Official Committee of Unsecured Creditors v. PG&E Corporation

Background

PG&E Corporation and Pacific Gas and Electric Company began voluntary Chapter 11 bankruptcy cases on January 29, 2019. Their reorganization plan was confirmed on June 20, 2020, and became effective on July 1, 2020.

Before confirmation, the bankruptcy court considered the postpetition interest—interest accruing after the bankruptcy filing—for four classes of allowed unsecured and unimpaired claims. The debtors argued that the federal judgment interest rate under 28 U.S.C. § 1961(a) applied, relying on the Ninth Circuit’s decision in In re Cardelucci. Creditor groups, including the appealing committee, argued that California law required contractual interest rates or, if no contractual rate applied, the 10% statutory rate under California Civil Code § 3289.

The bankruptcy court ruled that Cardelucci controlled and that the federal interest rate applied to postpetition treatment of unsecured creditors under the plan. The appellant sought review in the district court.

Arguments on appeal

The appellant argued that Cardelucci should not control because the plan in that case involved impaired claims, while PG&E’s plan left the relevant general unsecured claims unimpaired. The appellant also argued that other Ninth Circuit decisions required treating the claims as impaired unless the plan paid interest at the contractual or state statutory rate.

The district court rejected those arguments. It read Cardelucci as resolving which legal rate applies to postpetition interest in a solvent-debtor bankruptcy case, without limiting the holding to impaired claims. The court also concluded that the other cited Ninth Circuit decisions did not address the appropriate postpetition interest rate for unsecured claims in a solvent-debtor case and did not require a different result.

Court’s ruling

The court explained that the Bankruptcy Code generally disallows unsecured claims for postpetition interest under § 502(b)(2). But because the debtors were presumed solvent, Cardelucci directed them to pay postpetition interest on allowed unsecured claims at the federal judgment rate. The court also stated that a limitation imposed by the Bankruptcy Code, rather than by the plan itself, does not establish that the claims were impaired by the plan.

Judge Haywood S. Gilliam, Jr. affirmed the bankruptcy court’s postpetition-interest memorandum and order. The clerk was directed to terminate the appeal and close the case.

Disposition

The district court affirmed the bankruptcy court’s rulings on postpetition interest.