State of Tenn. v. Michael Corrin
849 F.3d 653
| 6th Cir. | 2017Background
- Debtor Mildred Bratt filed Chapter 13 and proposed to pay delinquent Metro Nashville property taxes; the tax lien was oversecured and the tax claim totaled $5,136.06.
- Federal Bankruptcy Code § 511(a) directs that interest on tax claims to "enable a creditor to receive the present value" be determined under "applicable nonbankruptcy law." 11 U.S.C. § 511(a).
- Tennessee law set 12% interest plus a 6% penalty on overdue property taxes; a 2014 amendment (Tenn. Code Ann. § 67-5-2010(d)) declared that, for bankruptcy claims, penalties "constitute the assessment of interest."
- Bankruptcy court concluded § 67-5-2010(d) was preempted under the Supremacy Clause and applied 12% interest; Tennessee and Metro appealed.
- The BAP affirmed the 12% result on different grounds: it held subsection (d) is a bankruptcy-specific law (not an "applicable nonbankruptcy law" under § 511(a)) and thus cannot dictate the interest rate in bankruptcy.
- The Sixth Circuit affirmed, adopting the BAP’s statutory-interpretation rationale and declining to decide constitutional preemption or equal protection claims.
Issues
| Issue | Bratt's Argument | Tennessee/Metro's Argument | Held |
|---|---|---|---|
| Whether Tenn. Code § 67-5-2010(d) is an "applicable nonbankruptcy law" under 11 U.S.C. § 511(a) | Subsection (d) applies only in bankruptcy and thus is a bankruptcy-specific law, so § 511(a) does not incorporate the 6% penalty; 12% controls | § 67-5-2010(d) is a state law outside the Bankruptcy Code and therefore is an "applicable nonbankruptcy law," making the combined 18% applicable | Held for Bratt: subsection (d) is bankruptcy-targeted and not an "applicable nonbankruptcy law" under § 511(a); 12% applies |
| Whether the 6% penalty may be recharacterized as interest for bankruptcy interest-rate calculation | The legislative reclassification does not convert a penalty into applicable interest for § 511(a) if the law targets bankruptcy | The statute expressly deems penalties to be interest in bankruptcy; thus the full 18% should apply | Court applies statutory-interpretation result: the bankruptcy-targeted reclassification is not an "applicable nonbankruptcy law," so the extra 6% is not applied |
| Whether the court must resolve Supremacy Clause preemption and Equal Protection challenges to § 67-5-2010(d) | Argue that the state provision conflicts with federal policy (no post-petition penalties) and discriminates against non-bankruptcy creditors | Defend the statute as within state authority and consistent with federal law | Court declines to reach constitutional questions, resolving the case on statutory-interpretation grounds |
Key Cases Cited
- Lamie v. United States Trustee, 540 U.S. 526 (statutory interpretation; apply clear statutory text)
- Ashwander v. Tenn. Valley Auth., 297 U.S. 288 (concurrent) (principle of constitutional avoidance)
- Richardson v. Schafer (In re Schafer), 689 F.3d 601 (6th Cir.) (states may enact bankruptcy-specific laws; standard of review)
- HSBC Bank USA v. Branch (In re Bank of New England Corp.), 364 F.3d 355 (1st Cir.) (interpretation of "applicable nonbankruptcy law" and limits on bankruptcy-specific state rules)
- In re Gift, 469 B.R. 800 (Bankr. M.D. Tenn.) (bankruptcy court holding that post-petition penalty portion could not be collected prior to Tennessee statutory amendment)
- In re Fowler, 493 B.R. 148 (Bankr. E.D. Cal.) (upholding use of a state tax statute that treated penalty as interest in bankruptcy proceedings)