472 B.R. 189
Bankr. S.D.N.Y.2012Background
- GECC obtained a consensual foreclosure judgment against the debtor pre-petition for $74,007,710.71, which was entered in the State Court Action.
- The debtor filed for Chapter 11, and GECC filed a secured claim based on the Judgment; the debtor objected Apr. 3, 2012.
- The loan related to a Manhattan hotel secured by a mortgage, with May 31, 2013 initial due date absent acceleration, and a Lockout Period of 36 months.
- The loan obligated monthly amortization starting June 2010, with a prepayment premium (5% during acceleration) and a Make Whole amount under Schedule 2.3(4) for prepayment.
- The loan accelerated during the Lockout Period after default, triggering a 5% prepayment premium and a Make Whole provision; interest was 6.94% plus 5% liquidated damages.
- The Hotel was sold under a confirmed plan; GECC’s lien attached to the sale proceeds, and GECC’s claim is oversecured.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the prepayment premium is enforceable | GECC: premium enforceable as part of the judgment | Debtor: premium barred by res judicata and nonbankruptcy law | Prepayment premium upheld; res judicata bars reraising; premium enforceable as liquidated damages |
| What rate governs post-petition pendency interest under § 506(b) | Contractual/statutory rate should apply; 9% CPLR rate presumptively applicable | Federal judgment rate or 9% with equitable deviation; adjust only if warranted | Contract rate governs; 9% CPLR rate not applied; equitable adjustment not warranted; no use of federal judgment rate here |
Key Cases Cited
- United Merchants & Mfrs., Inc., 674 F.2d 134 (2d Cir.1982) (liquidated damages validity and penalty standards; test for reasonableness)
- JMD Holding Corp. v. Congress Fin. Corp., 4 N.Y.3d 373 (N.Y. 2005) (penalty vs. liquidated damages; reasonableness at contracting time)
- In re Chateaugay Corp., 150 B.R. 529 (Bankr.S.D.N.Y.1993) (state law rate considerations for post-petition interest; noncontractual liens)
- In re Navis Realty, Inc., 193 B.R. 998 (Bankr.E.D.N.Y.1996) (statutory rate presumptions for oversecured liens; equity considerations)
- In re Cardelucci, 285 F.3d 1231 (9th Cir.2002) (legal rate vs. contractual rate under § 506(b) framework)
- In re Laymon (Bradford v. Crozier), 958 F.2d 72 (5th Cir.1992) (contract rate preferred under § 506(b) absent penalties)
- In re Coram Healthcare Corp., 315 B.R. 321 (Bankr.D. Del.2004) (legal rate vs. other rates for post-petition interest in solvent estates)