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Rules: "'The existence of a valid bankruptcy claim depends on (1) whether the claimant possessed a right to payment, and (2) whether that right arose before the filing of the petition.'" Substantive nonbankruptcy law provides that the Special Rule (as articulated below) applies. The Special Rule "unambiguously states that where a pension plan is terminated in connection with an employer's bankruptcy reorganization, the General Rule - which creates the PBGC's right to a Termination Premium - 'shall not apply to such plan until the date of the discharge or dismissal of [the employer].'"
Holding: Reversed and remanded.
Reasoning: The so-called 'General Rule' "is that if there is a termination of a single-employer plan [under specified provisions], there shall be payable to the [PBGC], with respect to each applicable 12-month period, a premium at a rate equal to $1,250 multiplied by the number of individuals who were participants in the plan immediately before the termination date. If, however, the plan is terminated during a bankruptcy reorganization proceeding, then [the General Rule] shall not apply to such plan until the date of the discharge or dismissal of [the employer] in such case... This is called the 'Special Rule.'" In the case of a Special Rule situation, the liability does not arise until the employer is discharged from the reorganization. The purpose of the Special Rule is to "prevent employers from evading the Termination Premium while seeking reorganization in bankruptcy." Although this type of language in a private contract may not change the analysis of when the claim arose, "Congress may prescribe when a claim will be legally effective for the purposes of the Bankruptcy Code, at least where, as here, the non-bankruptcy statute explicitly discusses how the obligation should be treated in bankruptcy." Therefore, the Termination Premium is not a contingency claim because the claim does not even arise until the bankruptcy itself is terminated. "No matter how broadly the term 'claim' is construed, it cannot extend to a right to payment that does not yet exist under federal law." In addition to the language of the Special Rule, the legislative history of the Deficit Reduction Act and the Pension Protection Act also dictates that the issue should be resolved in favor of the PBGC.
Facts: Thomas Lindsay ("Lindsay") appeals the district court's order affirming the bankruptcy court's decision to allow Covenant Management Group, LLC's ("Covenant") secured claim. Lindsay originally borrowed money from Covenant to purchase a bowling alley in Michigan. The promissory note states that Lindsay promises to repay $1.35 million at an 11% interest rate. The Buyer's Closing statement provides that the $1.35 million includes a $270,000 discount fee. Then, several years later, Lindsay sought to extend the promissory note payments for 6 months and Covenant charged him a $36,765.86 extension fee, which Lindsay paid with funds borrowed from a different lender, BNC Mortgage Company ("BNC"). Unable to satisfy his debt, Lindsay declared chapter 11 and Covenant filed a proof of claim in the amount of $1.34 million, the outstanding balance of the loan. Lindsay objected to Covenant's claim on two bases: (1) Covenant impermissibly charged him interest on the discount fee Lindsay paid at the beginning of the loan; and (2) Covenant failed to apply the extension fee Lindsay paid to reduce the principle.
Issues: Whether the interest charged on the discount fee violated Michigan's law against charging compound interest.
Rules: "Courts, wherever possible, interpret an agreement 'in such manner as to carry out the intent of the parties.'"
