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WEIL, GOTSHAL & MANGES LLP 

Stephen Karotkin (pro hac vice) 

(stephen.karotkin@weil.com) 

Ray C. Schrock, P.C. (pro hac vice) 

(ray.schrock@weil.com) 

Jessica Liou (pro hac vice) 

(jessica.liou@weil.com) 

Theodore E. Tsekerides (pro hac vice) 

(theodore.tsekerides@weil.com) 

767 Fifth Avenue 

New York, NY 10153-0119 

Tel: 212 310 8000 

Fax: 212 310 8007 

Attorneys for Debtors 

and Debtors in Possession 

KELLER & BENVENUTTI LLP 

Tobias S. Keller (#151445) 

(tkeller@kellerbenvenutti.com) 

Peter J. Benvenutti (#60566) 

(pbenvenutti@kellerbenvenutti.com) 

Jane Kim (#298192) 

(jkim@kellerbenvenutti.com) 

650 California Street, Suite 1900 

San Francisco, CA 94108 

Tel: 415 496 6723 

Fax: 650 636 9251 

UNITED STATES BANKRUPTCY COURT 

NORTHERN DISTRICT OF CALIFORNIA 

SAN FRANCISCO DIVISION 

In re: 

PG&E CORPORATION, 

 - and - 

PACIFIC GAS AND ELECTRIC 

COMPANY, 

Debtors. 

Case Nos. 19-30088 (DM) (Lead Case) 

(Jointly Administered) 

DEBTORS’ BRIEF IN OPPOSITION TO 

CONSOLIDATED OPENING BRIEF OF 

UNSECURED CREDITORS AND OTHER 

CREDITOR GROUPS AND 

REPRESENTATIVES REGARDING THE 

APPROPRIATE POSTPETITION INTEREST 

RATE PAYABLE ON UNSECURED CLAIMS 

IN A SOLVENT DEBTOR CASE; JOINDER OF 

PG&E SHAREHOLDERS 

Date: December 11, 2019 

Time: 10:00 a.m. Pacific Time 

Place: United States Bankruptcy Court 

 Courtroom 17, 16th Floor 

 San Francisco, CA 94102 

Opposition Deadline: November 22, 2019

Case: 19-30088 Doc# 4849 Filed: 11/22/19 Entered: 11/22/19 14:25:21 Page 1 of

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TABLE OF CONTENTS 

I. INTRODUCTION ...............................................................................................................1

II. UNDER CARDELUCCI, POSTPETITION INTEREST ON UNSECURED CLAIMS 

AGAINST A SOLVENT CHAPTER 11 DEBTOR IS PAYABLE AT THE 

FEDERAL JUDGMENT RATE..........................................................................................3

III. THE UNSECURED CREDITORS’ EFFORTS TO AVOID THE FEDERAL 

JUDGMENT RATE FAIL ...................................................................................................5

A. Section 1124 Of The Bankruptcy Code Does Not Provide For Postpetition 

Interest At A Rate Other Than The Federal Judgment Rate ....................................6

B. Section 1129 Of The Bankruptcy Code Does Not Provide For Postpetition 

Interest At A Rate Other Than The Federal Judgment Rate ....................................9

IV. THERE IS NO PRESUMPTION THAT UNSECURED CREDITORS ARE 

ENTITLED TO CONTRACTUAL OR STATE LAW RATES OF POSTPETITION 

INTEREST .........................................................................................................................10

V. THE UNSECURED CREDITORS’ REMAINING ARGUMENTS ARE WITHOUT 

MERIT ...............................................................................................................................12

A. Equitable Considerations Do Not Support Postpetition Interest At Contract Or 

State Law Rates......................................................................................................12

B. The Legislative History Of The 1994 Amendment To Section 1124 Of The 

Bankruptcy Code Does Not Support Postpetition Interest At A Rate Other 

Than The Federal Judgment Rate ..........................................................................13

VI. CONCLUSION ..................................................................................................................16

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TABLE OF AUTHORITIES 

Cases Page(s) 

Acequia, Inc. v. Clinton (In re Acequia, Inc.), 

787 F.2d 1352 (9th Cir. 1986) ..................................................................................................8, 10, 

In re Art & Architecture Books of the 21st Century, 

No. 13-BK-14135-RK, 2016 WL 1118743 (Bankr. C.D. Cal. Mar. 18, 2016) ...............................8 

In re Cardelucci, 

285 F.3d 1231 (9th Cir. 2002) ............................................................................................... passim

City of New York v. Saper, 

336 U.S. 328 (1949) .......................................................................................................................11 

Commercial Paper Holders v. Hine (In re Beverly Hills Bancorp), 

752 F.2d 1334 (9th Cir. 1984) .......................................................................................................11 

Consolidated Rock Products Co. v. Du Bois, 

312 U.S. 510 (1941) ...................................................................................................................9, 11 

Debentureholders Protective Committee of Continental Inv. Corp. v. Continental Inv. Corp., 

679 F.2d 264 (1st Cir. 1982) ......................................................................................................5, 11 

In re Dow Corning Corp., 

456 F.3d 668 (6th Cir. 2006) .........................................................................................................11 

In re Energy Future Holdings, 

540 B.R. 109 (Bankr. D. Del. 2015) ....................................................................................5, 13, 14 

In re Epicenter Partners, L.L.C., 

No. 16-BK-05493, 2018 WL 1354330 (B.A.P. 9th Cir. Mar. 15, 2018) .......................................11 

In re Exxon Valdez, 

484 F.3d 1098 (9th Cir. 2007) .........................................................................................................9 

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

547 F.3d 956 (9th Cir. 2008) .........................................................................................................10 

Gencarelli v. UPS Capital Business Credit, 

501 F.3d 1 (1st Cir. 2007) ................................................................................................................1 

In re Greate Bay Hotel & Casino, Inc., 

251 B.R. 213 (Bankr. D.N.J. 2000) ...............................................................................................14 

In re Hamilton, 

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

In re Introgen Therapeutics, Inc., 

429 B.R. 570 (Bankr. W.D. Texas 2011).......................................................................................14 

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In re L & J Anaheim Assocs., 

995 F.2d 940 (9th Cir. 1993) .......................................................................................................7, 8 

Law v. Siegel, 

571 U.S. 415 (2014) .......................................................................................................................13 

Matter of Laymon, 

958 F.2d 72 (5th Cir. 1992) ...........................................................................................................11 

In re Manchester Gas Storage, Inc., 

309 B.R. 354 (Bankr. N.D. Okla. 2004) ..................................................................................12, 13 

In re New Valley Corp., 

168 B.R. 73 (Bankr. D.N.J. 1994) .................................................................................................15 

In re PPI Enters.(US), Inc., 

324 F.3d 197 (3d Cir. 2003)................................................................................................... passim

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

840 F.3d 1137 (9th Cir. 2016) .........................................................................................................6 

In re Rexford Properties LLC, 

558 B.R. 352 (Bankr. C.D. Cal. 2016) .............................................................................................8 

In re Robinson, 

567 B.R. 644 (Bankr. N.D. Ga. 2017) .............................................................................................8 

Ruskin v. Griffiths, 

269 F.2d 827 (2d Cir. 1959)...........................................................................................................11 

In re Shoen, 

No. 97-17369, 1997 WL 1403808 (B.A.P. 9th Cir. 1997), aff’d 176 F.3d 1150 

(9th Cir. 1999) ..................................................................................................................................9 

In re Sylmar Plaza, L.P., 

314 F.3d 1070 (9th Cir. 2002) .....................................................................................................4, 5 

Matter of Terry Ltd. P’ship, 

27 F.3d 241 (7th Cir. 1994) ...........................................................................................................11 

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

549 U.S. 443 (2007) .........................................................................................................................2 

U.S. Ass’n of Tex. v. Timbers of Inwood Forest Assocs., Ltd., 

484 U.S. 365 (1988) .......................................................................................................................11 

In re Ultra Petroleum, 

913 F.3d 533 (5th Cir. 2019) .....................................................................................................8, 14 

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Statutes 

11 U.S.C. § 502 ............................................................................................................................ passim

11 U.S.C. § 506(b) ......................................................................................................................... 10-11 

11 U.S.C. § 726 ............................................................................................................................ passim

11 U.S.C. § 1123(d) .........................................................................................................................7, 10 

11 U.S.C. § 1124 .......................................................................................................................... passim

11 U.S.C. § 1129(b) ..................................................................................................................... passim

Other Authorities 

H.R. Rep. No. 103-835 (1994) .............................................................................................................15 

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I. INTRODUCTION1

The Ninth Circuit in In re Cardelucci squarely addressed the question before the Court: what 

rate of postpetition interest is payable to an unsecured creditor in a solvent-debtor chapter 11 case? 

The unequivocal and unqualified answer, which is binding here, was: “[w]here 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.” 285 F.3d 1231, 1234 

(9th Cir. 2002). The Ninth Circuit further held—and the Official Committee of Unsecured Creditors 

and other creditor groups and representatives (the “Unsecured Creditors”)2 all agree—that the “legal 

rate” means the Federal Judgment Rate. Id. at 1233; Creditors’ Br. ¶ 30, ECF No. 4634. 

Under Cardelucci, the Federal Judgment Rate is payable on an allowed unsecured claim 

against a solvent chapter 11 debtor regardless of whether the claim is impaired or unimpaired. 

Cardelucci states its holding in the broadest possible terms, making no distinction between unimpaired 

and impaired claims. In arguing to the contrary, the Unsecured Creditors seek to limit Cardelucci’s 

reach by hypothesizing limitations and rationales found nowhere in the decision itself. Those efforts 

fail, as they must, given Cardelucci’s direct and unambiguous holding, and the Unsecured Creditors 

offer no plausible grounds for this Court to take the extraordinary step of rejecting that binding and 

controlling precedent. 

Further, the Unsecured Creditors’ futile effort to evade Cardelucci and the Federal Judgment 

Rate is founded on an unsupportable premise. They argue that their claims will be impaired unless 

they are paid every dollar they might have received outside of bankruptcy. But it is black letter law 

that “[c]reditors’ entitlements in bankruptcy arise in the first instance from the underlying substantive 

1

 The PG&E Shareholders join this brief. The PG&E Shareholders are the entities identified on 

Exhibit A to the Fourth Amended Verified Statement Of Jones Day Pursuant To Federal Rule Of 

Bankruptcy Procedure 2019, ECF 4366. The PG&E Shareholders are acting in their individual 

capacities but authorized the filing of this single submission for the purpose of administrative 

efficiency. Each of the PG&E Shareholders is expressing its independent views, and counsel does 

not have the actual or apparent authority to obligate any one entity to act in concert with any other 

entity with respect to PG&E equity securities. The PG&E Shareholders have not agreed to act in 

concert with respect to their respective interests in PG&E equity securities. 

2

 All capitalized terms not otherwise defined in this brief shall have the meaning set forth in 

Debtors’ Brief Regarding Applicable Rate of Postpetition Interest on Allowed Unsecured Claims 

and Joinder of PG&E Shareholders, ECF No. 4624. 

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law creating the debtor’s obligation, subject to any qualifying or contrary provisions of the Bankruptcy 

Code.” Travelers Cas. & Sur. Co. of Am. v. Pac. Gas & Elec. Co., 549 U.S. 443, 444 (2007) (quoting 

Raleigh v. Illinois Dept. of Revenue, 530 U.S. 15, 20 (2000) (emphasis added); see also In re PPI 

Enters.(US), Inc., 324 F.3d 197, 204 (3d Cir. 2003). Thus, “a creditor’s claim outside of bankruptcy 

is not the relevant barometer for impairment; we must examine whether the plan itself is a source of 

limitation on a creditor’s legal, equitable, or contractual rights.” PPI, 324 F.3d at 204. 

In asserting that they are impaired because the Debtors’ Plan does not pay postpetition interest 

at contractual or state law rates, the Unsecured Creditors put the cart before the horse. They assume 

an entitlement to those rates and then claim impairment because the Plan does not provide satisfaction 

of what they say they are owed. But there is no right to contractual or state law rates of postpetition 

interest in solvent-debtor chapter 11 cases in the Ninth Circuit. The Debtors’ Plan recognizes all of 

the rights the Unsecured Creditors do have by providing for payment in full—of all principal plus all 

postpetition interest at the Federal Judgment Rate, as required by Cardelucci. 

There is no impairment where, as here, it is the Bankruptcy Code—and not the Debtors’ Plan—

that modifies alleged non-bankruptcy entitlements. The Unsecured Creditors’ claims for postpetition 

interest are disallowed under section 502(b)(2) of the Bankruptcy Code. As a consequence, they have 

no right under the Bankruptcy Code to include such interest as part of their allowed claims. If, like 

most debtors in chapter 11 cases, the Debtors were insolvent, that would be the end of the story. Here, 

however, because of the presumed solvency of the Debtors and pursuant to Cardelucci, the Unsecured 

Creditors have the right to postpetition interest on their allowed claims solely at the Federal Judgment 

Rate, and nothing more. 

Finally, Cardelucci also forecloses the assertion that the Unsecured Creditors somehow are 

entitled to a higher rate of postpetition interest on account of nebulous equitable considerations. 

Cardelucci unequivocally held that equitable considerations require an across-the-board application 

of the Federal Judgment Rate for postpetition interest on allowed unsecured claims in solvent-debtor 

chapter 11 cases. The Ninth Circuit left no room for a case-by-case exercise of discretion like that 

now urged by the Unsecured Creditors. 

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II. UNDER CARDELUCCI, POSTPETITION INTEREST ON UNSECURED CLAIMS 

AGAINST A SOLVENT CHAPTER 11 DEBTOR IS PAYABLE AT THE FEDERAL 

JUDGMENT RATE 

The Ninth Circuit’s holding in Cardelucci is unequivocal and dispositive here. In a solventdebtor case, an unsecured creditor is entitled to “payment of interest at the legal rate from the date of 

the filing of the petition.” Cardelucci, 285 F.3d at 1234 (quoting 11 U.S.C. § 726(a)(5)). The “legal 

rate” means interest at the Federal Judgment Rate. Id. at 1233. 

The Unsecured Creditors ask the Court to disregard this binding precedent. Surprisingly, given 

the drastic nature of that request, and despite the fact that Cardelucci has been front and center in 

discussions with the Court related to postpetition interest, the Unsecured Creditors relegate Cardelucci

to an after-thought and then give it short shrift. See Creditors’ Br. ¶¶ 30-32. Ultimately, the Unsecured 

Creditors contend that the Court should disregard Cardelucci because, they assert, (1) the case is 

limited to the meaning of the “legal rate” in section 726(a)(5); and (2) section 726(a)(5) only applies 

to impaired claims and not to unimpaired claims like those at issue in this case. Creditors’ Br. ¶ 30. 

Cardelucci cannot be read so narrowly. Without question, the Ninth Circuit looked to 

section 726 in determining that postpetition interest at “the legal rate” was required in a solvent debtor 

chapter 11 case. But its broad holding that, “[w]here 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’” is not in any way limited to cases in which 

section 726 directly applies. Cardelucci, 285 F.3d at 1234 (quoting 11 U.S.C. § 726(a)(5)). Rather, 

Cardelucci articulated a general, unqualified rule that postpetition interest is payable to every

unsecured creditor of a solvent chapter 11 debtor at the uniform Federal Judgment Rate. In so holding, 

the Ninth Circuit drew from the only Bankruptcy Code provision that discusses the rate of postpetition 

interest payable on unsecured claims—section 726(a)(5)—and issued a ruling to be followed 

consistently in all cases where there is a solvent debtor. 

Contrary to the Unsecured Creditors’ assertions, Creditors’ Br. ¶ 29, Cardelucci is not limited 

to impaired claims. Cardelucci says no such thing. Indeed, the holding in Cardelucci draws no 

distinction whatsoever between impaired and unimpaired claims. Nor did the Ninth Circuit indicate 

anywhere that its decision would be applicable only to impaired claims. The supposed distinction 

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between impaired and unimpaired claims simply did not factor into the Court’s analysis regarding the 

appropriate rate of interest to be paid on an unsecured claim in a solvent-debtor chapter 11 case. 

Like the Debtors’ Plan here, the plan in Cardelucci “provided for payment in full” of the 

unsecured claim at issue. Cardelucci, 285 F.3d at 1233. The Ninth Circuit never suggested any 

exceptions or limitations, equitable or otherwise, to its clear rule that the Federal Judgment Rate is the 

rate of postpetition interest that must be paid on such a claim. Rather, the Ninth Circuit adopted a 

simple, broadly-applicable rule to promote uniformity, efficiency, and fairness in bankruptcy cases. 

Cardelucci, 285 F.3d at 1236 (“[A]pplication of the federal judgment rate is the most judicially 

efficient and practical manner of allocating remaining assets.”).3

The Unsecured Creditors’ reliance on In re Sylmar Plaza, L.P., 314 F.3d 1070, 1073 (9th Cir. 

2002), is misplaced. See Creditors’ Br. ¶ 31. There, for reasons unstated, the debtors proposed a plan 

that paid postpetition interest on unsecured claims at two different rates. Sylmar Plaza, 314 F.3d at 

1075. With respect to one claim, the debtors invoked section 1124(2) of the Bankruptcy Code to 

unimpair the debt by curing defaults and reinstating it, thereby entitling the creditor to a contract rate 

of interest that was lower than the rate the debtor proposed to pay to other unsecured creditors. Not a 

single word of Sylmar Plaza addresses the appropriate postpetition interest rate payable on an 

unsecured claim in a solvent debtor case. That issue was not before the Court. Rather, the issue before 

the Ninth Circuit was whether the debtors lacked good faith in proposing a plan “solely to permit the 

debtors to take advantage of the Bankruptcy Code to profit personally at the expense of a creditor.” 

Id. at 1074. The Ninth Circuit affirmed the Bankruptcy Court’s determination that the debtors had 

proposed the plan in good faith, id., and rejected the creditor’s argument that it was subject to unfair 

treatment because other creditors received interest at a higher rate under the plan, id. at 1075. Notably, 

3

 The Court should reject the Unsecured Creditors’ invitation to distort Cardelucci’s holding by 

looking beyond the four corners of the published opinion in an effort to divine the Ninth Circuit’s 

supposed intent. Creditors’ Br. 12 n.9. This Court is bound by what the Ninth Circuit actually said, 

not by what the parties wrote in their briefs. In any event, the fact that the appellee in Cardelucci

described the case as being limited to an application of the best interests test under 

section 1129(a)(7)(ii) undermines the Unsecured Creditors’ position, as it demonstrates that the 

Ninth Circuit was aware of the argument now advanced by the Unsecured Creditors but 

nevertheless chose to set forth the broad, categorical rule that the Federal Judgment Rate applies 

across the board in solvent-debtor chapter 11 cases. 

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even though Sylmar Plaza was issued eight months after Cardelucci, it did not even mention 

Cardelucci. That is because the solvent-debtor issues addressed in Cardelucci and relevant here were 

not at issue in Sylmar Plaza. Nothing in Sylmar Plaza even remotely suggests that an unsecured 

creditor is entitled to postpetition interest at any rate other than the Federal Judgment Rate in a solvent 

debtor case. 

Finally, to the extent courts in other circuits may have reached differing views on payment of 

postpetition interest to creditors of a solvent debtor, those decisions are not binding here and do not 

warrant this Court ignoring the binding precedent of the Ninth Circuit. Indeed, the Unsecured 

Creditors’ marquee case—In re Energy Future Holdings (“EFH”), 540 B.R. 109, 124 (Bankr. D. Del. 

2015), in which the Bankruptcy Court for the District of Delaware relied on “equitable principles” in 

holding that the rate of interest payable to an unsecured creditor “may be the contract rate or such 

other rate as the Court deems appropriate”—did not even acknowledge the existence of Cardelucci, 

much less attempt to distinguish it, nor did it even hold that the contract rate applied. In any event, 

EFH and other similar cases simply are not the law in this Circuit.4 

III. THE UNSECURED CREDITORS’ EFFORTS TO AVOID THE FEDERAL 

JUDGMENT RATE FAIL 

Disregarding Cardelucci, the Unsecured Creditors argue that sections 1124 and 1129(b) of the 

Bankruptcy Code require payment of postpetition interest at contract rates or rates under state statutes. 

These contentions conflict with Cardelucci and are wrong. 

4 The Unsecured Creditors also rely on First Circuit authority interpreting the Bankruptcy Act to 

support their assertion that they entitled to postpetition interest at a contract or state law rate. See 

Creditors’ Br. ¶ 24 (citing Debentureholders Protective Committee of Continental Inv. Corp. v. 

Continental Inv. Corp., 679 F.2d 264, 270 (1st Cir. 1982). The relevance of Debentureholders to 

an analysis under the Bankruptcy Code is tenuous at best given that it is a pre-Bankruptcy Code 

case, and to the extent its holding is at odds with Cardelucci, it is simply not the law in this Circuit. 

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A. Section 1124 Of The Bankruptcy Code Does Not Provide For Postpetition 

Interest At A Rate Other Than The Federal Judgment Rate 

The Unsecured Creditors first cite section 1124 of the Bankruptcy Code as a basis for the claim 

that they are entitled to postpetition interest at either contract or statutory rates. Section 1124 provides 

in relevant part that: 

a class of claims or interests is impaired under a plan unless, with respect to 

each claim or interest of such class, the plan— 

(1) leaves unaltered the legal, equitable, and contractual rights to which such 

claim or interest entitles the holder of such claim or interest; or 

(2) . . . after the occurrence of a default— 

(A) cures any such default . . . 

(B) reinstates the maturity of such claim or interest 

(C) compensates the holder . . . for any [reliance] damages . . . 

(D) . . . compensates the holder . . . for any pecuniary loss [resulting 

from failure to perform a nonmonetary obligation] . . . and 

(E) does not otherwise alter the legal, equitable, or contractual rights 

to which such claim or interest entitles the holder of such claim or 

interest. 

11 U.S.C. § 1124 (emphasis added). 

The Unsecured Creditors initially ask that the Court look to case law interpreting 

section 1124(2) of the Bankruptcy Code, a provision that authorizes a debtor to cure and reinstate 

defaulted debt. Creditors’ Br. ¶ 18-20. There is no question that, to “unimpair” a claim under 

reinstatement circumstances, the debtor is obligated to pay postpetition interest at the contract rate. 

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

2016). This makes sense because “the debtor can return to pre-default conditions, which can include 

a lower, pre-default interest rate, only by fulfilling the obligations of the underlying loan agreement 

and applicable state law.” Id. But the issue here has nothing to do with reinstatement. The Debtors 

have not proposed to cure and reinstate the applicable claims of the Unsecured Creditors. Rather, the 

Debtors will pay those claims in their full amounts plus postpetition interest at the Federal Judgment 

Rate, as mandated by Cardelucci. 

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Undaunted, the Unsecured Creditors (citing no authority whatsoever) assert that, because 

language in section 1124(2)(E) of the Bankruptcy Code resembles language in section 1124(1), 

section 1124(1) similarly should be read to require interest at the contract rate. See Creditors’ Br. 

¶¶ 18-20. This is a non-sequitur. Curing a contractual default under section 1124(2) necessarily 

requires compliance with the terms of the contract to be reinstated.5 In contrast, honoring “the legal, 

equitable, and contractual rights” associated with an unsecured claim to be paid in full in accordance 

with section 1124(1) requires compliance with the bundle of rights the claim affords its holder, but 

nothing more. In the Ninth Circuit, this includes the right to statutory postpetition interest at the 

Federal Judgment Rate in cases involving a solvent chapter 11 debtor. But, because section 502(b)(2) 

disallows claims for postpetition interest, section 1124(1) does not afford the creditor any right to 

postpetition interest at the contract rate. The rights a creditor may have when a debtor reinstates and 

cures a default under section 1124(2) have no bearing on the proper rate of interest to be paid on an 

unsecured claim that is being paid in full and is not being reinstated. 

The Unsecured Creditors emphasize that the “Ninth Circuit reads section 1124 to mean that 

‘Congress define[d] impairment in the broadest possible terms’ and that ‘any alteration of the rights 

constitutes impairment even if the value of the rights is enhanced.’” Creditors’ Br. ¶ 21 (quoting In 

re L & J Anaheim Assocs., 995 F.2d 940, 943 (9th Cir. 1993)). But the Unsecured Creditors again fail 

to appreciate that this refers to any alteration of a creditor’s rights by a plan—as opposed to an 

alteration by the statute. See L & J Anaheim, 995 F.2d at 943 (“In any event, the plain language of 

section 1124 says that a creditor’s claim is ‘impaired’ unless its rights are left ‘unaltered’ by the 

Plan.”)(emphasis added). 

Claims are not impaired where the plan satisfies a creditor’s rights as defined by and 

circumscribed by the Bankruptcy Code. If a creditor receives exactly that to which the Bankruptcy 

5

 In fact, section 1123(d) of the Bankruptcy Code provides that, “if it is proposed in a plan to cure a 

default the amount necessary to cure the default shall be determined in accordance with the 

underlying agreement and applicable nonbankruptcy law.” 11 U.S.C § 1123(d). The Bankruptcy 

Code thus expressly provides that a creditor is entitled to its full contractual or state law rights in a 

case where the debt is cured and reinstated. As Cardelucci demonstrates, there is no such 

prescription for claims that are to be paid and not cured and reinstated. 

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Code entitles it, by definition there is no impairment. As a consequence, the Unsecured Creditors can 

only point to cases in which courts found that claims were impaired by a plan that modified creditor 

rights. See id. (plan modified creditor’s right to exercise “all rights and remedies” of a secured party 

under the California Uniform Commercial Code); Acequia, Inc. v. Clinton (In re Acequia, Inc.), 787 

F.2d 1352, 1363 (9th Cir. 1986) (plan modified shareholder’s right to vote for directors); In re Rexford 

Properties LLC, 558 B.R. 352, 368-69 (Bankr. C.D. Cal. 2016) (plan modified creditor’s right to cease 

doing business with the debtor). The opposite is true here. The Bankruptcy Code (and controlling 

Ninth Circuit precedent) provide and circumscribe the Unsecured Creditors’ rights to postpetition 

interest, and the Debtors’ Plan satisfies those rights in full. 

Although the Unsecured Creditors claim that “[t]he Ninth Circuit has interpreted impairment 

broadly, finding that any alteration of the rights (even when permissible under the Bankruptcy Code) 

constitutes impairment,” Creditors’ Br. ¶ 3 (emphasis in original), they cite no case for that 

proposition. That is not surprising, because the law is to the contrary. A chapter 11 plan does not 

“impair” a class of claims where the plan merely enforces a modification of rights arising from the 

Bankruptcy Code itself. See PPI, 324 F.3d at 204 (no impairment where amount of creditor’s claim 

capped pursuant to section 502(b)(6)); In re Art & Architecture Books of the 21st Century, No. 13-

BK-14135-RK, 2016 WL 1118743, at *9 (Bankr. C.D. Cal. Mar. 18, 2016) (“[I]n connection with 

Section 1124(1), courts have held that impairment does not result where a claimant’s rights are altered 

by statute (including the Bankruptcy Code) with such changes merely reflected in a plan of 

reorganization.”); In re Ultra Petroleum, 913 F.3d 533, 541 (5th Cir. 2019). Simply put, a plan cannot 

“impair” rights that do not exist under the Bankruptcy Code. Ultra Petroleum, 913 F.3d at 542 

(“Where a plan refuses to pay funds disallowed by the Code, the Code—not the plan—is doing the 

impairing.”). 

Relevant to this case, the Bankruptcy Code expressly disallows unsecured claims for 

unmatured (postpetition) interest on unsecured claims. See 11 U.S.C. § 502(b)(2); In re Robinson, 

567 B.R. 644, 649-50 (Bankr. N.D. Ga. 2017) (“Post-petition interest is not part of the allowed claim

pursuant to Section 502(b)(2), but the Code provides when and at what rate that post-petition interest 

can be paid on the allowed claim pursuant to Section 726(a)(5).”) (emphases added). What the 

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Unsecured Creditors theoretically might have received outside of bankruptcy, either under their 

contracts or state law, makes no difference because once the Debtors “filed for Chapter 11 protection, 

that hypothetical recovery became irrelevant.” See PPI, 324 F.3d at 205.6

Cardelucci provides that postpetition interest on an allowed claim (not as part of an allowed 

claim) is payable when a chapter 11 debtor is solvent, but only at the Federal Judgment Rate. That is 

the entirety of “the legal, equitable, and contractual rights to which” the Unsecured Creditors are 

entitled, and that is exactly what the Unsecured Creditors will receive under the Debtors’ Plan. The 

Debtors’ Plan therefore leaves those rights—as defined and modified by the Bankruptcy Code—

unaltered, and the Unsecured Creditors are not “impaired” under section 1124(1). 

B. Section 1129 Of The Bankruptcy Code Does Not Provide For Postpetition 

Interest At A Rate Other Than The Federal Judgment Rate 

The Unsecured Creditors also assert that they are entitled to postpetition interest at contract or 

state law rates under the “fair and equitable” test of section 1129(b) of the Bankruptcy Code. See

Creditors’ Br. ¶¶ 23-26.7 As an initial matter, section 1129(b) is irrelevant because, as just 

demonstrated, the claims of the Unsecured Creditors are not impaired under the Debtors’ Plan. 

Because their claims are not impaired, the Unsecured Creditors are deemed to accept the Debtors’ Plan 

and, therefore, cannot invoke section 1129(b), which only applies to impaired dissenting classes. 

Moreover, even if section 1129(b) were considered, binding Ninth Circuit authority forecloses 

the argument that section 1129(b) requires a different rate of postpetition interest than that applicable 

to claims not subject to the fair and equitable test. In Acequia, the Ninth Circuit concluded that the 

6

 Section 502(b)(2) thus amounts to the preemption of state law rights that the Unsecured Creditors 

acknowledge is legitimate and permissible. See Creditors’ Br. ¶ 33 n.10 (citing In re Shoen, 1997 

WL 1403808 (B.A.P. 9th Cir. 1997), aff’d 176 F.3d 1150, 1165 (9th Cir. 1999) (state law interest 

rates can be preempted by federal law); In re Hamilton, 584 B.R. 310, 323 (B.A.P. 9th Cir. 2018) 

(same); In re Exxon Valdez, 484 F.3d 1098, 1101 (9th Cir. 2007) (“[S]tate law applies to Plaintiff’s 

claim for prejudgment interest under state law unless federal law preempts it.”). 

7 The Unsecured Creditors mistakenly claim that the holding in Consolidated Rock Products Co. v. 

Du Bois, 312 U.S. 510 (1941), supports their demand for postpetition interest at contract rates. See 

Creditors’ Br. ¶ 24. In fact, that case did not address postpetition interest whatsoever. In 

Consolidated Rock, the debtors’ plan did not provide bondholders with accrued and unpaid interest 

they were owed as part of their claims, but instead provided bondholders with inferior securities. 

312 U.S. at 527. Nowhere did the Supreme Court consider the applicable rate of postpetition 

interest on the bondholders’ allowed claims.

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fair and equitable test did not provide a license for a free-roving equitable examination of every 

provision in the proposed plan. Rather, where an issue is governed by another provision of the 

Bankruptcy Code, it is not subject to reexamination under section 1129(b). See In re Acequia, 787 

F.2d at 1364. The Ninth Circuit, therefore, declined to apply the fair and equitable analysis to a plan 

provision that modified a creditor’s rights concerning voting and management of the debtor because 

voting and management are addressed elsewhere in the Bankruptcy Code—namely by 

subsections (a)(6) and (a)(7) of section 1123. Id. The Ninth Circuit concluded that an application of 

section 1129’s fair and equitable test to such provisions would be inappropriately redundant. See id. 

(noting “our disinclination to find redundancy in the Code”).

Here, the fair and equitable test is irrelevant to issues of postpetition interest because the subject 

is governed by another provision of the Bankruptcy Code. Postpetition interest “[w]here a debtor in 

bankruptcy is solvent” is expressly addressed by section 726(a)(5) of the Bankruptcy Code as “the 

legal rate.” See Cardelucci, 285 F.3d at 1234 (quoting 11 U.S.C. § 726(a)(5)). Therefore, under 

Acequia, section 1129’s fair and equitable test cannot be applied to alter the result prescribed by 

section 726(a)(5), which the Ninth Circuit has held determines the amount of postpetition interest in 

solvent-debtor chapter 11 cases. 

IV. THERE IS NO PRESUMPTION THAT UNSECURED CREDITORS ARE 

ENTITLED TO CONTRACTUAL OR STATE LAW RATES OF POSTPETITION 

INTEREST 

Contrary to the assertion by the Unsecured Creditors, see Creditors’ Br. ¶¶ 33-44, there is no 

presumption in the Ninth Circuit that contract or other state law rates of interest apply to postpetition 

interest on an unsecured claim in a solvent-debtor chapter 11 case. All of the cases cited by the 

Unsecured Creditors involve oversecured claims, which are governed by an entirely different analysis 

and an entirely different provision of the Bankruptcy Code (section 506(b)). See Gen. Elec. Capital 

Corp. v. Future Media Prods., 547 F.3d 956, 961 (9th Cir. 2008) (analyzing whether oversecured

creditor is entitled to “contracted for default rate”); Gencarelli v. UPS Capital Business Credit, 

501 F.3d 1, 4 (1st Cir. 2007) (analyzing whether “oversecured creditor is entitled to collect a 

contractually-based prepayment penalty from a solvent debtor”) (emphasis added); Matter of Terry 

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Ltd. P’ship, 27 F.3d 241, 243 (7th Cir. 1994) (finding a “presumption in favor of the contract rate 

subject to rebuttal based upon equitable considerations” for interest payable to an oversecured creditor 

under section 506(b)); Matter of Laymon, 958 F.2d 72, 75 (5th Cir. 1992) (“[W]e hold that when an 

oversecured creditor’s claim arises from a contract, the contract provides the rate of post-petition 

interest.”) (emphasis added); In re Epicenter Partners, L.L.C., No. 16-BK-05493, 2018 WL 1354330, 

at *7 (B.A.P. 9th Cir. Mar. 15, 2018) (explaining that “[o]versecured creditors are entitled to interest 

at the contractual rate so long as that rate is enforceable under nonbankruptcy law”) (emphasis added).8 

There is nothing in any of those cases remotely supporting a presumption that unsecured creditors are 

entitled to postpetition interest at a contract rate or state statutory rates. 

This is an important distinction, because section 506(b) of the Bankruptcy Code allows for 

postpetition interest on a secured claim at the applicable contract rate where the value of the collateral 

“is greater than the amount of the claim.” 11 U.S.C. § 506(b). Section 506(b) thus allows contract 

rate interest to accrue on an oversecured claim to fill the “security cushion.” See U.S. Sav. Ass’n of 

Tex. v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365, 372 (1988). In contrast, unsecured 

creditors, like the Unsecured Creditors here, “ha[ve] no such cushion,” and therefore can never recover 

unmatured interest as part of their claims. See id. at 372-73 (citing 11 U.S.C. § 502(b)(2)); see also 

In re Manchester Gas Storage, Inc., 309 B.R. 354, 382 (Bankr. N.D. Okla. 2004) (“There is no 

statutory exception to Section 502(b) that mandates or even allows postpetition interest to be paid by 

the estate to creditors other than oversecured creditors under Section 506(b) in a chapter 11 case.”). 

8

 In other instances, the Unsecured Creditors rely on authority that is irrelevant because it is 

predicated on the precursor to the Bankruptcy Code, i.e., the Bankruptcy Act, which had no analog 

to sections 502(b)(2), 506(b) or 726(a)(5) of the Bankruptcy Code—all of the provisions that 

address the subject of postpetition interest in chapter 11 cases. See, e.g., City of New York v. Saper, 

336 U.S. 328 (1949) (tracing historical origins of solvent debtor exception under Bankruptcy Act); 

Consol. Rock Prod. Co. v. Du Bois, 312 U.S. 510, 527 (1941) (evaluating, under Bankruptcy Act, 

whether debtors’ plan violated absolute priority rule); Commercial Paper Holders v. Hine (In re 

Beverly Hills Bancorp), 752 F.2d 1334 (9th Cir. 1984) (analyzing whether creditor entitled to 

interest under Bankruptcy Act); Debentureholders Protective Comm. of Cont’l Inv. Corp. v. Cont’l 

Inv. Corp., 679 F.2d 264 (1st Cir. 1982) (analyzing whether creditor entitled to interest under 

Bankruptcy Act); Ruskin v. Griffiths, 269 F.2d 827 (2d Cir. 1959) (analyzing whether secured 

creditor entitled to interest under Bankruptcy Act); see also In re Dow Corning Corp., 456 F.3d 

668, 679 (6th Cir. 2006) (relying on Bankruptcy Act caselaw in concluding that section 1129(b)’s 

fair and equitable test requires payment of default interest). 

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V. THE UNSECURED CREDITORS’ REMAINING ARGUMENTS ARE WITHOUT 

MERIT 

A. Equitable Considerations Do Not Support Postpetition Interest At Contract Or 

State Law Rates 

The Unsecured Creditors argue at various points that equitable considerations warrant 

postpetition interest at the contract or state law rates in a solvent-debtor case. See Creditors’ Br. ¶¶ 35-

41. But they again ignore Cardelucci, where the Ninth Circuit specifically considered the equities in 

determining that the Federal Judgment Rate uniformly applies in solvent-debtor chapter 11 cases. In 

Cardelucci, the Ninth Circuit thoroughly analyzed the equitable considerations that could warrant 

application of a rate of postpetition interest other than the Federal Judgment Rate and ultimately held 

that “using the [Federal Judgment Rate] promotes uniformity within federal law,” Cardelucci, 

285 F.3d at 1235, promotes fairness among creditors, id. at 1236, and is “the most judicially efficient 

and practical manner of allocating remaining assets.” id. The Ninth Circuit recognized a 

countervailing interest, i.e., that its holding—an across the board application of the Federal Judgment 

Rate—could result in certain instances where “a debtor may receive a windfall.” Id. But that 

countervailing interest was insufficient to support an ad hoc, case-by-case equitable analysis like that 

advocated by the Unsecured Creditors because the “legal rate” in section 726(a)(5) of the Bankruptcy 

Code is a “statutory term with a definitive meaning that cannot shift depending on the interests invoked 

by the specific circumstances before the court.” Id. Accordingly, the Ninth Circuit has already 

analyzed the equitable considerations urged by the Unsecured Creditors, including the alleged 

“windfall” in favor of equity holders, and found that they mandate a uniform application of the Federal 

Judgment Rate in all chapter 11 cases. 

Disregarding this, the Unsecured Creditors cite the Delaware Bankruptcy Court’s decision in 

EFH to argue that payment of interest at a rate less than the contract or state law rate somehow impairs 

their “equitable” rights. Creditors’ Br. ¶ 50. In EFH, the Bankruptcy Court found that the debtor’s 

plan must pay unimpaired unsecured claims postpetition interest “at an appropriate rate under 

equitable principles” in order to protect their “equitable rights.” See 540 B.R. at 123-24. The Court’s 

primary concern was that “unimpaired creditors might receive inferior treatment than that accorded 

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impaired creditors.” Id. at 123. This comparison has no force here because all unsecured claims are 

to receive the same rate of postpetition interest under the Debtors’ Plan. 

More fundamentally, EFH overstated the court’s “equitable power” to “award post-petition 

interest at an appropriate rate” at its discretion. “It is hornbook law that § 105(a) ‘does not allow the 

bankruptcy court to override explicit mandates of other sections of the Bankruptcy Code.’” Law v. 

Siegel, 571 U.S. 415, 421 (2014) (quoting 2 Collier on Bankruptcy ¶ 105.01[2] (16th ed. 2013)). The 

Supreme Court has “long held that ‘whatever equitable powers remaining must and can only be 

exercised within the confines of’ the Bankruptcy Code.” See id. (collecting cases). As the Ninth 

Circuit recognized in Cardelucci, the Bankruptcy Code speaks directly to the treatment of postpetition 

interest on unsecured claims. In doing so, “Congress eliminated the subjectivity of pre-Code 

discretion . . . and specifically mandated allowance of such interest” in accordance with 

section 726(a)(5). Manchester Gas, 309 B.R. at 385. “The concept that postpetition interest is a matter 

of the bankruptcy court’s equitable discretion has been superseded by statute.” Id. 

In any event, the analysis of the Delaware bankruptcy court in EFH does not bind this Court. 

Cardelucci does. In this regard, it is somewhat remarkable and very telling that, even though 

Cardelucci is a Circuit Court decision that addressed the very same issues, EFH never mentions 

Cardelucci—even in an effort to distinguish it. No matter. Given that the Ninth Circuit has already 

ruled on this issue, EFH has no bearing on what rate of interest is payable to the Unsecured Creditors. 

B. The Legislative History Of The 1994 Amendment To Section 1124 Of The 

Bankruptcy Code Does Not Support Postpetition Interest At A Rate Other Than 

The Federal Judgment Rate 

As explained above, a claim is unimpaired where it is the Bankruptcy Code, and not the 

debtor’s plan, that alters a creditor’s contractual, legal, or equitable rights. The text of section 1124 

could not be more clear. It provides that a claim “is impaired under a plan unless . . . the plan leaves 

unaltered the legal, equitable, and contractual rights to which such claim . . . entitles the holder of such 

claim.” 11 U.S.C. § 1124(1). As a consequence, a claim that is modified by the Bankruptcy Code 

rather than the plan is not impaired within the meaning of the statute. 

The Third Circuit in PPI specifically recognized this distinction between impairment under a 

plan and impairment by operation of the Bankruptcy Code itself. PPI, 324 F.3d at 204. In broad 

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terms, the court explained that a “creditor’s rights must be ascertained with regard to applicable 

statutes” and concluded that, as a result, a plan that paid a landlord’s claim that had been limited and 

capped by section 502(b)(6) of the Bankruptcy Code was not impaired because it was the statute, not 

the plan, that limited the claim amount. Id. “Impairment results from what the plan does, not what 

the statute does.” Id. 

In Ultra Petroleum, the Fifth Circuit took the uncontroversial step of finding that the reasoning 

in PPI “applies with equal force to § 502(b)(2).” Ultra Petroleum, 913 F.3d at 542. In an attempt to 

undermine that logical conclusion, the Unsecured Creditors assert that the Fifth Circuit neglected PPI’s 

conclusion that “the legislative history of section 1124 clearly indicates that Congress intended to 

overrule the effect of 502(b)(2) in the context of impairment.” Creditors’ Br. ¶ 46 (emphasis omitted). 

They are mistaken. PPI never made such a pronouncement. Rather, in PPI the Third Circuit simply 

recognized that Congress had repealed section 1124(3) of the Bankruptcy Code in 1994 in response to 

a bankruptcy case that permitted a solvent debtor to unimpair unsecured claims through payment in 

full of the allowed claim amounts without any postpetition interest at all. PPI considered this 

legislative history to demonstrate that Congress’s repeal of 1124(3) did not alter the meaning of 

section 1124(1). PPI, 324 F.3d at 207 (“§ 1124(1) and § 1124(3) were different exceptions to the 

presumption of impairment, and the repeal of one should not affect the other”). In fact, contrary to 

what the Unsecured Creditors assert, PPI said nothing about section 502(b)(2), nor did it express any 

view on what rate of interest a solvent debtor owes to its creditors.9 

The Unsecured Creditors are clearly wrong in their assessment of this legislative history. Prior 

to the 1994 amendment, section 1124(3) provided that a plan could unimpair class of claims by making 

a cash payment “equal to—(A) with respect to a claim, the allowed amount of such claim.” In 1994, 

one court construed this provision to mean that if each member of a class of claims received “full 

payment of its pre-petition allowed claim in cash, on the effective date of the plan, the class is 

9

 The other authority cited by the Unsecured Creditors similarly does not specify the rate of 

postpetition interest to be paid on unimpaired unsecured claims. See In re Introgen Therapeutics, 

Inc., 429 B.R. 570 (Bankr. W.D. Texas 2011) (finding that postpetition interest is owed, in light of 

the repeal of section 1124(3), but not addressing specific rate of postpetition interest); In re Greate 

Bay Hotel & Casino, Inc., 251 B.R. 213 (Bankr. D.N.J. 2000) (same). 

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unimpaired” and that, as a result, a solvent chapter 11 debtor did not need to pay postpetition interest 

because section 502(b)(2) disallowed claims for unmatured interest. In re New Valley Corp., 168 B.R. 

73, 79 (Bankr. D.N.J. 1994). In response, Congress repealed subsection 1124(3), stating: 

In order to preclude this unfair result in the future, the Committee finds it appropriate 

to delete section 1124(3) from the Bankruptcy Code. 

As a result of this change, if a plan proposed to pay a class of claims in cash in the full 

allowed amount of the claims, the class would be impaired, entitling creditors to vote 

for or against the plan of reorganization. 

H.R. Rep. No. 103-835, at 48 (1994). 

This legislative history simply shows that Congress intended for creditors to receive interest 

on an unsecured claim where the debtor is solvent, which is what the Debtors’ Plan provides. Indeed, 

Congress took no issue with New Valley’s conclusion that postpetition interest at the contract rate was 

not part of an allowed unsecured claim, because that is exactly what section 502(b)(2) provides. It 

merely concluded that, if an unsecured creditor of a solvent debtor receives no interest on its allowed 

claim, the claim is impaired. H.R. Rep. No. 103-835, at 48 (1994). 

The legislative history says nothing about the rate of postpetition interest that must be paid in 

order for an unsecured claim to be unimpaired. It merely demonstrates that Congress intended for a 

solvent debtor to pay some amount of postpetition interest on unsecured claims if it seeks to render 

them unimpaired in a plan. The most logical assessment of this historical development is that Congress 

corrected the anomalous result in New Valley by extending the protections of section 726(a)(5) to 

unimpaired creditors, thereby providing a consistent rate of postpetition interest across the board, 

applicable not only in chapter 7 cases but also in chapter 11 cases to both impaired and unimpaired 

claims. Payment of postpetition interest on a creditor’s allowed claim at the “legal rate” set forth in 

section 726(a)(5) fully rectifies the “inequitable” result that Congress intended to avoid by repealing 

section 1124(3). 

Accordingly, the legislative history provides absolutely no support for the Unsecured 

Creditors’ assertion that Congress “intended the impairment tests of section 1124 to be applied to the 

holder’s state law rights, particularly with respect to interest.” Creditors’ Br. ¶ 47. Congress certainly 

did not indicate that, despite the clear mandate of sections 502(b)(2) and 726(a)(5), unsecured creditors 

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should receive contract or state rates of interest. If Congress intended such a stark departure from the 

Bankruptcy Code’s explicit statutory regime respecting postpetition interest, it could and would have 

said so. 

VI. CONCLUSION 

All parties here agree that unsecured creditors of a solvent debtor are entitled to postpetition 

interest on their allowed claims. The dispute relates to the rate of such interest. On that issue the 

Ninth Circuit has spoken loud and clear: postpetition interest is payable to the unsecured creditors of 

a solvent chapter 11 debtor at the Federal Judgment Rate. 

Thus, for all the foregoing reasons, and those set forth in the Debtors’ Moving Brief, the Court 

should reject the Unsecured Creditors’ invitation to ignore this Circuit’s binding precedent and instead 

should hold, consistent with Cardelucci, that the Federal Judgment Rate is the only appropriate rate in 

calculating postpetition interest on allowed unsecured claims under the Debtors’ Plan. 

Dated: November 22, 2019 

WEIL, GOTSHAL & MANGES LLP 

KELLER & BENVENUTTI LLP 

By: Theodore E. Tsekerides 

 Theodore E. Tsekerides 

Attorneys for Debtors and Debtors in 

Possession

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