Pacifica L 51 LLC v. New Investments Inc.

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

IN RE NEW INVESTMENTS, INC, No. 13-36194 Debtor. D.C. No. 13-10948-MLB

PACIFICA L 51 LLC,

Creditor-Appellant,

OPINION

v.

NEW INVESTMENTS INC.,

Debtor-Appellee.

Appeal from the United States Bankruptcy Court for the Western District of Washington Marc Barreca, Bankruptcy Judge, Presiding

Argued and Submitted May 3, 2016 Seattle, Washington

Filed November 4, 2016

Before: Susan P. Graber, Marsha S. Berzon, and Mary H. Murguia, Circuit Judges.

Opinion by Judge Murguia; Dissent by Judge Berzon IN RE NEW INVESTMENTS, INC.

SUMMARY*

Bankruptcy

The panel reversed the bankruptcy court’s order confirming a debtor’s Chapter 11 plan of reorganization, which proposed to cure the debtor’s default on a loan by a payment that reflected a pre-default interest rate and extinguished any other late penalties required under the loan agreement.

A Chapter 11 plan may include a provision authorizing the debtor to remedy any breach of a loan agreement with a creditor and return to pre-default conditions. Great W. Bank & Tr. V. Entz-White Lumber & Supply, Inc. (In re Entz-White Lumber &…

Dissent by Judge BERZON

OPINION

In loan agreements—and any subsequent bankruptcy proceedings—a borrower “defaults” on a loan when he fails to fulfill a material obligation under the terms of the loan agreement, such as making a payment by a particular date. A default can trigger certain consequences, such as foreclosure on any property securing the loan, late fees and penalties, or “acceleration,” which occurs when the entire unpaid amount of the loan becomes immediately due and payable. But the borrower can also “cure” the default, most often by paying the arrearages and bringing the loan current. A cure generally allows the borrower to avoid the consequences of default, restores the loan to its original terms, and allows the borrower to keep the property.

The Bankruptcy Code incorporates the concept of cure. Chapter 11 provides that a debtor’s plan of reorganization must “provide adequate means for the plan’s implementation,” including the “curing or waiving of any default.” 11 U.S.C. *1137 § 1123 (a)(5)(G). This statute means that a plan of reorganization may include a provision authorizing the debtor to remedy any breach of a loan agreement with a creditor and return to…

dissenting:

Neither 11 U.S.C. § 1123 (d) nor any. other provision of the Bankruptcy Code provides a definition of “cure” contrary to the one this Court announced in Great Western Bank & Trust v. Entz-White Lumber & Supply, Inc. (In re Entz-White Lumber & Supply, Inc.), 850 F.2d 1338 , 1340 (9th Cir. 1988). We are therefore bound by this Court’s precedent, according to which New Investments may, in curing its default, pay the pre-default interest rate contained in the promissory note.

Instead of abiding by our longstanding case law, the majority concludes that Congress displaced Entz-White when it passed § 1123(d). Because neither the text of the statute nor the legislative history of § 1123(d) support the majority’s departure, I dissent.

I.

Chapter 11 requires that a debtor’s plan of reorganization “provide adequate means for the plan’s implementation, such as ... curing or waiving of any default.” 11 U.S.C. § 1123 (a)(5). In the absence of any statutory definition, this Court held in Entz-White that “[cjuring a default” means “returning to pre-default conditions,” such that any consequences of the default are “nullified.” 850 F.2d at 1340 (quoting Di Pierro v. Taddeo (In re…