Matter of Al Copeland Enterprises, Inc. ( 1993 )


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  •                                    United States Court of Appeals,
    
                                                  Fifth Circuit.
    
                                                 No. 92-8193.
    
                    In the Matter of AL COPELAND ENTERPRISES, INC., Debtors.
    
                         AL COPELAND ENTERPRISES, INC., et al., Appellant,
    
                                                       v.
    
                                        STATE of TEXAS, Appellee.
    
                                                 May 20, 1993.
    
    Appeal from the United States District Court for the Western District of Texas.
    
    Before KING, JOHNSON, and DUHÉ, Circuit Judges.
    
            KING, Circuit Judge:
    
            Al Copeland Enterprises, Inc. filed a voluntary Chapter 11 petition for bankruptcy. At that
    
    time, the company had collected nearly two million dollars in sales tax revenues for the St te of
                                                                                              a
    
    Texas. The company became obligated to pay over the tax revenues to the State on a date shortly
    
    after the filing of the Chapter 11 petition. When the company failed to do so, the State filed a motion
    
    with the bankruptcy court requesting payment toget her with post-petition interest. Following a
    
    hearing on the matter, the bankruptcy court granted the State's motion. The court ordered Copeland
    
    to pay (1) the principal amount of the sales taxes, (2) the interest that the collected taxes had actually
    
    earned during the first sixty days they were overdue, and, (3) in accordance with Texas law,
    
    post-petition interest at a rate of ten percent per annum thereafter. Copeland appealed to the district
    
    court, challenging both the bankruptcy court's award of interest and the amount of that award. The
    
    district court affirmed the bankruptcy court's order, and Copeland now appeals to this court. Finding
    
    that the State is entitled to the interest actually earned on its sales tax revenues and the interest
    
    awarded under Texas law as a result of Copeland's post-petition actions, we affirm.
    
                                             I. BACKGROUND
    
            Al Copeland Enterprises, Inc. (Copeland) operates the Church's and Popeye's Fried Chicken
    
    chains. As part of its Texas operations, Copeland pays sales taxes to the State Comptroller.
    Specifically, Copeland files sales tax report s for each of its thirteen four-week operating periods.
    
    These reports, along with the accompanying payments, are due thirty days after the close of the
    
    operating period.
    
            On April 4, 1991, an involuntary Chapter 11 petition for bankruptcy was filed against
    
    Copeland; on April 12, Copeland filed a voluntary Chapter 11 petition. At that time, Copeland was
    
    current on all sales tax returns and payments to the State of Texas. Specifically, although Copeland
    
    had completed its March operating period, its sales tax report for that month was not yet due. The
    
    March taxes, which totalled $1,059,504.35, became due on April 22—ten days after Copeland filed
    
    its Chapter 11 petition. Copeland's April taxes, totalling $757,646.99, became due on May 20.
    
            After collecting the State's sales taxes, Copeland initially deposited them in bank accounts
    
    located in the cities where they were collected. The tax revenues were then moved int a cent ral
                                                                                        o
    
    clearing account, and ultimately placed in a concentration account. The parties agree that the average
    
    interest rate earned on these revenues from April 22, 1991 until they were paid to the State was five
    
    percent.
    
            On May 1, 1991, the State filed a Motion for Adequate Protection of Interest Trust Funds
    
    with the bankruptcy court, asserting that the sales taxes collected by Copeland in March and April
    
    constituted funds held in trust rather than property belonging to the estate. This initial motion by the
    
    State was limited to protecting the State's ability to collect its sales taxes; the State did not request
    
    payment of interest on the sales taxes. On May 31, the State amended its motion for protection to
    
    request both the principal amount of the sales taxes due and the interest and penalties imposed under
    
    Texas law. Specifically, the State asserted that, because the trust funds were never property of
    
    Copeland's estate, the State is entitled to receive interest on those revenues from the time they were
    
    due through the date of payment. According to the State, whether or not it is entitled to interest and,
    
    if so, the amount of that interest are questions of Texas law. Copeland asserted that the State's claim
    
    for post-petition interest is barred by section 502 of the Bankruptcy Code, which excludes claims
    
    against debtors for "unmatured interest."
    
            On August 9, the bankruptcy court held a hearing on the State's motion for protection of its
    sales tax revenues and interest. The court ordered Copeland to pay the principal amount of the sales
    
    taxes and took the State's request for interest under advisement; Copeland has since paid this
    
    principal to the State of Texas. On October 11, the court issued a memorandum opinion on the
    
    interest issue, holding that the State is entitled to the interest actually earned on the sales tax funds
    
    (five percent per annum) for the first sixty days following the date the taxes were due, and then ten
    
    percent per annum until the principal amount of the taxes was paid to the State. See generally In re
    
    Al Copeland Enterprises, 
    133 B.R. 837
     (Bankr.W.D.Tex.1991). The bankruptcy court, stressing that
    
    (1) the State has proven that the trust funds were collected by Copeland, (2) on the date of filing its
    
    Chapter 11 petition for bankruptcy, Copeland held funds at least equal to the amount of the trust
    
    funds, (3) the State's tax revenues were never commingled with Copeland's, and (4) Copeland always
    
    possessed combined cash balances exceeding the amount of the State's claims,1 held that federal
    
    bankruptcy law—namely, section 502(b)(2)'s prohibition of recovery of claims against estates for
    
    unmatured interest—does not prohibit the State from bringing its claim for interest actually earned
    
    on its trust revenues. According to the bankruptcy court, because the State holds a trust fund claim
    
    rather than an unsecured tax claim governed by sections 501 and 502 of the Bankruptcy Code, "it is
    
    entitled to post-petition interest." In re Copeland, 133 B.R. at 841 (fully addressing how this
    
    conclusion is consistent with the legislative history behind section 541 of the Bankruptcy Code)
    
    (emphasis added), citing In re Goldblatt Bros, Inc., 
    61 B.R. 459
    , 463-64 (Bankr.N.D.Ill.1986)
    
    (prohibition against post-petition interest is not applicable to trust funds held by a debtor which are
    
    not the property of the estate), and Wickes Boiler Co. v. Godfrey-Keeler Co., 
    116 F.2d 842
    , 844 (2d
    
    Cir.1940) (stating that priorities under the Bankruptcy Act "apply only to the estate of the bankrupt,
    
    and not to trust funds of which third parties are the beneficial owners"), rev'd on other grounds, 
    121 F.2d 415
     (2d Cir.), cert. denied, 
    314 U.S. 686
    , 
    62 S. Ct. 297
    , 
    86 L. Ed. 549
     (1941).
    
            Copeland appealed to the federal district court, which entered an order summarily affirming
    
       1
        This finding refers to the court's application of the "lowest intermediate balance rule."
    According to this rule, "if the balance of cash on hand on any interim day was less than the
    amount of the trust fund claims, then the trust fund claims are limited to that "lowest intermediate
    balance.' " Id. at 839-40, citing 4 COLLIER ON BANKRUPTCY ¶ 541.14, at 541-79, 541-80 & n. 13
    (15th ed. 1991).
    the order of the bankruptcy court. Copeland now appeals to this court from the district court's
    
    decision.
    
                                                II. DISCUSSION
    
              Section 541(d) of the Bankruptcy Code expressly provides that property in which the debtor
    
    holds only legal title, and not an equitable interest, is not property of the estate to the extent of a third
    
    party's interest in that property. See 11 U.S.C. § 541(d);2 see also Begier v. I.R.S., 
    496 U.S. 53
    , 59,
    
    
    110 S. Ct. 2258
    , 2263, 
    110 L. Ed. 2d 46
     (1990) ("Because the debtor does not own an equitable
    
    interest in propert y he holds in trust for another, that interest is not "property of the estate.' ");
    
    Universal Bonding, 960 F.2d at 372 ("[The] bankrupt estate may retain legal title over the trust, but
    
    the beneficiaries of the trust ... may reclaim their equitable interests in the trust fund so created
    
    through bankruptcy court proceedings."). Copeland does not dispute the fact that the State's sales
    
    tax revenues constitute trust revenues under section 111.016 of the Texas Tax Code, and that,
    
    pursuant to section 111.016 of the Texas Tax Code and section 541(d) of the Bankruptcy Code, the
    
    sales tax revenues—traceable proceeds merely held in trust by the estate3—are recoverable by the
    
    State. In fact, Copeland raises only two issues on appeal: (1) whether the State is entitled to recover
    
    post-petition interest on the principal amount of the pre-petition sales tax revenues held by Copeland,
    
    and, (2) if so, whether the measure of interest assigned by the bankruptcy court is proper.
    
              The parties have stipulated that Copeland earned interest on the trust funds at a rate of five
    
       2
           Section 541(d) provides, in pertinent part, that:
    
                      [p]roperty in which the debtor holds, as of the commencement of the case, only
                      legal title and not an equitable interest, such as a mortgage secured by real
                      property, or an interest in such a mortgage, sold by the debtor but as to which the
                      debtor retains legal title to service or supervise the servicing of such mortgage or
                      interest, becomes the property of the estate ... only to the extent of the debtor's
                      legal title to such property, but not to the extent of any equitable interest in such
                      property that the debtor does not hold.
    
              11 U.S.C. § 541(d) (emphasis added); see In re Gulf Consolidated Services, Inc., 
    110 B.R. 267
    , 268 (Bankr.S.D.Tex.1989) (collected sales taxes constitute trust funds); see
              also Universal Bonding Ins. Co. v. Gittens & Sprinkle Enterprises, Inc., 
    960 F.2d 366
    ,
              372 (3d Cir.1992) (holding that funds owed to a debtor under bonded construction
              contracts constitute trust funds, and they can be recovered from the debtor).
       3
           See supra note 1 and accompanying text.
    percent per annum. The bankruptcy court awarded interest (1) under the principles of equity4 at a
    
    rate of five percent per annum for the initial sixty days during which the sales taxes were due, and,
    
    (2) under Texas law5 at a rate of ten percent per annum thereafter until the sales taxes were paid. The
    
    parties dispute whether this award of post-petition interest is barred by 11 U.S.C. § 502(b)(2).
    
    According to Copeland, (1) section 502(b)(2) expressly disallows claims against an estate for
    
    post-petition interest, (2) section 541(d), quoted supra at note 2, does not address the issue of
    
    interest earned on trust funds and, therefore, it does not provide an avenue around section 502(b)(2),
    
    and, (3) even if trust fund claims are governed by Texas law as the State alleges, the State's claim for
    
    post-petition interest on its sales tax revenues does not constitute a trust fund claim under Texas law.6
    
    Therefore, according to Copeland, any claim for interest must be analyzed as a claim against the
    
       4
         Texas law does not impose interest for failure to pay sales taxes during the first sixty-day
    period during which payments are overdue. Rather, the failure to pay sales taxes or to file a
    report when such taxes are due results in a five percent penalty imposed against the person who
    holds them; after thirty days, an additional five percent penalty is imposed against that person.
    See TEX.TAX CODE ANN. § 111.061 (Vernon 1992); see also TEX.TAX CODE ANN. § 151.703
    (Vernon 1992) (imposing similar penalties and interest against any person who fails to pay the
    requisite sales tax or to file the requisite report). The State, however, did not seek to collect the
    penalties imposed by Texas law, preferring instead to request interest on the trust fund revenues
    at the maximum legal rate under Texas law. The bankruptcy court determined that the principles
    of equity demand that the State be compensated with interest for Copeland's failure to pay the
    sales taxes during the first sixty days they were overdue. Specifically, in awarding interest for the
    sixty-day period at issue, the bankruptcy court stated that:
    
                      [i]t would be antithetical to the concept of "trust funds" to allow the Debtor's
                      estate to profit by keeping the interest which has been earned on money the estate
                      does not own regardless of the existence, or non-existence, of "wrongdoings' on its
                      part.
    
              In re Al Copeland Enterprises, 133 B.R. at 842. Accordingly, the court set the interest
              rate for this period at five percent—the rate of interest Copeland actually earned on the
              State's money.
       5
        Delinquent sales taxes draw interest beginning 60 days from the date they are due. See
    TEX.TAX CODE ANN. § 111.060 (Vernon 1992). Prior to 1991 (and for the purposes of this
    case), interest was imposed at a rate of ten percent per annum; the current rate is twelve percent.
       6
           Specifically, Copeland contends that,
    
                      [w]hile recovery of additional amounts is authorized, those additional amounts are
                      not classified as trust funds by State law. [See TEX.TAX CODE § 111.016.] Thus,
                      when the Debtor paid the trust funds to the State, the trust fund claim was satisfied
                      in full. Recovery of any additional amounts must be authorized by the Bankruptcy
                      Code apart from the trust fund claim.
    debtor's estate, and claims against a debtor's estate are barred by section 502(b)(2). In addressing
    
    these issues, we will consider first the State's claim that it is entitled to the interest actually earned on
    
    its sales tax revenues, and then its claim that it is entitled to the full ten percent rate of interest
    
    awarded under sections 111.016 and 111.060 of the Texas Tax Code.
    
    A. The Interest Actually Earned
    
             The State asserts that the interest accrued on its tax revenues does not constitute property
    
    belonging to Copeland's estate, and that "both 11 U.S.C. § 541(d) and the relevant cases under the
    
    Bankruptcy Code fully support the entitlement of a trust beneficiary to recover interest on its trust
    
    funds pursuant to applicable non-bankruptcy law." In support of this proposition, the State relies
    
    upon In re MCZ, Inc., 
    82 B.R. 40
    , 42-43 (Bankr.S.D.Tex.1987), and In re Goldblatt, 61 B.R. at 463-
    
    64. In MCZ, the bankruptcy court held that "the question as to whether Debtor is entitled to interest
    
    accruing on such funds is a question of state agency or trust law." 82 B.R. at 43. Similarly, in
    
    Goldblatt, the court held that, "[s]ince the trust funds are not property of they estate, questions as
    
    to whether [the plaintiff] is entitled to interest on those funds, and if so at what rate, are issues to be
    
    determined by trust law." 61 B.R. at 463-64.
    
            Texas trust law provides that, in collecting and holding the State's sales tax revenues,
    
    Copeland acted merely as a trustee for the State; it never held any equitable rights to the State's sales
    
    tax revenues. TEX.TAX CODE ANN. § 111.016 (Vernon 1992) (providing that the person who
    
    collects sales tax revenues holds them in trust for the benefit of the state);7 see also Begier, 496 U.S.
    
    at 59, 110 S.Ct. at 2263 ("Because the debtor does not own an equitable interest in property he holds
    
    in trust for another, that interest is not "property of the estate.' "). Moreover, as is discussed infra
    
    at Part II.B, the payment of penalties and interest on delinquent trust funds is prescribed by Texas
    
    law. See TEX.TAX CODE ANN. §§ 111.016, 111.060 (Vernon 1992).
    
             As recognized by the bankruptcy court, "[i]t would be antithetical to the concept of "trust
    
    
       7
       A very limited exception to section 111.016 is provided under section 151.423 of the Texas
    Tax Code, which states that "[a] taxpayer may deduct and withhold one-half of one percent of the
    amount of taxes due from the taxpayer on a timely return...." TEX.TAX CODE ANN. § 151.423
    (Vernon 1992).
    funds' to allow the Debtor's estate to profit by keeping the interest which has been earned on money
    
    the estate does not own...." Copeland, 133 B.R. at 842, citing Goldblatt Bros., Inc, 61 B.R. at 464
    
    ("Even if a trustee has not committed a breach of trust, he is generally liable for any interest which
    
    he received from the trust funds."). We agree with the bankruptcy court that, just as Copeland held
    
    no equitable interest in the State's sales tax revenues, it now holds no equitable claim to the interest
    
    actually accrued on those revenues during the time they were overdue. The State holds an equitable
    
    claim to this interest, and we conclude, therefore, that the interest actually earned on the State's sales
    
    tax revenues during the period they were overdue belongs to the State. See 11 U.S.C. § 541(d)
    
    (excluding property from the debtor's estate where equitable interest in that property belongs to
    
    another).
    
    B. The Interest Awarded Under Texas Law
    
            The bankruptcy court, pursuant to section 111.060 of the Texas Code, awarded interest at
    
    a rate of ten percent per annum beginning 60 days from the date the taxes were due until the time they
    
    were paid.8 Under Texas law, once a consumer pays his sales taxes, liability for the payment of that
    
    tax to the State shifts to the person who receives or collects it from the consumer. Specifically, as
    
    is provided under section 111.016 of the Texas Tax Code,
    
            [a]ny person who receives or collects a tax or any money represented to be a tax from another
            person holds the amount so collected in trust for the benefit of the state and is liable to the
            state or the full amount collected plus any accrued penalties and interest on the amount
            collected.
    
    TEX.TAX CODE ANN. § 111.016 (Vernon 1992). "Person" is defined under the Texas Government
    
    Code to include a "corporation, organization, government or governmental subdivision or agency,
    
    business trust, estate, trust, partnership, association, and any other legal entity." TEX.GOV.CODE
    
    ANN. § 311.005 (Vernon 1988).
    
            Federal policy, as embodied in sections 959(b) and 960 of Title 28, mandates that trustees
    
    manage estates in compliance with state law. Specifically, section 960 provides that:
    
            Any officers and agents conducting any business under authority of a United States court shall
    
       8
       We note that the first five percent of this award of interest constitutes interest actually earned.
    We have already concluded that the State is entitled to this interest. See supra Part II.A.
            be subject to all Federal, State and local taxes applicable to such business to the same extent
            as if it were conducted by an individual or corporation.
    
    28 U.S.C. § 960; see In re Hatfield Const. Co., 
    494 F.2d 1179
    , 1181 (5th Cir.1974) (property in the
    
    hands of a trustee is not exempt from state and local taxes absent a clear expression from Congress).
    
    And section 959(b) provides that:
    
            a trust ee ... appointed in any cause pending in any court of the United States, including a
            debtor in possession, shall manage and operate the property in his possession as such trustee,
            receiver or manager according to the requirements of the valid laws of the State in which such
            property is situated, in the same manner that the owner or possessor thereof would be bound
            to do if in possession thereof.
    
    28 U.S.C. § 959(b) (West Supp.1992);            see Midlantic Nat. Bank v. New Jersey Dept. of
    
    Environmental Protection, 
    474 U.S. 494
    , 505, 
    106 S. Ct. 755
    , 761, 
    88 L. Ed. 2d 859
     (1986) ("
    
    [Section 959(b) ] supports our conclusion that Congress did not intend for the Bankruptcy Code to
    
    pre-empt all state laws that otherwise constrain the exercise of a trustee's powers."). The interest
    
    imposed under section 111.060 of the Texas Code was incurred by Copeland's estate as a result of
    
    the services rendered by Copeland in administering the estate and, mo re specifically, Copeland's
    
    failure to pay the State its sales taxes on the respective dates they were due in compliance with Texas
    
    law. Accordingly, we must consider whether this statutory award of interest constitutes an
    
    administrative expense pursuant to section 503 of the Bankruptcy Code. See Reading Co. v. Brown,
    
    
    391 U.S. 471
    , 
    88 S. Ct. 1759
    , 
    20 L. Ed. 2d 751
     (1968) (damages resulting from the negligence of one
    
    acting within the scope of his authority as receiver of an estate constitute an administrative expense
    
    of that estate); In re Execuair Corp., 
    125 B.R. 600
    , 604 (Bankr.C.D.Cal.1991) (treating attorney's
    
    fees award against estate because of post-petition actions of trustee as an administrative claim).
    
            An administrative expense allowed under 11 U.S.C. § 503(b) is the highest priority claim to
    
    be paid in a bankruptcy case. See 11 U.S.C. § 507(a)(1). Pursuant to section 503(b)(1)(A),
    
    administrative claims are defined to include "the actual, necessary costs and expenses of preserving
    
    the estate, including wages, salaries, or commissions for services rendered after the commencement
    
    of the case...."9 11 U.S.C. § 503(b)(1)(A). However, "administrative expenses entitled to first
    
       9
        We note that this case involves a statutory award of post-petition interest based upon the
    post-petition actions of a trustee, rather than a "fine, penalty, or reduction in credit" relating to a
    priority status are not necessarily confined to those enumerated at 11 U.S.C. § 503(b)." In re Flo-
    
    Lizer, Inc., 
    107 B.R. 143
    , 145 (Bankr.S.D.Ohio 1989), aff'd, 
    916 F.2d 363
     (6th Cir.1990).
    
            Applying sect ion 503 to the case before us, we find that the State's claim for post-petition
    
    interest pursuant to TEX.TAX CODE ANN. §§ 111.016, 111.060 is controlled by the Supreme Court's
    
    opinion in Reading, 391 U.S. at 471, 88 S.Ct. at 1759, and its progeny.10 In Reading, a debtor filed
    
    a petition under Chapter XI of the Bankruptcy Act,11 and a receiver was appointed to conduct the
    
    debtor's business. Six weeks after the bankruptcy was filed, the debtor's only significant asset—an
    
    eight-story industrial structure—was destroyed by fire, which spread to the adjoining property. When
    
    the owners of the abutting property filed administrative claims against the estate, the receiver was
    
    elected trustee, and he moved to expunge these claims on the ground that they did not constitute
    
    administrative expenses and the estate was without assets to satisfy them. The Supreme Court
    
    disagreed, holding that "damages resulting from the negligence of a receiver acting within the scope
    
    of his authority as receiver give rise to "actual and necessary costs' of a Chapter XI arrangement."
    
    
    tax. The latter are expressly addressed by 11 U.S.C. § 503(b)(1)(C).
       10
          Copeland argues that this issue is controlled by In re Goldblatt, 61 B.R. at 459. We note
    that the case before us is distinguishable from Goldblatt on several points. First, Goldblatt
    involved interest accrued on funds constituting an administrative expense pursuant to an
    agreement entered into by the parties. The interest at issue in the case before us is a statutory
    award of interest imposed under Texas law because of the post-petition actions of an entity acting
    as trustee, and the question before us is whether that award of interest itself constitutes an
    administrative expense. Second, Goldblatt and the case before us are distinguished by differences
    in the governing state trust law. The decision in Goldblatt is based upon Illinois trust law, which
    limits interest to the rate actually earned. Under Texas trust law, a beneficiary such as the State is
    entitled to the maximum legal rate of interest on trust funds. See Langford v. Shamburger, 
    392 F.2d 939
    , 945 (5th Cir.1968) ("In Texas cases, the trustee who has used trust funds for his own
    benefit is uniformly charged with the highest legal rate."). Moreover, as discussed in the text
    above, Texas law expressly imposes interest at a rate of 10 percent per annum on any person who
    collects sales taxes for the State and holds those revenues for more than 60 days from the date
    they are due. See TEX.TAX CODE ANN. §§ 111.016, 111.060.
       11
        The pre-Code basis for the prioritization of administrative expense claims is summarized in In
    re Execuair:
    
                   [s]ection 503(b)(1)(A) is derived from § 64 of the Bankruptcy Act of 1898, as
                   amended in 1962, which states that there was a priority for debts which were "...
                   the costs and expenses of administration, including the actual and necessary costs
                   and expenses of preserving the estate, subsequent to filing the petition...."
    
            125 B.R. at 602.
    391 U.S. at 485, 88 S.Ct. at 1767.
    
               The Court's opinion in Reading survived Congress's revisions to the Bankruptcy Code. As
    
    stated in Execuair,
    
               After the Reading decision, the Bankruptcy Code was completely revised and Congress made
               no substantial changes in the definition of administrative claim. Had they chosen to do so,
               Congress could have defined administrative expense so as to overrule the Reading case....
               In fact, it appears that they broadened the concept of administrative expense claim by using
               the word "including" to demonstrate that the sub-parts of § 503(b)(1) are examples and not
               limitations of what can be determined to be an administrative claim.
    
    125 B.R. at 602-03. Moreover, Reading has been expanded by lower courts. For example, in Yorke
    
    v. N.L.R.B., 
    709 F.2d 1138
    , 1143 (7th Cir.1983), cert. denied, 
    465 U.S. 1023
    , 
    104 S. Ct. 1276
    , 
    79 L. Ed. 2d 680
     (1984), the Seventh Circuit relied upon Reading in holding that those injured during the
    
    trustee's administration of an estate are entitled to an administrative priority regardless of whether
    
    their injury was caused by a tort or other wrongdoing. Similarly, the First Circuit has applied
    
    Reading to hold that damages to plaintiffs in the form of a civil compensatory fine and attorney's fees
    
    resulting from a debtor's violation of an injunction constitute an administrative claim. In re
    
    Charlesbank Laundry, Inc., 
    755 F.2d 200
    , 202 (1st Cir.1985).12 And several courts have applied
    
    Reading to hold that awards of attorney's fees and costs resulting from frivolous litigation pursued
    
    by trustees constitute administrative expenses. See In re Met-L-Wood Corp., 
    115 B.R. 133
    , 136
    
    (N.D.Ill.1990) (citing cases). For example, in In re E.A. Nord Co., Inc., 
    78 B.R. 289
    , 292
    
    (Bankr.W.D.Wash.1987), the court held that attorney's fees and costs resulting from a debtor's
    
    pursuit of a legally frivolous post-petition arbitration constituted an administrative expense.13
    
       12
            Specifically, the First Circuit held:
    
                       We see no reason why the claim of plaintiffs in this case does not fall within both
                       the letter and the spirit of Reading. The same fairness principle favors plaintiffs
                       here, whose premises, lives or businesses were adversely affected by Charlesbank's
                       continuing conduct in violation of the temporary injunction.... If fairness dictates
                       that a tort claim based on negligence should be paid ahead of pre-reorganization
                       claims, then, a fortiori, an intentional act which violates the law and damages
                       others should be so treated.
    
               755 F.2d at 202.
       13
            As stated by the Nord Co. court:
    Similarly, in Execuair, 125 B.R. at 604, the court held that attorney's fees awarded against an estate
    
    because of the trustee's post-petition efforts to fight contempt proceedings constituted an
    
    administrative claim.
    
            With Reading and its progeny in hand, we now consider the case before us. Copeland,
    
    possibly because of an excess of caution or possibly because of a belief that section 502(b)(2) of the
    
    Bankruptcy Code would enable its estate to hold the State's $1,817,151.38 in sales tax revenues
    
    without incurring any interest obligation to the State, elected not to carry out promptly its statutory
    
    obligations under Texas law. This post-petition decision on the part of Copeland resulted in monetary
    
    harm to the State resulting from the State being deprived of the use of its $1,817,151.38. It also
    
    resulted in Copeland's estate incurring a statutory award of interest in favor of the State pursuant to
    
    TEX.TAX CODE ANN. §§ 111.016, 111.060 (Vernon 1992). Accordingly, we conclude that, under
    
    the circumstances present here, an award of interest to the State pursuant to section 111.060 of the
    
    Texas Tax Code constitutes an administrative expense under 11 U.S.C. § 503(b), and, as such, it is
    
    entitled to be paid as the bankruptcy court ordered. See 11 U.S.C. § 507(a)(1); Reading, 391 U.S.
    
    at 471, 88 S.Ct. at 1759.
    
                                            III. CONCLUSION
    
           For the foregoing reasons, we AFFIRM the district court's decision affirming the bankruptcy
    
    court's award of interest in favor of the State.
    
    
    
    
                   The argument has been made that adjudging the award, which was of no direct
                   benefit to the estate, as an administrative expense will decrease the dividend to
                   other creditors. However, whatever monetary harm results to Nord's other
                   creditors, is outweighed by the critical need to discourage parties from wasting
                   valuable time and causing needless expense. It is fundamental to our judicial
                   system that courts at every level have the duty, obligation, and responsibility to
                   discourage frivolous litigation. The implementation of such policy may demand, as
                   is this case, that the expense of such conduct be adjudged an administrative
                   expense. If anyone is to suffer, it is better that the burden be sustained by the
                   creditors than by the judicial system.
    
           78 B.R. at 292.