455 B.R. 373
Bankr. S.D.N.Y.2011Background
- Arcade Publishing filed Chapter 11, with sale of assets to Skyhorse approved and plan confirmed in 2011.
- Steven K. Hodel had a prepetition State Court Action against Arcade for unpaid royalties under a 2002 publishing agreement.
- Hodel filed Claim No. 62 in the bankruptcy proceeding seeking principal plus prepetition prejudgment statutory interest under NY CPLR 5001(a).
- Arcade objected to the portion of the claim seeking $108,716.19 in prepetition interest, arguing no verdict or sum awarded existed prepetition.
- Hearing held July 27, 2011; the court sustained Arcade’s objection and allowed the claim for $224,571.07, excluding prepetition interest.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether NY CPLR 5001(a) requires a verdict, judgment, or sum awarded. | Hodel: interest accrues as part of the claim based on 5001(a) and the bankruptcy definition of a claim. | Arcade: 5001(a) requires a verdict/award; no judgment or sum awarded existed prepetition. | Prepetition interest not allowed without a verdict/judgment; only principal allowed. |
| Whether prepetition prejudgment interest is recoverable when no state court judgment exists. | Hodel: interest accrues when the state action was filed and is part of the claim under 101(5)(A). | Arcade: without a verdict or sum awarded, interest cannot be added to the claim. | Interest not recoverable; no judgment or verdict existed prepetition. |
| Whether the claim includes unmatured interest under 502(b)(2). | Hodel: interest should be included as part of the claim under § 101(5)(A). | Arcade: unmatured interest is not allowed without a sum awarded. | Unmatured interest not allowed absent a verdict/decision; excluded. |
| Whether state-law CPLR 5001(a) requires a sum awarded for interest when a breach is proven. | Hodel: equitable/conduct-based rationale suffices to award interest. | Arcade: CPLR 5001(a) mandates a verdict/award; equity does not override. | CPLR 5001(a) requires a sum awarded; not present here. |
| Whether allowing interest would distort equality among creditors. | Hodel: concessions on the claim should support an award of interest. | Arcade: permitting interest would unfairly broaden prepetition recoveries without judgments. | Courts should not create substantive rights absent a judgment; not allowed. |
Key Cases Cited
- In re Milham, 141 F.3d 420 (2d Cir. 1998) (prepetition interest allowable to the extent permitted by nonbankruptcy law)
- In re Chateaugay Corp., 109 B.R. 51 (Bankr.S.D.N.Y. 1990) (interest may be allowed if and when earned under nonbankruptcy law)
- In re United States Lines, Inc., 199 B.R. 476 (Bankr.S.D.N.Y. 1996) (prepetition interest as 'unmatured' not per se disallowed; depends on accrual and maturity)
- In re Bayou Group, LLC, 439 B.R. 284 (S.D.N.Y. 2010) (make-whole remedy; requires final sum for interest if no sum certain)
- In re Adelphia Recovery Trust, 634 F.3d 678 (2d Cir. 2011) (judicial estoppel/claims context in bankruptcy)