In re Ultra Petroleum Corp.
575 B.R. 361
Bankr. S.D. Tex.2017Background
- OpCo issued approximately $1.46 billion of fixed-rate unsecured notes under a New York‑law Note Agreement that includes an automatic-acceleration ipso facto Event of Default on filing bankruptcy, a Make-Whole formula, and a contractual default interest rate.
- HoldCo and MidCo guaranteed OpCo’s obligations. OpCo, MidCo, and HoldCo filed chapter 11 on April 29–30, 2016, which triggered automatic acceleration and the asserted entitlement to principal, pre-petition interest, Make-Whole Amounts, and post-petition interest.
- Debtors later became solvent and proposed a confirmed chapter 11 plan treating the Noteholders as unimpaired and providing payment in full; Noteholders were deemed to have accepted the plan as unimpaired creditors.
- The Senior Creditor Committee sued for a declaration that acceleration triggered the Make-Whole obligation and the amount due; Debtors objected, arguing the Make-Whole is unenforceable liquidated damages (or unmatured interest under §502(b)(2)) and that post‑petition interest should be at the federal judgment rate.
- The court held that (1) the Make-Whole is a liquidated‑damages clause enforceable under New York law because it is not grossly disproportionate and was difficult to estimate at contract formation, (2) the plan’s treatment as unimpaired preserved the Noteholders’ state‑law rights (so the Make-Whole applies), and (3) post‑petition interest is payable at the contractual default rate where claims are unimpaired under the confirmed plan.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability of Make-Whole under New York law | Make-Whole is matured, enforceable measure of damages | Debtors: clause is unenforceable penalty or double counts damages | Court: Make-Whole is a liquidated‑damages clause but enforceable (not grossly disproportionate; damages hard to estimate at formation) |
| Applicability of §502(b)(2) (unmatured interest) | Make-Whole is matured (not barred by §502(b)(2)) | Debtors: Make-Whole is proxy for unmatured interest and disallowed | Court: §502(b)(2) does not bar enforcement here; plan treatment controls discharge and rights |
| Effect of plan treating claims as unimpaired (§1124(1)) | Unimpaired treatment requires full state‑law recovery | Debtors: impairment analysis should use allowed‑claim standards; PPI reasoning applies | Court: Plan confirms unimpaired status; §1141 discharge governed by plan, so unimpaired creditors receive state‑law rights (rejects PPI approach) |
| Rate of post‑petition interest | Noteholders: contract default rate applies for unimpaired claims | Debtors: at most federal judgment (legal) rate; §726(a)(5) controls | Court: §726(a)(5) not applicable to unimpaired claims in chapter 11; contractual default rate applies for post‑petition interest |
Key Cases Cited
- Stern v. Marshall, 564 U.S. 462 (bankruptcy court constitutional limits and final orders)
- JMD Holding Corp. v. Cong. Fin. Corp., 4 N.Y.3d 373 (N.Y. 2005) (test for enforceability of liquidated damages clauses)
- Quadrant Structured Prods. Co. v. Vertin, 23 N.Y.3d 549 (N.Y. 2014) (liquidated damages proportionality analysis)
- In re United Merchants & Mfrs., Inc., 674 F.2d 134 (2d Cir. 1982) (make‑whole/prepayment charge recognized as liquidated damages)
- In re PPI Enterprises (U.S.), Inc., 324 F.3d 197 (3d Cir. 2003) (contrasting approach on applying disallowance before impairment determination)