In re Connaught Properties, Inc.
| Decision Date | 12 April 1995 |
| Docket Number | 106.,Bankruptcy No. 94-51865. Document No. 105 |
| Citation | 176 BR 678 |
| Court | U.S. Bankruptcy Court — District of Connecticut |
| Parties | In re CONNAUGHT PROPERTIES, INC., Debtor. |
James Berman, Darcy McGraw, Zeisler & Zeisler, Bridgeport, CT, for debtor.
W. James Cousins, McGowan & Cousins, P.C., Stamford, CT, Christine M. Bazata, Andrew M. Dipietro, Jr., P.C., New Haven, CT, for Hanover Funding Co.
Jerry E. Muntz, Haythe & Curley, New York City, John W. O'Meara, Tyler, Cooper & Alcorn, Stamford, CT, for Beachside Funding Corp.
RULING ON OBJECTION TO PROOFS OF CLAIM FOR HANOVER FUNDING CO. AND BEACHSIDE FUNDING CORP.
ALAN H.W. SHIFF, Bankruptcy Judge.
The debtor objects to the post-judgment interest rates asserted by secured creditors Hanover Funding Co. ("Hanover") and Beachside Funding Corp. ("Beachside"). Because I conclude that those interest rates are in accord with applicable law as to pre-petition amounts, that objection is overruled.
This case was commenced by voluntary chapter 11 petition on September 23, 1994. Although the debtor's business is described in its schedules as "real estate management and holding company," its only real property asset was a residence (the "Residence") located in Westport, Connecticut. It has no income. The schedules indicated 14 claims secured by the Residence totaling $3,846,468 and unsecured nonpriority claims in the aggregate amount of $766,417.36, of which Jeanne Dana Peters and Pilar Janine Dana, who together own 58 percent of the debtor's stock, hold claims totalling $577,367.
The Residence was sold by order of this court for a purchase price of approximately $4,240,000. Hanover and Beachside each held a judgment lien on the Residence. Those liens transferred to the sale proceeds, see § 363(f), and each creditor was paid the face amount of its judgment. The debtor disputes certain post-judgment elements of those secured claims, including interest, attorneys' fees, and costs. By stipulation of the parties, this ruling addresses only the issue of the correct pre-petition, post-judgment interest rate applicable to each judgment. All remaining issues are reserved for trial.
On March 21, 1990, the debtor executed a Corporate Promissory Note (the "Hanover Note") payable to the order of Hanover in the original principal amount of $550,000.1 The Hanover Note provided for 16% interest, payable monthly, with all outstanding principal and interest due on March 31, 1991. The Hanover Note provided:
In the event of any default or foreclosure proceeding hereunder the rate of interest due under the indebtedness shall be two percent (2%) per month and be computed under this obligation until paid in full. In the event the principal sum shall not be paid on the maturity date as herein provided, it is expressly understood and agreed that this Note shall bear interest at the rate of two (2) per centum per month to be due and payable on the 1st day of each month thereafter until the full principal indebtedness shall be paid to the holder of this Note.
The Hanover Note was secured by a mortgage on the Residence. Paragraphs 2 and 3 of a rider to that mortgage contain identical language regarding the post-default and post-maturity interest rate.
On December 20, 1993, a Judgment of Foreclosure By Sale entered in favor of Hanover in the Connecticut Superior Court for the Judicial District of Stamford/Norwalk (the "Hanover Judgment"). The Hanover Judgment reflected a "debt" of $917,302.36 and an award of attorney fees of $19,772.97. On November 30, 1994, following the sale of the Residence and payment of the face amount of the Hanover Judgment, Hanover filed a secured claim in the amount of $148,901.62, of which $122,100.01 consisted of post-judgment interest calculated at the rate of two percent per month from December 20, 1993 through November 23, 1994.2 On December 7, 1994, the debtor filed an objection to Hanover's proof of claim.
On March 14, 1989, Banque Paribas brought an action to collect a debt of $636,683.57 against the debtor and Jeanne-Marie Dana in the United States District Court for the District of Connecticut. In that action, Banque Paribas alleged that Dana had fraudulently conveyed the Residence to the debtor. On March 15, 1989, Banque Paribas obtained a prejudgment attachment against the Residence. On November 21, 1990, summary judgment entered against the defendant Dana only in the amount of $710,943.88. On May 18, 1992, the district court increased the attachment to $1.3 million. On June 11, 1992, the district court entered an order which increased the attachment to $1.7 million, upon a finding that Banque Paribas had "satisfied its burden of showing the validity of its claim and that probable cause exists that judgments will be rendered . . . against Dana and the debtor in this case in an amount which may equal $1.7 million."
On July 9, 1992, Banque Paribas, Dana, and the debtor executed a stipulation (the "Stipulation") which acknowledged that the November 21, 1990 judgment against Dana was the joint and several liability of Dana and the debtor and stated that that judgment would be amended to conform to a form of judgment attached to the Stipulation. On July 10, 1992, the district court "so ordered" the Stipulation and the amended judgment (the "Beachside Judgment") entered. The Beachside Judgment, which was against Dana and the debtor jointly and severally, was in the amount of $800,000 plus $528,000 for attorneys' fees and costs, for a total of $1,328,000. The Beachside Judgment provided:
On August 31, 1992, Banque Paribas assigned the Beachside Judgment to Beachside.3
Beachside was paid the face amount of the Beachside Judgment, $1,328,000, upon the sale of the Residence, and on November 30, 1994, filed a proof of claim for the claimed balance in the amount of $594,806.21. Approximately $401,747.71 of that amount represents post-judgment interest through November 29, 1994 at the rate of 12 percent compounded annually. On December 7, 1994, the debtor filed an objection to the claim.
The debtor objects to the interest rate of 2 percent per month on the Hanover Judgment, asserting that applicable Connecticut law limits the post-judgment interest rate to 10 percent per annum.4
Conn.Gen.Stat.Ann. § 52-350f (West Supp. 1994) provides in relevant part:
A money judgment may be enforced, by execution or by foreclosure of a real property lien, to the amount of the money judgment with . . . interest as provided by chapter 663 on the money judgment and on the costs incurred in obtaining the judgment. . . .
Chapter 663 of the Connecticut General Statutes includes several sections, two of which are relevant here. Conn.Gen.Stat. Ann. § 37-1 (West 1987) provides in relevant part:
(emphasis added). Conn.Gen.Stat.Ann. § 37-3a (West Supp.1994) provides in relevant part:
Interest at the rate of ten per cent a year, and no more, may be recovered and allowed in civil actions . . ., including actions to recover money loaned at a greater rate, as damages for the detention of money after it becomes payable.
The debtor's reliance on those statutes is misplaced. Section 37-1(a) provides no impediment to Hanover's collection of interest at the rate specified the Hanover Note, because that note is an agreement to the contrary, providing for post-maturity interest of two percent per month. Moreover, although § 37-3a arguably could be read to limit not just post-judgment interest but all post-maturity interest to ten percent, its use of the phrase "damages for the detention of money" suggests that it is intended to provide a remedy for a default where the note does not provide for post-maturity interest. Where the note does so provide, there is no need for an award of "damages" because the parties have already provided for interest to compensate the holder for the delay in payment.
Prior to the enactment of the predecessor to § 37-3a, the Connecticut Supreme Court established the rule that the contract rate was to be applied to post-maturity interest even if the parties did not expressly provide for that result. Adams v. Way, 33 Conn. 419, 431-32 (1866); Beckwith v. Trustees of the Hartford, Providence and Fishkill R.R. Co., 29 Conn. 268, 270-71 (1860). In 1873, the first predecessor to § 37-3a provided that "in all suits in law or equity . . . for the recovery of moneys loaned, no greater rate of interest than seven per cent. per annum shall be recovered or allowed for the time after the money loaned becomes due." In Hubbard v. Callahan, 42 Conn. 524 (1875), the Court held that where a note provided for post-maturity interest, that rate was recoverable notwithstanding the statute. The Court further stated that the statute was intended to overrule the result in Beckwith and Adams, relying in part on an 1875 revision which confined the statute's application to "damages for the detention of money," because "where . . . interest after maturity is expressly reserved, it is treated as interest eo nomine,...
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