                                                        FILED
 1                        ORDERED PUBLISHED              MAR 31 2016
                                                     SUSAN M. SPRAUL, CLERK
 2                                                     U.S. BKCY. APP. PANEL
                                                       OF THE NINTH CIRCUIT
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5
 6   In re:                        )     BAP No.     NV-14-1564-KiDJu
                                   )
 7   BELTWAY ONE DEVELOPMENT       )     Bk. No.     2:11-bk-21026-MKN
     GROUP, LLC,                   )
 8                                 )
                    Debtor.        )
 9                                 )
                                   )
10                                 )
     WELLS FARGO BANK, N.A.,       )
11                                 )
                    Appellant,     )
12                                 )
     v.                            )          O P I N I O N
13                                 )
     BELTWAY ONE DEVELOPMENT       )
14   GROUP, LLC,                   )
                                   )
15                  Appellee.      )
     ______________________________)
16
17               Argued and Submitted on February 18, 2016,
                             at Las Vegas, Nevada
18
                                 March 31, 2016
19
                Appeal from the United States Bankruptcy Court
20                        for the District of Nevada
21     Honorable Mike K. Nakagawa, Chief Bankruptcy Judge, Presiding
22
23   Appearances:    Bryce A. Suzuki of Bryan Cave LLP argued for
                     appellant Wells Fargo Bank, N.A.; Gerald M. Gordon
24                   of Garman Turner Gordon LLP argued for appellee
                     Beltway One Development Group, LLC.
25
26   Before:   KIRSCHER, DUNN and JURY, Bankruptcy Judges.
27
28
 1   KIRSCHER, Bankruptcy Judge:
 2
 3        Creditor Wells Fargo Bank, N.A., appeals the bankruptcy
 4   court’s decision to deny accrued postpetition, pre-effective date1
 5   default interest on Wells Fargo’s allowed, oversecured claim
 6   pursuant to the Debtor’s chapter 112 plan of reorganization, which
 7   did not cure the prebankruptcy default.    We REVERSE and REMAND.
 8                 I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
 9   A.   Events leading to the bankruptcy case
10        Chapter 11 debtor, Beltway One Development Group, LLC, owns
11   and operates the Desert Canyon Business Park, a 15-acre master
12   planned business park located in Las Vegas.    Debtor is managed by
13   Beltway One Management Group, LLC, which in turn is managed by
14   Todd Nigro.
15        On May 16, 2008, Debtor and Wells Fargo’s predecessor in
16   interest, Wachovia Bank, N.A., entered into a term loan agreement
17
18        1
            The postpetition, pre-effective date interest rate
     determined under § 506(b) commences on the petition date and
19   continues until the effective date stated in the confirmed plan,
     after which the cramdown interest rate, determined under § 1129,
20   commences if the plan is confirmed. Unless the plan provides a
     specific date when it becomes effective, the effective date is the
21   confirmation date. See Countrywide Home Loans, Inc. v. Hoopai (In
     re Hoopai), 581 F.3d 1090, 1101 (9th Cir. 2009) (although a
22   chapter 13 case, discussion on effective date is applicable under
     § 1325(a)(5)(B)(ii) and § 1129(b)(2)(A)(i)(II)). In this appeal
23   we refer to this postpetition, pre-effective date interest rate as
     “pendency interest.” This pendency interest may be the
24   prepetition contractual interest rate or the contractual default
     interest rate depending on whether a cure or a noncure occurs in
25   the pending case and depending on what interest rate is provided
     in any contractual provisions. The cramdown interest rate or
26   “plan interest” is not an issue on appeal.
27        2
            Unless specified otherwise, all chapter, code and rule
     references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
28   the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.

                                       -2-
 1   wherein Wachovia agreed to lend Debtor $10 million.   In exchange
 2   for the loan, Debtor executed a promissory note, a deed of trust
 3   with assignment of rents and other documents in favor of Wachovia,
 4   giving the lender a first position lien and security interest in
 5   the real property and various personal property of Debtor.3    The
 6   note matured on May 16, 2011, before the bankruptcy petition was
 7   filed.
 8        Per the terms of the agreement, the loan accrued interest at
 9   a variable rate equal to 1-month LIBOR rate plus 2.10%.    Upon
10   default, the interest rate would increase by 3% over the
11   nondefault rate of LIBOR plus 2.10%.4
12        In May 2010, Wells Fargo issued notices of default based on
13   an alleged loan-to-value ratio covenant default.   Specifically,
14   Wells Fargo claimed the value of the property was $10.15 million
15   and therefore, in order to comply with the covenant requiring a
16   LTV ratio of not less than 70%, demanded that Debtor immediately
17   tender a payment of $2,793,419 to reduce the loan balance to
18   $7.105 million.   Debtor was unable to meet the demand and tried to
19   negotiate a resolution, which the parties failed to accomplish.
20        Debtor did not pay the loan in full by its maturity date of
21   May 16, 2011.   Wells Fargo sent Debtor and the loan guarantors a
22   letter declaring Debtor’s default and the acceleration of the
23
24        3
            Specifically, Wells Fargo’s loan is secured by, among other
     things, one building in the Desert Canyon complex known as
25   “Building 11.”
26        4
            The 30-day LIBOR rate was 2.48% when the note was executed
     in May 2008, resulting in an interest rate of 4.58%. The loan’s
27   nondefault interest rate has not exceeded 3.4% since January 2009,
     and remained at 2.4% throughout the bankruptcy case. Accordingly,
28   the default rate was 5.4% throughout the bankruptcy case.

                                     -3-
 1   debt, including the principal balance of $9,789,494.72 and accrued
 2   interest of $18,011.56, for a total due of $9,807,506.28.   On
 3   July 8, 2011, Wells Fargo recorded its Notice of Trustee’s Sale
 4   and advised Debtor it would be filing a complaint and seeking the
 5   appointment of a receiver.   To avoid foreclosure, Debtor filed its
 6   chapter 11 bankruptcy petition on July 13, 2011.
 7   B.   Debtor’s bankruptcy case
 8        Pursuant to a stipulated cash collateral agreement, Debtor
 9   paid Wells Fargo monthly adequate protection payments of $30,000.
10   Debtor timely made each of these payments between July 2011 and
11   the Effective Date of Debtor’s chapter 11 plan.
12        Meanwhile, Wells Fargo filed its proof of claim on
13   November 15, 2011, asserting a prepetition debt of $9,877,741.20,
14   which consisted of $9,789,494.72 in unpaid principal, $36,060.70
15   in unpaid accrued nondefault interest, $47,315.89 in default
16   interest, and $4,869.89 in other charges.
17        1.   Debtor’s plan and Wells Fargo’s objection
18        In Debtor’s amended chapter 11 plan of reorganization (the
19   “Plan”), for Wells Fargo’s claim Debtor proposed to:   (1) extend
20   the loan term to March 31, 2017, with a balloon payment at the end
21   of the Plan term; (2) impose a cramdown interest rate of 4.25%;
22   (3) and eliminate various covenants (one being the LTV covenant)
23   and other loan terms.   Debtor would make a $200,000 payment to
24   Wells Fargo just after the Plan’s Effective Date, and thereafter
25   make monthly payments for principal and interest (at the 4.25%
26   rate), amortized over 30 years.
27        The Plan expressly provided that Wells Fargo would “not be
28   entitled to any default interest, late fees, or other charges

                                       -4-
 1   resulting from a default occurring prior to the Effective Date.”
 2   The Plan further provided that on the Effective Date, any pre-
 3   Effective Date defaults under the Wells Fargo loan would be deemed
 4   to have been “cured.”
 5           In support of the Plan, Debtor offered a direct testimony
 6   declaration from Mr. Nigro.       He testified that even if Wells
 7   Fargo’s claim were allowed as filed, including default interest,
 8   Debtor would still have more than $2 million in equity at the new
 9   maturity of the restructured loan under the Plan.
10           In opposing confirmation, Wells Fargo contended the Plan
11   failed the general “fair and equitable” test under § 1129(b)(1)
12   because it treated Wells Fargo as fully secured but deprived Wells
13   Fargo of its contractual right to default interest, late fees and
14   other charges arising from any default prior to the Effective
15   Date.       Citing Future Media Productions, Inc.,5 Wells Fargo
16   contended that as an oversecured creditor, § 506(b) authorized
17   recovery of postpetition default interest on its claim and any
18   reasonable fees, costs or charges arising under the loan
19   agreement.       Wells Fargo further contended that Debtor’s proposed
20   “cure” attempt was not permissible; Debtor could not “magically
21   cure” the maturity date default as required by § 1124(2)(A).
22           2.     The Plan confirmation hearing and post-trial briefing
23           Following the four day Plan confirmation hearing, the parties
24   filed post-trial briefs.       Reiterating the same arguments it had
25   raised in its Plan objection and citing Future Media, Wells Fargo
26
27           5
            Gen. Elec. Capital Corp. v. Future Media Prods., Inc., 536
     F.3d 969, 973 (9th Cir.), amended 547 F.3d 956, 960 (9th Cir.
28   2008).

                                         -5-
 1   contended that Debtor’s Plan failed the general “fair and
 2   equitable” test under § 1129(b) by depriving it of default
 3   interest prior to the Effective Date despite the loan documents’
 4   allowance for such charges and that § 506(b) provided oversecured
 5   creditors like Wells Fargo recovery of any pendency interest.
 6        Debtor acknowledged the Plan was not “curing” the Wells Fargo
 7   loan and not restoring its formerly effective terms; rather, it
 8   was creating a “new loan” by restructuring the debt.    Debtor did
 9   not generally disagree with the authority cited by Wells Fargo for
10   the payment of default interest, late fees and other charges.      The
11   only caveat, according to Debtor, was that § 506 did “not allow
12   any such interest to exceed the value of the collateral.”
13        3.   The bankruptcy court confirms the Plan.
14        With the Plan under submission for just over two years, the
15   bankruptcy court entered its Order and Memorandum Decision on
16   Final Approval of Disclosure Statement and Confirmation of
17   Chapter 11 Plan on March 25, 2014.    The court adopted Debtor’s
18   valuation of $11.1 million for Building 11, which secured Wells
19   Fargo’s claim of approximately $9.9 million, and approved the
20   cramdown interest rate of 4.25%.6    In denying Wells Fargo pendency
21   interest, the court’s ruling was brief:
22        Modification of default interest rates and elimination
          of late fees and other costs is consistent with the Code
23        and supported by the case cited by Wells Fargo. In
          [Future Media], the Ninth confirmed its previous holding
24        in Great Western Bank & Trust v. Entz-White Lumber and
25
          6
            The bankruptcy court’s valuation of Building 11 at $11.1
26   million is not disputed on appeal. Therefore, it is undisputed
     that Wells Fargo is an oversecured creditor. See United States v.
27   Ron Pair Enters., Inc., 489 U.S. 235, 239 (1989) (a creditor is
     considered to be “oversecured” when the value of its collateral
28   exceeds the amount of the creditor’s allowed claim).

                                     -6-
 1        Supply, Inc. (In re Entz-White Lumber and Supply, Inc.),
          850 F.2d 1338 (9th Cir. 1988), “that an oversecured
 2        creditor was not entitled to interest at the default
          rate where its claim was paid in full pursuant to the
 3        terms of a Chapter 11 plan.” 536 F.3d at 973. The
          circuit panel went on to emphasize that “the provision
 4        allowing ‘cures’ under § 1124(2)(A) ‘authorizes a plan
          to nullify all consequences of default, including
 5        avoidance of default penalties such as higher
          interest.’” Id., citing Fla. Partners Corp. v.
 6        Southeast Co. (In re Southeast Co.), 868 F.2d 335, 338
          (9th Cir. 1989).
 7
          Based on the foregoing, Section 1129(b) is satisfied.
 8
 9   Mem. Decision (Mar. 25, 2014) 15:3-14.
10
          4.   Wells Fargo’s motion to reconsider the Confirmation
11             Order
12        Wells Fargo moved to alter or amend judgment or for relief
13   from judgment respecting the Confirmation Order (“Motion to
14   Reconsider”).   In short, Wells Fargo contended the Confirmation
15   Order had to be amended (1) to clarify that Entz-White and its
16   progeny were inapplicable in this case and (2) to require the
17   payment of postpetition default interest, charges, fees and
18   expenses as part of Wells Fargo’s allowed claim under § 506(b).
19        Wells Fargo argued that because its claim was impaired and
20   the Plan did not effect a “cure” within the meaning of Entz-White
21   or § 1124(2)(A) allowing Debtor to eliminate Wells Fargo’s right
22   to default interest, Wells Fargo could not be deprived of its
23   default interest recoverable under § 506(b) as an oversecured
24   creditor as set forth in Future Media.   In other words, the
25   bankruptcy court was required under Future Media to enforce the
26   contractual default rate as to its pendency interest.
27   Alternatively, Wells Fargo argued that even if the Plan could be
28   interpreted to effect an Entz-White cure, the 1994 amendments to

                                     -7-
 1   the Code, namely § 1123(d), overturned Entz-White and its progeny,
 2   and thus such “cures” eliminating default interest and other
 3   charges available in the underlying agreement and applicable
 4   nonbankruptcy law were no longer valid.
 5        In opposition to the Motion to Reconsider, Debtor conceded
 6   that no Entz-White cure was effected or even contemplated for
 7   Wells Fargo’s claim under the Plan.     Nonetheless, argued Debtor,
 8   regardless of whether or not the Plan cured Wells Fargo’s claim,
 9   the bankruptcy court was permitted to disallow default interest
10   under its equitable discretion and the authority granted it by
11   Future Media.   Debtor contended that under Future Media the
12   allowance of default interest is subject to equitable
13   considerations, which is consistent with the holding in Entz-White
14   that bankruptcy courts have “broad equitable discretion” in
15   awarding postpetition interest.    Debtor contended Entz-White was
16   still good law despite the enactment of § 1123(d).
17        In reply, Wells Fargo argued that nowhere in its Memorandum
18   Decision did the bankruptcy court discuss equitable considerations
19   or any other basis for eliminating default interest other than a
20   “cure.”   However, if the bankruptcy court did rely on equitable
21   considerations to eliminate default interest, the Memorandum
22   Decision required amendment to articulate those considerations.
23   In any event, Wells Fargo contended that the “equities” in this
24   case clearly supported the enforcement of the parties’ contractual
25   default interest provisions.   The default rate was a mere 3%
26   higher than the nondefault rate, which remained at 2.4% throughout
27   the bankruptcy case.   Thus, Debtor had enjoyed an extraordinary
28   low interest rate for the length of the case, thereby allowing it

                                       -8-
 1   to stockpile over $2 million in cash.    Eliminating Wells Fargo’s
 2   claim for default interest allowed Debtors’ owners to reap
 3   substantial equity in the property and over $2 million in cash at
 4   the expense of Wells Fargo.   Even after paying its claim for
 5   default interest of $752,948.72, Wells Fargo argued that Debtor
 6   would still be left with more than $2.4 million of equity, which
 7   was hardly an inequitable result.
 8
           5.   The bankruptcy court’s ruling on the Motion to
 9              Reconsider
10         In its order denying the Motion to Reconsider, the bankruptcy
11   court’s analysis was again brief.     The court first noted that in
12   approving the Plan, it had reached the legal conclusion that the
13   treatment of Wells Fargo’s claim was fair and equitable within the
14   meaning of § 1129(b)(1), and “[n]othing in the parties’ dispute
15   over the continued vitality of Entz-White change[d] this result.”
16   Order on Motion to Reconsider (Nov. 17, 2014) 6:5-6.    The court
17   concluded that Entz-White was still good law, but even if it were
18   not, “its holding is not inconsistent with and is instructive in
19   the determination of whether a particular plan treatment is fair
20   and equitable to an objecting creditor.”7    Id. at 7:11-14.
21         Wells Fargo timely appealed.
22                             II. JURISDICTION
23         The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334
24   and 157(b)(2)(L).   We have jurisdiction under 28 U.S.C. § 158(b).
25   ///
26
           7
            Wells Fargo had also requested amendment to require Debtor
27   to include fees and expenses as part of Wells Fargo’s claim. The
     bankruptcy court ultimately allowed Wells Fargo’s professional
28   fees and expenses of $166,850 as part of its oversecured claim.

                                     -9-
 1                                    III. ISSUE
 2           Did the bankruptcy court err in eliminating the prepetition
 3   default interest rate as the pendency interest for Wells Fargo’s
 4   oversecured claim?
 5                            IV. STANDARD OF REVIEW
 6           When the denial of a claim for default interest is based on
 7   statutory interpretation, a question of law, our review is de
 8   novo.    CityBank v. Udhus (In re Udhus), 218 B.R. 513, 515 (9th
 9   Cir. BAP 1998).
10                                V. DISCUSSION
11           Three categories of interest exist in bankruptcy cases:
12   (1) interest accrued prior to the filing of the bankruptcy
13   petition (prepetition interest); (2) interest accrued after the
14   filing of a petition but prior to the effective date of a
15   reorganization plan (pendency interest); and (3) interest to
16   accrue under the terms of a reorganization plan (plan interest).
17   Key Bank Nat’l Ass’n v. Milham (In re Milham), 141 F.3d 420, 423
18   (2d Cir.), cert. denied, 525 U.S. 872 (1998).     The category of
19   interest at issue in this appeal is pendency interest.
20           Generally, the Code does not provide for pendency interest to
21   creditors, because the filing of the petition usually stops
22   interest from accruing.    Id.    Section 506(b), however, provides an
23   exception for oversecured creditors:
24           To the extent that an allowed secured claim is secured
             by property the value of which, after any recovery under
25           subsection (c) of this section, is greater than the
             amount of such claim, there shall be allowed to the
26           holder of such claim, interest on such claim, and any
             reasonable fees, costs, or charges provided for under
27           the agreement or State statute under which such claim
             arose.
28

                                         -10-
 1   § 506(b).   Thus, an oversecured creditor can recover pendency
 2   interest as part of its allowed claim, at least to the extent it
 3   is oversecured.   Rake v. Wade, 508 U.S. 464, 471 (1993),
 4   superseded on other grounds by §§ 1123(d) and 1322(e); Ron Pair
 5   Enters., Inc., 489 U.S. at 241; In re Hoopai, 581 F.3d at 1099-
 6   1101 (pendency period includes from the petition date to the date
 7   of plan confirmation as opposed to the “effective date,” unless
 8   the plan specifically provides an effective date).     Any
 9   accumulated pendency interest determined under § 506(b) is added
10   to the allowed claim of an oversecured creditor and then paid
11   pursuant to the terms of the confirmed plan with plan interest
12   determined under § 1129(b)(2)(A)(i)(II).    See 4 COLLIER ON BANKRUPTCY
13   ¶ 506.04[2] (Alan N. Resnick & Henry J. Sommer eds., 16th ed.
14   2016).
15        The issue before us is a narrow one:    whether the bankruptcy
16   court was required to apply the default rate of interest to Wells
17   Fargo’s claim during the pendency period.    While § 506(b) entitles
18   an oversecured creditor to recover pendency interest on its claim,
19   the statute does not specify the rate of interest to be applied.
20   Ron Pair held that a creditor’s entitlement to interest is not
21   dependent upon an agreement or contract between the parties, but
22   it did not address the question of the rate of interest to which a
23   creditor is entitled when an agreement exists.    Arguably, this
24   Panel and the Ninth Circuit Court of Appeals have weighed in on
25   this issue.
26   A.   Entz-White is inapplicable.
27        In the Ninth Circuit case, Entz-White, the chapter 11 debtor,
28   pursuant to a plan and upon confirmation, paid the oversecured

                                     -11-
 1   creditor the full principal balance owed and accrued interest at
 2   the contract rate (the pre-default rate of prime plus 1.5%) under
 3   the promissory note, which matured prepetition.   The debtor argued
 4   that by paying the arrearage on the creditor’s obligation, it had
 5   cured the default under § 1124 and, thus, the plan could treat the
 6   creditor’s claim as unimpaired under § 1124(2)(A) and eliminate
 7   the consequences of default.   The creditor objected to
 8   confirmation because the plan did not allow for its claim of
 9   default interest (a rate of 18%).   The creditor contended the
10   § 1123(a)(5)(G)8 “cure” of the debtor’s default did not relieve
11   the debtor from paying default interest on the matured note.      850
12   F.2d at 1339-40.
13        The Ninth Circuit rejected the creditor’s argument.
14   Recognizing the Code does not define “cure,” the court adopted the
15   definition of “cure” adopted by the Second Circuit in Di Pierro v.
16   Taddeo (In re Taddeo), 685 F.2d 24 (2d Cir. 1982), that “[a]
17   default is an event in the debtor-creditor relationship which
18   triggers certain consequences . . . .   Curing a default commonly
19   means taking care of the triggering event and returning to
20   pre-default conditions.    The consequences are thus nullified.
21   This is the concept of ‘cure’ used throughout the Bankruptcy
22   Code.”   Entz–White, 850 F.2d at 1340 (quoting In re Taddeo, 685
23   F.2d at 26–27).    The court reasoned that “curing” a default
24   returns the parties to pre-default conditions, as if the default
25   had never occurred.   Accordingly, because the oversecured
26
          8
            Section 1123(a)(5)(G) provides: “Notwithstanding any
27   otherwise applicable nonbankruptcy law, a plan shall provide
     adequate means for the plan’s implementation, such as curing or
28   waiving of any default.”

                                      -12-
 1   creditor’s claim was paid in full immediately on the plan’s
 2   effective date and “cured,” the debtor was “entitled to avoid all
 3   consequences of the default – including higher post-default
 4   interest rates.”   Id. at 1342.
 5        In denying default interest under § 506(b), the Ninth Circuit
 6   stated that the more “natural reading” of §§ 506 and 1124 is that
 7   “the interest awarded should be at the market rate or at the
 8   pre-default rate provided for in the contract.”   Id. at 1343.
 9   Despite this apparent bright-line rule of no default interest in
10   the case of a complete cure, the court stated in a footnote:     “We
11   continue, of course, to recognize bankruptcy courts’ ‘broad
12   equitable discretion’ in awarding post-petition interest.”    Id. at
13   1343 n.9 (citing Bank of Honolulu v. Anderson (In re Anderson),
14   833 F.2d 834, 836 (9th Cir. 1987)).
15        Wells Fargo argues, and Debtor has conceded, that no “cure”
16   within the meaning of Entz-White occurred here.   Wells Fargo’s
17   claim was expressly impaired and the Plan did not provide for the
18   immediate payment of the outstanding indebtedness to Wells Fargo
19   upon confirmation, as was the case in Entz-White.   Rather, under
20   the Plan, the original maturity date of the note was extended for
21   an additional five years; a new amortization schedule was
22   implemented; and new terms were substituted in lieu of the prior
23   obligation.   Because Debtor’s Plan did not cure the default under
24   the Wells Fargo note, Entz-White is inapplicable.   Accordingly, to
25   the extent the bankruptcy court relied upon Entz-White to deny
26   Wells Fargo any pendency interest at the default rate on the basis
27   that the prepetition default was “cured” pursuant to the terms of
28   the Debtor’s Chapter 11 plan, it erred.

                                       -13-
 1        Debtor contends that even if no Entz-White cure occurred
 2   here, the bankruptcy court still had authority to modify the
 3   default interest under its “broad equitable discretion” as
 4   recognized in Entz-White, which the bankruptcy court appropriately
 5   employed under § 1129(b)’s “fair and equitable” requirement.    The
 6   bankruptcy court did not “modify” the default rate; it eliminated
 7   it, applying instead the pre-default rate.   In its brief analysis,
 8   the bankruptcy court did seem to employ the “fair and equitable”
 9   standard for plan confirmation as a basis for denying default
10   interest under § 506(b).    It appears to have done the same thing
11   in ruling on the Motion to Reconsider.   Perhaps this is because
12   Wells Fargo had argued repeatedly that the Plan was not fair and
13   equitable due to Debtor’s treatment of Wells Fargo’s claim in not
14   paying default interest.
15        In any event, to the extent the bankruptcy court utilized the
16   “fair and equitable” test under § 1129(b) to deny default interest
17   under § 506(b), it erred.   Determining pendency interest to be
18   included as part of an allowed secured claim as of the date of
19   confirmation under § 506(b) is an issue separate and distinct from
20   the fair and equitable test for plan confirmation under § 1129(b).
21   Essentially, application of the default rate to pendency interest
22   is a claims issue.   The “fair and equitable” test under § 1129(b)
23   is a plan issue and concerns only the treatment of the allowed
24   claim after confirmation.   Therefore, the bankruptcy court erred
25   in conflating the fair and equitable standard of § 1129(b) with
26   the elimination of pendency default interest under § 506(b).
27        Finally, we agree with Wells Fargo and interpret the footnote
28   in Entz-White regarding the court’s “broad equitable discretion”

                                      -14-
 1   in awarding postpetition interest as being limited to the very
 2   narrow circumstance of a plan which cures and nullifies all
 3   consequences of default but fails to establish the appropriate
 4   postpetition interest rate under the contract or applicable state
 5   law.       That is not the case here.9
 6   B.     Hassen Imports
 7          In a case presenting facts similar to those here, this Panel
 8   held that when the debt is not being cured within the meaning of
 9   Entz-White, the oversecured creditor is entitled to default
10   interest that reasonably compensates it for losses arising from
11   the default.       Hassen Imps. P’ship v. KWP Fin. VI (In re Hassen
12   Imps. P’ship), 256 B.R. 916, 924-25 (9th Cir. BAP 2000),
13   superseded by § 506(b) (2005).       In other words, entitlement to
14   contractual default interest is not automatic but may be allowed
15   upon demonstrating that it meets certain requirements.      Id. at
16   924.
17          The Panel in Hassen Imports reviewed decisions from other
18   circuits, which presume reasonableness of contractual default
19   interest unless the debtor introduces evidence in rebuttal.      In re
20   Hassen Imps. P’ship, 256 B.R. at 924 (citing Southland Corp. v.
21   Toronto-Dominion (In re Southland Corp.), 160 F.3d 1054 (5th Cir.
22   1998) (default interest rate is generally allowed unless the
23   higher rate would produce inequitable result); In re Terry Ltd.
24   P’ship, 27 F.3d 241, 243 (7th Cir.), cert. denied, 513 U.S. 948
25   (1994) (“What emerges from the post-Ron Pair decisions is a
26
27          9
            Because we have determined Entz-White is not applicable, we
     need not determine whether it remains good law, which the parties
28   dispute.

                                         -15-
 1   presumption in favor of the [default] contract rate subject to
 2   rebuttal based upon equitable considerations.”); Bradford v.
 3   Crozier (In re Laymon), 958 F.2d 72, 74 (5th Cir.), cert. denied,
 4   506 U.S. 917 (1992); Equitable Life Assurance Soc’y v. Sublett (In
 5   re Sublett), 895 F.2d 1381 (11th Cir. 1990)).      The Panel then held
 6   that the debtor had sufficiently shifted the burden to the lender
 7   when the lender’s officer testified that one purpose of the
 8   default rate is to encourage timely payment — i.e., it was a
 9   penalty as opposed to compensating the lender for any demonstrated
10   losses due to the default.    Consequently, the Panel remanded for a
11   determination of whether the default rate reasonably compensated
12   the lender for actual loss.    If so, then the bankruptcy court was
13   free to award such interest.    256 B.R. at 925.
14   C.   Future Media
15         Finally, in Future Media, lender GECC loaned the debtor
16   $10.5 million with a $5 million revolving line of credit, secured
17   by a first priority security interest in substantially all of the
18   debtor’s assets.    547 F.3d at 958.    The loan agreement provided
19   for a pre-default interest rate of the Index Rate plus 1.5% per
20   annum and a default rate of an additional 2% per annum.     An event
21   of default occurred and the loans began to bear interest at the
22   default rate.   After additional default events occurred, the
23   debtor filed a chapter 11 bankruptcy case.     Id.
24        Subsequently, the debtor needed cash to wind down its
25   operations and prepare for a sale of its assets.     GECC agreed to
26   debtor’s use of cash collateral, subject to a stipulation to which
27   the creditors’ committee objected.      To stop the accrual of
28   interest on GECC’s unpaid claim, the parties agreed GECC would be

                                      -16-
 1   paid in full at the default interest rate and that any dispute
 2   about default interest would be resolved at a later date.    The
 3   committee argued that GECC was only entitled to interest at the
 4   pre-default rate and that GECC should return the amount it had
 5   collected over that.    The bankruptcy court, relying on Entz-White,
 6   agreed and ordered GECC to return the difference.    Id. at 958-59.
 7        On appeal, the Ninth Circuit reversed and remanded.    Because
 8   the only dispute was what type of interest was due to GECC under
 9   § 506(b), the court determined that the two relevant issues on
10   appeal were:    (1) whether Entz-White applied; and (2) if it did
11   not, how the bankruptcy court should evaluate the viability of the
12   contractual default interest rate on remand.    Id. at 959-60.
13   Distinguishing Entz-White on its facts, the court determined that
14   the bankruptcy court had erred in extending the per se rule from
15   Entz-White to the case at bar.    Id. at 960.   The court found that
16   “‘[c]reditors’ entitlements in bankruptcy arise in the first
17   instance from the underlying substantive law creating the debtor’s
18   obligation, subject to any qualifying or contrary provisions of
19   the Bankruptcy Code.’”    Id. (quoting Travelers Cas. & Sur. Co. of
20   Am. v. Pac. Gas & Elec. Co., 549 U.S. 443, 450 (2007)).    Such a
21   “qualifying or contrary” provision of the Code was present in
22   Entz-White — the ability to cure a default in a chapter 11 plan
23   under § 1124(2)(A) — but was not present in the instant case —
24   paying the oversecured creditor’s claim in full through a § 363
25   asset sale.    Id.   In reviewing the Panel’s decision in Casa Blanca
26   Project Lenders, L.P. v. City Commerce Bank (In re Casa Blanca
27   Project Lenders, L.P.), 196 B.R. 140 (9th Cir. BAP 1996),
28   abrogated by Future Media Prods., Inc., 547 F.3d 956 (9th Cir.

                                       -17-
 1   2008), a similar asset sale case, the Ninth Circuit found that the
 2   Panel had improperly extended Entz-White by “transposing” the
 3   concept of “cure” from § 1124 and § 365 into § 363.     Id. at 961.
 4   The court reasoned that in the context of an asset sale, there is
 5   no “cure” of events of default.    Id.
 6        Because Entz-White did not apply, the Future Media court
 7   instructed the bankruptcy court on remand to apply the “rule
 8   adopted by the majority of federal courts.     That rule simply
 9   stated is:    The bankruptcy court should apply a presumption of
10   allowability for the contracted for default rate, ‘provided that
11   the rate is not unenforceable under applicable nonbankruptcy
12   law.’”   Id. (quoting 4 COLLIER ON BANKRUPTCY, ¶ 506.04[2][b][ii] (15th
13   ed. 1996)).   To reach its decision in favor of applying default
14   interest under § 506(b), the court relied specifically on two
15   circuit cases:   the Fifth Circuit case, In re Laymon, and the
16   Seventh Circuit case, In re Terry Limited Partnership.      Id.   The
17   court declined GECC’s invitation to create a bright-line rule that
18   a default rate differential of 2% is reasonable.     Id. at 962.
19   D.   The bankruptcy court misapplied the law.
20        Clearly then, Future Media allows oversecured creditors to
21   recover pendency interest at the default rate, at least in some
22   instances.    First, the presumption of the contractual default rate
23   applies only to those oversecured creditors whose claims to the
24   higher interest rate are enforceable under nonbankruptcy law.
25   Further, the court’s reliance on Laymon and Terry limited the
26   presumptive rule and gave bankruptcy courts discretion as to
27   whether the default rate will be applied.     Laymon and Terry
28   expressly allowed bankruptcy courts to assess whether the higher

                                       -18-
 1   default rate was reasonable or otherwise equitable under the
 2   circumstances.   See In re Laymon, 958 F.2d at 75 (allowing default
 3   rate interest depending on “the equities involved in [the]
 4   bankruptcy proceeding”); In re Terry Ltd. P’ship, 27 F.3d at 243
 5   (presumption in favor of contractual default rate is “subject to
 6   rebuttal based on equitable considerations”).   That is essentially
 7   the rule the Panel set forth in Hassen Imports and Casa Blanca.
 8   However, we recognize that to the extent these cases placed the
 9   burden on the creditor to establish that the default rate
10   reasonably compensated the creditor for its loses arising from the
11   default, Future Media has overruled those decisions and has
12   shifted the burden to the debtor to demonstrate the rate’s
13   unreasonableness, or that it is not enforceable under
14   nonbankruptcy law.
15        One could arguably interpret the rule favoring default
16   interest set forth in Future Media as applying only to those cases
17   involving an asset sale under § 363.   Although that case did not
18   involve a confirmed chapter 11 plan as did Entz-White, the real
19   focus in Future Media was the fact that no “cure” under
20   § 1124(2)(A) was being effected.   Further, the court did not
21   appear to limit its holding to § 363 asset sale cases, even though
22   it did make the distinction between sale cases and cases involving
23   a confirmed chapter 11 plan.   We do not see any reason why Future
24   Media would not apply in this case, where the plan does not
25   provide for a cure.
26        Accordingly, the bankruptcy court was required to apply the
27   presumptive rule that Wells Fargo was entitled to the default rate
28   for its pendency interest, provided that such rate is not

                                     -19-
 1   unenforceable under Nevada law.    Nothing suggests the bankruptcy
 2   court applied this rule.   We decline Wells Fargo’s invitation to
 3   make any findings as to what default rate may be appropriate in
 4   determining the pendency interest in this appeal.
 5        However, the presumptive rule for default interest is also
 6   subject to rebuttal based on equitable considerations.   The
 7   bankruptcy court made no such “equity” findings here, other than
 8   finding that denying default interest was “fair and equitable”
 9   under § 1129(b), which we have concluded was error.    Contrary to
10   Debtor’s position, and for the reasons stated above, § 1129(b) is
11   not the “qualifying or contrary provision” of the Code the Future
12   Media court was referencing.
13                              VI. CONCLUSION
14        The bankruptcy court appears to have denied default interest
15   on either the erroneous basis that even though no cure was
16   effected in the Plan, Entz-White applied, or that it could deny
17   such interest on the basis that the Plan allowing for the
18   nondefault rate was fair and equitable under § 1129.   Either way,
19   the court applied an incorrect standard of law.   It also did not
20   articulate any findings as to the equitable considerations it
21   applied, if any.   Accordingly, we REVERSE and REMAND the
22   Confirmation Order with respect to the bankruptcy court’s denial
23   of default interest so that it can apply the proper rule under
24   Future Media and make the appropriate findings.
25
26
27
28

                                       -20-
