## Facts

- Thrifty Oil Company and affiliates, including Golden West Refining Company, entered a financing transaction with Bank of America that included a floating-rate term loan and interest-rate swap agreements.
- The swaps were documented under a master agreement and confirmations and used a notional principal solely to calculate net periodic payments; no principal was exchanged between swap counterparties.
- The swaps functioned as a hedge intended to offset Thrifty’s exposure to interest-rate fluctuations on the floating-rate debt.
- After Thrifty and affiliates filed for Chapter 11, the bankruptcy filing triggered early termination of the swaps under their terms.
- Bank of America calculated and filed a proof of claim for swap “termination damages,” reflecting the contractually determined market value of remaining swap cash flows at termination.
- Thrifty objected, arguing the termination-damages claim was disallowed “unmatured interest” under 11 U.S.C. § 502(b)(2) and that the swaps were unenforceable under California’s Bucket Shop Law.
- The bankruptcy court granted summary judgment for Bank of America; the district court affirmed.

## Issues

1. Whether swap termination damages are disallowed “unmatured interest” under 11 U.S.C. § 502(b)(2).
2. Whether California’s Bucket Shop Law renders the interest-rate swaps unenforceable, and whether federal derivatives law preempts that state-law invalidation.
3. Whether Bank of America may recover attorneys’ fees on appeal, including whether a prior settlement waived fees and whether fees are available for federal-law issues.

## Decision

- The Ninth Circuit affirmed allowance of Bank of America’s swap termination-damages claim.
- The court held the termination damages were not “unmatured interest” under § 502(b)(2) and were allowable as contract damages measured by the swap’s value at termination.
- The court held the swaps were not illegal bucket shop transactions and, in any event, federal law preempted application of state bucket shop laws to invalidate the swaps.
- On attorneys’ fees, the court rejected Thrifty’s waiver argument, concluding the settlement’s waiver covered only post-petition claims while the swap claim arose from pre-petition contracts.
- The court awarded fees limited to work attributable to the state-law (Bucket Shop Law) issue and denied fees attributable solely to the federal bankruptcy issue; it remanded for calculation.

## Legal Principles

- Swap termination damages calculated under the parties’ agreement are treated as contract damages for early termination, not as “unmatured interest,” because swap payments are not interest on a loan between the swap counterparties and are computed on a notional principal with no principal advanced or repaid.
- Courts will not recharacterize legally distinct contracts (a loan and a swap) as a single fixed-rate loan for purposes of § 502(b)(2) disallowance.
- Federal derivatives legislation, including the Futures Trading Practices Act of 1992 and related provisions, preempts state laws that would deem qualifying swap agreements unenforceable as bucket shop or similar wagering transactions.
- In bankruptcy appeals, an unsecured creditor’s contractual fee claim is recoverable only to the extent state law governs the substantive issue and authorizes fee shifting; fees are not awarded for work on purely federal bankruptcy-law questions.
- Settlement waivers of fees are construed using the pre-petition/post-petition claim distinction; rights arising from pre-petition contracts generally constitute pre-petition claims.

## Conclusion

The Ninth Circuit held that swap termination damages are allowable contract damages rather than disallowed unmatured interest, and that federal derivatives law prevents state bucket shop statutes from voiding such swaps; it also limited appellate fee recovery to work on the state-law issue and remanded for fee allocation.


Thrifty Oil Co. v. Bank of Am. Nat'l Tr. & Sav. Ass'n, 322 F.3d 1039 (9th Cir. 2003)