In Re General Growth Properties, Inc.
451 B.R. 323
Bankr. S.D.N.Y.2011Background
- CRF, as trustee of the Common Retirement Fund, objected to treatment of its claim under GGP's Third Amended Joint Plan of Reorganization.
- The Homart Note loaned CRF $254 million to GGP secured by Homart II JV shares; default rate of interest was 8.95% (contract default rate).
- GGP’s Chapter 11 filing on April 16, 2009 constituted an automatic default under the note, triggering the default interest rate.
- Plan § 4.13 reinstated the debt and provided for payment of pre-default interest at the non-default rate, with CRF’s claim remaining disputed for default-rate interest.
- CRF's secured claim was filed November 5, 2009 for principal around $245.1 million plus interest at varying rates; on the Effective Date, GGP reinstated the note and paid CRF approximately $25.3 million for accrued interest and fees, leaving about $11.5 million in dispute.
- GGP emerged solvent from bankruptcy and distributed substantial value to equity on the Effective Date.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether CRF is entitled to post-petition default interest. | CRF argues default interest should be paid under § 506(b) and Ruskin-based equity principles. | GGP contends cure/reinstatement erases default interests and argues § 1123(d) does not require default-rate payment when not mandated by contract. | CRF is entitled to post-petition default interest. |
| Whether reinstatement under § 1124 cures the default interest provision. | Cure/reinstatement preserves contractual rights, including default-rate interest. | Cure rewrites entitlements, erasing default-rate terms. | Reinstatement cures the default without negating the contract rate; default interest may be payable. |
| Role of ipso facto clause and § 1123(d) in triggering default interest in a solvent debtor. | Clause should enforce original contract interest rate; ipso facto not invalid. | Ipso facto clauses should be disfavored or invalid except in executory contracts; § 1123(d) supports nonbankruptcy law. | § 1123(d) supports payment of default interest when consistent with underlying agreement and nonbankruptcy law; solvent debtor considerations favor enforcement. |
Key Cases Cited
- Ruskin v. Griffiths, 269 F.2d 827 (2d Cir.1959) (principal support for payment of default interest by solvent debtors to effect cure and reinstatement)
- In re Milham, 141 F.3d 420 (2d Cir.1998) (presumption in favor of contract-rate interest subject to equitable considerations)
- In re Southland Corp., 160 F.3d 1054 (5th Cir.1998) (contract-rate default interest favored with equitable limits)
- In re Vest Assocs., 217 B.R. 696 (Bankr.S.D.N.Y.1998) (tends toward contract-default-rate with equitable considerations)
- In re 139-141 Owners Corp., 313 B.R. 364 (S.D.N.Y.2004) (addressed § 1124(2) cure/reinstatement and default interest)
- In re Adejobi, 404 B.R. 78 (Bankr.E.D.N.Y.2009) (discusses post-petition interest under § 506(b) and nonbankruptcy law interplay)
- In re Moody Nat’l SHS Houston H., LLC, 426 B.R. 667 (Bankr.S.D.Tex.2010) (considers default-interest within solvent-debtor context)
- In re Phoenix Bus. Park Ltd. P'Ship, 257 B.R. 517 (Bankr.D.Ariz.2001) (discussedpenalty nature of default-rate under certain plans)