2009 Chapter 11 Recent Developments (Part I)

Reasoning: The BAP first held that the sale was valid and that any appeal of the actual sale was moot under both § 363(m) and the doctrine of equitably mootness. However, that issue is separate from whether the junior lienholder's lien was stripped, which is not equitably moot; and, by its terms, § 363(m) does not apply to lien stripping under § 363(f). With regard to § 363(f)(3), the BAP disagrees with those courts that hold that a sale may be free and clear of 'out-of-the-money' liens. The BAP felt that such a reading is too broad since Congress could have easily specified such treatment in the statute. As for § 363(f)(5), the BAP first said that 'interests' encompasses the type of lien that CCO holds against the Property under the definition of 'lien' in § 101(37). Second, the BAP assumes that § 363(f)(5) applies to cases in which a creditor can be forced to accept, in cash, an amount that is less than the value of its interest. Ultimately, the BAP felt that the bankruptcy court's reasoning that § 363(f)(5) applied by its plain language, without a finding of what type of legal or equitable proceeding could be used to force CCO to accept less than the value of its lien, was inadequate to invoke § 363(f)(5). Lastly, the BAP found that the CCO lien did not apply to the Carve-Out Amount because DB's obligations as to these payments were separate from the purchase of the Property.

Urban Communicators PCS Limited Partnership, et. al. v. Gabriel Capital, L.P. (In re Urban Communicators PCS Limited Partnership), 394 B.R. 325 (S.D.N.Y. 2008)

Facts: Prior to the bankruptcy, Gabriel Capital, L.P. ("Gabriel") lent money to the Debtors for the purpose of purchasing FCC licenses. Gabriel and the Debtors signed security agreements securing loans for around $9 million. The Debtors could not make a required payment to the FCC and filed for bankruptcy and the FCC automatically canceled the licenses and auctioned them to the highest bidder. Gabriel filed a proofs of claim (the "Claims"). Later, the Supreme Court issued FCC v. Nextwave Personal Communications, Inc., 537 U.S. 293 (2003) after which the FCC restored the licenses to the Debtors and filed a proof of claim. When the Debtors sold the licenses (the "Sale"), Gabriel filed this motion to compel payment of cash collateral under §§ 362(d) and 363(e). The proceeds of the Sale exceeded the Claims unless the highest rate of interest is charged on the Claims. The bankruptcy court held that Gabriel was a secured creditor and entitled to 19% default interest but, in the exercise of its discretion, reduced the interest.

Issues: Whether Gabriel is a secured creditor and, if so, what interest rate Gabriel may be paid.

Rules:

(1)

"A creditor may obtain a security interest in the proceeds of the sale of an FCC license, and such an interest constitutes a 'general intangible' that may be perfected prior to the sale of the license."

(2)

"Where collateral was actually sold during the pendency of the case (and where the terms of the sale were fair and arrived at on an arm's-length basis), the actual sale price should be used to measure the property's value, as contrasted with some 'earlier hypothetical valuation.'"

(3)

Under § 506(c) of the Code, interest becomes part of the secured creditor's claim if the creditor is oversecured at the contract rate of interest subject to four equitable considerations: misconduct by the creditor, if applying the statutory rate would cause direct harm to the unsecured creditors, where the statutory rate is a penalty, or where its application would preclude the debtor's fresh start.

(4)

"When the debtor is solvent and there is a contractual provision, valid under state law, providing for interest on unpaid installments of interest, it is enforceable with respect to installments due before and after the petition was filed."

Holding: The bankruptcy court is affirmed and reversed in part - it is affirmed to the extent it found Gabriel to be a secured creditor but reversed to the extent it reduced the post-petition contract rate to