In this bankruptcy case dating back to 1931, the 1928 federal judgment statute should apply in order to restore the appellants as unsecured creditors to the position they would have occupied absent the bankruptcy proceeding.
In 2013, a dispute arose regarding the current ownership of natural gas estates in Virginia, which the Yellow Poplar Lumbar Company – declared bankrupt in the 1930s – had owned. The bankruptcy case was reopened, a substitute trustee was appointed, and the parties settled ownership in 2017. The Yellow Poplar estate received approximately $2 million from escrowed gas royalties, and the gas wells continue to produce and generate revenue. To administer and distribute these new funds, Yellow Poplar’s 1928 bankruptcy case was referred to the bankruptcy court. The trustee proposed an interest rate of 2.4 percent. But this rate didn’t allow for compounding interest, as required by 28 U.S.C. § 1961(b).
In light of the equities in this case, it was error to apply this more recent version of the federal judgment statute was error. The 1928 federal judgment statute should apply, and an interest rate of 7 percent is not inequitable here. It reflects the initial expectations of both the creditors, who made loans with the expectation that they would be fully repaid, and the debtor’s shareholders, who invested for better or worse.
Reversed and remanded.