Epicenter Partners v. Cpf Vaseo Ass'n

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS JAN 9 2020
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: EPICENTER PARTNERS, L.L.C.; No. 18-60018
GRAY MEYER FANNIN, L.L.C.,
BAP No. 17-1216
Debtors,
------------------------------ MEMORANDUM*
EPICENTER PARTNERS, L.L.C.; GRAY
MEYER FANNIN, L.L.C.,
Appellants,
v.
CPF VASEO ASSOCIATION, LLC,
Appellee.
Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Kurtz, Lafferty III, and Brand, Bankruptcy Judges, Presiding
Argued and Submitted October 23, 2019
San Francisco, California
Before: WALLACE and BRESS, Circuit Judges, and ENGLAND,** District Judge.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Morrison C. England, Jr., United States District Judge
for the Eastern District of California, sitting by designation.
Appellants-Debtors, Epicenter Partners LLC and Gray Meyer Fannin LLC
(Debtors), entered into a litigation financing agreement with Ganymede Investments
Limited (Ganymede), by which Ganymede agreed to fund certain litigation in return
for the funds advanced and 40% of any recovery. Debtors obtained a favorable
judgment in that litigation, which they then settled in exchange for an assignment of
a leasehold interest of land. Debtors and Ganymede then revised their litigation
funding agreement to resolve the entire outstanding obligation for a $50,713,000
liquidated sum, a debt reflected in a note (Ganymede Note) secured by a deed of
trust on the leasehold. As relevant here, after Debtors filed for Chapter 11
bankruptcy, Appellee-Creditor, CPF Vaseo Associates, LLC (CPF), asserted
secured claims based on the Ganymede note, which CPF had purchased from
Ganymede.
The bankruptcy court upheld CPF’s claims with post-petition interest at the
contract rate. The Bankruptcy Appellate Panel affirmed. We have jurisdiction under
28 U.S.C. section 158(d). Applying Arizona law to construe the parties’ contracts
and both Arizona law and federal bankruptcy law to determine whether the post-
petition contract interest rate is valid under section 506(b) of the Bankruptcy Code,
we affirm the bankruptcy court.
The bankruptcy court did not err by holding that Debtors owed $50,713,000
in non-contingent debt. In the Ganymede Note, Debtors “promise[d] to pay . . . the
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principal sum of FIFTY MILLION SEVEN HUNDRED THIRTEEN THOUSAND
AND NO/100 DOLLARS ($50,713,000.00) plus interest calculated on a daily basis
. . . from and after the Maturity Date.” The bankruptcy court properly relied on the
unambiguous language of the transaction documents to conclude that the
“Liquidated Sum” referred to the principal amount due after the debt matured.
See Grosvenor Holdings, L.C. v. Figueroa, 218 P.3d 1045, 1050 (Ariz. Ct. App.
2009) (“Where the intent of the parties is expressed in clear and unambiguous
language, there is no need or room for construction or interpretation . . . .”) (internal
quotation marks and citation omitted).
The bankruptcy court did not err in holding that $50,713,000 was the true
amount of the negotiated debt. The revised litigation funding agreement contained
a discount payment scheme, but that was an incentive to reward Debtors for early
payment rather than an unenforceable penalty. Debtors’ failure to make an early
payment did not increase the fixed amount owed. Because the discounted payment
scheme did not depend on a breach of contract, there was no liquidated damages
provision to evaluate. See Dobson Bay Club II DD, LLC v. La Sonrisa de Siena,
LLC, 393 P.3d 449, 451 (Ariz. 2017) (defining a liquidated damages provision as
one in which “[p]arties to a contract . . . agree in advance to the amount of damages
for any breach”) (citation omitted).
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The Debtors have also not demonstrated that the bankruptcy court erred in
awarding CPF interest at the 35% annual contract rate (interest that CPF has
represented it will not be able to collect because under the substantially
consummated bankruptcy plan, it purchased the collateral representing Debtors’
assets). The Ganymede Note secured the debt by a first position lien and a security
interest in Debtors’ leasehold interest. CPF was an oversecured creditor entitled to
pendency interest under section 506(b). See United States v. Ron Pair Enter., Inc.,
489 U.S. 235, 241 (1989).
Assuming the 35% annual interest was a default rate, we “apply a presumption
of allowability for the contracted for default rate, provided that the rate is not
unenforceable under applicable nonbankruptcy law.” Gen. Elec. Capital Corp. v.
Future Media Prods., Inc., 547 F.3d 956, 961 (9th Cir. 2008) (internal quotation
marks and citation omitted). Here, the bankruptcy court correctly presumed that the
35% contract rate was valid, and Debtors failed to rebut the presumption by showing
that the interest rate was an unenforceable penalty under Arizona law. Because
under the parties’ agreement the Debtors had paid no interest for years before the
maturity date, the bankruptcy court concluded that the interest rate reasonably
forecasted the harm that Ganymede would suffer if the debt was not paid on time
and compensated CPF if Debtors failed to pay the debt when the debt matured. See
Dobson Bay Club II DD, LLC, 393 P.3d at 452–53.
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The bankruptcy court also did not abuse its discretion in finding that Debtors
failed to rebut the presumption based on equitable considerations. See Future Media
Prods., Inc., 547 F.3d at 961 In weighing the equities, we have rejected “the
creation of a bright line rule” in favor of a consideration of the facts and
circumstances of each case. Id. at 962.
The bankruptcy court identified factors unique to this case, including that
Debtors enjoyed many years of zero interest prior to the maturity date, in finding
that the default rate compensated CPF for the risk of nonpayment. The bankruptcy
court articulated and considered the full scope of the bankruptcy proceedings. The
bankruptcy court, which was familiar with the proceedings as a whole, also
identified no associated harm to third parties, nor have the Debtors done so. Under
all of these circumstances, the debtors have not provided any basis for overturning
the bankruptcy court’s determinations, and we thus conclude that Debtors failed to
meet their burden of rebutting the presumption based on the totality of the
circumstances. Id. at 961. Based on the record before it, the bankruptcy court did
not abuse its discretion in declining to make an equitable adjustment of the contract
rate. See In re Anderson, 833 F.2d 834, 836 (9th Cir. 1987) (“We review awards
and denials of post-petition interest for abuse of discretion, as a matter of equity”).
AFFIRMED.
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