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ACIC Private Notes                                April 2020

Welcome to the April 2020 edition of the ACIC Private Notes! We sincerely hope you are safe and healthy in these trying times.
 
This edition brings you:
  • A summary and analysis by Proskauer of the recent decision in PG&E's chapter 11 case regarding the calculation of postpetition interest on general unsecured claims in a solvent debtor situation (republished with permission from Proskauer, courtesy of Sarah Olson (Thrivent Financial)); 
  • Recent case law summaries from the Pacific/Rocky Mountain Region, prepared by David Simonds and Edward McNeilly (both of Hogan Lovells);
  • Recent case law summaries from the Southwest Region, prepared by Andrew Thomison (Baker Botts); and
  • A head's up on a soon-to-launch ACIC COVID-19 Resource Center.

Post-petition Interest on Unsecured Claims: Lessons for Distressed Debt Investors In Light of the PG&E Decision

The recent decision by Judge Montali in PG&E's chapter 11 case provides the latest installment in the long standing debate regarding the appropriate calculation of postpetition interest on general unsecured claims in solvent debtor cases. Click here to learn more.


Recent Case Law Summaries

Pacific/Rocky Mountain Region
 
In In re 3MB, LLC , the U.S. Bankruptcy Court for the Eastern District of California held that a provision in a promissory note, governed by California law, that provided for default interest at the rate of 4% per annum above the non-default rate was an enforceable charge for interest under California law and was not a liquidated damages clause, and even if the provision were viewed as a liquidated damages clause, it would nevertheless be valid. Click  here to learn more.
 
In Fed. Home Loan Bank of Seattle v. Credit Suisse Sec. (USA), LLC, a state securities fraud case arising out of investment losses caused by losses on subprime residential mortgage-backed securities, the Washington State Supreme Court held that a plaintiff suing for misrepresentation in a private action under the Washington State equivalent of Rule 10b-5, need not prove "reliance" to recover.  Click here to learn more.
 
In In re Mayacamas Holdings LLC, the U.S. Bankruptcy Court for the Northern District of California held that a lender's claims for default interest, late charges and an exit fee under a promissory note were enforceable under Colorado law, the chosen governing law of the note, where the total interest, fees and costs did not exceed Colorado's 45% per annum cap.  However, the lender did not have a security interest in the insurance proceeds received by the chapter 7 trustee after a fire severely damaged the real property that secured the debtor's obligations under the note because the lender failed to notify the insurer in writing that it should be added as a loss payee on the insurance policy. Click here  to learn more.
 
In In re Southern Inyo Healthcare District, a debtor healthcare district objected to a proof of claim filed by a bank and sought a declaratory judgment that the bank's security interests were invalid because the loan violated state law. The bankruptcy court denied the healthcare district's motion for summary judgment, holding that there was a genuine issue of material fact as to whether the loan had been properly authorized and whether it complied with the debt restriction limits of the California Health & Safety Code. The bankruptcy court also refused to grant the bank's summary judgment motion as to its claim for restitution, holding that, if the loan was an ultra vires act for the healthcare district, restitution was most likely unavailable. Click here to learn more.
 
Southwest Region
 
In Matter of Henry, the Fifth Circuit Court of Appeals was called upon to determine whether the bankruptcy court erred in refusing to enforce an arbitration agreement and to compel arbitration in a proceeding seeking to enforce a discharge injunction. The Court of Appeals affirmed the bankruptcy court's position, noting that prior case law supported the conclusion that bankruptcy courts have discretion to refuse to compel arbitration in proceedings seeking enforcement of a discharge injunction. Click here to learn more.
 
In In Magna Equities II, L.L.C. et al. v. Heartland Bank, the Fifth Circuit Court of Appeals affirmed the district court's grant of summary judgment in favor of Heartland Bank on an action claiming, among other things, fraud and negligent misrepresentation. Click here to learn more.


Coming Soon - ACIC COVID-19 Resource Center

In an effort to provide our members with relevant COVID-19-related content, the ACIC will be launching a COVID-19 Resource Center.  Many of our law firm partners have already prepared alerts and summaries covering a range of relevant topics for investment counsel and we anticipate additional topics emerging as matters develop.
 
As such, the ACIC is inviting its law firm members to submit any content their firms have prepared that would be relevant for our members. These submissions can be sent to office@aciclaw.org.
 
We will be following up shortly once the resource center is operational so please stay tuned for future announcements!