Chemical Bank v. First Trust of New York (In Re Southeast Banking Corp.)

                                  United States Court of Appeals,

                                          Eleventh Circuit.

                                            No. 97-4436.

                  In Re: SOUTHEAST BANKING CORPORATION, Debtor.

  CHEMICAL BANK, as Indenture Trustee under the Indenture, dated as of March 1, 1983, of
Southeast Banking Corporation, and Gabriel Capital, L.P., Plaintiffs-Appellants,

                                                  v.

FIRST TRUST OF NEW YORK, National Association, as Indenture Trustee, The Bank of New
York, as Indenture Trustee, and Southeast Banking Corporation, Debtor, Defendants-Appellees.

                                           Sept. 28, 1998.

Appeal from the United States District Court for the Southern District of Florida. (No. 95-2045-
CIV-FAM), Federico A. Moreno, Judge, No. (No. 91-14561 BKC PGH), Paul G. Hyman, Jr., Judge.

Before EDMONDSON and BIRCH, Circuit Judges, and FAY, Senior Circuit Judge.

       BIRCH, Circuit Judge:

       This appeal requires us to decide whether Congress, by enacting section 510(a) of the 1978

Bankruptcy Code, intended to abrogate the "Rule of Explicitness," a judicially created doctrine that

prevents a senior creditor from collecting post-petition interest from a junior creditor pursuant to a

subordination agreement unless the agreement expressly provides for that result. The bankruptcy

court and the district court both held that section 510(a) was not inconsistent with the Rule of

Explicitness and that the legislative history accompanying section 510(a) revealed no intent to repeal

the rule. As a result, the bankruptcy court and the district court declined to read section 510(a) as

a radical departure from previous law governing the interpretation and enforcement of subordination

agreements and held that, because the agreements in question did not satisfy the Rule of

Explicitness, the Senior Creditors were not entitled to receive post-petition interest from the Junior

Creditors. Accordingly, the district court entered summary judgment against the Senior Creditors.
We REVERSE in part and CERTIFY the substance of this dispute to the New York Court of

Appeals.

                                         BACKGROUND

       On September 20, 1991 (the "petition date"), Southeast Banking Corporation ("Southeast")

filed a voluntary bankruptcy petition pursuant to Chapter 7 of the Bankruptcy Code.1 On April 28,

1992, the bankruptcy court entered an order confirming William A. Brandt, Jr. ("Brandt") as the

successor Chapter 7 trustee for Southeast's estate.

       Appellant, The Chase Manhattan Bank ("Chase"), formerly Chemical Bank, is the indenture

trustee (the "Senior Trustee") under an Indenture, dated March 1, 1983 (the "Senior-Indenture"),

pursuant to which Southeast issued $60 million in principal amount of unsecured notes (the "Senior

Notes"). Appellant, Gabriel Capital, L.P. ("Gabriel"), together with three of its affiliates, holds a

substantial portion of the Senior Notes. The Senior Indenture2 provides that Southeast has a

continuing obligation to repay principal and interest on the Senior Notes and that, upon the event

of a default, Southeast will pay the entire amount of principal and interest due on the Senior Notes,

including interest until the date of payment upon overdue principal, and to the extent enforceable,

interest upon the overdue interest at the same rate specified in the Senior Notes. Finally the Senior


   1
    The procedural and factual history of this case and the transactions on which it is based are
extensive and complex. We have attempted to limit our factual discussion to that which is
necessary to understand the issues on appeal. The published opinions of the bankruptcy court
and the district court provide greater detail. See Chemical Bank v. First Trust of New York, N.A.
(In re Southeast Banking Corp.), 

188 B.R. 452

 (Bankr.S.D.Fla.1995), aff'd 

212 B.R. 682

(S.D.Fla.1997).
   2
    Unfortunately, although the parties quoted the Senior Indenture and the relevant
subordination agreements in their briefs, they failed to make those agreements part of the record
on appeal. To the extent we quote those agreements, we have relied on the district court's
published opinion which reproduces the relevant portions of those agreements in the text and
appendix. We note that, although the parties have disagreed over the meaning and significance
of the language of these agreements, they have not contested the literal contents of the contracts.
Indenture provides that, in the event of a default, Southeast also shall be liable to the Senior Trustee

for reasonable fees and costs of collection, including attorneys' fees.3

       Appellees, First Trust of New York, N.A. and The Bank of New York (collectively the

"Junior Trustees") are indenture trustees under five indentures (the "Subordinated Indentures")

pursuant to which Southeast issued in excess of $300 million in principal amount of subordinated

notes ("the Subordinated Notes"). Each of the Subordinated Indentures4 contains language that

subordinates collection on the Subordinated Notes to the prior payment in full on the Senior Notes.

The Subordinated Indentures also provide that, upon Southeast's bankruptcy or liquidation, the

holders of the Senior Notes must be paid in full before Southeast can make any payment on the

Subordinated Notes and that all payments otherwise allocable to the holders of the Subordinated

Notes must be paid to the holders of the Senior Notes, or their trustees, until such Senior Notes have



   3
    The Senior Indenture provides that in the event of a default:

               [Southeast] will pay to the [Senior] Trustee for the benefit of the Holders of the
               [Senior Notes] of such series the whole amount that then shall have become due
               and payable on all [Senior Notes] of such series for principal or interest, as the
               case may be (with interest to the date of such payment upon the overdue principal
               and, to the extent that payment of such interest is enforceable under applicable
               law, on overdue installments of interest at the same rate as the rate of interest ...
               specified in the [Senior Notes] of such series); and in addition thereto, such
               further amount as shall be sufficient to cover the costs and expenses of collection,
               including reasonable compensation to the [Senior] Trustee and each predecessor
               trustee, their respective agents, attorneys and counsel, and all advances made, by
               the [Senior] Trustee and each predecessor trustee except as a result of its
               negligence or bad faith.

       In re Southeast, 

212 B.R. at 684

 (S.D.Fla.1997)(quoting Senior Indenture § 5.2).
   4
    Although the Subordinated Indentures are not identical in relevant part, the bankruptcy court
held that "the legal effect of the minor variations between the [Subordinated] Indentures is
immaterial" for the purposes of this case, In re Southeast, 

188 B.R. at 460

 (Bankr.S.D.Fla.1995),
and the district court affirmed that conclusion, see In re Southeast, 

212 B.R. at 685

(S.D.Fla.1997). The parties have not contested this conclusion on appeal.
been paid in full.5 Significantly, however, the Subordinated Indentures make no specific mention

of the issue of post-petition interest or of the Senior Trustee's fees and costs for collecting

post-petition interest. Finally, each of the Subordinated Indentures includes a clause noting that

New York law governs the enforcement and interpretation of the agreements.

       Both the Senior Trustee and the Junior Trustees have filed proofs of claim as unsecured

nonpriority claims on behalf of their holders in Southeast's Chapter 7 proceedings. Pursuant to the



   5
   The Subordinated Indentures entered into in 1984, 1985, 1987, and 1989, which are
substantively identical in this respect, contain the following subordination clauses:

               [Southeast] ... covenants and agrees, and each holder of a [Subordinated] Note
               likewise covenants and agrees by his acceptance thereof, that the obligation of
               [Southeast] to make any payment on account of the principal of and interest on
               each and all of the [Subordinated] Notes shall be subordinate and junior in right
               of the payment to [Southeast's] obligations to the holders of Senior Indebtedness
               of [Southeast], to the extent provided herein, and that in the cases of ... any
               liquidation or winding-up of or relating to [Southeast] as a whole, ... all
               obligations of [Southeast] to holders of Senior Indebtedness of [Southeast] shall
               be entitled to be paid in full before any payment shall be made on account of the
               principal of or interest on the [Subordinated] Notes.... In addition, in the event of
               any such proceeding, if any payment or distribution of assets of [Southeast] of
               any kind or character ... shall be received by the [Subordinated] Trustee or the
               holders of the [Subordinated] Notes before all Senior Indebtedness of [Southeast]
               is paid in full, such payment or distribution shall be held in trust for the benefit of
               and shall be paid over to the holders of such Senior Indebtedness ... until all such
               Senior Indebtedness shall have been paid in full.

       In re Southeast, 

212 B.R. at 690

-91 (quoting 1984 Subordinated Indenture § 11.01 and
       1985 Subordinated Indenture § 11.01) (second ellipsis added); see also id. at 691
       (quoting 1987 Subordinated Indenture § 1301 and 1989 Subordinated Indenture § 1301).

               The Subordinated Indenture entered into in 1972 provides in relevant part:

               Upon ... any payment or distribution of assets of [Southeast] ... in bankruptcy, all
               principal, premium, if any, and interest due or to become due upon all Senior
               Indebtedness shall first be paid in full ... before any payment is made on account
               of the principal or, premium, if any, or interest on the Debentures....

       Id. at 690 (quoting 1972 Subordinated Indenture § 4.03) (second ellipsis added).
orders of the bankruptcy court, Southeast has distributed or will distribute amounts sufficient to

satisfy the principal on the Senior Notes and all interest that accrued on the Senior Notes prior to

the petition date. Chase, however, has not received any interest that accrued on the Senior Notes

after the petition date ("post-petition interest") because, as we discuss in more detail below, the

Bankruptcy Code does not provide for the recovery of post-petition interest from an insolvent

debtor, such as Southeast.

          Chase and Gabriel (collectively, the "Senior Creditors") commenced the above-captioned

proceeding on September 23, 1994 and sought to compel the payment of post-petition interest until

the date of payment on the Senior Notes (including interest upon that interest), as well as the

reimbursement of Chase's fees and costs associated with this action, from the distributions otherwise

payable to holders of the Subordinated Debt (the "Junior Creditors"). Chase and Gabriel relied on

contractual language in the Subordinated Indentures that subordinated the Junior Creditors' right to

repayment to the Senior Creditors' right to receive payment in full, as well as section 510(a) of the

Bankruptcy Code, which provides for the enforcement of subordination agreements. All parties

moved for summary judgment.         In addition, Brandt, Southeast's Chapter 7 trustee, filed a

cross-motion for partial summary judgment and asked the bankruptcy court to declare that regardless

of the disposition of the dispute between the creditors, the claims against Southeast would not

increase. Since Chase and Gabriel sought to recover post-petition interest from the distributions

otherwise due the Junior Creditors, they did not contest Brandt's motion and have not done so on this

appeal.

          On August 8, 1995, the bankruptcy court denied Chase and Gabriel's motion for summary

judgment in part, granted the Junior Trustees' cross-motion for summary judgment in part, and
declared Brandt's motion for partial summary judgment moot.6 See In re Southeast, 

188 B.R. 452

(Bankr.S.D.Fla.1995). Chase and Gabriel appealed to the district court for the Southern District of

Florida, and on February 28, 1997, the district court affirmed the judgment of the bankruptcy court.

See In re Southeast, 

212 B.R. 682

 (S.D.Fla.1997). Both the bankruptcy court and the district court

based their holdings on the judicially created, and heretofore uniformly applied, doctrine of the

"Rule of Explicitness," which, effectively, prevents a senior creditor from recovering post-petition

interest from junior creditors unless the subordination agreement articulates the obligation in

unusually express language. Applying the same logic, the bankruptcy and district courts denied

Chase's claim for reasonable costs and fees, including attorneys' fees, incurred after the petition date.

Chase and Gabriel argue that section 510(a) of the Bankruptcy Code abrogated the Rule of

Explicitness and that the bankruptcy and district courts, therefore, committed legal error in applying

the rule to this case. Relying on New York law that made a contract for compound interest

unenforceable, prevailing at the time the parties entered the relevant contracts, the bankruptcy and

district courts also rejected Chase and Gabriel's claims for compound interest (interest upon the

post-petition interest). Citing recent revisions to New York law, Chase and Gabriel also urge us to

reverse the district court's conclusions on the issue of compound interest.

                                            DISCUSSION

        The parties do not contest the material facts and agree that the resolution of their dispute

turns on the interpretation and application of the Bankruptcy Code and New York state law.

Consequently, the issues on appeal present purely legal questions, subject to our de novo review.

See Epstein v. Official Comm. of Unsecured Creditors of Estate of Piper Aircraft Corp. (In re Piper


   6
    The bankruptcy court also granted Chase and Gabriel's motion in part and denied the Junior-
Trustees' motion in part, but the parties have not challenged those aspects of the court's judgment
on appeal.
Aircraft Corp.), 

58 F.3d 1573

, 1576 (11th Cir.1995); First Bank of Linden v. Sloma (In re Sloma),

43 F.3d 637, 639

 (11th Cir.1995).

I. The Development of the Rule of Explicitness

        The overriding theme of bankruptcy law, both past and present, has been the equitable

distribution of the debtor's remaining assets among creditors. See Union Bank v. Wolas, 

502 U.S. 151, 161

, 

112 S.Ct. 527, 533

, 

116 L.Ed.2d 514

 (1991) (quoting H.R.Rep. No. 95-595, at 177-78

(1977), reprinted in 1978 U.S.C.C.A.N. 6137-38); Begier v. Internal Revenue Serv., 

496 U.S. 53, 58

, 

110 S.Ct. 2258, 2262-63

, 

110 L.Ed.2d 46

 (1990); Sampsell v. Imperial Paper & Color Corp.,

313 U.S. 215, 219

, 

61 S.Ct. 904, 907

, 

85 L.Ed. 1293

 (1941). Congress evidenced its continued

commitment to this policy in sections 547 and 726 of 1978 Bankruptcy Code. See 

11 U.S.C. § 726

(establishing equitable distribution among creditors); 

id.

 § 547 (permitting the bankruptcy trustee

to recover certain pre-petition transfers to creditors); see also 1 David G. Epstein et al., Bankruptcy

§ 1-2, at 3, § 1-7, at 12 (West 1992) (describing these provisions as manifestations of the policy of

equitable distribution in bankruptcy). The courts, however, have permitted creditors to contract out

of this system of pro-rata distribution by enforcing subordination agreements, whereby one creditor

(the junior creditor) agrees that, in the event of a default or bankruptcy, another creditor (the senior

creditor) will receive repayment in full before the junior creditor receives payment on its loans. See

Dee Martin Calligar, Subordination Agreements, 

70 Yale L.J. 376

, 376-83 (1961) (describing types

of subordination agreements). Before Congress enacted the 1978 Bankruptcy Code, which includes

a statutory provision regarding the enforcement of subordination agreements, the courts enforced

these agreements pursuant to their equitable powers:

        [E]quitable considerations, however, require that the concept of equal distribution be applied
        only to creditors of equal rank, i.e., creditors who are similarly situated. Creditors who
        expressly agree to subordinate their claims against a debtor and the creditors for whose
        benefit the agreement to subordinate is executed are not similarly situated.
In re Credit Indus. Corp., 

366 F.2d 402, 408

 (2d Cir.1966); see also Calligar, Subordination

Agreements, 70 Yale L.J. at 389 ("[S]ubordination agreements ... will be given effect by the

bankruptcy court through the exercise of its equity power."). In enforcing subordination agreements,

however, the courts have emphasized that the junior creditor's agreement to subordinate must be

express. See In re Credit Industrial Corp., 

366 F.2d at 408

.

       The issue of post-petition interest has led to a wrinkle in the enforcement and interpretation

of subordination agreements. Given the often lengthy delay between the debtor's petition for

bankruptcy and the date upon which a creditor can expect to receive any payment on the underlying

obligation, post-petition interest can represent a significant amount of money. Under both pre-Code

practice and the 1978 Bankruptcy Code, unsecured and undersecured creditors7 could not expect to

receive interest on an bankrupt debtor's obligation that accrued after the date of the bankruptcy

petition—at least not from an insolvent debtor. See 

11 U.S.C. § 502

(b)(2) (instructing courts to

determine the amount of a creditor's claim on the date of the petition and disallowing claims for

"unmatured interest"); United Sav. Ass'n v. Timbers of Inwood Forest Assocs., 

484 U.S. 365

, 372-

73, 

108 S.Ct. 626, 631

, 

98 L.Ed.2d 740

 (1988) (citing section 506(b) for the general proposition that

an undersecured creditor will not receive post-petition interest from the debtor);           Vanston



   7
    An undersecured creditor is simply a secured creditor whose collateral is worth less than the
debtor's obligation. Cf. Orix Credit Alliance v. Delta Resources, Inc. (In re Delta Resources,
Inc.), 

54 F.3d 722

, 724 n. 1 (11th Cir.1995) (per curiam). By contrast, section 506(b) of the
Bankruptcy Code, permits an oversecured creditor to receive post-petition interest from the
debtor to the extent the creditor's security exceeds the value of the debtor's obligation. 

Id. at 729

.
Only in the event that the debtor turns out to be solvent (i.e., the debtor's property at fair
valuation is sufficient to pay all debts, cf. 

11 U.S.C. § 101

(32)) can an unsecured or
undersecured creditor expect to receive post-petition interest. See e.g., United States v. Ron Pair
Enters., 

489 U.S. 235, 246

, 

109 S.Ct. 1026, 1033

, 

103 L.Ed.2d 290

 (1989) (describing pre-Code
practice); Equitable Life Assurance Soc. v. Sublett (In re Sublett), 

895 F.2d 1381

, 1386 & n. 10
(11th Cir.1990) (applying section 506(b) of the Bankruptcy Code and describing pre-Code
practice). On the petition date, Southeast was, and has since remained, insolvent.
Bondholders Protective Comm. v. Green, 

329 U.S. 156, 163

, 

67 S.Ct. 237, 240

, 

91 L.Ed. 162

 (1946)

("The general rule in [pre-Code] bankruptcy ... has been that interest on the debtors' obligations

ceases to accrue at the beginning of proceedings."). The rule takes account of the fact that the

debtor's delay in repayment after the petition date results by operation of law and prevents creditors

from profiting or suffering a loss in relation to each other because of the delay. See Vanston, 

329 U.S. at 163-64

, 

67 S.Ct. at 240

.

        In a number of cases, senior creditors sought to avoid this result and recover post-petition

interest—not from the debtor, but from the distributions made to junior creditors subject to

subordination agreements. Citing the junior creditors' agreement to subordinate their right to

repayment until the senior debt had been paid in full, senior creditors argued that even though

bankruptcy law prevented their recovery of postpetition interest from the debtor, their loans had not

been paid in full, and, therefore, that they could demand payment from whatever distribution the

junior creditors received from the debtor. In 1974, before Congress adopted the Bankruptcy Code,

the Court of Appeals for the Third Circuit addressed this argument and concluded that a junior

creditor could agree to subordinate its claim to a senior creditor's demands for post-petition interest,

if the subordination agreement explicitly provided for such a result:

        If a creditor desires to establish a right to post-petition interest and a concomitant reduction
        in the dividends due to subordinated creditors, the agreement should clearly show that the
        general rule that interest stops on the date of the filing of the petition is to be suspended, at
        least vis-a-vis these parties.

In re Time Sales Fin. Corp., 

491 F.2d 841, 844

 (3d Cir.1974).

        Significantly, however, the Time Sales court held that general language in the subordination

agreement, establishing that the senior debt must be "paid in full" before payment on the junior debt,

was insufficient to alert the junior creditor that it had agreed to subordinate its claims to the senior

creditor's claims for post-petition interest. 

Id. at 842, 844

. Specifically, the Third Circuit held that
the district court had not abused its discretion by exercising its equitable power to find that the

subordination agreement was insufficiently explicit to permit the senior creditor's claim for

post-petition interest. 

Id. at 844

. A number of courts, when confronted with similar claims and

subordination agreements, adopted the Third Circuit's approach and dubbed it the "Rule of

Explicitness." See In re King Resources Co., 

385 F.Supp. 1269

 (D.Co.1974), aff'd 

528 F.2d 789

(10th Cir.1976); In re Kingsboro Mortgage Corp., 

379 F.Supp. 227, 231

 (S.D.N.Y.1974) (coining

the rule of explicitness moniker), aff'd 

514 F.2d 400

 (2d Cir.1975) (per curiam).

       Chase and Gabriel, as the Senior Creditors, have advanced precisely the same argument in

its quest to recover post-petition interest from the Junior Creditors in this case. We have not had

occasion, either before or since Congress passed the 1978 Bankruptcy Code, to consider the

argument and, therefore, we have never decided whether to adopt the Rule of Explicitness in this

circuit. Although Chase argues to the contrary, we find it beyond question that the subordination

language in the indenture agreements in this case, which requires "payment in full" without any

specific reference to post-petition interest, is insufficiently "precise, explicit and unambiguous" on

the topic of post-petition interest to satisfy the Rule of Explicitness. Kingsboro, 

379 F.Supp. at 231

;

see also Time Sales, 

491 F.2d at 842, 844

 ("paid in full" insufficiently explicit to alert the junior

creditors); King Resources, 528 F.2d at 791-92 (same); Kingsboro, 

514 F.2d at 401

 (same); accord

First Fidelity Bank, Nat'l Ass'n v. Midlantic Nat'l Bank (In re Ionosphere Clubs, Inc.), 

134 B.R. 528

,

535 n. 14 (Bankr.S.D.N.Y.1991) (providing an example of much more specific subordination

language that would satisfy the rule). If the Rule of Explicitness applies, therefore, Chase's claims

for post-petition interest arising out of the subordination agreements must fail.

II. The Impact of Section 510(a)

       As part of its comprehensive 1978 revision of the bankruptcy laws, Congress enacted a Code
provision that provides for the legal enforcement of subordination agreements in bankruptcy courts:

               A subordination agreement is enforceable in a case under this title to the same extent
       that such agreement is enforceable under applicable nonbankruptcy law.

11 U.S.C. § 510

(a). Chase argues that the language of this provision contradicts the Rule of

Explicitness and that section 510(a), therefore, overrules pre-Code practice. Chase contends that

section 510(a) requires courts to enforce subordination agreements according to their terms without

indulging the equitable considerations present in much of the pre-Code case law. Furthermore,

Chase argues that, because the statutory language is plain and unambiguous, the legislative history

of the section (particularly the fact that it contains no mention of an intent to depart from prior

practice by overruling the Rule of Explicitness) is irrelevant to our inquiry. The Junior Creditors,

on the other hand, argue that the Rule of Explicitness has survived the 1978 revision of the

bankruptcy laws because Congress has evidenced no intent to depart from it.

        We begin our analysis of this problem by examining the language of the statute itself, which

we presume to be conclusive. We will not stray from that principle of construction unless the literal

application of the statute would " "produce a result demonstrably at odds with the intentions of its

drafters.' " Varsity Carpet Servs., Inc. v. Richardson (In re Colortex Indus.), 

19 F.3d 1371, 1375

(11th Cir.1994) (quoting Ron Pair Enters., 

489 U.S. at 242

, 

109 S.Ct. at 1031

).

        The language of section 510(a) provides no such challenge; it directs courts to enforce

subordination agreements to the extent that the agreements are enforceable under "applicable

nonbankruptcy law." 

11 U.S.C. § 510

(a). In another context, the Supreme Court has held that

Congress's use of the phrase "applicable nonbankruptcy law" in the Bankruptcy Code refers to any

relevant federal or state law. See Patterson v. Shumate, 

504 U.S. 753, 757-759

, 

112 S.Ct. 2242, 2246-47

, 

119 L.Ed.2d 519

 (1992) (noting that nonbankruptcy law is broader than state law, a term

Congress also used in the Bankruptcy Code). Unlike the Patterson case, which involved a relevant
provision of federal legislation, however, the parties before us have identified no independent federal

statute that might guide the interpretation of subordination agreements; nor have they argued that

federal common law should govern the outcome of this case.8 This absence of relevant federal

authority should not be surprising because the enforcement and "interpretation of private contracts

is ordinarily a question of state law." Mastrobuono v. Shearson Lehman Hutton, Inc., 

514 U.S. 52

,

60 n. 4, 

115 S.Ct. 1212

, 1217 n. 4, 

131 L.Ed.2d 76

 (1995) (quoting Volt Info. Sciences, Inc. v. Board

of Trustees of Leland Stanford Junior Univ., 

489 U.S. 468, 474

, 

109 S.Ct. 1248, 1253

, 

103 L.Ed.2d 488

 (1989)); see also Butner v. United States, 

440 U.S. 48, 55

, 

99 S.Ct. 914, 918

, 

59 L.Ed.2d 136

(1979) ("Property interests are created and defined by state law. Unless some federal interest

requires a different result, there is no reason why such interests should be analyzed differently

simply because an interested party is involved in a bankruptcy proceeding.").

       The subordination agreements in this case each contain a choice of law clause that provides

that New York law governs the enforcement and interpretation of the contracts. The relevant

nonbankruptcy law for the enforcement of subordination agreements in this case, therefore, appears

to be New York law. See e.g., Plastino v. Eureka Fed. Sav. and Loan Ass'n (In re Sunset Bay

Assocs.), 

944 F.2d 1503

, 1508 (9th Cir.1991) (applying California law to interpret a subordination

agreement as the applicable nonbankruptcy law pursuant to section 510(a)); In re Best Prods. Co.,

168 B.R. 35, 69

 (Bankr.S.D.N.Y.1994) (applying New York law pursuant to section 510(a) and a



   8
    Although a number of courts have read Patterson's declaration that "applicable
nonbankruptcy law" includes federal law to refer to relevant federal common law as well as
statutes, see e.g., Resolution Trust Corp. v. Gibson, 

829 F.Supp. 1110, 1117-19

 (W.D.Mo.1993),
a "federal common law of contracts is justified only when required by a distinctive national
policy," Fantastic Fakes, Inc. v. Pickwick Int'l, Inc., 

661 F.2d 479

, 483 n. 2 (5th Cir. Unit B
1981) (quoting Bartsch v. Metro-Goldwyn-Mayer, Inc., 

391 F.2d 150, 153

 (2d Cir.1968)
(internal quotation marks omitted)). The interpretation and enforcement of a contract between
private parties presents no such distinctive federal interest.
choice of law provision in the subordination agreement); In re Envirodyne Indus. Inc., 

161 B.R. 440, 445

 (Bankr.N.D.Ill.1993) (citing section 510(a) and construing a provision in a subordination

contract under New York law), aff'd 

29 F.3d 301

 (7th Cir.1994 ).9

        The Junior Creditors argue that section 510(a) and its direction to enforce subordination

agreements according to nonbankruptcy law is irrelevant to this dispute because the Rule of

Explicitness is a rule of contract interpretation—not enforcement. Regardless of whether we

characterize the Rule of Explicitness as interpretation or enforcement, however, section 510(a)'s

instruction to enforce subordination agreements on par with other contracts under nonbankruptcy

law constitutes a plain departure from the prior practice of enforcing and interpreting those

agreements pursuant to the bankruptcy courts' equitable powers. Although the Junior Creditors have

argued to the contrary, the Rule of Explicitness developed as a tool for the exercise of those

equitable powers. See e.g., Time Sales, 

491 F.2d at 844

 & n. 10 (holding that the district court had

not abused its discretion in the exercise of its equitable powers). Section 510(a)'s instruction to

enforce subordination agreements according to nonbankruptcy law, therefore, appears to cut away

the equitable mantle under which the bankruptcy courts fashioned the Rule of Explicitness.10


   9
    Section 510(a)'s instruction to enforce subordination agreements is roughly analogous to
section 2 of the Federal Arbitration Act, which makes agreements to arbitrate "enforceable, save
upon such grounds as exist at law or in equity for the revocation of any contract." 

9 U.S.C. § 2

.
In this context, the Supreme Court has explained that, although federal law establishes the
enforceability of arbitration agreements, a court must construe that agreement according to
generally applicable principles of state law. See Perry v. Thomas, 

482 U.S. 483

, 492 n. 9, 

107 S.Ct. 2520

, 2527 n. 9, 

96 L.Ed.2d 426

 (1987); see also First Options of Chicago, Inc. v. Kaplan,

514 U.S. 938, 944

, 

115 S.Ct. 1920, 1924

, 

131 L.Ed.2d 985

 (1995) (applying "ordinary state-law
principles that govern the formation of contracts" in interpreting an arbitration agreement).
   10
     Regardless of whether the Rule of Explicitness was a creation of law or equity, the source of
the rule was undeniably federal and not state law. Our conclusion that Congress, by designating
state law as the appropriate vehicle by which to enforce subordination contracts, removed the
rule's authoritative foundation, therefore, applies regardless of whether pre-Code practice
depended upon equity or federal law.
          Indeed, under prior bankruptcy law, the bankruptcy courts enjoyed extensive equitable

powers and exercised those powers broadly.11 The Supreme Court, however, has read the 1978

Bankruptcy Code to curtail those powers in significant ways and has explained that "whatever

equitable powers remain in the bankruptcy courts must and can only be exercised within the confines

of the Bankruptcy Code." Norwest Bank Worthington, v. Ahlers, 

485 U.S. 197, 206

, 

108 S.Ct. 963, 969

, 

99 L.Ed.2d 169

 (1988).12 In certain contexts, the Code includes express provisions for the

continued exercise of equitable power in the bankruptcy courts. On the topic of subordination, for

example, section 510(c) authorizes the bankruptcy courts to continue the practice of equitable




                   We note that one of the major treatises on bankruptcy law disagrees with our
          reading of Time Sales and its progeny on this point; it assumes that those cases rely on
          state law. See 4 Marcia L. Goldstein et al., Collier on Bankruptcy ¶ 510.03[3] at 510-8 &
          n. 11 (Lawrence P. King ed., 15th ed. rev., Matthew Bender 1998). Our own reading of
          the cases, which contain no reference to state authority, however, is sharply at odds with
          the treatise on this point. Nevertheless, regardless of our academic disagreement with the
          treatise over the rule's pedigree, the treatise's view of the Rule of Explicitness is
          consistent with our ultimate conclusion that the rule must now find its source of authority
          in state, not federal, law or equity.
   11
        As one commentator has explained:

                 Under the Bankruptcy Act, courts used their equitable powers quite broadly. This
                 tradition of equitable interpretation of the Act grew out of bankruptcy judges'
                 efforts to address many important issues the Act left unresolved ... and out of their
                 attempts to make the bankruptcy laws function in spite of Congress' failure to
                 update the Act....

          Adam J. Wiensch, Note, The Supreme Court, Textualism, and the Treatment of Pre-
          Bankruptcy Code Law, 

79 Geo. L.J. 1831

, 1860 (1991).
   12
     See generally, Wiensch, The Supreme Court, 79 Geo. L.J. at 1860-61 (explaining that the
lack of uniform results, attributable to the bankruptcy courts' exercise of their equitable powers
under the Bankruptcy Act, was a driving force behind the enaction of the Bankruptcy Code, and
that the Supreme Court has taken a much narrower view of the bankruptcy courts' powers to do
equity under the Code).
subordination.13 The language of section 510(c) expressly invokes the bankruptcy courts' historical

exercise of their equitable powers to subordinate the claims of creditors who engaged in inequitable

conduct in favor of the claims of those creditors who came to court with clean hands.14 Section

510(c), therefore, powerfully demonstrates that Congress was aware of the bankruptcy courts'

exercise of their equitable powers in the context of subordination, and that Congress knew how to

preserve those powers to the extent it chose to do so. In sharp contrast to section 510(c), however,

section 510(a) includes no such express grant of authority that would permit the bankruptcy courts

to continue enforcing and interpreting subordination agreements in equity. When compared with


   13
        Section 510(c) provides:

                  Notwithstanding subsections (a) and (b) of this section, after notice and a hearing,
                  the court may—

                         (1) under the principles of equitable subordination, subordinate for
                         purposes of distribution all or part of an allowed claim to all or part of
                         another allowed claim or all or part of an allowed interest to all or part of
                         another allowed interest; or

                         (2) order that any lien securing such a subordinated claim be transferred to
                         the estate.

          

11 U.S.C. § 510

(c) (emphasis added).
   14
        The legislative statement accompanying section 510(c) states in pertinent part:

                  It is intended that the term "principles of equitable subordination" follow existing
                  case law and leave to the courts development of this principle. To date, under
                  existing law, a claim is generally subordinated only if [the] holder of such claim is
                  guilty of inequitable conduct, or the claim itself is of a status susceptible to
                  subordination, such as a penalty or a claim for damages arising from the purchase
                  or sale of a security of the debtor.

          

11 U.S.C. § 510

 Legislative Statement; see also H.R. Rep. 95-595 at 359, reprinted in
          1978 U.S.C.A.A.N. 5963, 6315 (noting the legislative intent to codify prior case law
          concerning the courts' power of equitable subordination and explaining that this Code
          provision "is not intended to limit the court's power in any way. The bankruptcy court
          will remain a court of equity....")
Congress's decision to permit the bankruptcy courts to retain their powers of equitable subordination

in section 510(c), section 510(a)'s command to enforce subordination agreements according to the

applicable nonbankruptcy law can only be read as a clear and contemplated break with prior

practice.15 Accordingly, the plain language of the text, as well as the provision's structure, supports

our conclusion that Congress, by designating state law to govern the interpretation and enforcement

of subordination agreements, withdrew the foundation of equitable authority under which the

bankruptcy courts had developed the Rule of Explicitness.

        Finally, the Junior Creditors argue that Congress could not have intended such a radical

departure from pre-Code practice because the Bankruptcy Code's legislative history is devoid of any

reference to the Rule of Explicitness and indicates no intent to change the law as it had developed

on this point. As Judge Fay's dissent points out, the Junior Creditors' analytical approach receives

considerable support in the Supreme Court's cases, which observe that Congress generally did not

depart from well-developed pre-Code practice without making its intent to do so clear either in the

text of the new Code or by discussing the point in the legislative history. See e.g., Dewsnup v.

Timm, 

502 U.S. 410, 419

, 

112 S.Ct. 773, 779

, 

116 L.Ed.2d 903

 (1992) ("[T]his Court has been

reluctant to accept arguments that would interpret the Code, however vague the particular language

under consideration might be, to effect a major change in pre-Code practice that is not the subject




   15
     Congress's decision to permit the bankruptcy courts to exercise their equitable powers in the
context of equitable subordination could be read with a view toward the classic maxim of
statutory construction: expressio unius est exclusio alterius. See Black's Law Dictionary 581
(6th ed.1990) ("the expression of one thing is the exclusion of another."). In the context of
section 510, however, Congress has gone further than simply expressing one command in section
510(c) and making another by silent implication. Section 510(a) directly instructs courts to
enforce subordination contracts according to the relevant (in this case, New York) law rather
than equity.
of at least some discussion in the legislative history.").16 The applicable legislative history reflects

that Congress was aware of then current practice with regard to the enforcement of subordination

provisions, see H.R.Rep. No. 95-595 at 396, reprinted in 1978 U.S.C.C.A.N. 5963, 6352,17 but the

parties agree that the legislative history does not mention the Rule of Explicitness nor does it speak

to the issues before us. Although both the Code and the legislative history are silent on these

particular topics, we find section 510(a)'s command to enforce subordination agreements on par with

other contracts under the applicable nonbankruptcy law a sufficient indication that Congress

intended to depart from the previous regime of enforcing and construing these private contracts in

federal equity. As even the Dewsnup court observed, "where the language [of the Code] is

unambiguous, silence in the legislative history cannot be controlling." Dewsnup, 

502 U.S. at 419

-

20, 

112 S.Ct. at 779

. Section 510(a) is not ambiguous in requiring that subordination agreements

be enforced the same as nonbankruptcy agreements. By requiring post-petition interest provisions

to be more explicit than other nonbankruptcy provisions, the rule of explicitness is contrary to


   16
     As a dissenter noted in Dewsnup, the Court's emphasis on silence in the legislative history in
that case appeared to be at odds with the Court's prior efforts to interpret the Bankruptcy Code.
Dewsnup, 502 U.S. at 435, 112 S.Ct. at 787 (Scalia J., dissenting) ("I have the greatest sympathy
for the Courts of Appeals who must predict which manner of statutory construction we shall use
for the next Bankruptcy Code case.")(citing Wolas, 

502 U.S. 151

, 

112 S.Ct. 527

, 

116 L.Ed.2d 514

 and Ron Pair Enters., 

489 U.S. 235

, 

109 S.Ct. 1026

, 

103 L.Ed.2d 290

).
   17
     The parties vigorously disagree over whether we may presume that Congress was even
aware of prior practice under the Rule of Explicitness. The only honest answer to that question,
of course, is that we cannot know what (if anything) Congress thought about these issues when it
passed section 510(a) of the Bankruptcy Code. We note, however, that a rule adopted by three of
the federal circuits and adhered to without exception appears to be at least as well recognized as
prior practices that the Supreme Court has held to be within Congress's presumptive cognizance.
See Midlantic Nat'l Bank v. New Jersey Dep't of Envtl. Protection, 

474 U.S. 494, 500-01

, 

106 S.Ct. 755, 759

, 

88 L.Ed.2d 859

 (1986) (describing three cases as sufficient evidence of
"well-recognized" restrictions on a trustee's abandonment powers). But see Ron Pair Enters.,
489 U.S. at 248, 109 S.Ct. at 1034 ("[T]here is no reason to think that Congress, in enacting a
contrary standard, would have felt the need expressly to repudiate [a doctrine that guided the
bankruptcy courts in the exercise of their equitable powers].")
section 510(a). Accordingly, we conclude that Congress, by enacting section 510(a) of the

Bankruptcy Code, abrogated the pre-Code rule of explicitness. As a necessary consequence of this

change in bankruptcy law, the Rule of Explicitness can no longer survive as the progeny of the

bankruptcy courts' equity powers or as a federal canon of contract construction.18

III. Enforcement and Interpretation of the Subordination Agreements Pursuant to New York Law

        We now turn to New York law to determine whether the subordination agreements before

us require the holders of the Subordinated Notes to subordinate their claims to Chase and Gabriel's

demand for post-petition interest. We note, however, that since claims for post-petition interest arise

almost exclusively in bankruptcy proceedings, the New York courts previously have not had

occasion to consider what language in a subordination agreement would be sufficient to require a

junior creditor to bear the risk and burden of paying post-petition interest to the senior creditor out

of the junior creditor's distributions under the Bankruptcy Code. The parties have cited a good deal

of New York case law that stands for the uncontroversial and irrelevant propositions that New York

enforces contracts as written, that a senior creditor is entitled to priority to the extent contracted for,

and that a senior creditor cannot rely on a legally unenforceable obligation to subordinate a junior

creditor's claim. These authorities provide us with little guidance as to how a New York court might

interpret the language at issue in these subordination agreements.

        We note that although the "paid in full" language present in the subordination agreements

sounds in absolute terms, in the context of bankruptcy proceedings (which the parties to a



   18
     The only other court to consider this question after Congress passed section 510(a) of the
Bankruptcy Code assumed the continued validity of the Rule of Explicitness. See In re
Ionosphere, 

134 B.R. at 533-34

. Although we find such a conclusion untenable for the reasons
stated above, we note that the parties in that case appear not to have disputed the issue and the
bankruptcy court, while noting its doubts, see 

id.

 at 534 n. 11, appeared reluctant to contradict
otherwise settled precedent in the Second Circuit.
subordination agreement obviously contemplate to some extent), the phrase is ambiguous. In one

sense, Chase's characterization of the phrase as requiring the payment of interest until the final

repayment of the underlying obligation is a straightforward one. See e.g., Richardson v. Providence

Washington Ins. Co., 

38 Misc.2d 593

, 

237 N.Y.S.2d 893, 905-06

 (N.Y.Sup.Ct.1963) (payment in

full requires interest until the date of settlement). In the bankruptcy context, however, the law has

long been clear that even a senior creditor often has no claim for post-petition interest from the

debtor and, therefore, a junior creditor may reasonably expect to recover some repayment from the

debtor without being held hostage to an often sizable claim for the senior creditor's post-petition

interest. See e.g., In re Ionosphere, 

134 B.R. at 535

 (discussing this ambiguity while construing a

contract governed by New York law).

       Moreover, we wonder whether the New York courts would disturb the heretofore uniform

treatment of this question, particularly given the evidence that the capital markets appear to have

adjusted to the Rule of Explicitness. The American Bar Association's model forms, for example,

now include a "Model Simplified Indenture" that includes subordination language that specifically

and unmistakably alerts the junior creditor to its liability for the senior creditor's post-petition

interest. See American Bar Association, Model Simplified Indenture, 38 Bus. Law. 741, 769 (1983);

see also In re Ionosphere, 

134 B.R. at 535

 n. 14 (quoting an indenture with similarly explicit

language). Similarly, one of the most authoritative bankruptcy treatises warns that an indenture

agreement must include explicit and specific language to put the junior creditor on notice regarding

post-petition interest in deference to the Rule of Explicitness. See Collier on Bankruptcy ¶

510.03[3]. Given New York's role as the nation's financial capital and our intuition that a sizeable

proportion of outstanding indenture agreements include clauses that invoke New York law, as well

as the importance of standardization in indenture agreements generally, we suspect that the courts
of New York, as a practical matter, would be loath to depart from prior practice and thus radically

reduce the current value of debt held subject to the condition of subordination until the senior

creditor receives "payment in full."19 See generally, Sharon Steel Corp. v. Chase Manhattan Bank,

N.A., 

691 F.2d 1039, 1048

 (2d Cir.1982) ("[U]niformity in interpretation is important to the

efficiency of capital markets.... Whereas participants in the capital market can adjust their affairs

according to a uniform interpretation, whether it be correct or not as an initial proposition, the

creation of enduring uncertainties as to the meaning of boilerplate provisions would decrease the

value of all debenture issues and greatly impair the efficient working of capital markets."); Broad

v. Rockwell Int'l Corp., 

642 F.2d 929, 943

 (5th Cir. Apr.1981) (en banc) (construing an indenture

agreement governed by New York law and noting that "[a] large degree of uniformity in the

language of debenture indentures is essential to the functioning of the financial markets ....");

accord Leverso v. SouthTrust Bank of Al., N.A., 

18 F.3d 1527, 1534

 (11th Cir.1994) (same).

          Nevertheless, since this is an important question of first impression for the New York courts,

and one that Congress has specifically directed to state law, we are reluctant to predict its resolution

under New York law. Accordingly, we have decided to certify the following question to the New

York Court of Appeals pursuant to N.Y. Rules of Court § 500.17(a):20



   19
    Or, conversely, dramatically increase the current value of senior-debt held subject to a
condition that all junior-claims are subordinate to the senior creditor's right to be paid in full.
   20
        Section 500.17 provides:

                 (a) Whenever it appears to the Supreme Court of the United States, any United
                 States Court of Appeals, or a court of last resort of any other state that
                 determinative questions of New York law are involved in a cause pending before
                 it for which there is no controlling precedent of the Court of Appeals, such court
                 may certify the dispositive questions of law to the Court of Appeals.

          

N.Y. R.App.Ct. § 500.17

(a) (McKinney 1997).
       What, if any, language does New York law require in a subordination agreement to alert a
       junior creditor to its assumption of the risk and burden of the senior creditor's post-petition
       interest?

       Since the remaining questions, whether Chase may recover reasonable costs and fees for

prosecuting this action and whether recent changes in New York law regarding the enforcability of

contracts for compound interest permit Chase to collect interest upon interest pursuant to section 5.2

of the Senior Indenture, necessarily depend upon whether Chase and Gabriel are entitled to

post-petition interest at all, we defer our decision on these matters until the New York Court of

Appeals has had an opportunity to consider the question.

                                           CONCLUSION

       Chase and Gabriel sought to collect post-petition interest, interest upon that interest, as well

as post-petition fees and costs, from the Junior Creditors by arguing that section 510(a) of the

Bankruptcy Code had abrogated the judicially created "Rule of Explicitness." We concluded that

section 510(a)'s direction to enforce subordination agreements according to applicable

nonbankruptcy law required us to enforce and interpret the subordination clause in the Subordinated

Indentures under New York law. Since our review of New York law revealed no intimation of what

specific language (if any) the New York courts would require to put a junior creditor on notice

regarding the significant risk of subordinating a debt to a senior creditors claims for post-petition

interest and post-petition fees and costs, we CERTIFIED this important question to the New York

Court of Appeals. Accordingly, it is hereby ORDERED that the Clerk of the United States Court

of Appeals for the Eleventh Circuit transmit to the Clerk of the New York Court of Appeals a

Certificate, in the form set forth above, together with a complete set of briefs, appendices, and record

filed by the parties with this Court. This panel retains jurisdiction so that, after we receive a

response from the New York Court of Appeals, we may dispose of the appeal. The parties are
hereby ordered to bear equally such fees and costs, if any, as may be requested by the New York

Court of Appeals.

        REVERSED in part and question CERTIFIED to the New York Court of Appeals.

        FAY, Senior Circuit Judge, dissenting:

        Most respectfully, I dissent. The majority opinion abolishes the well established Rule of

Explicitness in bankruptcy proceedings. It does so by relying on "silence" in the legislative history

of the 1978 Bankruptcy Code and by a strained interpretation of the language of 

11 U.S.C. § 510

(a).

In my opinion this is both unfounded and unwise.

        As the majority correctly points out, the examination of the statute begins with the language

itself. However, it is also true that when Congress amends the bankruptcy laws, it does not "write

on a clean slate," but rather, is guided by the established practices of the bankruptcy courts.

Dewsnup v. Timm, 

502 U.S. 410, 419

, 

112 S.Ct. 773, 779

, 

116 L.Ed.2d 903

 (1992). Further, as the

majority observes, we must assume that Congress was fully aware of the Rule of Explicitness when

enacting §510(a). See Midlantic Nat'l Bank v. New Jersey Dep't of Environmental Protection, 

474 U.S. 494, 500-501

, 

106 S.Ct. 755, 759

, 

88 L.Ed. 2d 859

 (1986); In re Charter Co., 

876 F.2d 866

,

870 n.6 (11th Cir. 1989), cert. dismissed, 

496 U.S. 944

, 

110 S.Ct. 3232

, 

110 L.Ed.2d 678

 (1990).

        The Supreme Court has provided a guideline for interpreting this section by holding that

amendments to existing bankruptcy laws are not to be read to revoke judicially established principles

absent an express statement or a clear indication that such a result was intended. Cohen v. de la

Cruz, --- U.S. ----, ----, 

118 S.Ct. 1212, 1218

, 

140 L.Ed.2d 341

 (1998); Pennsylvania Dep't of Public

Welfare v. Davenport, 

495 U.S. 552, 563

, 

110 S.Ct. 2126

, 

109 L.Ed.2d 588

 (1990); Midlantic Nat'l

Bank, 

474 U.S. at 501

, 

106 S.Ct. 755

 ("The normal rule of statutory construction is that if Congress

intends for legislation to change the interpretation of a judicially created concept, it makes that intent
specific."); Davis v. Michigan Dep't of Treasury, 

489 U.S. 803, 813

, 

109 S.Ct. 1500, 1506

, 

103 L.Ed.2d 891

 (1989). We have repeated this standard in In re Colortex Industries, Inc., 

19 F.3d 1371, 1374

 (11th Cir.1994) ("Silent abrogation of judicially created concepts is partially disfavored when

construing the Bankruptcy Code.").

       The section which the appellant contends overrules the Rule of Explicitness states:

               A subordination agreement is enforceable in a case under this title to the same extent
       that such agreement is enforceable under applicable nonbankruptcy law.

11 U.S.C. § 510

(a).

       There is simply nothing in the language of this section declaring the Rule of Explicitness

abolished. The statute is completely silent. Furthermore, the legislative history provides no

indication that the intention of §510(a) was to eliminate the Rule of Explicitness. To display such

an intention, one would expect at least a marginal amount of debate on the rule. To the contrart, the

Rile of Explicitness was never mentioned in the legislative history. See H.R. REP. No. 595, 95th

Cong., 1st Sess. 359 (1977), reprinted in 1978 U.S.C.C.A.N. 5963; S. REP. No. 989, 95th Cong., 2d

Sess. 74 (1978), reprinted in 1978 U.S.C.C.A.N. 5787.

       Moreover, the policy of denying claims for postpetition interest to creditors has long been

established. This general rule was promulgated by the English bankruptcy system nearly two

centuries ago and was subsequently adopted by our legal system. See Sexton v. Dreyfus, 

219 U.S. 339, 344

, 

31 S.Ct. 256

, 257, 

55 L.Ed. 244

 (1911). Ultimately, Congress codified this policy in the

Bankruptcy Code under 

11 U.S.C. §§ 502

 and 506. Section 502(b)(2) states the general rule that

a claim for interest is suspended once the petition for bankruptcy is filed. See 

11 U.S.C. § 502

(b)(2).

Section 506 carves out a narrow exception to the general rule by allowing claims for postpetition

interest for oversecured creditors. 

11 U.S.C. § 506

(b). Although §§ 502 and 506 concern

postpetition interest claims against the estate and not between creditors, the Rule of Explicitness
works in harmony with those sections by disallowing claims for postpetition interest between

creditors unless the agreement is unequivocal. In light of those sections, one would expect that if

Congress intended to eliminate the Rule of Explicitness they would have made that intention

unmistakably clear. I do not think it is correct to find a clear intention to abandon an established rule

of bankruptcy law through the silence of Congress. In short, it is my opinion that Congress did not

intend to abrogate the Rule of Explicitness.

        The holding of the majority also runs counter to a number of respected commentaries, written

after Congress amended § 510(a), which cite the Rule of Explicitness as a governing principle when

considering the award of postpetition interest. See Jonathon M. Landers, Kathryn A. Coleman,

Claims Issues, 767 PLI/Comm 819, 846 (1998) ("Several decisions hold that, given the general

bankruptcy rule against post-petition interest, the subordination will not enable senior lenders to

obtain post-petition interest at the expense of junior lenders unless the indenture specifically so

provides."); Marcia L. Goldstein, Sean L. McKenna Intercreditor and Subordination Issues, 793

PLI/Corp 679, 684 (1992)("subordination to postpetition interest must be carefully crafted in order

to be enforceable in a bankruptcy case."); Carl D. Lobell, Sharon B. Applegate, Lending to Troubled

Companies-Special Considerations: Fraudulent Transfers, Substantive Consolidation, Subordinated

Debt Treatment: Developing Theories of Lender Liability and Equitable Subordination, 773

PLI/Corp 175, 253 (1991); Margaret Sheneman, Classification and Allowance of Claims, 429

PLI/Comm 931, 974 (1987). See also In re Southeast Banking Corp., 

212 B.R. 682, 688

(S.D.Fla.1997) (citing other articles). The position of the majority is also refuted by the leading

treatise in the area which cites the Rule of Explicitness to limit recovery of postpetition interest.1


   1
    Collier states, "[c]ourts have uniformly relied on state law to prevent...[senior creditors from
recovering from junior creditors], invoking the rule of contract construction known as the Rule
of Explicitness to deny postpetition interest to undersecured senior creditors even in the face of
4 L. King Collier on Bankruptcy ¶ 510.03[3] at 510-8 (15th ed. rev. 1998). The commentaries and

the rulings being reviewed convince me that the language of § 510(a) has not abolished the Rule of

Explicitness.

       The Rule of Explicitness was created more than twenty years ago by the bankruptcy courts

based on equitable considerations. It was upheld as good law by three different appellate courts2,

is of sound policy, and completely consistent with the goals of bankruptcy law. It is well known and

accepted by those in the financial world. I do not believe the rules of statutory interpretation set

forth by the United States Supreme Court allow us to void such a rule without a more definite

mandate from Congress. I would affirm the opinion of the District Court, which affirms the ruling

of the Bankruptcy Court, for the reasons set forth in the opinions of those courts.3




valid and enforceable subordination agreements." 4 L. King Collier on Bankruptcy ¶ 510.03[3]
at 510-8 (15th ed. rev. 1998). In fairness, it is important to note the decision of the Bankruptcy
Court in this case was one of several cases cited to support this position. Nonetheless, the
possibility of an inconsistency with the Rule of Explicitness and §510(a) is not mentioned.
   2
    In re Matter of King Resources Co., 

528 F.2d 789

 (10th Cir.1976); In re Kingsboro
Mortgage Co., 

514 F.2d 400

 (2nd Cir.1975); In re Time Sales Fin. Corp., 

491 F.2d 841

 (3rd
Cir.1974).
   3
   In re Southeast Banking Corp., 

212 B.R. 682

 (S.D.Fla. 1997); In re Southeast Banking
Corp., 

188 B.R. 452

 (Bankr.S.D.Fla. 1995).