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In re Williams, Love, O'Leary & Powers, P.C.

United States District Court, Ninth Circuit

September 3, 2013

In re: WILLIAMS, LOVE, O'LEARY & POWERS, P.C., Debtor.
v.
WILLIAMS, LOVE, O'LEARY & POWERS, P.C., and STERLING SAVINGS BANK, Appellees. HEATHER A. BRANN, Appellant, Bankr. Case No. 11-37021-elp.

OPINION AND ORDER

ANN AIKEN, Chief District Judge.

Appellant Heather Brann appeals a decision of the United States Bankruptcy Court overruling her objection to the postpetition interest rate applicable to her allowed contract claims. After review of the Bankruptcy Court's decision and the parties' arguments, I affirm the decision.

FACTUAL BACKGROUND

This is an appeal of a ruling in a Chapter 11 bankruptcy proceeding. Debtor-Appellee Williams, Love, O'Leary & Powers, P.C. (WLOP) is a law firm specializing in medical and pharmaceutical products liability and mass tort litigation. As pertinent to this appeal, WLOP represented over one hundred clients in products liability cases involving medical devices known as pain pumps.

Appellant is an attorney licensed to practice law in Oregon who entered into a contractual agreement with WLOP to provide legal services in pain pump cases. Appellant's agreement provided that WLOP would pay Appellant hourly rates for her services, along with enhanced hourly rates if WLOP obtained favorable settlements or judgments in a certain number of cases.

On December 31, 2010, WLOP terminated Appellant's agreement pursuant to its terms. At that time, WLOP had paid Appellant the full amount of her hourly fees; however, WLOP maintained that it did not have sufficient funds to pay Appellant her enhanced fees. In June 2011, Appellant filed suit against WLOP to recover these fees.

In August 2011, WLOP filed a voluntary bankruptcy proceeding under Chapter 11, and Appellant submitted claims for her enhanced hourly fees. Appellant asserted that they were secured claims; in a related adversary proceeding, the Bankruptcy Court ruled that they were unsecured, and this court affirmed that ruling. Subsequently, the Bankruptcy Court allowed Appellant's claims in an amount determined by the court, including pre-petition interest at the rate specified in her agreement with WLOP (the contractual rate).

On August 8, 2012, WLOP submitted its Third Amended Plan of Reorganization, which provided for payment of unsecured creditors in full, with post-petition interest at the federal judgment rate. Appellant objected and claimed that post-petition interest on her claims should be paid according to the contractual rate.

The Bankruptcy Court overruled Appellant's objection and confirmed WLOP's plan. Appellant then filed this appeal.[1]

DISCUSSION

This court reviews the Bankruptcy Court's conclusions of law de novo. In re Schwarzkopf , 626 F.3d 1032, 1035 (9th Cir. 2010).

The sole issue presented is whether Appellant should recover post-petition interest on her claims at the federal judgment rate or at the contractual rate set forth in the parties' underlying agreement, which is the state law rate of interest. I find that this court is bound by the Ninth Circuit's ruling in In re Cardelucci , 285 F.3d 1231 (9th Cir. 2002) and affirm the Bankruptcy Court.

In Cardelucci, the Ninth Circuit addressed the specific issue raised here: "This appeal presents the narrow but important issue of whether such post-petition interest is to be calculated using the federal judgment interest rate or is determined by the parties' contract or state law." Id. at 1233. The court recognized that "[w]here a debtor in bankruptcy is solvent, an unsecured creditor is entitled to payment of interest at the legal rate from the date of the filing of the petition[.]'" Id. at 1234 (quoting 11 U.S.C. § 726(a) (5)). The Ninth Circuit noted that the Bankruptcy Code did not define the phrase "interest at the legal rate" in§ 726(a) (5), and that bankruptcy court rulings were divided on this issue:

[B] ankruptcy courts have split over the correct interpretation of this phrase, finding that it either means one single rate as determined by 28 U.S.C. § 1961 (a) (the "federal judgment rate approach") or is based on a ...

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