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Dennis F. Dunne (admitted pro hac vice) 

Samuel A. Khalil (admitted pro hac vice) 

MILBANK LLP 

55 Hudson Yards 

New York, New York 10001-2163 

Telephone: (212) 530-5000 

Facsimile: (212) 530-5219 

and 

Gregory A. Bray (SBN 115367) 

Thomas R. Kreller (SBN 161922) 

MILBANK LLP 

2029 Century Park East, 33rd Floor 

Los Angeles, CA 90067 

Telephone: (424) 386-4000 

Facsimile: (213) 629-5063 

Counsel for the Official Committee 

of Unsecured Creditors

STROOCK & STROOCK & LAVAN 

LLP 

Mark A. Speiser (admitted pro hac vice) 

(mspeiser@stroock.com) 

Kenneth Pasquale (admitted pro hac vice) 

(kpasquale@stroock.com) 

Sherry J. Millman (admitted pro hac vice) 

(smillman@stroock.com) 

Harold A. Olsen (admitted pro hac vice) 

(holsen@stroock.com) 

180 Maiden Lane New York, NY 10038-

4982 

Tel: (212) 806-5400 

Facsimile: (212) 806-6006 

and 

STROOCK & STROOCK & LAVAN 

LLP 

David W. Moon (SBN 197711) 

(dmoon@stroock.com) 

2029 Century Park East 

Los Angeles, CA 90067-3086 

Tel: (310) 556-5800 

Fax: (310) 556-5959 

Counsel for Mizuho Bank, Ltd., in its 

capacity as HoldCo Term Loan 

Administrative Agent

Michael S. Stamer (admitted pro hac vice) 

Ira S. Dizengoff (admitted pro hac vice) 

David H. Botter (admitted pro hac vice) 

Abid Qureshi (admitted pro hac vice) 

AKIN GUMP STRAUSS HAUER & 

FELD LLP 

One Bryant Park 

New York, New York 10036 

Telephone: (212) 872-1000 

Facsimile: (212) 872-1002 

and 

Ashley Vinson Crawford (SBN 257246) 

AKIN GUMP STRAUSS HAUER & 

FELD LLP 

580 California Street 

Suite 1500 

San Francisco, CA 94104 

Telephone: (415) 765-9500 

Facsimile: (415) 765-9501 

Counsel for the Ad Hoc Committee of Senior 

Unsecured Noteholders of Pacific Gas and 

Electric Company 

Andrew I. Silfen (admitted pro hac vice) 

Beth M. Brownstein (admitted pro hac 

vice) 

ARENT FOX LLP 

1301 Avenue of the Americas, 42nd Floor 

New York, New York 10019 

Telephone: (212) 484-3900 

Facsimile: (212) 484-3990 

and 

Aram Ordubegian (SBN 185142) 

ARENT FOX LLP 

55 Second Street, 21st Floor 

San Francisco, CA 94105 

Telephone: (415) 757-5500 

Facsimile: (415) 757-5501 

Counsel for BOKF, NA, in its capacity as 

Indenture Trustee for the Utility Senior 

Notes 

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David M. Feldman (admitted pro hac vice) 

Matthew K. Kelsey (admitted pro hac vice) 

GIBSON, DUNN & CRUTCHER LLP 

200 Park Avenue 

New York, NY 10166-0193 

Telephone: (212) 351-4000 

Facsimile: (212) 351-4035 

and 

Michael S. Neumeister (SBN 274220) 

Michelle Choi (SBN 313557) 

GIBSON, DUNN & CRUTCHER LLP 

333 South Grand Avenue 

Los Angeles, CA 90071-3197 

Telephone: (213) 229-7000 

Facsimile: (213) 229-7520 

and 

Matthew D. McGill (pro hac vice) 

 mmcgill@gibsondunn.com 

GIBSON, DUNN & CRUTCHER LLP 

1050 Connecticut Avenue, N.W. 

Washington, DC 20036-5306 

Telephone: 202.955.8500 

Facsimile: 202.467.0539

Counsel for the Ad Hoc Committee of 

Holders of Trade Claims

Timothy Graulich (admitted pro hac vice) 

timothy.graulich@davispolk.com 

David Schiff (admitted pro hac vice) 

david.schiff@davispolk.com 

Daniel E. Meyer (pro hac vice admission 

pending) 

daniel.meyer@davispolk.com 

DAVIS POLK & WARDWELL LLP 

450 Lexington Avenue 

New York, New York 10017 

Telephone: (212) 450-4000 

Facsimile: (212) 701-5800 

and 

Andrew D. Yaphe (SBN 274172) 

andrew.yaphe@davispolk.com 

DAVIS POLK & WARDWELL LLP 

1600 El Camino Real 

Menlo Park, California 94025 

Telephone: (650) 752-2000 

Facsimile: (650) 752-2111 

Counsel for Citibank N.A., as 

Administrative Agent for the 

Utility Revolving Credit Facility

 

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TABLE OF AUTHORITIES 

 Page(s) 

Cases 

Beguelin v. Volcano Vision, Inc. (In re Beguelin), 

220 B.R. 94 (B.A.P. 9th Cir. 1998) ........................................................................... 4, 5 

Biggs v. Sec’y of the Cal. Dep’t of Corrections & Rehabilitations, 

717 F.3d 678 (9th Cir. 2013) ......................................................................................... 6 

In re Dow Corning Corp., 

244 B.R. 678 (Bankr. E.D. Mich. 1999) .................................................................... 2, 5 

In re Energy Future Holdings, Inc., 

540 B.R. 109 (Bankr. D. Del. 2013) .............................................................................. 6 

Epicenter Partners, L.L.C. v. CPF Vaseo Ass’n (In re Epicenter Partners, 

L.L.C.), 

2018 WL 1354330 (B.A.P. 9th Cir. Mar. 15, 2018) ...................................................... 7 

Gen. Elec. Capital Corp. v. Future Media Prods., 

547 F.3d 956 (9th Cir. 2008) ......................................................................................... 8 

Hamilton v. Elite of L.A., Inc. (In re Hamilton), 

584 B.R. 310 (B.A.P. 9th Cir. 2018) ............................................................................. 7 

L& J Anaheim Assocs. v. Kawasaki Leasing Int’l, Inc. (In re L & J 

Anaheim Assocs.), 

995 F.2d 940 (9th Cir. 1993) ......................................................................................... 8 

In re Martin, 

2003 WL 25273864 (Bankr. D. Idaho Feb. 28, 2003) ................................................... 5 

Onink v. Cardelucci (In re Cardelucci), 

285 F.3d 1231 (9th Cir.), cert. denied, 537 U.S. 1072 (2002) .............................. passim

Pacifica L 51 LLC v. New Invs., Inc. (In re New Invs., Inc.), 

840 F.3d 1137 (9th Cir. 2016) ....................................................................................... 8 

Platinum Capital, Inc. v Sylmar Plaza, L.P. (In re Sylmar Plaza, L.P.), 

314 F.3d 1070 (9th Cir. 2002) ................................................................................... 7, 8 

In re Robinson, 

567 B.R. 644 (Bankr. N.D. Ga. 2017) ........................................................................... 4 

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Shoen v. Shoen (In re Shoen), 

1997 WL 1403808 (B.A.P. 9th Cir. 1997), aff’d, 175 F.3d 1150 (9th 

Cir. 1999) ................................................................................................................... 3, 7 

In re Wallace, 

2007 WL 321402 (Bankr. E.D. Wash. Jan. 29, 2007) ................................................... 4 

In re Williams, Love, O’Leary & Powers, P.C., 

2013 WL 4786322 (D. Or. Sept. 3, 2013) ................................................................. 3, 4 

In re Williams, Love, O’Leary & Powers, P.C., 

Case No. 11-37021 (D. Or. Aug. 31, 2012), Docket No. 421 ....................................... 3 

Statutes 

11 U.S.C. § 103(b) ............................................................................................................... 2 

11 U.S.C. § 506(b) ............................................................................................................... 2 

11 U.S.C. § 726(a)(5) ................................................................................................. passim

11 U.S.C. § 1124 ............................................................................................................. 6, 7 

11 U.S.C. § 1129 ......................................................................................................... 5, 6, 7 

11 U.S.C § 1325(a)(4) ......................................................................................................... 4 

28 U.S.C. § 1961(a) ............................................................................................................. 6 

 

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UNITED STATES BANKRUPTCY COURT 

NORTHERN DISTRICT OF CALIFORNIA 

SAN FRANCISCO DIVISION 

In re: 

PG&E CORPORATION 

 - and - 

PACIFIC GAS AND ELECTRIC 

COMPANY,

Debtors.

Case No. 19-30088 (DM) 

Chapter 11 

(Lead Case) 

(Jointly Administered) 

CONSOLIDATED REPLY BRIEF OF THE 

OFFICIAL COMMITTEE OF UNSECURED 

CREDITORS AND OTHER CREDITOR 

GROUPS AND REPRESENTATIVES 

REGARDING THE APPROPRIATE 

POSTPETITION INTEREST RATE 

PAYABLE ON UNSECURED CLAIMS IN A 

SOLVENT DEBTOR CASE

Date: December 11, 2019 

Time: 10:00 a.m. (Pacific Time) 

Place: United States Bankruptcy Court 

 Courtroom 17, 16th Floor 

 450 Golden Gate Avenue 

 San Francisco, CA 94102 

 Affects PG&E Corporation 

 Affects Pacific Gas and Electric 

Company 

 Affects both Debtors 

* All papers shall be filed in the Lead Case, 

No. 19-30088 (DM). 

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The Creditor Groups1 hereby respectfully reply2 to the Debtors’ Brief Regarding 

Applicable Rate of Postpetition Interest on Allowed Unsecured Claims and Joinder of PG&E 

Shareholders [Docket No. 4624] (the “Debtors’ Opening Brief”) as follows: 

REPLY 

1. The Debtors’ Opening Brief relies entirely on the assertion that the Ninth 

Circuit’s ruling in Onink v. Cardelucci (In re Cardelucci), 285 F.3d 1231 (9th Cir.), cert. denied, 

537 U.S. 1072 (2002) (“Cardelucci”), is an all-encompassing, controlling precedent governing any

dispute regarding the rate of interest payable on unsecured claims in a solvent-debtor case. It is 

not, and it cannot be applied, as the Debtors suggest, without regard for the underlying facts or the 

direct applicability of other Bankruptcy Code provisions that were neither at issue in, nor 

mentioned (let alone considered) by, the Ninth Circuit in Cardelucci. 

2. The Debtors make no attempt to explain the remarkable proposition that the 

Ninth Circuit’s narrow interpretation of section 726(a)(5) can be expanded to negate other 

provisions of the Bankruptcy Code, such as sections 103(b), 1124, and 1129(b), and the welldeveloped caselaw thereunder. Instead, the Debtors simply repeat, half a dozen times, that 

Cardelucci is “controlling” and “dispositive.” This is a gross overstatement of the scope and the 

 

1

 Capitalized terms not otherwise defined herein have the meanings ascribed to them in the Consolidated 

Opening Brief of the Official Committee of Unsecured Creditors and other Creditor Groups and 

Representatives Regarding the Appropriate Postpetition Interest Rate Payable on Unsecured Claims 

in a Solvent Debtor Case [Docket No. 4634] (the “Creditors’ Opening Brief”). 

2

 The Creditor Groups submit this Consolidated Reply Brief jointly pursuant to the Court’s Order 

Establishing Pre-Confirmation Briefing and Hearing Schedule for Certain Legal Issues [Docket No. 

4540] (the “Scheduling Order”), and incorporate herein the reservations of rights made in their Opening 

Brief. The Creditor Groups and the Debtors agreed to the briefing schedule set forth in the Scheduling 

Order and to forego formal adversary proceedings in order to facilitate an early resolution of certain 

legal issues that may otherwise delay confirmation. The Creditor Groups however did not uniformly 

agree to joint briefing of the postpetition interest issue or to the relinquishment of individual appellate 

rights. Although the Scheduling Order recognizes certain appellate rights of “any aggrieved party,” the 

Creditor Groups in an abundance of caution wish to expressly reserve the entirety of each constituent 

Creditor Group’s individual appellate rights.

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import of Cardelucci that ignores the facts at issue and the statutory context of the dispute in that 

case, and the express language that the Ninth Circuit employed in its decision. 

3. The Debtors’ sweeping assertion that Cardelucci “squarely” addresses the 

“very same” issues that confront this Court (Debtors’ Br. at 6:14) is demonstrably incorrect, as is 

their contention that the Creditor Groups’ arguments are “a disguised effort to overrule” Cardelucci 

(Debtors’ Br. at 13:9-10). To the contrary, as explained in the Creditors’ Opening Brief, the issues 

on which the Ninth Circuit ruled in Cardelucci are clearly distinct from those presented here. See 

Debtors’ Opening Brief at ¶¶ 6-7, 30-32. The Creditor Groups merely ask the Court to recognize 

the limited ambit of the holding in Cardelucci – where the court interpreted the phrase “legal rate” 

in section 726(a)(5) and did not pronounce a sweeping new rule governing every circumstance in 

every bankruptcy case – by harmonizing it with other binding Ninth Circuit precedent. 

4. The Debtors are also incorrect when they assert that there are but “two 

limited exceptions” to section 502(b)(2)’s disallowance of claims for unmatured interest3: section 

506(b) and section 726(a)(5) (Debtors’ Br. at 9:1-8). This is an entirely false construct. The first 

of these exceptions applies solely to oversecured claims,4

 while the second applies directly only in 

cases under chapter 7.5 As the case law cited in the Creditors’ Opening Brief makes abundantly 

 

3

 Section 502(b)(2) is not applicable here. “While section 502(b)(2) provides that an allowed claim does 

not include interest unmatured as of the petition date, it does not prohibit the award of interest to 

creditors in all circumstances.” See, e.g., In re Coram Healthcare Corp., 315 B.R. 321, 343 (Bankr. D. 

Del. 2004). This is made clear, particularly with respect to unimpaired claims, as a result of Congress’s 

repeal of section 1124(3) of the Bankruptcy Code. In repealing section 1124(3), Congress explained 

that “[a]s a result of this change, if a plan proposed to pay a class of claims in cash in the full amount 

of the claims,” without post-petition interest, “the class would be impaired, entitling creditors to vote 

for or against the plan of reorganization.” Committee Report, 1994 U.S.C.C.A.N. at 3356-56.

4

 See 11 U.S.C. § 506(b) (providing for postpetition interest “[t]o the extent that an allowed secured 

claim is secured by property the value of which . . . is greater than the amount of such claim . . . .”). 

5

 See In re Dow Corning Corp., 244 B.R. 678, 686 (Bankr. E.D. Mich. 1999) (“§ 726(a)(5) . . . applies 

exclusively to chapter 7 proceedings”) (emphasis added); see also 11 U.S.C. § 103(b) (“Subsection I 

and II of chapter 7 of this title apply only in a case under such chapter” (emphasis added)). In chapter 

11 cases, this provision applies only indirectly by reference to a hypothetical chapter 7 liquidation in 

section 1129(a)(7)(ii). 

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clear, however, these are not the only contexts in which payment of postpetition interest comes 

into play. The entitlement to postpetition interest in solvent chapter 11 cases emanates from other 

provisions of the Bankruptcy Code. As set forth in the Creditors’ Opening Brief, there are three 

separate (and independent) Bankruptcy Code provisions that require payment of postpetition 

interest to confirm a plan in a solvent-debtor chapter 11 case: section 1124 for unimpaired

unsecured claims; section 1129(b) for impaired unsecured claims in a class that rejects a plan; and 

section 1129(a)(7) for impaired unsecured claims of rejecting creditors (even if they are in an 

accepting class). Creditors’ Opening Brief at ¶¶ 13-15, 18-32. The Debtors’ Opening Brief fails 

to distinguish among the statutory bases for the entitlement to postpetition interest in different 

circumstances, claiming, without analysis, that the Cardelucci decision does not mean what it says 

but instead provides an exclusive, unlimited “be all, end all.”

5. The Debtors themselves acknowledge that Cardelucci and its (limited) 

progeny do not address either section 1124 or section 1129(b) in any way.6 In their brief, the 

Debtors state that neither Cardelucci nor In re Williams, Love, O’Leary & Powers, P.C., 2013 WL 

4786322 (D. Or. Sept. 3, 2013) (“WLOP”) “relied in any way on provisions of the Bankruptcy 

Code other than section 726(a)(5).” Debtors’ Opening Brief at 13:12-13 (emphasis added). 

While the Debtors’ characterization is not entirely accurate,7 the holdings in these cases are 

undoubtedly expressly limited to that single Bankruptcy Code provision. See Cardelucci, 285 F.3d 

at 1233 (“We conclude that 11 U.S.C. § 726(a)(5) mandates application of the federal interest 

rate.” (emphasis added)); Letter Opinion re Debtor’s Proposed Third Amended Chapter 11 Plan

at 5, In re Williams, Love, O’Leary & Powers, P.C., Case No. 11-37021 (D. Or. Aug. 31, 2012), 

Docket No. 421, attached hereto as Exhibit A (the “WLOP Letter-Decision”) (explaining that the 

 

6

 Section 1129(a)(7) is not applicable to the facts of these cases. 

7

 See infra ¶ 7. 

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sole issue before the court was “the meaning of ‘the legal rate’ of interest as used in § 726(a)(5).” 

(emphasis added)). 

6. Moreover, in reaching its decision in Cardelucci, the Ninth Circuit relied 

heavily on Beguelin v. Volcano Vision, Inc. (In re Beguelin), 220 B.R. 94 (B.A.P. 9th Cir. 1998) 

(“Beguelin”), which is also expressly limited to section 726(a)(5). See id. at 101 (“We hold that 

‘interest at the legal rate’ under § 726(a)(5) is measured by the federal judgment rate” (emphasis 

added)).8

 That is not surprising as all three cases (Beguelin, Cardelucci, and WLOP) dealt with 

impaired claims and thus the only way that the creditors in those cases could be entitled to 

postpetition interest – other than by forcing a cramdown under section 1129(b), which the creditor 

neglected to argue in Cardelucci9 – was through the application of section 1129(a)(7) and its 

“importation” of the “legal rate” prescribed by section 726(a)(5).

7. The Debtors assert that section 726(a)(5) prescribes the interest rate in all 

circumstances, simply ignoring the clear statutory scheme and attempting to de-couple sections 

1129(a)(7) and 726(a)(5) by alleging that neither Cardelucci nor WLOP “made any mention of the 

best interest test” (Debtors’ Br. at 13:13) – supposedly applying section 726(a)(5) in a chapter 11 

case directly. That, however, is not the case. As discussed above, the Cardelucci court heavily 

relied on Beguelin, in fact, going as far as explicitly “adopt[ing]” its “reasoning.” 285 F.3d at 

1234. And Beguelin court did, in fact, expressly base its “reasoning” on the best interest of 

creditors test as set forth in section 1325(a)(4) of the Bankruptcy Code, noting that it is “virtually 

 

8

 Similarly, the language the Debtors cite to in Collier (Debtors’ Br. at 9:14-16) is expressly limited to 

section 726(a)(5). None of the other cases cited by the Debtors is to the contrary: In re Robinson, 567 

B.R. 644 (Bankr. N.D. Ga. 2017), is a chapter 7 case, while In re Wallace, 2007 WL 321402 (Bankr. 

E.D. Wash. Jan. 29, 2007), was decided based on the “best interest of creditors” test. 

9

 See Cardelucci, Appellee’s Opening Brief, 2001 WL 34091272, at * 17 (“At the confirmation hearing, 

the [creditor] elected to rely solely on §726(a)(5) as made applicable by § 1129(a)(7)(ii) and, subject to 

a reservation of rights to appeal the bankruptcy court’s determination on that issue, voted to accept the 

plan. Accordingly, the only issue preserved for appeal is the meaning of ‘interest at the legal rate’ 

as used in §726(a)(5). That meaning should not be distorted simply because the [creditor] failed to 

consider the potential benefit of forcing a cramdown under § 1129(b).” (emphasis added)). 

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identical” to section 1129(a)(7). Beguelin, 220 B.R. at 99. Furthermore, the WLOP court 

expressly based its decision on section 1129(a)(7). See WLOP Letter-Decision at 3. These cases 

illustrate the statutory link between section 726(a)(5) and 1129(a)(7) – the best interests test of 

section 1129(a)(7) assures that dissenting creditors receive no less under a chapter 11 plan than 

what they would receive under chapter 7, including, in a solvent chapter 7 case, interest “at the 

legal rate.” However, neither the statute nor applicable case law invokes section 726(a)(5) in 

evaluating entitlement to postpetition interest under sections 1124 or 1129(b). Unlike section 

726(a)(5), sections 1124 and 1129(b) do not reference an applicable interest rate. Under such 

circumstances, Ninth Circuit law requires application of state law interest, either by contract or 

statute. See, e.g., Shoen v. Shoen (In re Shoen), 1997 WL 1403808 (B.A.P. 9th Cir. 1997), aff’d, 

175 F.3d 1150, 1165 (9th Cir. 1999). 

8. This limited reach of Cardelucci has been recognized by other courts. For 

instance, in In re Martin, 2003 WL 25273864, *5-6 (Bankr. D. Idaho Feb. 28, 2003), the court 

flatly rejected an attempt to extend Cardelucci to other confirmation requirements of section 1129, 

stating that, while “[s]ection 726(a)(5) addresses the allowance of interest to unsecured creditors 

in . . . solvent chapter 7 cases,” it cannot be used as “controlling” the interpretation of other 

Bankruptcy Code provisions, including section 1129(b). 

9. Indeed, Cardelucci’s mandate that, to satisfy section 726(a)(5), postpetition 

interest must be paid at the federal judgment rate does not negate the fact that a chapter 11 plan 

must satisfy all Bankruptcy Code requirements for confirmation, including section 1124 and, in a 

cramdown, section 1129(b). Thus, the Dow Corning court acknowledged that, although “[s]ection 

726(a)(5) is pertinent to chapter 11 . . . for purposes of determining compliance with 11 U.S.C. 

§ 1129(a)(7)(A)(ii)’s ‘best interest of creditors’ test, . . . it does not necessarily follow from this 

that the creditor loses whatever right it may have to contract-rate interest” because such right is 

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“independent” as evidenced by section 1129(b). 270 B.R. at 405-06 (emphasis added). To the 

contrary, “a proposed plan’s compliance with §§ 1129(a)(7)(A)(ii)/726(a)(5) does not vitiate a 

creditor’s right to interest at the contract rate. Such a right is preserved until such time as the plan 

is confirmed pursuant to § 1129(b).” Id. at 406 (internal citations omitted).10 Therefore, creditors 

have an independent entitlement to having all plans comply with all applicable confirmation 

requirements – such an entitlement in no way undermines Cardelucci’s holding. 

10. The Debtors’ blanket assertion that Cardelucci’s holding “is not in any way 

limited to impaired claims, contingent on application of the best interests, or qualified in any other 

respect” (Debtors’ Br. at 13:18-19) is fundamentally incorrect and nothing short of astonishing. 

Clearly, every holding is necessarily limited by the exact legal issues before the court. Had it been 

otherwise, the important distinction between a “holding” and “dicta” would disappear. That would 

be unacceptable under clear Ninth Circuit precedent. See, e.g., Biggs v. Sec’y of the Cal. Dep’t of 

Corrections & Rehabilitations, 717 F.3d 678, 692 (9th Cir. 2013) (explaining that where issues in 

a prior case were different from those confronting the court, any language that may appear to apply 

to the case before the court was mere dicta and thus not binding). 

11. The Debtors are asking the Court to make wholly unwarranted inferences 

about the meaning of Cardelucci in relation to sections 1124 and 1129(b) of the Bankruptcy Code 

based on the fact that the Cardelucci court never mentioned either of them. This conclusion is 

starkly illogical, since such omissions denote solely the lack of applicability of those provisions to 

the precise legal question before the Ninth Circuit. The only issue before the Ninth Circuit in 

 

10 See also In re Energy Future Holdings, Inc., 540 B.R. 109, 113-114, 123 (Bankr. D. Del. 2013) 

(acknowledging that “neither section 726(a)(5) nor 1129(a)(7) apply to unimpaired creditors” and 

stating that neither section “either singularly or in tandem serve to create a universal limitation on the 

payment of post-petition interest on unsecured debt” and that section 726(a)(5) “does not create a 

general rule establishing the appropriate rate of post-petition interest”).

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Cardelucci was the rate of interest to be paid under section 726(a)(5).

11 Cardelucci did not 

mention section 1124 or 1129(b) because neither was at issue in that case. 

12. The Debtors also mistakenly rely on Cardelucci to assert that “[i]n 

bankruptcy, an allowed claim becomes a federal judgment and therefore entitles the holder of the 

judgment to an award of interest pursuant to federal statute.” Debtors’ Opening Brief at 6. 

Treating an allowed claim in bankruptcy as “akin to” a federal judgment conflicts with principles 

of federal preemption. In the Ninth Circuit, absent federal preemption, state law governs the 

accrual of interest on a claim. See, e.g., Hamilton v. Elite of L.A., Inc. (In re Hamilton), 584 B.R. 

310, 323 (B.A.P. 9th Cir. 2018); Shoen, 1997 WL 1403808 (“The Ninth Circuit applies applicable 

state law interest rates absent federal preemption . . . . Bankruptcy is no different.”).12 As 

discussed above, section 726(a)(5) is only applicable in chapter 11 for the purposes of the “best 

interests of creditors” test with respect to impaired claims. As a result, section 726(a)(5) cannot 

possibly provide a ground for federal preemption in the context of unimpaired claims.13 

13. The Creditor Groups are not inviting this Court to write on a blank slate 

when determining the applicable postpetition interest rate under sections 1124 and 1129(b). The 

Ninth Circuit had many occasions to outline the rights of unimpaired creditors, as well as the rights 

of creditors generally, to postpetition interest in solvent-debtor chapter 11 cases outside the context 

 

11 “Appellants Willem and Marsha Onink appeal the district court’s application of the federal interest rate 

as defined by 28 U.S.C. § 1961(a) to an award of post-petition interest pursuant to 11 U.S.C. 

§ 726(a)(5).” 285 F.3d at 1233.

12 The AHC, and BOKF, NA, in its capacity as Indenture Trustee for the Utility Senior Notes, take no 

position with respect to the appropriate rate of interest where a claim is based on a contract that does 

not expressly provide for a particular rate, or is not based on a contract at all, and reserve all rights on 

that issue. 

13 Notably, even after Cardelucci, the Ninth Circuit affirmed confirmation of a plan that awarded 

postpetition interest on allowed unsecured claims at rates greater than the federal judgment rate. See 

Platinum Capital, Inc. v Sylmar Plaza, L.P. (In re Sylmar Plaza, L.P.), 314 F.3d 1070, 1073 (9th Cir. 

2002). By so doing, the Ninth Circuit, at least implicitly, rejected the mistaken notion that an allowed 

claim in a bankruptcy case is akin to a federal judgment (and, therefore, must receive postpetition 

interest at the federal judgment rate). 

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of the best interests test – without ever holding that the federal judgment rate should apply. See, 

e.g., Epicenter Partners, L.L.C. v. CPF Vaseo Ass’n (In re Epicenter Partners, L.L.C.), 2018 WL 

1354330, at *7 (B.A.P. 9th Cir. Mar. 15, 2018) (allowing negotiated rate of postpetition interest); 

Pacifica L 51 LLC v. New Invs., Inc. (In re New Invs., Inc.), 840 F.3d 1137, 1142 (9th Cir. 2016) 

(stating that “[f]or a debtor to render . . . a creditor ‘unimpaired’ and unable to object to the debtor’s 

plan, the debtor must cure the default but may not ‘otherwise alter the . . . contractual rights’ of 

the creditor,” including the contractual right to “post-default interest” (internal citations omitted)); 

Gen. Elec. Capital Corp. v. Future Media Prods., 547 F.3d 956 (9th Cir. 2008) (holding that nothing 

prohibited a creditor from collecting interest at default rate specified in contract); Platinum Capital 

v. Sylmar Plaza, 314 F.3d at 1073 (affirming confirmation of a chapter 11 plan that paid 

unimpaired lender postpetition interest at contract rate); L& J Anaheim Assocs. v. Kawasaki 

Leasing Int’l, Inc. (In re L & J Anaheim Assocs.), 995 F.2d 940, 942 (9th Cir. 1993) (finding that 

Congress defined impairment “in the broadest possible terms” and “any alternation of rights 

constitutes impairment”). Viewed together, and as explained more extensively in the Creditors’ 

Opening Brief, the implications of these decisions are crystal clear. First, the federal judgment 

rate does not apply universally to awards of postpetition interest. Second, unimpairment should 

be strictly construed to require interest to be paid to unsecured creditors at rates established by 

state law whether by contract or statute. 

CONCLUSION 

WHEREFORE, based on the foregoing, the Creditor Groups respectfully request that the 

Court enter an Order requiring that, to the extent the Debtors are determined to be solvent, 

postpetition interest on unsecured claims under any plan of reorganization that will be confirmed 

in these cases must be determined by the holders’ state law rights. 

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02012.00000

DATED: November 22, 2019 

MILBANK LLP 

 /s/ Thomas R. Kreller 

DENNIS F. DUNNE 

SAMUEL A. KHALIL 

GREGORY A. BRAY 

THOMAS R. KRELLER 

Counsel for the Official Committee of 

Unsecured Creditors 

STROOCK & STROOCK & LAVAN LLP 

/s/ Mark A. Speiser 

MARK A. SPEISER 

Counsel for Mizuho Bank, Ltd., in its capacity 

as HoldCo Term Loan Administrative Agent 

ARENT FOX LLP 

/s/ Aram Ordubegian 

ARAM ORDUBEGIAN 

ANDREW I. SILFEN 

BETH M. BROWNSTEIN 

Counsel for BOKF, NA, in its capacity as 

Indenture Trustee for the Utility Senior Notes 

AKIN GUMP STRAUSS HAUER & 

FELD LLP 

/s/ Ashley Vinson Crawford 

ASHLEY VINSON CRAWFORD 

MICHAEL S. STAMER 

IRA S. DIZENGOFF 

DAVID H. BOTTER 

ABID QURESHI 

Counsel for the Ad Hoc Committee of Senior 

Unsecured Noteholders of Pacific Gas and 

Electric Company 

GIBSON, DUNN & CRUTCHER LLP 

/s/ David M. Feldman 

DAVID M. FELDMAN 

MATTHEW D. MCGILL 

MATTHEW K. KELSEY 

Attorneys for the Ad Hoc Committee of 

Holders of Trade Claims

DAVIS POLK & WARDWELL LLP 

/s/ Timothy Graulich 

TIMOTHY GRAULICH 

DAVID SCHIFF 

DANIEL E. MEYER 

ANDREW D. YAPHE 

Counsel for Citibank N.A., as 

Administrative Agent for the 

Utility Revolving Credit Facility

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Exhibit A

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UNITED STATES BANKRUPTCY COURT

DISTRICT OF OREGON

ELIZABETH L. PERRIS 1001 S.W. FIFTH AVENUE, # 700 DIANE K. BRIDGE, LAW CLERK

 BANKRUPTCY JUDGE PORTLAND, OREGON 97204 BETHANY COLEMAN-FIRE, LAW CLERK

(503) 326-1536

August 31, 2012

VIA ECF

Albert N. Kennedy

Tonkon Torp LLP

1600 Pioneer Tower

888 SW Fifth Ave.

Portland, OR 97204

Heather A. Brann

Gary U. Scharff

521 SW Morrison St. Ste. 1300

Portland, OR 97205

Re: Williams, Love, O’Leary, & Powers, P.C.,

Case No. 11-37021-elp11

Objection to Confirmation

Dear Counsel:

At the close of the August 10, 2012, hearing on confirmation

of debtor’s proposed chapter 11 plan, I indicated that I would

rule in writing. The objecting creditor, Heather Brann, advised

the court that she had two objections remaining after certain

amendments to the plan and confirmation order language were

worked out before and during the hearing. The purpose of this

letter is to give you my ruling on those two remaining issues:

(1) debtor’s failure to provide for alternative treatment for

Brann’s claims for Tier 2 and Tier 3 fees in the event she

prevails on appeal or in the pending adversary proceeding, and

(2) debtor’s use of the federal judgment interest rate rather

than the contract rate for Brann’s contract claims. For the

reasons explained below, Brann’s objections are overruled and

debtor’s plan will be confirmed as modified per the discussion at

the confirmation hearing.

The court shall confirm a chapter 11 plan if the

requirements of § 1129(a) are met. Although Brann raised various

objections to confirmation based on a number of different

provisions in § 1129(a), by the end of the confirmation hearing

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Albert N. Kennedy

Heather A. Brann

Gary U. Scharff

August 31, 2012

Page 2

her objections were reduced to the two mentioned above. I will

discuss each in turn.

1. Debtor’s failure to provide for alternative treatment of

Brann’s claims for Tier 2 and Tier 3 fees in the event of her

success on appeal or in the pending adversary proceeding

Brann asserts that her claims for payment for work she did

on Pain Pump cases are secured by an attorney’s lien. Following

a hearing, I held that Brann does not have an attorney’s lien for

those fees. Thus, her claims for fees on Pain Pump cases are

unsecured.

Brann has appealed the judgment resulting from the

attorney’s lien ruling, and has asserted claims in Adversary

Proceeding No. 11-3279 that, if successful, will in Brann’s view

require reclassification of her unsecured claims as secured.

Debtor’s plan treats Brann’s claims for fees as general

unsecured claims. The plan does not provide for any alternative

treatment of the claims in the event Brann is successful on

appeal or in the adversary proceeding.

Brann argues that debtor’s failure to provide for

alternative treatment (or to allow for modification of the plan)

is fatal to confirmation of the plan. She asserts that debtor’s

failure to preserve her right to alternative treatment

demonstrates that debtor’s plan has not been proposed in good

faith as required by § 1129(a)(3).

Brann does not point to any provision of the Bankruptcy Code

that requires debtor to preserve rights she is pursuing on appeal

or through litigation to obtain secured status, and I am not

aware of any such requirement. This court has ruled that Brann

does not have an attorney’s lien on the proceeds of settlements

from Pain Pump cases. Debtor’s treatment of Brann’s claims

asserting her right to payment for the Pain Pump cases as

unsecured is consistent with that ruling.

The fact that a final judgment adjudicating particular

issues is on appeal, or that a creditor has asserted alternative

theories for transforming an unsecured claim into a secured

claim, does not mean that a debtor must provide for alternative

treatment of the claim in the event of the creditor’s success. 

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Heather A. Brann

Gary U. Scharff

August 31, 2012

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There is no provision of the Bankruptcy Code, in particular in

§ 1129(a), that includes such a requirement.

Further, the fact that the debtor’s plan treats claims as

unsecured that this court has determined to be unsecured is not

demonstrative of lack of good faith.

I overrule Brann’s objection to the plan that is based on

debtor’s failure to provide for alternative treatment of Brann’s

fee claims in the event of success on appeal or in the adversary

proceeding.1 That treatment does not violate the Code or

demonstrate lack of good faith.

2. Interest rate on unsecured claims

Second, Brann argues that the plan violates

§ 1129(a)(7)(A)(ii), the best interest of creditors test,2 by

providing that postpetition interest will be paid on her contract

claims at the federal judgment interest rate rather than at the

rate provided in her contract with debtor, which is the state

judgment interest rate of 9 percent.

In chapter 11, a non-accepting holder of an impaired claim

is entitled to receive a value not less than what the creditor

would receive in a chapter 7 liquidation. § 1129(a)(7)(A)(ii). 

In a chapter 7 liquidation, the general rule is that unsecured

creditors are not entitled to postpetition interest on their

1 Sterling Savings Bank voted in favor of debtor’s

proposed plan. Any requirement that debtor must provide Brann

with alternative treatment in case she prevails on appeal or in

the adversary proceeding would directly impact Sterling Savings

Bank. Although this impact does not provide a basis for

overruling Brann’s objection, it demonstrates the complexity

debtor would face if it were required to accommodate Brann’s

“what if” objection. Providing for such a contingency might

cause Sterling Savings Bank to change its vote in favor of the

plan, thereby raising a new set of legal and factual issues for

debtor.

2 Brann may also be arguing that use of the federal

judgment interest rate shows a lack of good faith. Because

debtor is correct about the interest rate, its use in the plan

cannot demonstrate lack of good faith.

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Gary U. Scharff

August 31, 2012

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claims. See § 502(b)(2) (disallow claim to extent it is for

unmatured interest). An exception to that rule applies when the

debtor is solvent. § 726(a)(5). In that case, an unsecured

creditor is entitled to postpetition interest “at the legal

rate[.]” Id. “At the legal rate” means the federal judgment

interest rate, not the contract or state judgment interest rate. 

In re Cardelucci, 285 F.3d 1231 (9th Cir. 2002).

Brann argues that Cardelucci does not apply to her contract

claims because that case involved a prepetition tort judgment,

not a contract claim. Because Brann’s contract calls for

interest at the state judgment interest rate, which is 9 percent,

she argues that she is entitled to postpetition interest at 9

percent.

Cardelucci did involve a prepetition tort judgment. The

judgment debtor filed chapter 11, and sought to pay postpetition

interest at the federal judgment interest rate rather than the

state judgment interest rate. However, the court considered the

more general question of what interest rate applies to the claim

of an unsecured creditor when the debtor is solvent:

Where a debtor in bankruptcy is solvent, an unsecured

creditor is entitled to “payment of interest at the legal

rate from the date of the filing of the petition” prior to

any distribution of remaining assets to the debtor. 11

U.S.C. § 726(a)(5). The question presented by this appeal

is whether “interest at the legal rate” means a rate fixed

by federal statute or a rate determined either by the

parties’ contract or state law.

285 F.3d at 1234.

After considering the statutory language, the court

concluded that “the legal rate” as used in § 726(a)(5) means the

federal judgment interest rate. The court also noted that using

this rate “promotes uniformity within federal law,” explaining

that “[a]s of the date of the filing of the petition, creditors

hold a claim, similar to a federal judgment, against the estate,

the payment of which is only dependent upon completion of the

bankruptcy process.” Id. at 1235. “In bankruptcy, an allowed

claim becomes a federal judgment and therefore entitles the

holder of the judgment to an award of interest pursuant to

federal statute.” Id. Section 726(a)(5) applies to unsecured

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Gary U. Scharff

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claims in general, whether those claims arise out of contract or

tort.

Brann further argues that Cardelucci is inconsistent with

United Savings Assoc. of Texas v. Timbers of Inwood Forest

Assocs., Ltd., 484 U.S. 365 (1988), which said that, when a

debtor is solvent, “§ 726(a)(5) provides that postpetition

interest is allowed on unsecured claims.” 484 U.S. at 379. The

fact that the statute requires payment of postpetition interest

does not tell us what the rate of interest to be paid should be. 

That question is answered by the language of § 726(a)(5),

requiring payment at “the legal rate.” Nothing in Timbers of

Inwood interprets “the legal rate.” It simply did not address

the issue addressed in Cardelucci and that is the subject of

Brann’s objection here.

Brann also argues that Cardelucci has been overruled by

Travelers Cas. & Sur. Co. of Am. v. Pac. Gas & Elec. Co., 549

U.S. 443 (2007), and Gen’l Elec. Capital Corp. v. Future Media

Productions, Inc., 536 F.3d 969 (9th Cir. 2008). I disagree. 

The issues in those cases differ from the one here, which is the

meaning of “the legal rate” of interest as used in § 726(a)(5). 

The point of both of those cases, as relevant here, is that

creditors’ rights are determined under state law, unless some

provision of the Bankruptcy Code provides otherwise. With regard

to the postpetition interest rate on the claims of unsecured

creditors, the Bankruptcy Code provides otherwise. Unsecured

creditors are generally denied unmatured interest on their

claims, § 502(b)(2), unless the debtor is solvent, in which case

unsecured creditors are entitled to interest “at the legal rate.” 

§ 726(a)(5). Nothing in the cases Brann cites supports a

definition of “the legal rate” as other than the federal judgment

interest rate.

Therefore, I will overrule Brann’s interest rate objection

to debtor’s plan.

3. Other confirmation requirements

Brann’s other objections to debtor’s proposed plan were

resolved before or at the confirmation hearing. However, even in

the absence of an objection to confirmation, the court is

required to satisfy itself that the requirements of confirmation

have been met. In re Ambanc La Mesa Ltd. P’ship, 115 F.3d 650,

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Gary U. Scharff

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653 (9th Cir. 1997); In re Perez, 30 F.3d 1209, 1213 (9th Cir.

1994).

The court has considered the requirements for confirmation

set out in § 1129(a) and finds that all requirements have either

been met or do not apply.

Brann spent a good deal of her briefing and confirmation

hearing challenging debtor’s good faith in proposing the plan,

seeking to support her objection under § 1129(a)(3). I am not

convinced by either Brann’s argument or the testimony elicited in

the hearing that debtor’s plan was not proposed in good faith. 

Therefore, to the extent Brann’s good faith objection is based on

something other than the issues discussed in paragraphs 1 and 2

above, the objection is overruled.

4. Conclusion

Brann’s objections to confirmation are overruled. Debtor’s

Third Amended Plan, as modified by language discussed at the

confirmation hearing, will be confirmed. Mr. Kennedy should 

submit the confirmation order after presenting it to Brann and

her counsel for approval as to form.

Very truly yours,

ELIZABETH L. PERRIS

Bankruptcy Judge

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