one hundred dollar for the bank of missouri with me today at counsel table is kim or a representative of the bank that may please the court the bankruptcy court in this case aired as a matter of law and rendering its to alternate holdings denying the bank of missouri's default interest claim under five hundred and six b st the bankruptcy court erred when it used a liquidated damages penalty analysis to deny the bank's claim because the bankruptcy court incorrectly assumed that default interest was a liquidated damages clause and ignore the fact that no missouri law exists to support the extension of that analytical framework to a default interest provision secondarily the bankruptcy court erred when it used equitable considerations to deny the bank's default interest claim under five a six b because nothing in the language of five a six b supports the use of a couple considerations in fact is contrary to that statute supports application of a specific type of interest either doesn't that's correct your honor and some made use of that fact to argue that the bankruptcy court has to strip discretion to step what the rate it sees fit i think that presumes too much of a gap in the statute it is true there is no specific interest rate in the statute but remember we're dealing a very specific subset of claims secured creditors there is something that establishes that creditors security in the case of a voluntary lien you will have a security agreement it's part of a loan transaction intentionally that establishes what the interest rate would be in the case of involuntary liens which ron pear holds are also entitled to post petition interest you will have whatever statutory mechanism grants that week so the fact that there is no interest rate stated does not mean there is nothing to which the court can look so what interest rate would make or use for an involuntary only statutory rape or what if there wasn't one there wasn't a specific so if you didn't have a rate set forth in the statute that said to by default the point is here where you have a voluntary consensual lien you have an agreement you can go back to that establishes what that creditors interest rate would be that is the bargain for negotiating position  what were those the facts until there was a contract but the court decided what interest rate on its own but until we're dealing with a different statutory section that it will grant the debtor the right to set the value that will be paid under the plan in then five or six b what we're talking about present value is what you're referring to correct and five or six b what we're talking about is the trick determination claim what establishes that claim in five or six b exists as an exception to the prohibition on post mission interest and allows it in circumstances where you have no secure credit and the analytical framework is very straightforward is the claim secured is it b so is is that state law issue decided by judge norton a mandatory precursor to applying the equitable considerations or can you just go over overlook the takes out equity allows too much on the creditor side to claim whatever rate it wants the guardrails around that would be state law and that's the st thing you look to they're going to parties may have agreed to an interest rate the question is does state law permit that here in missouri there is no usury cap on interest rates set in commercial loan contents so you don't have a situation where the state has come in and sat notwithstanding the party's agreement to the contrary we're going to impose a default and that's that it does that's mechanism for the state legislature to impose a limit on interest if it if it sees fit whether that's default or not and so here we don't have that that legislature is not going in to say we're going to limit what a creditors right to recover interest would be and so if you get to equity under that framework then what you've already decided is this this claim is otherwise allowable under state law but then you're going to use equity to nd guess that decision and we don't think that's proper under either the language of five or six b or under the language of the case law which is said how the this court should interpret bankruptcy code provisions in order to protect a subset of state rights of art so how would you address the situation in w r grace the delaware case as well as in your case where the debtor was current on the data bankruptcy filing which is the date the claim is established so in w r grace the court essentially said well gee the debtor was current preposition around the date of filing and therefore the debtor was without authority to make any payments post petition without a court order or without confirm plan do you agree with that disagree i disagree i mean i understand that grace has that language in it i would point out that that that reasoning from the w r grace decision hasn't been adopted by any other court that i could  and i think that the reasoning is just troubling from the perspective of if what you're saying is that under grace you can never have post position default by an absence of making claims and that doesn't seem to square with our case is what i mean if that was true you could never have a situation where say that or fails to make a mortgage payment the argument would be well it's post petition i don't have to make a mortgage and so you can't see each day very well kno default interest would be part of it would be part of a claim to be sure to remedy how that claim gets paid is is how is what would be looking at the remedy though when anything when there was a cash collateral agreement your bank did not assert the default interest rate because there wasn't a default yes i'm not sure that that's exactly the reasoning what were the banks reasoning for not asking for the default interest rate at the have been but they would also then have this line of credit from the dips wonder that they would be able to look so they were using your cash collateral in addition to the deplaned wouldn't have had a claim to assert there but it would have been subject to the deplaned or being able to  loan payments to back up and they did anybody would think it would want that because the deploy the junior secured creditor so it wouldn't want to senior secured credit or to get paid well but for the for the diploma part they got got super priority over the banks haven't really talked about that and i think it's more it was the st reason the bankruptcy court used and as i pointed out the bankruptcy court made kind of a leap in logic that is the default interest was the liquidated damages clause and that's simply not the case it's not borne out by how missouri law interprets liquidated damages and in fact there was a recent case out of california in re three m b l l c six o nine b r eight hundred and forty one dollars which said exactly this default interest is not the liquidated damages court this panel is also said in re direct transit two to six b r one hundred and ninety eight default interest is different from the liquidated damages default being something under the loan agreement the trigger certain rights liquidated damages contrast is a specific sum of money fixed at the time of contracting that will be used in lieu of damages dear that's not what default interest does it's not something that the parties agree is a fixed amount nor is it something that they agree will be  used in lieu of damages and i think that's borne out by the fact that no missouri law and there's no missouri case law to support that extension and neither of the parties are able to cite anything that would suggest that in fact the only case involving a promissory note deals with analysis of late charges under liquidated damages framework not the default interest but under either rationale whether the default interest or the equitable consideration both are errors as a matter of law because either it's missouri law in the case of liquidated damages five or six b in the case of actively considering neither support application of the bankruptcy court views and we are therefore bust but the decision be reversed and the case remanded cases if the default interest is set it one hundred and fifty percent there's nothing that either a state court can do or a bankruptcy court can do about the where does the analysis begin to begins with missouri then don't we have a situation here where the bankruptcy appellate panel has already ruled on this issue in well a related issue in white versus coors distributing company in which they said that a contract under nebraska law that had an eighteen percent rate was valid was allowed under nebraska law and therefore in the white case the debtor was awarded interest they're both listed in the contract but one of the key principles and again you've got to come back to missouri law this isn't a case of nebraska law it's not a case of california law it's not a case of massachusetts law that has extreme analysis as missouri law but then we all agree that missouri doesn't prohibit any eighteen percent interest rate as a in fact didn't judge norton find that as a matter of  automatically that rate is not in force but your honor talked about that's my question though with that statement are we not bound by why no no no at absolutely not the question here is again a default interest rate and and then again you look at missouri law and the court in the phillips case looked at at this issue  lies to fees etc and in in the phillips case the court specifically found that it liquidated damages put on penalty analysis a plot and again in missouri works look past the labels that are placed on the terms or just merely because something is labeled as interest when it's a damage component it's analyzed that way the courts here in missouri have made that making up the difference of what you're not collecting under the no i think vault interest is a damage component and that is why in many cases said i think there's no question but that it's a damages component and because  honor it also like to touch on your grace case the judge salad you know mention actually want to go there st your honor i think it's clear under w r grace and other cases and the bankruptcy code that upon the bankruptcy filing a debtor cannot pay preposition and added it without either a confirmed plan or an order of the court we think about the doctor in the city or critical trade that requires a court order in order to make distributions to pre position indebtedness that requires a plan or an order may not hold true of necessities as make up law well and also isn't a debtor in possession supposed to do proceed in the ordinary course of business and when pain you're secured to be in the ordinary course of business you are no pain secured it may not be in the ordinary it's not in the ordinary course of business if it's appropriate for post petition adequate protection payments to be made then it may be included in a cash collateral or a debtor in possession budgets it's incumbent upon the debtors the committee if there's a committee in the secured creditors if they believe they're entitled to adequate protection payments but absent a court order and  approved budget then typically you don't see cash collateral or adequate protection payments and and then the other question is a secured credit or entitle that protection post titian during the pendency of the case not all secured creditors are if there's an equity cushion you're not entitled to one if you're under secured you're not entitled to one you're only entitle to have your plateau preserved and insured and not having a road unnecessary so so how does the debtor not being allowed to pay the secured debt post petition translate into the contract rate doesn't kick in the contract to forward the debtors were not in default three petition there was no excel aeration petition and  the the fall bank of missouri claims occurred was a result of bank we think that's an absolute facto provision of an effort to use the bankruptcy filing as a mechanism to to implement the default rate of interest but they're not relying on the bankruptcy filing they're just relying on the fact that the payment wasn't made and they're not required to if they didn't excel or write post petition either they're just saying the contract if a payment isn't made the default rate arises period no notices required nothing so why wouldn't that apply afterwards and in the contract the note talks about other a legal law other federal law and your honor i would suggest the federal bankruptcy law preempts what the contract says and provides the mechanism to analyze that issue in the w r grace case said it best when it said that because the bankruptcy code was the reason that grace did not make the post petition principle no interest payments than gray should not be held to be defaulted under its contractual arrangement with the bank lenders for that reason it's exactly what the w r grace said when they were really faced with a nearly identical situation to the fact i would like to spend a few moments just talking about section five hundred and six be your honor your honor support me beginning with the statute itself section five hundred and six b provides that to the extent your over secured there shall be allowed to the holder of such claim interest on such claim and then any reasonable fees costs or charges provided for under the agreement it is clear if you're over secured you're entitled to interest whether you have a consensual leaner and on consensually we've never disputed that ron pair makes that very very clear and ron pare was only focused on whether a tax lien and nonconsensual lien was entitle to post petition interest and of course the answer there was yes notably ron pair never held or interest rate and i think it's important to focus on the entirety of section five hundred and six b and why is that important that the language makes clear that congress knew how to have the interest rate be the contract rate under the agreements if they so wanted to they used the language provided for in that agreement when discussing fees costs or charges that language is not in the interest component if congress wanted to make it clear that is over secured consentual lien creditor got interest under their contract they could have may that vision and that revision and five hundred and six be they did not and in your honor you referenced earlier nonconsensual leans with interest rate would suggest to you and mechanics liens and other one that your honor mention that there are several instances of nonconsensual secured creditors where there isn't a readily determinable statutory interest rate and this is these courts the bankruptcy courts have discretion to determine what is the appropriate interest rate but isn't that only in a case where you know the judgment interest rate is so low that it's unfair as opposed to so high that it's unfair i don't believe so your hon i think when a party when a debtor goes into bankruptcy under section five hundred and six the interest is clearly in the the court of the bankruptcy court to determine what the appropriate interest rate is i think under section five hundred and six b you have a one million dollars loan with one hundred and fifty percent interest rate that doesn't have a default interest rate and they're over secured five o six b and the equitable considerations in the case law that we cit court the discretion to determine under the particular facts and circumstances of that case if one hundred and fifty percent contract interest rate is appropriate or not notwithstanding that the particular state may not have a absolutely i think that that's clear and that your honour's would not be bound by a one million dollars over secured one hundred and fifty percent loan even if that particular state didn't have a use real your hon we cited six different courts of appeals in our papers that make very clear that equitable considerations may be appropriate to determine what an appropriate interest rate is under the the auspices of section five  case but it allowed interest at the default rate in that particular case but it recognized that there may be there may be situations where the higher work rate would produce an equitable or unconscionable result so as to require disallowan of that's an th circuit court of appeals decision that's still good law it hasn't been changed by the code or hasn't been changed by ron paranoia prices and more recently as we've cited in our materials turkey zero and payless both recognized at least in dicta that there are situations where an adjustment to the interest rate may be appropriate  i want to come back very quickly to something mr biden said at the beginning which was stating that our position was that the bankruptcy court has no authority to do allow or disallow interest whatever the reason that's actually not accurate that's not what our position is there are guardrails around that state mean one of the big ones though is going to actually put the guardrails around what interest might be and so it's not true to say we're saying that there's no recourse there is with respect to the judge how do you know it's coming on the white case and is tied back into it mr christiania was seen at the end of the eight circuit actually has spoken on this issue and in in the white case there was an opportunity to discuss equable considerations and there was no discussion of it in fact it employed what we think is the appropriate analytical framework that looked under state law if it's from a civil under state law at least so far as the claim determination goes that the that rate of interest would be permitted and it doesn't make sense to try to distinguish between defaults non and fault interest rate is in force if any default rate interest in forcible under state law yes for the claim determination now i do want to touch upon something that came up in the seven circuits law piano decision which i think needs to be addressed and there was some concern about well what if there is evidence that in that case it was the i r s went to the trustee and said hey drag this thing out a little because if you do i've got a lot of room i can get default interest and the panel suggested well doesn't that seem like that would be and i put it and the counsel for the government didn't really think so and the th circuit didn't address the fact but what they decided back to that when they're saying if you're going to use equity if you're going to use  it should depend on the circumstances of the case and be based on the conduct of the creditor your traditional equitable defense client just decide to assert the default interest rate once they figured out they were over secured by the sale i mean before that you didn't raise it well before that there was nothing to indicate that we were going to be over secured and in fact if you look at the original stalking horse we were under secure and so it wasn't until the sale was completed and confirmed that we actually knew the extent to which we would be secure and so there's nothing really in here to point to similar circumstances that would raise those traditional equitable defenses of waivers stoppel latches unclean hands things like that and that's really what our thrust is behind saying to the extent the bankruptcy court could use equable considerations the factors this court utilized weren't actually i could well considerations they went more to fairness and reasonable nice looking at is the rate too high what's the difference between the spread things of that nature and those are issues that would exist in any case they are not dependent upon the equities of the specific case at issue which is what the law piano was talking about and in fact some of the more recent cases that have talked about equity have focused on including a judge birders recent decision out of the hammonds case focusing on a much more limited concept of equity that doesn't consider whether we think the rate is fair but considers whether there's equitable considerations that would deny payment of their claim based upon the conduct and for that reason we request the court reverse