincinnati, Ohio, for Appellant. J. D. Kermode, ATKINSON, SIMMS &
KERMODE, Lexington, Kentucky, Anne Marie Regan, KENTUCKY EQUAL
JUSTICE CENTER, Louisville, Kentucky, Michael L. Rice, Erlanger, Kentucky, James
P. McHugh, LEGAL AID OF THE BLUEGRASS, Covington, Kentucky, for Appellees.
*
The Honorable Robert J. Jonker, United States District Judge for the Western District of
Michigan, sitting by designation.
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No. 09-5867 Deutsche Bank Nat’l Trust Co. v. Tucker, et al. Page 2
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OPINION
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JONKER, District Judge. Deutsche Bank holds an undersecured home mortgage
from Katherine Marie Tucker, the Chapter 13 debtor. Ms. Tucker was in arrears on the
debt at the time of filing, but wants to retain possession and control of her home.
Accordingly, she proposes in her Chapter 13 plan to cure the arrearage, as required by
11 U.S.C. § 1322(e). The question is whether the proper arrearage amount includes fees
and costs permitted by the contract terms and applicable nonbankruptcy law even though
Deutsche Bank is undersecured. This Court accepted certification of the question from
the district court to resolve a conflict on the issue in the decisions of the bankruptcy
courts in this Circuit. Compare In re Thompson, 372 B.R. 860, 864 (Bankr. S.D. Ohio
2007) (holding that a Chapter 13 debtor who proposes to cure a default must pay
everything required by the underlying agreement and nonbankruptcy law regardless of
whether the debt is undersecured), with In re Evans, 336 B.R. 749 (Bankr. S.D. Ohio
2006) (holding that a Chapter 13 debtor need only cure the amount of the default that is
secured as defined in 11 U.S.C. § 506(b)). We now resolve the conflict by applying the
plain language of section 1322(e). That language requires the debtor to include the fees
and costs in the arrearage cure amount notwithstanding Deutsche Bank’s undersecured
status because the fees and costs are permitted under the agreement and nonbankruptcy
law.
BACKGROUND
In August, 2004, Katherine Marie Tucker executed a Promissory Note in the
amount of $104,550.00 in favor of Novelle Financial Services. As security for the Note,
Ms. Tucker and her husband, Charles Tucker, executed a mortgage on their house.
Novelle Financial Services assigned its interest in the Note and mortgage to Deutsche
Bank National Trust Company. In February 2008, Ms. Tucker filed her Chapter 13
bankruptcy petition. On her bankruptcy schedules, Ms. Tucker listed the value of the
house at $88,000.00.
No. 09-5867 Deutsche Bank Nat’l Trust Co. v. Tucker, et al. Page 3
Deutsche Bank filed its secured proof of claim for $103,328.84. The Proof of
Claim contained Deutsche Bank’s pre-petition arrearages totaling $23,286.89. The
arrearage claims included fees and costs totaling $4,660.42: Attorney Fees to prepare
the Proof of Claim of $200.00; Previous Bankruptcy Fees of $250.00; Attorney Fees for
the Foreclosure of $1,415.00; Property Inspections of $29.00; and Escrow Advances in
the amount of $2,766.42. The underlying note and mortgage permitted the holder to
assess these fees and expenses. No one disputes the reasonableness of the fees and costs.
Ms. Tucker objected to Deutsche Bank’s Proof of Claim. She contended that the
proper arrearage could be no greater than $18,626.47 and that the remaining amount of
$4,660.42 in fees and expenses should be treated as unsecured amounts under In re
Evans, 336 B.R. 749 (Bankr. S.D. Ohio 2006). Evans held that the arrearages under
section 1322(e) included fees and costs only to the extent that they were also secured
amounts under section 506(b). In her Chapter 13 plan, the debtor proposed to cure only
Deutsche Bank’s $18,626.47 in arrearages, rather than the full amount of $23,286.89,
which included the disputed fees and expenses. The Bankruptcy Court sustained
Ms. Tucker’s position under Evans. Deutsche Bank appealed the Bankruptcy Court’s
order to the United States District Court for the Eastern District of Kentucky, which
certified the issue under 28 U.S.C. § 158(d)(2) for direct appeal to this Court. This Court
accepted. The case now is properly before this Court under 28 U.S.C. § 158(d)(2)(A)(i),
(ii), and (iii).
DISCUSSION
What amounts are properly part of an arrearage cure under section 1322(e) when
the debtor is undersecured? In particular, are fees and costs that are allowed by the
contract documents and applicable nonbankruptcy law amounts that are part of the
arrearage cure amount, even when the debt holder is undersecured under section 506(b)?
This question requires the Court to determine the interaction of two Bankruptcy Code
provisions: 11 U.S.C. § 506(b) and 11 U.S.C. § 1322(e). This Court reviews de novo
questions of statutory interpretation, statutory application, and a bankruptcy court’s
conclusions of law. In re Ruehle, 307 B.R. 28, 31 (B.A.P. 6th Cir. 2004).
No. 09-5867 Deutsche Bank Nat’l Trust Co. v. Tucker, et al. Page 4
The pivotal issue in this case is one of statutory construction. The language of
the statute itself is the starting point in statutory interpretation. United States v. Plavcak,
411 F.3d 655, 660 (6th Cir. 2005). Unless they are otherwise defined, the words in a
statute “will be interpreted as taking their ordinary, contemporary, common meaning.”
Id. When “construing a federal statute, it is appropriate to assume that the ordinary
meaning of the language that Congress employed accurately expresses its legislative
purpose.” Id. at 660-61 (internal quotation marks omitted). If the statutory language is
unambiguous, “the judicial inquiry is at an end, and the plain meaning of the text must
be enforced.” Id. at 661 (quotation omitted).
In this case, the language Congress used is unambiguous: Congress expressly
resolved any potential conflict between section 1322(e) and section 506(b) in favor of
section 1322(e):
Notwithstanding . . . section[] 506(b) . . . of this title, if it is proposed
in a plan to cure a default, the amount necessary to cure the default, shall
be determined in accordance with the underlying agreement and
applicable nonbankruptcy law.
11 U.S.C. § 1322(e) (emphasis added). When it comes to cure under section 1322(e),
Congress says that section 506(b) is beside the point if the parties’ agreement says
otherwise. This obvious reading of the statute is not surprisingly the one virtually all of
the courts to consider it have applied, including the Third Circuit and the Bankruptcy
Appellate Panel for the Second Circuit. See Key Bank of N.Y. v. Harko, 211 B.R. 116,
122 (2nd Cir. B.A.P. 1997); Smiriglio v. Hudson United Bank, 98 F. App’x 914, 915-16
(3rd Cir. May 11, 2004) (unpublished opinion); see also In re Thompson, 372 B.R. 860,
864 (Bankr. S.D. Ohio 2007) (collecting additional cases). See 2 Keith M. Lundin,
CHAPTER 13 BANKRUPTCY, 3d Ed. 138-6 (“Ordinary canons of statutory construction
would interpret the ‘notwithstanding’ in § 1322(e) to mean that § 1322(e) controls
whether and to what extent fees, costs and other charges are allowed to cure default with
respect to all mortgages entered into after October 22, 1994—including oversecured
mortgages . . . .”); id. at 138-5 (“The extent of security is irrelevant to new
§ 1322(e)—even if the residential mortgage is entirely unsecured, if the plan cures
No. 09-5867 Deutsche Bank Nat’l Trust Co. v. Tucker, et al. Page 5
default, the mortgage holder will be entitled to recover whatever charges are allowed by
the underlying agreement and nonbankruptcy law.”); 8 COLLIER ON BANKRUPTCY
1322.19 (“By its introductory language specifically mentioning [§ 506(b)], section
1322(e) makes clear that [§ 506(b)] ha[s] no applicability in a cure situation, in which
the debtor is merely keeping the original contract in place and bringing it up to date.”).
Despite the plain meaning of the statute, the Bankruptcy Court here, relying on
In re Evans, concluded that the arrearage amount under section 1322(e) is limited to the
creditor’s secured status under 506(b). Evans and the Bankruptcy Court deemed the
word “notwithstanding” in section 1322(e) to be ambiguous because in their view it
could have either a supplanting meaning or a supplementary meaning. The supplanting
meaning would be that section 506(b) has no applicability in a Chapter 13 cure situation.
The supplementary meaning would be that a creditor must meet section 1322(e)’s
requirements in addition to meeting the requirements of being fully secured under
section 506(b). In re Evans, 336 B.R. at 753-54. The Bankruptcy Court then referred
to legislative history as discussed in Evans. According to Evans and the Bankruptcy
Court here, “the purpose of § 1322(e) was not to supplant but to supplement the
requirements of § 506(b).” Id. at 755. Accordingly, Evans held that only secured
creditors first meeting the requirements of section 506(b) were entitled to add interest,
costs, and fees to their arrearage claims under section 1322(e). See id.
This conclusion conflicts with the plain language of the statute. It is hard to
imagine a clearer statement of congressional intent than “[n]otwithstanding . . . section[]
506(b) . . . the amount necessary to cure the default, shall be determined in accordance
with the underlying agreement and applicable nonbankruptcy law.” 11 U.S.C. § 1322(e).
The term “notwithstanding” is defined as “without prevention or obstruction from or by”
or “in spite of.” In re Thompson, 372 B.R. at 863 (quoting Webster’s Third New
International Dictionary 1545 (1981)). By using the term “notwithstanding” in section
1322(e), Congress expressly precluded section 506(b) from applying to a Chapter 13
cure situation where the parties have a contrary agreement. To arrive at the
interpretation in Evans, additional terms must be implied into the language of section
No. 09-5867 Deutsche Bank Nat’l Trust Co. v. Tucker, et al. Page 6
1322(e), such as “[n]otwithstanding . . . that a creditor has met the requirements of
section[] 506(b).” 11 U.S.C. § 1322(e) (italicized words added). That implied language
is simply not part of the statute. In effect, the conclusion of Evans and the Bankruptcy
Court here rewrites the statute. It replaces “[n]otwithstanding . . . section[] 506(b)”–the
actual words of Congress–with “subject to section 506(b).”
Ms. Tucker contends that “notwithstanding” is ambiguous because it has
different meanings in different provisions of the Bankruptcy Code and even in section
1322(e) itself. The contention is without merit. In each instance, the term
“notwithstanding” functions in its normal supplanting way: it simply excludes
application of the referenced section. See, e.g., 11 U.S.C. §§ 1322(a)(4), (b)(5), (c), (e).
Of course, the particular practical implication of what is excluded varies with the
context, but the meaning and operation of the word “notwithstanding” does not change.
Section 1322(c), for example, uses “notwithstanding subsection (b)(2)” to affect the
timing of certain mortgage payments, despite section 1322(b)(2)’s general provision
preventing modification of mortgage loan terms. And within section 1322(e) itself,
“notwithstanding” functions in a way that requires the Chapter 13 plan to establish the
proper arrearage cure amount without reference to section 506(b) (governing secured
status), section 1322(b) (governing modification of mortgage terms), and section
1325(a)(5) (establishing the requirements for a confirmable Chapter 13 plan), to the
extent those sections conflict with the mortgage agreement and state law. But this does
not mean, as appellee claims, that these three sections will never apply in a cure
situation. They remain in effect for all purposes other than determination of a cure
amount under the terms of the parties’ contract and applicable non-bankruptcy law.
Accordingly, under the plain language of the statute, a creditor meeting the requirements
of section 1322(e) may add interest, fees, and costs that are properly recoverable outside
of bankruptcy, regardless of whether the creditor is fully secured under section 506. See
id. Because the statutory language is unambiguous, “the judicial inquiry is at an end,
and the plain meaning of the text must be enforced” without reference to the legislative
history. See Plavcak, 411 F.3d at 661 (quotation omitted).
No. 09-5867 Deutsche Bank Nat’l Trust Co. v. Tucker, et al. Page 7
Even if we accepted Tucker’s invitation to consider the legislative history of
section 1322(e), that would not change the outcome. According to a House Report,
Section 1322(e) was enacted to “overrul[e] the decision of the Supreme Court in Rake
v. Wade.” H.R. Rep. No. 103-835, at 55 (1994), reprinted in 1994 U.S.C.C.A.N. 3340,
3364. In Rake, the Supreme Court relied on §§ 506(b), 1322(b), and 1325(a)(5) to hold
that creditors could receive interest on mortgage arrearages in a Chapter 13 plan, even
if the agreement was silent or state law prohibited it. By overturning Rake, Congress
wanted to eliminate the “windfall to secured creditors at the expense of unsecured
creditors.” H.R. Rep. No. 103-835, at 55. All of this, Tucker argues, shows that
Congress wanted the new requirements in section 1322(e) to supplement, not supplant,
section 506.
The problem with this argument is Congress’s “actual” intent is not that easy to
discern. In Rake, the creditor was oversecured and the Court thus never addressed—it
had no reason to address—the rights of undersecured creditors. See id. at 466. The
relevant legislative history for § 1322(e) simply mentions “secured creditors” and says
nothing about unsecured creditors or whether the extent of the security matters. See
H.R.Rep. No. 103-835 at 55 (1994), reprinted in 1994 U.S.C.C.A.N. 3340, 3364; S.Rep.
No. 103-168 at 53 (1993). Congress’s concern about Rake had nothing to do with
whether a creditor was oversecured but with Rake’s allowance of “interest on interest
payments, and interest on the late charges and other fees, even where applicable laws
prohibits such interest and [it] was not contemplated by either party in the original
transaction.” H.R.Rep. No. 103-835 at 55.
The most that can fairly be inferred from this legislative history is that Congress
wanted § 1322(e) to overrule Rake. But Congress could do so in two equally plausible
ways: (1) tack on two new requirements for oversecured creditors like the one in Rake,
or (2) create a new and broader rule that applies to all secured creditors, whether
oversecured or undersecured. The legislative history does not say which path Congress
chose, but the open-ended use of “notwithstanding” in the text suggests it chose the
latter. And that suffices to rely on the language of the statute. See Conn. Nat. Bank v.
No. 09-5867 Deutsche Bank Nat’l Trust Co. v. Tucker, et al. Page 8
Germain, 503 U.S. 249, 254 (1992) (“[C]ourts must presume that a legislature says in
a statute what it means and means in a statute what it says there.”).
CONCLUSION
Ultimately, the parties defending the decision below are relying on neither the
statutory text nor even the legislative history of the statute, but rather their own
assessment of what Congress’ motivation must have been. Of course, the Court is bound
to apply the plain language Congress used. That language has only one unambiguous
meaning: when it comes to curing a default in a Chapter 13 plan, the debtor has to
include all the amounts required under section 1322(e) “[n]otwithstanding . . . section[]
506(b).” 11 U.S.C. § 1322(e). Accordingly, Deutsche Bank’s fees and advances, which
were allowed under the parties’ agreement and applicable nonbankruptcy law, must be
included in the cure amount. The Bankruptcy Court’s decision to the contrary must be
VACATED and the case REMANDED for proceedings not inconsistent with this
opinion.