ReGen Capital I, Inc. v. Halperin (In Re U.S. Wireless Data, Inc.)

06-3449-bk
In re: U.S. Wireless Data, Inc.

UNITED STATES COURT OF APPEALS
F OR THE S ECOND C IRCUIT

August Term, 2006

(Argued: June 25, 2007 Decided: October 29, 2008)

Docket No. 06-3449-bk

IN RE: U.S. W IRELESS D ATA, INC.,
Debtor,
_______________

R EG EN C APITAL I, INC.,
Appellant,
— v.—

A LAN D. H ALPERIN, as Liquidation Trustee,
Appellee.

Before:
W INTER, C ABRANES, AND R AGGI,
Circuit Judges.
___________________

Appeal from a judgment of the United States District Court for the Southern District

of New York (P. Kevin Castel, Judge) affirming an order of the United States Bankruptcy

Court (Robert D. Drain, Bankruptcy Judge) for the same district expunging an “unsecured

claim” filed by appellant ReGen Capital I, Inc. (“ReGen”), on the ground that it sought

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additional compensation for a previously resolved “cure claim.” We identify no merit in

ReGen’s argument that the claim was cured without proper notice of consequences, nor in

its contention that, having failed to raise a timely challenge to the cure amount, it could

pursue additional relief by reasserting its claim as a general unsecured obligation of the

debtor. Finally, we conclude that the “best interests of creditors” test, 11 U.S.C. §

1129(a)(7), affords ReGen no relief in this case.

A FFIRMED.

P AUL R UBIN, Herrick, Feinstein LLP, New York, New York, for Appellant.

D EBRA J. C OHEN (Robert D. Raicht, on the brief), Halperin Battaglia Raicht,
LLP, New York, New York, for Appellee.

P ER C URIAM:

Regen Capital I, Inc. (“ReGen”), as authorized administrative agent of AT&T Corp.

(“AT&T”), filed a general unsecured claim in the United States Bankruptcy Court for the

Southern District of New York (Robert D. Drain, Bankruptcy Judge) against U.S. Wireless

Data, Inc. (“the Debtor”), based on pre-petition defaults arising from an executory contract

for AT&T to provide the Debtor with telecommunications services. Having missed the bar

date set by the bankruptcy court for “cure claims,” see 11 U.S.C. § 365(b)(1)(A); see also

infra at [5-7] (discussing role of cure claims in Chapter 11 reorganizations), ReGen asserted

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that it was filing a general unsecured claim. Rejecting this characterization, the bankruptcy

court expunged ReGen’s claim, holding (a) that the AT&T claim pursued by ReGen had been

cured in an amount submitted by the Debtor, and (b) that AT&T’s failure to challenge that

amount by filing a cure claim within the court-ordered bar date precluded ReGen from doing

so indirectly by filing a general unsecured claim. ReGen challenged the ruling in the United

States District Court for the Southern District of New York (P. Kevin Castel, District Judge),

which affirmed. See In re: U.S. Wireless Data, Inc., No. 06 Civ. 829, 2006 U.S. Dist. LEXIS

42577 (S.D.N.Y. June 21, 2006).

On appeal from that judgment, ReGen argues that the bankruptcy court’s bar date

orders for cure claims were defective because they failed to provide clear notice of the claims

covered by the filing deadline and the consequences for missing the deadline. ReGen further

asserts that expungement of its claim was inequitable because where, as in this case, the

Debtor was solvent, consideration of its claim together with other general unsecured claims

would not have frustrated the purpose of 11 U.S.C. § 365(b)(1) or adversely affected any

interested party. Finally, ReGen contends that expungement allowed the Debtor to

circumvent the Bankruptcy Code’s priority-distribution scheme by subordinating ReGen’s

claim to the interests of equity holders in contravention of the “best interests of creditors” test

for Chapter 11 reorganization. See 11 U.S.C. §§ 1129(a)(7)(A), 726(a). Because we are not

persuaded by any of these arguments, we affirm the judgment of the district court.

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I. Background

A. Events Leading to the Debtor’s Chapter 11 Filing

The Debtor, a Delaware corporation headquartered in New York, had provided

wireless transaction delivery and gateway services to the payments processing industry.

Initially a hardware manufacturer of wireless point-of-sale terminals, in 1999 the Debtor

launched its “Synapse wireless platform and transaction gateway,” a software platform that

allowed merchants accepting credit or debit cards to transmit payment transactions faster and

less expensively than had been possible using a traditionally wired telephone line. In 2000,

the Debtor’s business expanded to include the “Synapse Adapter,” which converted dial-up

credit card terminals to wireless ones, and the “Synapse Enabler,” which not only allowed

vending machines and taxicab meters to process credit cards, but also permitted faster

payment processing for businesses such as fast-food restaurants. These aspects of the

Debtor’s commercial activities are collectively referred to herein as the “Synapse business.”

The Debtor partially financed its Synapse business with the assistance of a $2.75

million bridge loan from Brascan Financial Corporation (“Brascan”), secured by the Debtor’s

assets. By January 2004, the Debtor had suffered significant losses and had experienced a

negative cash flow. Specifically, the Debtor had exhausted the bridge loan and accumulated

a deficit of nearly $145 million, while its principal source of liquidity totaled approximately

$456,000 in cash and cash equivalents. Despite an additional advance of $250,000 from

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Brascan, on March 26, 2004, the Debtor filed a voluntary petition for relief pursuant to

Chapter 11 of the Bankruptcy Code in order “to protect, preserve and maximize the value of

its assets through sales under section 363 of the Bankruptcy Code.” Debtor’s Motion for

Various Orders at 6 ¶ 16, In re: U.S. Wireless Data, Inc., No. 04-12075 (Bankr. S.D.N.Y.

Mar. 26, 2004). After filing its petition, the Debtor continued to manage and operate its

business as a debtor in possession under 11 U.S.C. §§ 1107 and 1108.

B. The Sale of the Debtor’s Synapse Business Assets and the Resolution of Cure
Claims

At the same time that the Debtor filed for Chapter 11 relief, it sought court approval

for the sale of its assets to a Brascan subsidiary that had been formed for the specific purpose

of acquiring the Synapse business. The sale proposal contemplated the Debtor’s assumption

and assignment of an attached schedule of executory contracts pursuant to 11 U.S.C. § 365.

1. The Law Relevant to a Chapter 11 Debtor’s Proposed Assumption and
Assignment of Contracts

It is useful at this point to note that contract assumption is an important re-

organizational tool under Chapter 11 because it allows a trustee, or a debtor in possession,

see id. § 1107(a) (granting debtor in possession virtually same rights and powers as trustee

in Chapter 11 proceedings), “to go through the inventory of executory contracts . . . and

decide which ones it would be beneficial to adhere to and which ones it would be beneficial

to reject,” In re Lavigne, 114 F.3d 379, 386 (2d Cir. 1997) (internal quotation marks

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omitted).1 Section 365 enables a debtor in possession effectively to compel non-debtor

parties to contracts “to continue to do business with it when the bankruptcy filing might

otherwise make them reluctant to do so.” In re Chateaugay Corp., 10 F.3d 944, 955 (2d Cir.

1993) (internal quotation marks omitted).

Assumption, however, is subject to court approval based on a review of the totality

of the circumstances. See In re Orion Pictures Corp., 4 F.3d 1095, 1099 (2d Cir. 1993) (“[A]

bankruptcy court reviewing a trustee’s or debtor-in-possession’s decision to assume or reject

an executory contract [pursuant to § 365] should examine a contract and the surrounding

circumstances and apply its best ‘business judgment’ to determine if it would be beneficial

or burdensome to the estate to assume it.”). For a bankruptcy court to make a responsible

determination as to an assumption application, it is important for the court to know the

universe of claims arising under the contracts to be assumed. See, e.g., In re Buckhead Am.

Corp., 180 B.R. 83, 88 (D. Del. 1995) (observing that it would be “difficult to see how”

court could determine if assumption “was a reasonable exercise of the debtor’s business

1
Although § 365 does not define the term “executory contracts,” courts have long
employed the definition articulated by Professor Countryman, i.e., “a contract under which
the obligation of both the bankrupt and the other party to the contract are so far unperformed
that the failure of either to complete performance would constitute a material breach
excusing the performance of the other.” Vern Countryman, Executory Contracts in
Bankruptcy: Part I, 57 Minn. L. Rev. 439, 460 (1973); see In re Penn Traffic Co., 524 F.3d
373, 379 (2d Cir. 2008) (observing that “most courts and scholars” look to the definition of
executory contract “first articulated by Professor Vernon Countryman in his seminal 1973
law review article”); 3 Collier on Bankruptcy § 365.02[1], at 365-19 (15th ed. rev. 2008)
(noting that “no circuit has rejected the Countryman test” for executory contracts).

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judgment . . . if, at the time of ruling on the [assumption] motion, unknown claims existed

relative to a designated [executory] agreement”).

It is particularly important for a bankruptcy court to know to what degree a debtor is

in default on an executory contract because a debtor cannot assume such a contract unless

the debtor satisfies several statutory conditions designed to make the non-debtor contracting

party whole. See In re Ionosphere Clubs, Inc., 85 F.3d 992, 999 (2d Cir. 1996). Specifically,

a debtor must (1) cure the default, or provide adequate assurance that it will promptly cure

it; (2) compensate, or provide adequate assurance that the trustee will promptly compensate,

the non-debtor party to the contract for any actual monetary loss caused by the debtor’s

default; and (3) provide adequate assurance of future performance under the contract. 11

U.S.C. § 365(b)(1)(A)-(C). The first requirement effectively confers priority status on claims

of default arising under an assumed contract. See id. § 365(b)(1)(A); cf. In re Chateaugay

Corp., 10 F.3d at 954; American Anthracite & Bituminous Coal Corp. v. Leonardo

Arrivabene, S.A., 280 F.2d 119, 124 (2d Cir. 1960). The resolution of these claims,

generally referred to as “cure claims,” strives to restore the “debtor-creditor relationship . . .

to pre-default conditions,” In re Taddeo, 685 F.2d 24, 26-27 (2d Cir. 1982), bringing the

contract back into compliance with its terms, see 3 Collier on Bankruptcy § 365.05[3], at

365-54 (15th ed. rev. 2008).

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 2. The Debtor’s Assumption and Assignment of the AT&T Contract

Among the executory contracts proposed for assumption in the schedule attached to

the Debtor’s sale motion in this case was one with AT&T for that company to provide the

Debtor with telecommunications services. The schedule indicated a “cure cost” of

$11,406.43 for this contract. In its motion, the Debtor requested that the bankruptcy court

set a deadline, or bar date, for the filing of any cure claim, with potential creditors to be

advised that, absent such a filing, they would be limited to the cure amounts set forth in the

contract schedule.

a. The March 31, 2004 Bar Date Notice

By order dated March 31, 2004, the bankruptcy court scheduled a hearing to consider

the Debtor’s proposed sale of its Synapse business assets as well as the assumption and

assignment of the scheduled executory contracts. By the same order, the court fixed May 5,

2004, as the date by which any cure claim not then filed would be barred. The order

specifically instructed parties to any scheduled executory contract to file proof of “all claims

and arrearages against the Debtor under such executory contract that arose prior to the

commencement of the Chapter 11 case (the ‘Cure Claim’).” In re: U.S. Wireless Data, Inc.,

No. 04-12075, Order at 5 (Bankr. S.D.N.Y. Mar. 31, 2004) (“March 31 Order”) (emphasis

added). Moreover, the March 31 Order warned

that any party that is required to file a Cure Claim pursuant to this decretal
paragraph, but fails to do so, shall be bound by the cure amount as set forth on

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 [the contract schedule] and shall be forever barred from asserting any other
cure claim(s) against the Debtor, its estate and/or any successful purchaser of
the Debtor’s assets arising under such executory contract.

Id.

The following day, the Debtor served notice by first-class mail on all non-debtor

parties to the executory contracts that the bankruptcy court had “fixed a bar date of May 5,

2004 for the assertion of any cure costs by the non-debtor parties to the executory contracts

to be assumed and assigned to Purchaser under the Sale Agreement.” Undated Notice of

Auction Sale and Hearing on Consideration of Approval of Sale of Debtor’s Synapse Assets,

at 4, In re: U.S. Wireless Data, Inc., No. 04-12075 (Bankr. S.D.N.Y. 2004). Included with

this notice were copies of both the Debtor’s March 26, 2004 sale motion (with its attached

contract schedule) and the bankruptcy court’s March 31 Order.

b. The April 16, 2004 Bar Date Notice

Approximately two weeks later, on April 16, 2004, the bankruptcy court issued

another order approving auction and bidding procedures for the asset sale as well as the

payment of a break-up fee. In this order, the court reiterated the cure claims bar date, stating

that

according to the [March 31 Order], all non-debtor parties to the Executory
Contracts were directed to electronically file with the Clerk of the Bankruptcy
Court a cure claim, setting forth all claims and arrearages against the Debtor
due under such Executory Contract that arose prior to the Petition Date (the
“Cure Claim”), . . . on or before May 5, 2004 at 4:00 p.m., provided, however,
that any party that is required to file a Cure Claim but fails to do so, will be

9
 bound by the cure amount as set forth on [the contract schedule] and will be
forever barred from asserting any other claims against the Debtor, its estate
and/or any successful purchaser of the Debtor’s assets arising under such
Executory Contract.

In re: U.S. Wireless Data, Inc., No. 04-12075, Order at 5-6 ¶ 4(iii) (Bankr. S.D.N.Y. Apr. 16,

2004) (“April 16 Order”).

c. Without Challenge, the Bankruptcy Court Declares the AT&T
Contract Cured and Approves the Assignment

ReGen does not dispute AT&T’s receipt of the Debtor’s sale motion, its schedule of

executory contracts proposed for assumption, or the bankruptcy court’s March 31 and April

16 Orders. Nor does it dispute that AT&T did not file any cure claim before the appointed

time on May 5, 2004.

A sale of the Debtor’s assets was, in fact, held on May 11, 2004, and, by order dated

May 12, 2004, the bankruptcy court formally approved the sale of the Synapse business, as

well as the Debtor’s assignment of the assumed executory contracts to the successful bidder,

Transaction Network Services. Upon finding the assumption and assignment of these

contracts to satisfy the conditions set forth in 11 U.S.C. § 365(b)(1), the court further stated:

All defaults or other obligations of the Debtor under the Assigned Contracts
arising or accruing prior to the date of this Sale Order without giving effect to
any acceleration clauses or any default provisions of the kind specified in
section 365(b)(2) of the Bankruptcy Code, if any, shall be deemed cured at the
Closing of the Asset Sale or as soon thereafter as practicable, and the
Purchaser shall have no liability for any such default or obligation, except as
otherwise expressly provided in the Sale Agreement.

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In re: U.S. Wireless Data, Inc., No. 04-12075, Order at 9-10 ¶ 11 (Bankr. S.D.N.Y. May 12,

2004) (“Sale Order”).

C. ReGen Acquires AT&T’s Claim Against the Debtor and Files for Relief

Approximately two weeks later, on May 26, 2004, AT&T assigned to ReGen its claim

against the Debtor. The following month, by order dated June 29, 2004, the bankruptcy court

established August 9, 2004, as the deadline for filing any remaining claims against the

Debtor. That order expressly disclaimed any extension of the bar date “previously

established by this Court to file claims arising from the assumption and assignment of

executory contracts in connection with the Debtor’s sale of its assets to Transaction Network

Services, Inc.” In re: U.S. Wireless Data, Inc., No. 04-12075, Order at 2 (Bankr. S.D.N.Y.

June 29, 2004). Several weeks before the August 9, 2004 deadline, ReGen nevertheless filed

with the bankruptcy court proof of the claim it had acquired from AT&T in the amount of

$71,282.60 (designated in the bankruptcy proceeding as Claim No. 26).

Although the precise timing is disputed, some time around the close of the asset sale

to Transaction Network Services and before the filing of ReGen’s claim, the Debtor had

made a “cure” payment to AT&T in the amount of $22,315.56 to satisfy its default under the

AT&T contract. The Debtor asserts that it proffered more than the amount listed on the

executory contract schedule because it had determined that pre-petition arrearages under the

AT&T contract in fact exceeded $11,406.43. AT&T appears to have accepted this payment

11
without objection. ReGen nevertheless submits that $48,967.04 remains owing on the initial

$71,282.60 claim.

D. Confirmation of the Debtor’s Reorganization Plan and the Expungement of
ReGen’s Claim

On December 27, 2004, the bankruptcy court approved the Debtor’s Chapter 11

reorganization plan, finding that all interested parties had received proper notice and been

afforded an opportunity to be heard. ReGen did not object to the reorganization plan. It

asserts that it had no reason to do so because, before any challenge was raised to its filed

claim, it expected to collect together with other unsecured creditors.

On February 14, 2005, the reorganization plan’s Liquidation Trustee, appellee Alan

D. Halperin (“Trustee”), submitted a first omnibus objection to remaining claims against the

bankruptcy estate, notably including pre-petition contract defaults that were cured as part of

the contracts’ assumption. ReGen’s Claim No. 26 was listed in an attached exhibit to the

Trustee’s filing as falling within this category of paid claims. ReGen challenged the

Trustee’s objection, whereupon the parties proceeded to a hearing before the bankruptcy

court. Ruling in favor of the Trustee, the court found that ReGen’s predecessor in interest,

AT&T, had received unambiguous notice of the cure-claims bar date. Further, the

bankruptcy court ruled that, because ReGen had not presented a timely challenge to the Plan

confirmation, it could not do so now. Accordingly, by order dated December 22, 2005, the

bankruptcy court expunged ReGen’s claim in its entirety.

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 E. The District Court Judgment

On ReGen’s appeal, the district court affirmed the bankruptcy court’s expungement

order, ruling that the March 31 Order was clear as to the deadline for filing cure claims and

the consequences for failing to do so. Even if an ambiguity could be identified in the March

31 Order, the district court found that it was clarified by the April 16 Order. Insofar as

ReGen argued that the Debtor’s reorganization plan was improperly confirmed under

11 U.S.C. § 1129(a)(7)(A)(ii) because its distribution scheme did not comport with 11 U.S.C.

§ 726(a) (listing distribution priorities), the district court ruled that § 726 does not apply in

Chapter 11 cases. Because ReGen does not challenge this last aspect of the district court’s

judgment, we will not discuss it further. See In re Cacioli, 463 F.3d 229, 235 n.6 (2d Cir.

2006) (deeming argument not raised on appeal waived).

II. Discussion

A. Standard of Review

On this appeal from the district court’s affirmance of a bankruptcy court’s order, “we

review the decision of the bankruptcy court independently,” examining its conclusions of law

de novo and its factual findings for clear error. Adelphia Bus. Solutions, Inc. v. Abnos, 482

F.3d 602, 607 (2d Cir. 2007). We accord deferential review to a bankruptcy court’s exercise

of its equitable authority, including the decision to deny a request to file late claims, and we

will reverse only for abuse of discretion. See id.; In re: Enron Corp., 419 F.3d 115, 124 (2d

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Cir. 2005).

B. The Adequacy of the Bankruptcy Court’s Notice of the Cure-Claims Bar Date

The Federal Rules of Bankruptcy Procedure permit bankruptcy courts to establish bar

dates by which proofs of claim must be filed or thereafter forfeited. See Fed. R. Bankr. P.

2002(a)(7), 3003(c)(3). Creditors, however, are entitled to adequate notice of bar dates and

are not themselves required to make independent inquiry to ascertain their existence. See,

e.g., City of New York v. New York, New Haven & Hartford R.R., 344 U.S. 293, 297 (1953)

(observing that “even creditors who have knowledge of a [bankruptcy] reorganization have

a right to assume that the statutory ‘reasonable notice’ will be given them before their claims

are forever barred”). Specifically, a creditor is entitled to “at least 20 days’ notice by mail

of . . . the time fixed [by the bankruptcy court] for filing proofs of claims pursuant to Rule

3003(c).” Fed. R. Bankr. P. 2002(a)(7).

The law further demands that, ordinarily, a “bar date in a bankruptcy case should be

prominently announced and accompanied by an explanation of its significance.” Pioneer Inv.

Servs. Co. v. Brunswick Assocs. Ltd. P’ship, 507 U.S. 380, 398 (1993) (holding that

creditor’s failure to file before bar date constituted excusable neglect where notice of bar date

was given “peculiar and inconspicuous placement . . . in a notice regarding a creditors[’]

meeting, without any indication of the significance of the bar date” (internal quotation marks

omitted) (second alteration in original)); see also In re Herd, 840 F.2d 757, 759-60 (10th Cir.

1988) (“Written notice of the bar date for filing claims should be clear and definite, not

14
abstract and ambiguous.”)

In arguing that it was deprived of its claim without adequate notice, ReGen does not

dispute that the March 31 and April 16 Orders both clearly identified May 5, 2004, as the bar

date for filing cure claims on executory contracts, including the one between the Debtor and

AT&T. Instead, ReGen argues that these orders were ambiguous as to what future claims

would be barred by a failure to file a cure claim within the prescribed time. ReGen asserts

that, if the Debtor had not applied to assume the AT&T contract, ReGen would have had a

general unsecured claim against the Debtor. ReGen submits that the March 31 Order, by

referencing a bar on “any other cure claim(s) . . . arising under such executory contract,”

March 31 Order at 5 (emphasis added), did not provide clear notice that the failure to file a

“cure claim[]” before the May 5, 2004 deadline would bar the subsequent filing of a “general

unsecured claim” arising under a scheduled executory contract. Appellant’s Br. at 19. To

the extent the April 16 Order referenced a bar on “any other claims . . . arising under such

Executory Contract,” April 16 Order at 6 ¶ 4(iii) (emphasis added), ReGen submits that this

phrase did not resolve the initial ambiguity because the language was slipped into an order

specifying the bidding procedures for the asset sales, a matter of no particular interest to

AT&T or ReGen.

ReGen’s arguments are unconvincing. First, we identify no ambiguity in the March

31 and April 16 Orders’ notification as to the type of claims that would be barred by the

15
failure to file a timely cure claim. Both orders served clear notice that all pre-petition claims

arising under the executory contracts scheduled for assumption would be barred if not raised

with the bankruptcy court by May 5, 2004. The fact that the claims to be barred were

referenced in the March 31 Order as “cure claim(s)” and in the April 16 Order as “any other

claims” gave rise to no ambiguity because both orders specifically defined the term “cure

claim” as “all claims and arrearages against the Debtor under such executory contract[s] that

arose prior to” the commencement of the Debtor’s Chapter 11 case. March 31 Order at 5;

see April 16 Order at 5 ¶ 4(iii) (employing nearly identical language). This broad definitional

language was used to advise parties as to the claims they were required to file by May 5,

2004. The bar notice advised that a failure to meet the filing deadline for cure claims as so

defined would result in the party being “bound by the cure amount” set forth in the

attachment to the Debtor’s sale motion and “forever barred from asserting any other cure

claim(s)” arising under the executory contracts. March 31 Order at 5; see April 16 Order at

5-6 ¶ 4(iii). Precisely because the cure claims required to be filed encompassed “all [pre-

petition] claims and arrearages against the Debtor” arising under the executory contracts

scheduled for assumption, the cure claims barred by a failure to meet the filing deadline are

necessarily understood to reach at least as far. March 31 Order at 5; see April 16 Order at

5-6 ¶ 4(iii). Thus, we conclude that AT&T received clear notice, in both the March 31 and

April 16 Orders, that if it failed to file a cure claim before May 5, 2004, it would be thereafter

16
barred from filing any claim for pre-petition defaults arising under the executory contracts

scheduled for assumption.

ReGen’s other notice arguments merit little discussion. To the extent ReGen faults

the bankruptcy court for failing to explain how the bar date operated with respect to defaulted

contracts that the Debtor chose not to assume, the argument is irrelevant to this appeal

because the Debtor did move to assume the AT&T contract. Similarly irrelevant is the

inconsistency that ReGen asserts between the court’s orders and the Debtor’s sale motion,

all of which refer only to pre-petition arrearages, and the final sale order, which addresses

both pre- and post-petition arrearages. AT&T did not mistakenly file a claim for pre-petition

arrearages only to discover later that it was also required to file a claim for post-petition

arrearages. Rather, AT&T failed to file any claim before the May 5, 2004 bar date. At any

rate, expunged Claim No. 26 is a pre-petition claim arising “out of telecommunications

services provided by AT&T to the Debtor before the Debtor’s bankruptcy filing.”

Appellant’s Br. at 4. It therefore clearly falls within the class of claims barred by the

bankruptcy court’s orders.

Because we conclude that the bankruptcy court’s March 31 Order provided clear

notice that all pre-petition claims arising under the AT&T executory contract had to be filed

with the court by May 5, 2004, or be forever forfeited, we need not specifically address

ReGen’s argument that AT&T was free to ignore a similar notice contained in the April 16

17
Order. To the extent ReGen supports this argument by noting that the April 16 Order

pertained to details of the Debtor’s asset sale, which “would not have been read by parties

to executory contracts who had no interest in bidding for the assets of the Debtor, and who

had already received notice of the cure claims bar date,” id. at 13, we note simply that such

a course of conduct hardly seems prudent. See In re Keene Corp., 188 B.R. 903, 911 (Bankr.

S.D.N.Y. 1995) (rejecting claimant’s contention “that it was reasonable not to read beyond

the caption because of the misleading nature of the Bar Date Notice”); In re Nutri*Bevco,

Inc., 117 B.R. 771, 783 (Bankr. S.D.N.Y. 1990) (noting that, “‘[w]hen the holder of a large,

unsecured claim . . . receives any notice from the bankruptcy court that its debtor has initiated

bankruptcy proceedings, it is under constructive or inquiry notice that its claim may be

affected, and it ignores the proceedings to which the notice refers at its peril’” (quoting In

re Gregory, 705 F.2d 1118, 1123 (9th Cir. 1983)). In any event, the April 16 Order did not

change the consequences specified in the March 31 Order for failing to file a required cure

claim by the May 5, 2004 deadline.

In sum, because AT&T received sufficient notice of the consequences of ignoring the

cure claims bar date, that bar date applies with full force against its successor, ReGen.

C. ReGen’s Insistence that the Bar Date Does Not Preclude Its Filing of a General
Unsecured Claim Based on the AT&T Contract

ReGen asserts that, even if the bankruptcy court’s notices bar AT&T (or its successor)

from filing an untimely cure claim, that should not bar ReGen from pursuing a different kind

18
of claim. It submits that a party with a cure claim may choose not to demand priority

payment without losing the ability to get in line with the debtor’s general unsecured creditors.

ReGen argues that nothing in the Bankruptcy Code precludes such dual characterization of

a claim. Moreover, it contends that the payment of its claim as a general unsecured one

would neither frustrate the purpose of § 365 nor adversely affect any other interested party

in light of the Debtor’s solvency. We disagree.

As the bankruptcy court explained, to allow a party who misses a bar date to pursue

untimely cure claims as general unsecured ones “would severely undermine the debtor’s and

the Court’s ability to analyze . . . and exercise their rights under Section 365.” Tr. at 29, In

re: U.S. Wireless Data, Inc., No. 04-12075 (Bankr. S.D.N.Y. Dec. 7, 2005). The observation

is particularly apt in this case, where the executory contracts that were assumed and assigned

in connection with the asset sale were identified by the bankruptcy court as “an integral part

of the value of the Synapse Business Assets.” Sale Order at 6 ¶ P. A debtor’s decision to

assume a contract depends on the debtor’s ability to cure (or provide adequate assurance that

it will promptly cure) all pre-petition defaults arising under that contract. See 11 U.S.C. §

365(b)(1)(A). Consequently, a sound assumption decision depends on the debtor’s — and,

ultimately, the bankruptcy court’s — full awareness of the universe of executory-contract

defaults and their cure costs. See, e.g., In re Nat’l Gypsum Co., 208 F.3d 498, 506 (5th Cir.

2000) (explaining that debtor “must take full account of the cost to cure all existing defaults

owed to the non-debtor party when assessing whether the contract is beneficial to the

19
estate”).

Though ReGen’s Claim No. 26 is a general unsecured claim in the literal sense, it

plainly falls into the narrower, more specific category of a cure claim because it is a claim

“against the Debtor under [an] executory contract that arose prior to the commencement of

the Chapter 11 case,” March 31 Order at 5, and that the Debtor had in fact assumed, see Sale

Order at 8-9 ¶ 7. As discussed in the previous section, the bankruptcy court’s March 31

Order served clear notice on AT&T that the claim would be settled for an amount specified

by the Debtor unless AT&T filed a claim in a different amount by 4:00 p.m. on May 5, 2004.

More to the point, that order advised AT&T that its failure to file such a claim by the

appointed time would bar it from doing so in the future. To interpret this bar to prohibit only

priority claims for cure based on the AT&T contract, as ReGen urges, would not only run

counter to the plain language of the bankruptcy court’s March 31 and April 16 Orders, it

would also upset the finality and repose that such orders provide to reorganizing entities.

Because ReGen’s claim clearly falls within the March 31 Order’s definition of a “cure claim”

to which the May 5, 2004 bar date applied, the bankruptcy court correctly expunged that

claim as untimely.

D. Expungement of ReGen’s Claim Does Not Contravene the “Best Interests of
Creditors” Test

A Chapter 11 reorganization plan may not be confirmed unless it satisfies a number

of statutory requirements, including the “best interests of creditors” test. See 11 U.S.C.

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§ 1129(a)(7)(A). This test requires that each holder of an impaired claim or interest either

accept the plan or receive under the plan not less than it would receive in a Chapter 7

liquidation. See id.; United States v. Reorganized CF&I Fabricators of Utah, Inc., 518 U.S.

213, 228 (1996). Section 1129(a)(7) cross-references § 726(a), which “spells out the order

in which the assets of a Chapter 7 bankruptcy estate are distributed to unsecured creditors.”

In re Vecchio, 20 F.3d 555, 556 (2d Cir. 1994). Under this provision, allowed unsecured

claims — even if filed out of time — must be paid before equity interest holders are

permitted to recover from the debtor’s estate. See 11 U.S.C. § 726(a)(3); see also Louisiana

World Exposition v. Fed. Ins. Co., 858 F.2d 233, 251 (5th Cir. 1988) (noting that, under

hierarchy of interests created by Bankruptcy Code, shareholders’ interests are subordinate

to those of creditors).

ReGen argues that the bankruptcy court could not expunge its unsecured claim

consistent with the best-interests-of-creditors test because, by doing so, it allowed the

Debtor’s shareholders to recover a portion of the estate while ReGen, the holder of an

unsecured claim, remained unpaid. To the extent the bankruptcy court rejected this argument

by noting ReGen’s failure to object to the reorganization plan before its confirmation, ReGen

submits that it could not have been expected to file an objection before it had any notice that

its timely filing of an unsecured claim would be challenged. We need not conclusively

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decide this point because, even if we were to resolve it in ReGen’s favor,2 its challenge to

expungement would fail for the simple reason that the claim ReGen tried to assert had in fact

been settled long before the reorganization plan was confirmed.

Approximately six months before confirmation of the reorganization plan, the Debtor

cured all contract obligations to AT&T arising before the Chapter 11 filing by paying

$22,315.56. Indeed, such payment was a statutory precondition to the bankruptcy court’s

approval of the Debtor’s assumption and assignment of the AT&T contract as part of the

assets sale. See 11 U.S.C. § 365(b)(1). The Sale Order explicitly stated that “[a]ll defaults

or other obligations of the Debtor under the Assigned contracts arising or accruing prior to

[May 12, 2004] . . . shall be deemed cured at the Closing of the Asset Sale or as soon

thereafter as practicable.” Sale Order at 9-10 ¶ 11. Thus, because the law views AT&T as

having been made whole pursuant to § 365(b)(1) on the claim at issue, neither AT&T nor its

successor ReGen could sue the Trustee on a claim that had thus been settled. The bankruptcy

court’s expungement of ReGen’s cured claim did not implicate the best-interests-of-creditors

test.

The Debtor’s solvency at the time of reorganization warrants no different conclusion.

Any claim ReGen might have arising after assumption and assignment of the contract at issue

2
The Trustee asserts that the reorganization plan’s disclosure statement warned that
“‘a substantial portion of the [unsecured] Claims will ultimately be expunged because . . .
they have been paid in connection with the assumption and assignment of executory
contracts.’” Appellee’s Br. at 39 (quoting Plan Disclosure Statement).

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would constitute a post-petition administrative claim not governed by § 1129(a)(7). See In

re Kiwi Int’l Airlines, Inc., 344 F.3d 311, 318 (3d Cir. 2003) (“[B]ecause assumption acts

as a renewed acceptance of the terms of the executory bargain, the Bankruptcy Code provides

that the cost of performing the debtor’s obligations is an administrative expense of the estate,

which will be paid first out of the assets of the estate.” (internal quotation marks omitted));

In re Barakat, 99 F.3d 1520, 1527-28 (9th Cir. 1996) (holding that where debtor assumes

lease, tenant security depositors “have no provable claim against the bankruptcy estate . . . .

The obligations assumed by the debtor under the continued leases constitute post-petition

administrative claims . . . [and t]heir holders are not entitled to vote on a plan of

reorganization” (internal quotation marks omitted)).

In sum, because AT&T failed to file a cure claim before the bankruptcy court’s bar

date, it and its successor ReGen were bound by the cure amount listed on the Debtor’s

original contract schedule. That the asset sale proved lucrative enough for the Debtor to pay

its creditors through the reorganization plan and still make some distribution to shareholders

is irrelevant to this appeal because, at the time of plan confirmation and thereafter, ReGen

had no claim for pre-petition arrearages under the AT&T executory contract.

III. Conclusion

To summarize:

1. AT&T was given clear notice that its failure to file “all [pre-petition] claims and

arrearages” against the Debtor arising under an executory contract proposed for assumption

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would (a) limit its recovery to the Debtor’s proposed cure amount and (b) forever bar it from

bringing any other such pre-petition claim. That notice is binding on ReGen as its claims

successor.

2. The bankruptcy court’s bar order applied to all unfiled pre-petition claims and

arrearages arising under the AT&T contract. ReGen cannot seek to avoid this bar by

characterizing an untimely challenge to the cure amount as a general unsecured claim.

3. The bankruptcy court’s Sale Order declared the Debtor’s pre-petition defaults on

the AT&T contract cured some six months before the confirmation of the Debtor’s

reorganization. This left ReGen with no claim to assert that would implicate the best-

interests-of-creditors test.

Accordingly, the judgment of the district court is hereby A FFIRMED.

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