Ground Improvement Techniques, Inc. v. Plan Committee (In Re Washington Group International, Inc.)
2011 U.S. Dist. LEXIS 112028
| D. Nev. | 2011Background
- DOE obligated to pay judgment against WGI; GIT previously awarded damages for wrongful termination; bankruptcy plan limited GIT to principal and prohibited post-petition interest from DOE; district court decisions determined DOE pays, not GIT from estate; Hathaway v. Raytheon previously held against post-petition interest from third parties; Ninth Circuit remands to consider 502(b)(2) applicability to third-party collections.
- Retrial damages awarded May 2006; initial judgments and post-judgment interest created a principal of $9,842,711.83 plus post-judgment interest; bankruptcy court allowed collection of principal from DOE but barred interest; GIT appealed; issue framed as whether 502(b)(2) bars post-petition interest against a non-debtor.
- Plan Committee’s Creditor’s Trust position supported collection of principal from DOE but no interest; GIT joinder objected to interest ban; court concluded interest collection from DOE is permissible.
- Court noted policy rationale behind 502(b)(2) (fairness among creditors, avoid administrative burden) and that these concerns are less applicable when third-party payments do not diminish estate assets.
- Court ultimately remanded to permit GIT to collect post-petition interest from DOE, overruling Hathaway to the extent it prohibited such collection.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether 502(b)(2) bars post-petition interest from a non-debtor | GIT argues 502(b)(2) only governs estate claims, so third-party payment of interest is permissible | Appellees contend interest should not be collected from non-debtor to avoid estate disruption | 502(b)(2) applies only to estate claims and permits third-party post-petition interest |
| Whether a third party's liability (DOE) is dependent on the debtor's liability | DOE liability mirrors WGI's liability; third-party payment should be allowed | DOE's obligation is dependent on and limited by the debtor's liability | Dependence on the debtor is not a controlling limit; third-party collection allowed |
| Policy considerations underlying 502(b)(2) (fairness/administrative burden) | Allowing third-party interest avoids depleting estate and is not administratively burdensome | Avoids unfairness among creditors and administrative complexity | Policy concerns do not forbid third-party post-petition interest where estate funds are not diminished |
| Effect of Bruning and related authorities on post-petition interest against non-debtors | Bruning rationale supports non-estate collection when not reducing estate | Bruning-based reasoning applies to estate claims; third-party payments differ | Bruning rationale extended to permit post-petition interest from non-debtors in this context |
Key Cases Cited
- Bruning v. United States, 376 U.S. 358 (U.S. Supreme Court 1964) (basis for disallowing post-petition interest as a distribution rule)
- American Iron & Steel Manufacturing Co. v. Seaboard Air Line Railway, 233 U.S. 261 (U.S. Supreme Court 1914) (interest policy as part of fair distribution in insolvency)
- In re National Energy & Gas Transmission, Inc., 492 F.3d 297 (4th Cir. 2007) (post-petition interest issues with non-debtors; equity of distribution; non-estate liability)
- In re Kielisch, 258 F.3d 315 (4th Cir. 2001) (§ 502(b)(2) may affect ease of calculation; administrative convenience concern)
- In re Fast, 318 B.R. 183 (Bankr. D. Colo. 2004) (solvent estate permits post-petition interest; rationale for interest accrual)
- In re Coho Res., Inc., 345 F.3d 338 (5th Cir. 2003) (insurer liability post-discharge; non-debtor liability unaffected by discharge)