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In re Denver Merchandise Mart, Inc.

United States Court of Appeals, Fifth Circuit

January 27, 2014

In the Matter of DENVER MERCHANDISE MART, INC., Debtor.
GC Merchandise Mart, L.L.C., Denver Merchandise Mart, Inc., and Hawthorn Lakes Associates, Ltd., Appellees. Bank of New YorkMellon, as successor to Bank of New YorkGlobal Capital Access One, Inc., Commercial Mortgage Bonds, Series 3, care of Berkadia Commercial Mortgage L.L.C., Appellant,

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Brian Christopher Walsh (argued), Esq., Bryan Cave, L.L.P., Saint Louis, MO, Keith Miles Aurzada, Bryan Cave, L.L.P., Dallas, TX, for Appellant.

Melissa Sue Hayward (argued), Esq., Franklin Skierski Lovall Hayward, L.L.P., Dallas, TX, for Appellees.

Appeal from the United States District Court for the Northern District of Texas.

Before REAVLEY, DAVIS, and HIGGINSON, Circuit Judges.

W. EUGENE DAVIS, Circuit Judge:

Lender-appellant Bank of New York Mellon (" Lender" ) appeals the district court's judgment which, in relevant part, disallowed the Lender's claim for a contractual

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prepayment consideration. We affirm.


This dispute arose in a complicated bankruptcy proceeding, but the fundamental dispute is a relatively straightforward question of contract interpretation under Colorado law. Debtor-appellee GC Merchandise Mart, LLC (" GCMM" ) owns the Denver Merchandise Mart, a large exposition center in Denver, Colorado. GCMM's parent company is appellee Hawthorn Lakes Associates, Ltd., and appellee Denver Merchandise Mart, Inc. (" DMM" ) is an affiliate of GCMM. All three companies filed petitions for voluntary Chapter 11 bankruptcy protection in March 2011. The cases are being jointly administered, with DMM's case designated as the lead case.

GCMM executed a promissory note (the " Note" ) dated September 30, 1997 in favor of Dynex Commercial, Inc., a predecessor in interest to lender-appellant Bank of New York Mellon (" Lender" ) in exchange for a $30 million loan. The Note bore interest at a non-default rate of 8.3% and contained several clauses, only two of which are at issue in this appeal: Article 4 (" Default and Acceleration" ) and Article 6 (" Prepayment" ).

Article 4 provides that " if any payment required in this Note is not paid prior to the tenth (10th) day after the date when due or on the Maturity Date or on the happening of any other default," certain sums become immediately due and payable, including the principal balance, interest, default interest, " other sums, as provided in this Note," and " all other moneys agreed or provided to be paid by Borrower in this Note, the Security Instrument or the Other Security Documents," among other things. Article 6 provides that the Borrower may prepay the Note under certain circumstances but must also pay a Prepayment Consideration, which is essentially a penalty for prepayment.

GCMM stopped making payments on the Note in October 2010 and thus defaulted under its terms. The Lender issued a notice of default, which GCMM failed to cure. Though GCMM made two more partial payments, it made no payment whatsoever after December 2010. As permitted by its security instruments, the Lender obtained an ex parte order appointing a receiver of the Merchandise Mart, at which point GCMM and the other debtors filed for bankruptcy. At that time, GCMM owed the Lender approximately $24 million.

The Lender argued that payment of the Prepayment Consideration under Article 6, valued at $1.8 million, is required by Article 4's acceleration clause, notwithstanding the fact that GCMM stopped making payments under the Note after December 2010 and never paid the Note prior to the maturity date. The bankruptcy court disagreed on four grounds. First, it found that some payment, whether voluntary or involuntary, must actually be made to trigger the obligation to pay the Prepayment Consideration. Second, it found that the rationale for requiring a Prepayment Consideration did not apply here. Third, it found that the cases cited by the Lender were inapposite because in each of those cases,[1] the acceleration clause specifically provided that acceleration of the note would trigger the obligation to pay the prepayment consideration. Fourth and finally, the bankruptcy court noted that it

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would have been easy to expressly provide for payment of the Prepayment Consideration in the event of acceleration.

Thus, although the bankruptcy court allowed the Lender to recover a $25 million secured claim under the Note in conjunction with confirming the reorganization plan,[2] it disallowed the $1.8 million claim for the ...

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