National Energy & Gas Transmission, Inc.

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
at Greenbelt
In re:
National Energy & Gas Transmission, Inc. 	Case No. 03-30459PM*
(f/k/a PG&E National Energy Group, Inc.), 	Chapter 11
et al.,
Jointly administered with Case Nos.
Debtors. 	03-30461 through 03-30464 and 03-30686
through 03-30687
_____________________________________/
MEMORANDUM OF DECISION
Before the court is the motion of National Energy & Gas Transmission, Inc. ("NEGT")
for an order disallowing additional claims asserted by Citibank N.A. ("Citibank"), acting as
administrative and security agent for the Lake Road and La Paloma project lenders ("the
Lenders") and the opposition thereto filed by the Steering Committee of the Lake Road and La
Paloma project lenders. A hearing was held on February 8, 2006. After review of the record and
consideration of the arguments of the parties, the court finds that further discovery and argument
are unnecessary. The court will disallow the Lenders' additional claims.
Undisputed Facts
NEGT guaranteed debt of certain non-debtor entities related to the construction of the
Lake Road and La Paloma projects. In 2002, NEGT announced that it would not fulfill its
Date signed February 21, 2006
Entered: February 22, 2006 Case 03-30459 Doc 3604 Filed 02/22/06 Page 1 of 5

1 Schedule 4.03 of the NEGT plan, entitled "Allowed Amounts of Certain General
Unsecured Claims," described the Lenders' allowed claims and, in Footnote 1, provided:
Each amount set forth herein may be increased by the amount of the aggregate
amount of unpaid interest and all other amounts payable in connection with the
obligations due and owing under the applicable documents subject to (i) any
limitations contained in such documents and (ii) applicable law, as determined by
the Bankruptcy Court.
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guarantee obligations and, on July 8, 2003, filed this bankruptcy case under chapter 11. Rather
than pursue collection from the various non-debtor entities, Citibank filed a proof of claim
against NEGT based on two Guarantee Agreements, both dated April 6, 2001, in the amount of
$623,909,778.81, plus additional unliquidated and contingent amounts. Both projects were
transferred to the Lenders in March, 2004. In May, 2004, NEGT's Plan of Reorganization was
confirmed. The Lenders' general unsecured claims were allowed against NEGT for
$385,001,291.45 as to the La Paloma project and $238,908,487.38 as to the Lake Road project. 1
In November, 2005, Citibank, on the Lenders' behalf, made a demand to NEGT of an additional
$10,616,672.14 for postpetition expenses and $90,872,297.29 for postpetition interest accruing
from July 8, 2003.
Analysis
The Lenders make four arguments in support of their claim: (1) that § 502(b)(2) of the
Bankruptcy Code is inapplicable because the claim for additional amounts is not a claim against
NEGT but a claim for amounts accruing against the non-debtor entities whose debt was
guaranteed by NEGT; (2) that there are equitable considerations for allowance of the additional
amounts; (3) that this court should ignore its decision in In re Smith, 206 B.R. 113 (BC Md.
1997), and follow the minority view; and (4) that the Lenders are being unfairly discriminated
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2 Both the Lenders' equitable argument and the unfair discrimination argument are
without merit. This court cannot seriously consider these arguments as the Lenders have been
adequately represented throughout these proceedings. The arguments are unworthy of further
analysis.
3 "Claim" means--
(A) right to payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal,
equitable, secured, or unsecured[.]
11 U.S.C. § 101(5).
4 Section 506(b) provides:
To the extent that an allowed secured claim is secured by property the value of
which, after any recovery under subsection (c) of this section, is greater than the
amount of such claim, there shall be allowed to the holder of such claim, interest
on such claim, and any reasonable fees, costs, or charges provided for under the
agreement under which such claim arose.
The Lenders' position violates a cardinal rule of statutory construction. "It is a classic canon of
statutory construction that courts must 'give effect to every provision and word in a statute and
avoid any interpretation that may render statutory terms meaningless or superfluous.'" Discover
Bank v. Vaden, 396 F.3d 366, 369 (CA4 2005) quoting United States v. Ryan-Webster, 353 F.3d
353, 366 (CA4 2003).
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against because NEGT has agreed to allow certain postpetition expense claims of other
unsecured creditors. 2
The Lenders' position that the additional interest is not accruing on any obligation of
NEGT must fail. The claim for postpetition interest arises under the Guarantee Agreements.
This is a "claim" against the debtor, NEGT.3 Section § 502(b)(2) explicitly prohibits unsecured
creditors from recovering postpetition interest on a "claim" accruing after the filing of a
bankruptcy petition. To hold otherwise would be contrary to the plain and unambiguous
language of § 502(b)(2) and render § 506(b) meaningless. 4 Section § 502(b)(2) prohibits the
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5 Although not dispositive, this court finds instructive the analysis with respect to
§ 502(b)(6) in the case of In re Loewen Group Int'l, Inc., 274 B.R. 427, 440-41 (BC D. Del.
2002). Section 502(b)(6) caps the amount of damages allowable to a landlord resulting from the
termination of a real property lease. The court in In re Loewen Group Int'l, Inc. noted that courts
have held that if a debtor is a guarantor on a lease obligation, the cap in § 502(b)(6) applies to a
lease guaranty claim notwithstanding the fact that the debtor’s obligation is not an obligation to
pay rent but to guarantee the payment of such rent. Id. at 441 citing In re Episode USA, Inc., 202
B.R. 691, 695-96 (BC S.D.N.Y.1996); In re Farley, Inc., 146 B.R. 739, 745 (BC N.D. Ill. 1992);
In re Revco D.S., Inc., 138 B.R. 528, 532 (BC N.D. Ohio 1991); In re Rodman, 60 B.R. 334,
334-35 (BC W.D. Okla. 1986). See also Matter of Interco, Inc., 149 B.R. 934, 940-41 (BC E.D.
Mo. 1993). But see In re Danrik, 92 B.R. 964 (BC N.D. Ga. 1988).
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Lenders from collecting postpetition interest against NEGT, a debtor-guarantor, and, therefore,
the claim for unmatured interest is disallowed. 5
Postpetition interest and expenses are recoverable only by secured creditors to the extent
that their claims are oversecured. 11 U.S.C. § 506(b). This court agrees that the reasoning in In
re Smith represents settled law; accordingly, the Lenders' claim for postpetition expenses is
disallowed.
An appropriate order will be entered.
cc: 	Paul M. Nussbaum
Martin T. Fletcher
Dennis J. Shaffer
Whiteford, Taylor & Preston
Seven Saint Paul Street, Suite 1400
Baltimore, Maryland 21202
Matthew A. Feldman
Steven Wilamowsky
Jessica S. Etra
Willkie Farr & Gallagher LLP
787 Seventh Avenue
New York, New York 10019-6009
Case 03-30459 Doc 3604 Filed 02/22/06 Page 4 of 5

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Thomas D. Renda
Patricia A. Borenstein
Miles & Stockbridge P.C.
10 Light Street
Baltimore, Maryland 21202
Luc A. Despins
Paul Malek
Milbank, Tweed, Hadley & McCloy LLP
1 Chase Manhattan Plaza
New York, NY 10005-1413
John L. Daugherty
Assistant United States Trustee
6305 Ivy Lane, Suite 600
Greenbelt, Maryland 20770
All other parties requesting notice
End of Memorandum Decision
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