Tennenbaum Living Trust v. GCDI S.A.

Background

The court had previously found that GCDI S.A., formerly known as TGLT S.A., breached the indenture governing notes that GCDI issued in 2017 and that Tennenbaum Living Trust and Merkin Family Foundation purchased. The breach involved GCDI’s failure to make required interest payments.

After that ruling, both sides submitted proposed judgments. They disagreed about two issues: whether the plaintiffs should receive a declaration of their rights in addition to damages, and how to calculate prejudgment interest—the interest owed for the period before judgment.

Declaratory Relief

The plaintiffs’ complaint requested damages for unpaid interest but did not request declaratory relief. The court had also previously denied their request to amend the complaint to add declarations that the mandatory conversion of the notes into equity was invalid and that the notes remained valid and enforceable.

The court explained that the Declaratory Judgment Act gives federal courts discretion to decide whether to issue a declaration. It declined to do so here because its earlier findings had already resolved the parties’ disputes about the validity of the notes and their mandatory conversion. The court concluded that a declaration would not clarify the legal issues, reduce uncertainty, or serve a useful purpose. It also rejected the plaintiffs’ unsupported concern that a declaration would help them enforce the damages judgment in Argentina.

Interest Calculation

Section 301 of the indenture set ordinary annual interest rates of 8%, 9%, and 10%, depending on the period after the notes’ August 3, 2017 issue date. It also set default interest rates of 14%, 15%, and 16% when GCDI failed to make required payments on time. Because the notes were issued on August 3, 2017, the parties agreed that the 16% default rate applied to at least some interest owed.

The parties disagreed about the scope of that higher rate. GCDI argued that the default rate applied only to interest payments that had already been missed, while interest on the notes’ principal continued to be calculated under the ordinary rate. The plaintiffs argued that, after a missed interest payment, the default rate applied both to the missed payment and to all future interest payments calculated on the principal.

The court accepted GCDI’s interpretation. It read the phrase “interest on the unpaid amount” in section 301 as referring to payments that had already become due and remained unpaid. The court concluded that the indenture did not require GCDI to use the default rate when calculating future interest on the principal. The language stating that the default rate would “replace and supersede” the ordinary rate did not change that conclusion.

Disposition

The court declined to grant the plaintiffs’ requested declaratory relief and held that the indenture required prejudgment interest to be calculated under GCDI’s interpretation. It ordered the parties to submit a joint revised proposed judgment by August 11, 2023, calculating interest due as of that date. The damages were not to include the interest payment due on August 15, 2023, because that payment had not yet become due when the order was issued.