DeNofa v. National Loan Investors, L.P.DeNofa v. National Loan Investors, L.P.
OPINION OF THE COURT
Aрpellant National Loan Investors, L.P. (“NLI”) appeals from the District Court’s ruling that it was not entitled to post-bankruptcy petition interest on a loan extended to the Appellee-Debtors, Michael E. and Tommye DeNofa. Post-petition interest is available under § 506(b) of the Bankruptcy Code where a debt is oversecured, i.e., where the vаlue of the property
As we write solely for the parties, and the facts are knоwn to them, we will discuss only those facts pertinent to this appeal. NLI became the holder of a loan debt incurred in part by the DeNofas. The loan had originally been made to DAK Manufacturing Corporation (“DAK”), an entity wholly owned by Michael DeNofa and Steven Katz, and was secured not only by an interest in property owned by DAK, but also by guarаnties executed by DeNofa and Katz, which were respectively secured by a mortgage on their private residences.
The DeNofas filed a Chapter 11 bankruptсy petition. NLI’s predecessor filed a proof of claim in the DeNofa bankruptcy proceeding, as well as a motion seeking relief from the automatic stay so as to continue with its foreclosure action against the DeNofas, or, in the alternative, dismissal of the DeNofa reorganization proceeding. The DeNofаs filed an adversary proceeding against NLI seeking an accounting as to NLI’s claim and a reduction in the amount the DeNofas owed on that claim due to an allеged oral agreement which purportedly froze the accrual of interest on the loan debt. NLI disputed the oral agreement claim and argued that it was entitled to post-petition interest on its claim under 11 U.S.C. § 506(b). After several proceedings before the Bankruptcy and District Courts, the District Court ultimately ruled that NLI was not entitled to post-petition interest under § 506(b). The District Court also found that a $250,000 payment made to NLI by the Katzes in order to settle a foreclosure action filed against them by NLI was to be appliеd to the principal amount of the loan debt. NLI filed a timely notice of appeal.
We have appellate jurisdiction pursuant to 28 U.S.C. § 158(d). We exercise plеnary review over grants and denials of summary judgment, and review a district court’s interpretation of a statute de novo. See Circle Schools v. Pappert,
Our resolution of the primary substantive question in this appeal — whethеr non-debtor property may be included in determining whether a debt is oversecured — requires us to interpret § 506 of the Bankruptcy Code.
Focusing only on § 506(a) and (b)’s referencе to “property,” and not on the entire text of the two subsections, leads one to side, at least initially, with NLI. Section 506(a) refers to “property in which the estate has аn interest,” while § 506(b) refers only to “property” generally, unmodified by any surrounding terms. As such, one is tempted to follow the interpretive principle that “ ‘where Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.’ ” KP Permanent Make-Up, Inc. v. Lasting Impression I, Inc., — U.S.-,
But this apрroach is fatally incomplete because it ignores the remainder of subsections (a) and (b). Subsections (a) and (b) work closely together, and one cannot correctly understand and apply the latter before understanding and applying the former. Section 506(b) only permits post-petition interest where an “allowed secured сlaim is secured by property” which exceeds the value of the “allowed secured claim.” The meaning of “allowed secured claim” dictates the outcome here. Section 506(a) defines an “allowed secured claim” as a claim secured by “property in which the estate has an interest ... to the extent of the value of such creditor’s interest in the estate’s interest in such property[.]” 11 U.S.C. § 506(a) (emphasis added). Thus, quite plainly, the “allowed secured claim” of NLI that we must examine for purposes of post-petition interest under § 506(b) is limited to the extent of the value of the property of the DeNofas’ bankruptcy estate which secures it. See 5 Collier on Bankruptcy ¶ 506.04[1] (15th rev. ed. 2003) (“For purposes of section 506(b), a secured claim is ‘oversecured’ to the extent that the value of the creditor’s interest in the estate’s interest in property is greater than the amount of the creditor’s allowed prepetition claim.”) (footnotes omitted) (emphasis added).
Notes
. Section 506 provides, in pertinent part:
(a) An allowed claim of a creditor secured by a lien on property in which thе estate has an interest, or that is subject to setoff under section 553 of this title, is a secured claim to the extent of the value of such creditor's interest in the estate’s intеrest in such property, or to the extent of the amount subject to setoff, as the case may be, and is an unsecured claim to the extent that the value of such creditor's interest or the amount so subject to setoff is less than the amount of such allowed claim. Such value shall be determined in light of the purpose of the valuation and оf the proposed disposition or use of such property, and in conjunction with any hearing on such disposition or use or on a plan affecting such creditor’s interеst, (b) To the extent that an allowed secured claim is secured by property the value of which, after any recovery under subsection (c) of this section, is greater thаn the amount of such claim, there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs, or charges provided for under
. We will also affirm the District Court's application of the Katzes' settlement payment of $250,000 to the principal amount of the loan debt. A creditor may only apply payments on a debt to post-petition interest and costs to the extent the debt is oversecured, and must otherwise apply such payments to reduce the principal of the debt. See In re Indian Palms Assocs., Ltd.,