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In re Linn Energy, L.L.C.

United States Court of Appeals, Fifth Circuit

June 14, 2019

In the Matter of: Linn Energy, L.L.C., et al Debtors
v.
LINN ENERGY, L.L.C., LINNCO, L.L.C.; LINN ENERGY FINANCE CORPORATION; LINN ENERGY HOLDINGS, L.L.C.;LINN EXPLORATION & PRODUCTION MICHIGAN L.L.C.;LINN EXPLORATION MIDCONTINENT, L.L.C.; LINN MIDSTREAM, L.L.C.; LINN MIDWEST ENERGY L.L.C.; LINN OPERATING, INCORPORATED; MID-CONTINENT I, L.L.C.; MID-CONTINENT II, L.L.C.;MID-CONTINENT HOLDINGS I, L.L.C.; MID-CONTINENT II, L.L.C., Appellees UMB BANK, NATIONAL ASSOCIATION, Appellant

          Appeal from the United States District Court for the Southern District of Texas

          Before STEWART, Chief Judge, and SOUTHWICK and ENGELHARDT, Circuit Judges.

          LESLIE H. SOUTHWICK, CIRCUIT JUDGE

         This case requires us to interpret a Chapter 11 bankruptcy plan. One class of lenders extended billions of dollars of credit to the debtor and its affiliates. The class argues that the language of the bankruptcy plan entitles it to over thirty million dollars in post-petition default interest. We conclude the plan does not so provide and AFFIRM.

         FACTUAL AND PROCEDURAL HISTORY

         We will refer to the debtors, Linn Energy, LLC and its affiliates, as the "Linn Debtors" or the "Debtors." One class of its creditors, whom we will call the "Linn Lenders" or at times just the "Lenders," includes over 40 financial institutions and lender banks that pre-petition collectively extended billions of dollars in credit to the Linn Debtors under the terms of the operative Linn Credit Agreement. UMB Bank serves as the administrative agent for the Lenders. Although the underlying bankruptcy reorganization is complex, the issue now before the court is narrow. The factual and procedural history relevant to the resolution of the issue is as follows.

         The Linn Credit Agreement dated April 24, 2013, provided that in the case of an "Event of Default," such as a voluntary reorganization, all loans then outstanding would bear interest at a rate of two percent above the otherwise applicable base rate. The Linn Debtors filed a voluntary bankruptcy petition under Chapter 11 of the Bankruptcy Code in May 2016. In July 2016, the bankruptcy court entered a Final Cash Collateral Order in which the Linn Lenders reserved the right to assert claims later for additional interest at a post-default rate of two percent plus the otherwise applicable rate. In September 2016, the Lenders submitted proofs of claim, three of which expressly listed identical claims for "additional interest" at the default rate and referred to the Linn Credit Agreement. The contested claim for post-petition default interest ultimately was for $31, 187, 459.26, representing the amount of interest "at the postdefault rate of two percent" above the rate otherwise applicable.

         The Linn Debtors' bankruptcy plan (the "Plan") was subsequently accepted by its creditors and confirmed by the bankruptcy court. Two articles of the Plan are relevant to this appeal. The first, Article III.B.3(b), provides for the payment of interest using these terms:

Notwithstanding any other provision of this Plan to the contrary, on the Effective Date, the LINN Lender Claims are Allowed as fully Secured Claims under section 506(b) of the Bankruptcy Code having first lien priority in the amount of $1.939 billion on account of unpaid principal, plus unpaid interest, fees, other expenses, and other obligations arising under or in connection with the LINN Lender Claims, or as set forth in the LINN Credit Agreement other Loan Documents (as defined in the LINN Credit Agreement), in each case, not subject either in whole or in part to off-set, disallowance or avoidance under chapter 5 of the Bankruptcy Code or otherwise, or any legal, contractual, or equitable theory for claims . . . .

         The other relevant section of the Plan, Article VI.F, is captioned "No Postpetition or Default Interest on Claims." It elaborates this way:

Unless otherwise specifically provided for in the Plan or the Confirmation Order, and notwithstanding any documents that govern the LINN Debtors' prepetition funded indebtedness to the contrary, (a) postpetition and/or default interest shall not accrue or be paid on any Claims and (b) no Holder of a Claim shall be entitled to: (i) interest accruing on or after the Petition Date on any such Claim; or (ii) interest at the contract default rate, as applicable.

         The obvious question is whether Article III.B.3 allows payment of the post-petition default interest being sought by the Linn Lenders, or whether Article VI.F's prohibition on post-petition default interest unless "specifically provided for in the Plan or the Confirmation Order" bars UMB's claim.

         The bankruptcy court concluded there was no conflict or ambiguity, that "Article III.B.3 contains no specific reference to default interest," and Article VI.F of the Plan "contains an express prohibition against the payment of any default interest absent a specific provision in the Plan [or] the Confirmation Order to the contrary." An award of the additional interest was denied. The Linn ...


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