The U.S. Supreme Court's decision in Hall v. United States (No.
10-875, decided May 14, 2012) won't directly affect most Americans. Few of them
will ever have occasion to file for bankruptcy as farmer debtors under the
sections of the Bankruptcy Code this case construes. Nevertheless the case
deserves attention.
To see why, we have to begin with some legal technicalities. Farmer
debtors can file for bankruptcy under chapter 12 of the Bankruptcy Code.
Bankruptcy does not have to be total ruin. If the court approves a debtor's
bankruptcy plan, then the debtor can keep his or her existing assets and pay
the debts that led to bankruptcy later, out of future income. But the
bankruptcy court won't approve the plan unless "priority claims" are
paid in full.
Suppose that, after filing for bankruptcy, the farmer sells some of
his or her land (or other "farm assets", to raise money to pay those
priority claims. Great -- but there's a catch. The sale produces income, and
the income is subject to tax. The case refers to this tax as "postpetitition tax" -- that is, tax incurred from a sale after the filing of the bankruptcy petition. If that postpetition tax due has to be paid regardless of the
bankruptcy, then the farmer may run out of money while trying to pay the tax,
with the result that the whole plan collapses and the farmer is, in fact,
driven altogether out of business.
This prospect troubled members of Congress. The chief sponsor of an
amendment to deal with it, Senator Charles Grassley, said in the Senate that:
"This isn't sound policy. Why should the I.R.S. be allowed to veto a
farmer's reorganization plan? [The Amendment] takes this power away from the I.R.S. by reducing the priority of taxes during proceedings." (145 Cong. Rec. 1113
(1999), as quoted in Justice Breyer's Hall dissent at 5.)
To that end, the amendment, now 11 U.S.C. 1222(a)(2)(A), provides for
an exception from the list of "priority claims" -- the claims that
must be paid up front and in full to get the plan approved. The exception
covers "a claim owed to a governmental unit that arises as a result of the
sale, transfer, exchange, or other disposition of any farm asset used in the
debtor's farming operation." A claim for taxes on the sale income would seem to fit here perfectly.
So far, so good, right? Unfortunately for the farmers, no. The
problem is that this provision makes an exception only from the list of
priority claims, so if the taxes the farmer owed on the sale weren't a priority
claim in the first place then this statute doesn't get the farmer off the
hook. The majority of the Supreme Court concludes (at 2-3) that the only postpetition taxes
that the Bankruptcy Code treats as "priority claims" are those owed
by the bankruptcy estate. But, says the Court, in bankruptcy cases under
chapter 12, "there is no separately taxable estate. The debtor -- not the
[bankruptcy] trustee -- is generally liable for taxes and files the only tax
return." (Majority opinion at 5.)
That language sounds so broad as to be absurd. If the statute exempts nothing, what is the point of the exemption? But by virtue of another statutory provision prepetition taxes -- that is, evidently, taxes incurred in taxable years prior to the year in which the bankruptcy petition if filed -- do count as priority claims. (See majority opinion at 2; Justice Breyer's dissent at 6.) So the exemption does exempt prepetition taxes and therefore isn't simply meaningless. Actually it also exempts some other taxes as well, referred to in a footnote of the Court's opinion (14 n.8). But it does not exempt the postpetition taxes we've been considering, though these are presumably the taxes most likely to result from transactions that the farmer entered into precisely because of his or her financial distress. Justice Breyer says (at 17) that this interpretation makes "rubble" of the
amendment, whose central purpose seems to be pretty completely defeated.
And yet it may well be
that as a matter of careful, word-by-word interpretation of these technical
provisions at the intersection of bankruptcy and tax law, the majority is
correct. Justice Breyer offers an alternative reading, but he doesn't assert
it's compelling in and of itself; at one point, for example, he simply says
that “[t]he English language permits this reading.” (At 9.) His argument is that
this permissible reading is the right one for a basically nontextual reason –
that it does what Congress wanted to do.
So what seems to have happened is this: Congress tried to amend the
bankruptcy Code to help farmer debtors, and thought it had done so, but it was
wrong. It got tripped up by the difficult provisions of the law it was trying
to improve.
What should a court do about this? Justice Breyer concludes his
dissent by saying (at 18) that "I believe it important that courts
interpreting statutes make significant efforts to allow the provisions of
congressional statutes to function in the ways that ... the elected branches of
Government likely intended and for which it can be held democratically
accountable."
That's a sentiment it's hard to disagree with, but there is something
to be said on the other side of this case as well. A law's intentions should be
ascertainable from its words, many would argue, or at least from its words as
interpreted by clear and established principles of interpretation. One might
maintain that reliance on evidence of legislative intentions as revealed in the history of the
law's consideration could be one of those principles -- but again many would
respond that intentions not embodied in the statute's words are too often
obscure, and too subject to manipulation by judges tempted to impute their own
ideas to Congress, to be safely relied upon.
Debates like this have been an important part of judges' work over
recent decades, and sometimes have been intense. My impression is that today in
the U.S., this war is largely over. All judges of the U.S. Supreme Court pay a
great deal of attention to the words of statutes today, and to the technical
tools of statutory interpretation. There remain disagreements about how far to
depart from these methods, but they are more on the margins than at the core.
Within this comparative consensus, or at least truce, the Hall case
is an outlier: a case where the goals of fidelity to legislative language and
to legislative intention are more or less inescapably opposed. I would favor
Breyer's side of the argument, but my main point is that these two central
commitments -- to language and intention -- both have valid claims upon us. Indeed, the majority opinion is written by Justice Sotomayor, who more often is aligned with Justice Breyer in opposing the views of the more conservative members of the Court. And
because statutory interpretation turns on such fundamental commitments, it
actually does matter to all of us.
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