The Bankruptcy Appellate Panel affirmed. In re Southeast Co., 81 B.R. 587 (9th Cir. BAP 1987). In 1977, the debtor's predecessor in interest and the appellant creditor's predecessor in interest entered into a mortgage that called for, in the event of default, an increased interest rate as well as an option to the creditor to accelerate the note's maturity.
the statutory power to nullify a contractual acceleration clause under Section 1124(2), articulating the "cure" provision in Section 1124(2)(A) (rather than judicially-created equitable discretion under Sections 105 and 506(b)) as the legal ground for nullifying the secured creditor's contractual right to default rate interest, in spite of the clear statutory constraint of subsection (D) in Section 1124(2). See generally, In re Forest Hills Assocs., 40 B.R. 410, 415 ("It is ... clear that Code section 1124(2) provides the debtor ... with the statutory tools necessary to effect a total healing of the scars of contractual default, by placing the parties into the same position they were in immediately before the default occurred.... Therefore, just as the debtor need not pay the post-default accelerated debt, he need not pay the post-default interest rate on the accelerated debt"); In re Southeast Co., 81 B.R. 587, 591 (9th Cir. BAP 1987) (citing Forest Hills ), aff'd, 868 F.2d 335 (9th Cir.1989); In re Johnson, 184 B.R. 570, 574 (Bankr.D.Minn.1995) (noting that some cases hold that "when the debtor satisfies all elements of ยง 1124(2), the debtor has cured the default, and therefore need not pay the default rate of interest" and allowing a plan providing the post-petition interest "at the nondefault rate"); Madison Hotel, 749 F.2d at 419 ("[S]ection 1124(2) ... provides that 'curing a default, even though it inevitably changes a contractual acceleration clause, does not thereby "impair" a creditor's claim,' " citing Taddeo ); Taddeo, 685 F.2d at 24.
See generally, In re Forest Hills Assocs., 40 B.R. 410, 415 ("It is . . . clear that Code section 1124(2) provides the debtor . . . with the statutory tools necessary to effect a total healing of the scars of contractual default, by placing the parties into the same position they were in immediately before the default occurred. . . . Therefore, just as the debtor need not pay the post-default accelerated debt, he need not pay the post-default interest rate on the accelerated debt"); In re Southeast Co., 81 B.R. 587, 591 (B.A.P. 9th Cir. 1987) (citing Forest Hills), aff'd, 868 F.2d 335 (1989); In re Johnson, 184 B.R. 570, 574 (Bankr. D. Minn. 1995) (noting that some cases hold that "when the debtor satisfies all elements of ยง 1124(2), the debtor has cured the default, and therefore need not pay the default rate of interest" and allowing a plan providing the post-petition interest "at the nondefault rate"); Madison Hotel, 749 F.2d at 419 ("[S]ection 1124(2) . . . provides that 'curing a default, even though it inevitably changes a contractual acceleration clause, does not thereby "impair" a creditor's claim,'" citing Taddeo); Taddeo, 685 F.2d at 24. A few courts have treated the statutory right to de-accelerate as giving rise to a statutory right to nullification of the default interest rate, ignoring the clear language of subsection (D) of Section 1124(2), and without regard to equitable considerations.
The more natural reading of sections 506 and 1124 is that the interest awarded should be at the market rate or at the pre-default rate provided for in the contract.See In re Southeast Co., 81 B.R. 587, 592 (BAP 9th Cir. 1987) (holding that reliance damage under section 1124(2)(C) "does not comprise contractual penalty interest rates"). Once more Great Western's argument fails.
Fees Lender incurred in connection with the enforcement of the Guaranty are also not reasonable because Debtor has been trying to cure the default to Lender and reinstate the Loan in this case. As stated in In re Southeast Co., 81 B.R. 587, 592-593 (B.A.P. 9th Cir. 1987), aff'd, In re Se. Co., 868 F.2d 335, 340 (9th Cir. 1989): "Courts have shown considerable reluctance to award attorneys' fees for such post-petition litigation, where the secured creditor's interest is not threatened." See also In re Masnorth, 36 B.R. 335, 339 (Bankr. N.D. Ga. 1984) (court reduced attorneys' fees requested by more than half where post-petition litigation was primarily motivated by a desire for an increased interest rate and a $100,000 equity cushion protected secured creditor's interest).
The more natural reading of sections 506 and 1124 is that the interest awarded should be at the market rate or at the pre-default rate provided for in the contract. See In re Southeast Co., 81 B.R. 587, 592 (9th Cir. BAP 1987) (holding that reliance damage under ยง 1124(2)(C) "does not comprise contractual penalty interest rates").Entz-White, 850 F.2d at 1343 (footnote omitted).
Whether a cure can occur pursuant to a sale under ยง 363 is a question of statutory interpretation and is reviewed de novo. In re Southeast Company, 81 B.R. 587 (9th Cir. BAP 1987), aff'd, 868 F.2d 335 (9th Cir. 1989). A trial court's findings of fact are reviewed under the clearly erroneous standard.
However, to the extent section 1124(2) elucidates the concepts of cure and allowability of claims, it is instructive in this case. In Southeast, the Ninth Circuit quoted and expressly readopted its approval in Entz-White of the Bankruptcy Appellate Panel's holding in In re Southeast Co., 81 B.R. 587, 592 (BAP 9th Cir. 1987): "reliance damage under section 1124(2)(C) `does not comprise contractual penalty interest rates.'" See Footnote 6 for the text of section 1124(2).
However, to the extent section 1124(2) elucidates the concepts of cure and allowability of claims, it is instructive in this case. In Southeast, the Ninth Circuit quoted and expressly readopted its approval in Entz-White of the Bankruptcy Appellate Panel's holding in In re Southeast Co., 81 B.R. 587, 592 (BAP 9th Cir.1987): "reliance damage under section 1124(2)(C) 'does not comprise contractual penalty interest rates.' " See Footnote 6 for the text of section 1124(2).
"The more natural reading of sections 506 and 1124 is that the interest awarded should be at the market rate or at the pre-default rate provided for in the contract. See In re Southeast Co., 81 B.R. 587, 592 (BAP 9th Cir. 1987) (holding that reliance damage under section 1124(2)(C) `does not comprise contractual penalty interest rates')."