Racusin v. American Wagering, Inc. (In re American Wagering, Inc.)

Summarized by Hilda Montes de Oca , U.S. Bankruptcy Court, Central District of California
11 years 6 months ago

Citation:

2014 WL 4179911 (9th Cir., Aug. 25, 2014)

Tag(s):

Ruling:

Reversing and remanding the decision of the Bankruptcy Appellate Panel (the "BAP"), the Ninth Circuit held that the plain language of a settlement agreement between Appellant Racusin and Appellees American Wagering, Inc. and Leroy's Horse & Sports Place contemplated interest during the "gap period." The Ninth Circuit also held that the law of interpleader did not preclude interest during the "gap period." Lastly, the Ninth Circuit found that the bankruptcy court abused its discretion in holding that equity prevented Appellant from obtaining gap period interest.

Procedural context:

Appeal from a ruling by the Ninth Circuit Bankruptcy Appellate Panel, Hon. Jim D. Pappas; Meredith A. Jury; and Eileen W. Hollowell, finding that appellant was not entitled to interest under a settlement agreement with appellees during a "gap period," reviewed for abuse of discretion

Facts:

Racusin appealed the BAP’s decision that he is not entitled to interest under his Settlement Agreement with American Wagering, Inc. (“AWI”) from the date AWI interpleaded stock until the date the Ninth Circuit reversed the BAP’s decision that Racusin’s claim was subordinated—the so called “gap period.” The Ninth Circuit held that the plain language of the Settlement Agreement contemplated interest during the gap period. Ringle v. Bruton, 86 P.3d 1032, 1039 (Nev. 2004) (explaining that the plain language of an unambiguous contract controls). The parties agreed that the terms of the Settlement required AWI to make cash payments to Racusin, and the Settlement also requires AWI to pay eight percent interest per year on the unpaid balance with an “initial payment . . . on the Effective Date of the Restated Amended Plan,” March 11, 2005. No terms in the Settlement specifically exclude the gap period from AWI’s obligation to pay eight percent interest on the unpaid balance. The plain language of the Settlement therefore provides for gap period interest. See Royal Indem. Co. v. Special Serv. Supply Co., 413 P.2d 500, 502 (Nev. 1966) (“Every word [of a contract] must be given effect if at all possible”). The Ninth Circuit also held that the law of interpleader does not preclude gap period interest. AWI did not interplead the full amount that it ultimately owed under the Settlement. See Michel v. Eighth Judicial Dist. Court, 17 P.3d 1003, 1007 (Nev. 2001) (per curiam) (“the disputed funds must be tendered to the court in their entirety” (emphasis added)). The Ninth Circuit thought that the fact that the BAP’s order subordinating Racusin’s claim was not stayed while the subordination issue was on appeal to this court wass immaterial. Butler v. Eaton, 141 U.S. 240, 244 (1891) (explaining that a judgment reversed by a higher court is “without any validity, force, or effect, and ought never to have existed”). Finally, the Ninth Circuit found that the bankruptcy court abused its discretion in holding that equity prevents Racusin from obtaining gap period interest. The Ninth Circuit believed that it was the time it took the BAP to decide the subordination issue, not Racusin’s motion to stay the interpleader, that caused the gap period. The Ninth Circuit held that equity should not punish appellant for exercising a right to appeal that he expressly reserved in the Settlement, especially as this court ultimately concluded that his appeal had merit. See Gelfgren v. Republic Nat. Life Ins. Co., 680 F.2d 79, 82 (9th Cir. 1982) (explaining that an award of interest in a non-statutory interpleader action depends on equitable considerations).

Judge(s):

The Hon. Mary Margaret McKeown and The Hon. Richard R. Clifton, Circuit Judges, and The Honorable David A. Ezra, United States District Judge for the District of Hawaii, sitting by designation.

ABI Membership is required to access the full summary. Please Sign In using your ABI Member credentials. Not a Member yet? Join ABI now - it is absolutely worth it!