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Full Opinion
Came on to be considered the competing plans filed in this case between the Debtor and Cloud Cap Restaurants, LLC (âCloud Capâ). For the reasons stated herein, the Court will deny confirmation of both plans.
The Court finds that it has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1384. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(c) (confirmation of plans). Venue is proper under 28 U.S.C. § 1408(1). This matter is referred to this Court by the Districtâs Standing Order of Reference. The following constitutes the Courtâs findings of fact and conclusions of law pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure.
Background
Mangia Pizza is a locally owned pizza restaurant. Prior to filing bankruptcy, it had several locations in Austin; but as the economy worsened, Mangia scaled back its operations to one location in Austin, Texas, and licensed its name to operations at Austin-Bergstrom International Airport and Georgetown, Texas.
Mangia Pizza filed Chapter 11 bankruptcy on November 10, 2010. The Chapter 11 case continued with little dispute until the disclosure statement hearing in July 2011. At the Debtorâs disclosure statement hearing, the Court learned that Cloud Cap had purchased the claim of Knife Sharpest for $244.66 and, because exclusivity had terminated, filed a competing disclosure statement. Cloud Capâs disclosure statement adopted much of the information contained in the Debtorâs disclosure statement; but Cloud Cap provided more disclosure regarding the pizza industry nationally and locally. Further, Cloud Cap articulated its business plan for the Debtor, which included a revised menu, improved dĂ©cor for the restaurant, and a proposed expansion of the restaurant. Cloud Cap also objected to the Debtorâs lack of disclosure, focusing on feasibility and an apparent inability to confirm a plan.
The Court reset consideration of approving both disclosure statements to allow the parties to come to an agreement regarding the adequacy of disclosure under 11 U.S.C. § 1125. The parties did agree on a form of disclosure statement for both sides. The Court approved the amended disclosure statement for both Cloud Cap and the Debtor. The parties further agreed that one plan packet would be sent to all creditors that included copies of both amended disclosure statements and plans. Creditors were given the option of voting for either plan, voting for both plans, or rejecting both plans. If claimants voted to accept both plans, they were to indicate which plan they preferred. The parties further agreed that the Court would consider confirmation of both plans, allowing the Debtor to present its plan first and Cloud Cap second.
Although discussed in more detail herein, the plans are similar in terms of classification and treatment but for one significant aspect: Cloud Cap has created a fund of $305,000 with which Cloud Cap proposes to pay administrative, secured, priority claims in full (with some exceptions) and provide a 22% dividend to allowed unsecured non-priority claims shortly after confirmation of its plan. The Debtor proposes to pay all creditors in full over time from ongoing operations. Depending on how well or poorly Debtorâs operations generate revenue, it could take until 2022 for all creditors to be paid under the Debtorâs amended plan.
Both plans were set for confirmation on August 24, 2011. Cloud Cap and the Debtor filed a number of pleadings with
The Court continued the hearing on confirmation of both plans from August 24, 2011 to September 12, 2011 to make oral rulings on these Motions. The Court will incorporate its prior rulings into this Memorandum Opinion for the purpose of memorializing those rulings.
As part of the hearing on Cloud Capâs Motion for Approval of Non-Material Modifications, Cloud Cap requested that the Court find as a matter of law that the IRSâs secured claim could be considered an impaired accepting class under Section 1129(a)(10). Cloud Cap needed an impaired accepting class under Section 1129(a)(10) to obtain confirmation of its Plan because it did not have an accepting impaired class.
11 U.S.C. § 1129(a)(9)(C) and (D) (2006)
(a) The court shall confirm a plan only if all of the following requirements are met:
(9) Except to the extent that the holder of a particular claim has agreed to a different treatment of such claim, the plan provides thatâ
(C) with respect to a claim of a kind specified in section 507(a)(8) of this title, the holder of such claim will receive on account of such claim regular installment payments in cashâ
(i) of a total value, as of the effective date of the plan, equal to the allowed amount of such claim;
(ii) over a period ending not later than 5 years after the date of the order for relief under section 301, 302, or 303; and
(in) in a manner not less favorable than the most favored nonpriority unsecured claim provided for by the plan (other than cash payments made to a class of creditors under section 1122(b)); and
(D) with respect to a secured claim which would otherwise meet the description of an unsecured claim of a governmental unit under section 507(a)(8), but for the secured status of that claim, the holder of that claim will receive on account of that claim, cash payments, in the same manner and over the same period, as prescribed in subparagraph (C).
11 U.S.C. § 1129(a)(10) (2006)
(a) The court shall confirm a plan only if all of the following requirements are met:
(10) If a class of claims is impaired under the plan, at least one class of claims that is impaired under the plan has accepted the plan, determined without including any acceptance of the plan by any insider.
Contention of the Plan Proponents AS TO THE IRS AS AN IMPAIRED Accepting Class
Cloud Capâs Argument
Cloud Cap argues that the IRS is an impaired accepting class for purposes of voting and cram down. Cloud Capâs argument rests on the determination that a secured tax lien may constitute a class and that, by agreeing to treatment worse than
The Debtorâs Argument
The Debtor argues that the secured tax lien in this case cannot be impaired. The Debtor cites a portion of Greenwood Point, noting that âbecause the Code sets forth ... minimally acceptable statutory treatment for unsecured priority tax claims for confirmation, several courts have found that such claims cannot be impaired.â 445 B.R. at 906. In addition, the Debtor cites Pennbank v. Winters, 99 B.R. 658 (Bankr.W.D.Pa.1989), cited in Greenwood Point, stating that âif the priority tax creditors agree to a treatment other than what they are entitled to, they are not impaired.â
The Debtor also argues that the secured tax claim is not eligible for classification. For this proposition, the Debtor relies on the distinction between a creditor being offered treatment worse than that required by § 1129(a)(9)(D), and agreeing to such treatment. In relying on this distinction, the Debtor cites In re EQK Bridgeview Plaza, Inc., No. 10-37054-SGJ-11, 2011 WL 2458068, at *2 n. 1 (Bankr. N.D.Tex. June 16, 2011), where the court states that a secured tax claim might be treated as an impaired accepting class if âthe secured tax claimant were offered treatment worse than Section 1129(a)(9).â The Debtor claims that because the IRS has agreed to such treatment, it has not been âofferedâ treatment worse than § 1129(a)(9)(c).
ANALYSIS
The treatment of the IRSâs secured tax claim as impaired is consistent with both Greenwood Point and In re Perdido Motel Group, Inc., 101 B.R. 289 (Bankr.N.D.Ala.1989). In Perdido Motel, the court determined that when a creditorâs rights are altered by the plan, even if pursuant to § 1129(a), the creditorâs rights are impaired. 101 B.R. at 293.
In addition, as noted in Greenwood Point, the Code states that a class of claims is impaired unless âthe plan leaves unaltered the legal, equitable, and contractual rights to which such claim or interest entitles the holder of such claim or interest.â In re Greenwood Point, 445 B.R. at 906; 11 U.S.C. § 1124(1) (2006). In Greenwood Point, the court also observed that the Seventh Circuit has determined that âthe standard for impairment is very lenient and âany alteration of the rights constitutes impairment even if the value of the rights is enhanced.â â Id. (quoting In re Wabash Valley Power Assoc., Inc., 72 F.3d 1305, 1321 (7th Cir.1995)). Because the plan in this case alters the IRSâs statutory right to receive payments over a term of five years from the date of the order for relief, its rights are impaired under the language of § 1124(1).
It is unsettled whether a secured tax claim may constitute a class capable of voting on a plan of reorganization. Some commentators have noted that class is âa âword of art,â the purpose of which is to state the âtreatmentâ in a plan where otherwise not set by statute.â Guy B. Moss & Christopher M. Candon, SARE debtors: Solving the Impaired Voting Class Dilemma through Municipalities? 30-6 Am. Bankr. Inst. J. 20, 78, (2011). The Journal notes that while the court in Greenwood Point permitted the classification of a secured tax claim, the classification argument may be persuasive in another forum, especially because a secured tax claim âmust receive the same treatment in a plan as a § 507(a)(8) unsecured tax claimâ under the Bankruptcy Abuse Pre
In Perdido Motel, the court, having found unsecured IRS tax claims to be impaired, nonetheless determined that the claims were not a âclassâ within the meaning of § 1129(a)(10). The court examined the requirement of § 1123(a) that a plan shall âdesignate ... classes of claims, other than claims of a kind specified in ... § 507(a)(8) of this title.â 11 U.S.C. § 1123(a)(1). Because the tax claims at issue in Perdido Motel were unsecured, they fell under the provisions of § 507(a)(8), and were specifically excluded from treatment as a âclassâ under § 1123(a)(1).
The tax claims in Greenwood Point were secured claims, and thus not specifically excluded from classification by § 1123(a)(1). Because § 507(a)(8) deals only with unsecured claims, the court in Greenwood Point determined that the secured tax claims in that case could constitute a class within the meaning of § 1129(a)(10). In re Greenwood Point, LP, 445 B.R. at 906-07.
The ruling in Greenwood Point that secured tax claims may be treated as a âclassâ for purposes of voting and cram down is not universal. While the Court in Greenwood Point looked at the specific statutory language to determine that a secured tax claim may be treated as a âclassâ because it is not specifically prohibited from such treatment by § 1123(a)(1), there is a better argument in this Courtâs judgment that such a result would frustrate the statuteâs purpose to exclude claims that receive favorable statutory treatment from voting for purposes of cram down.
In Perdido Motel, the court held that one of the primary reasons for denying class status to unsecured tax claims is that priority tax claims are entitled to preferential treatment under § 1129(a)(9)(C). In re Perdido Motel Group, Inc., 101 B.R. at 293-94. It is important to note that while secured tax claims are not addressed by § 507(a)(8), they are entitled to preferential treatment under § 1129(a)(9)(C) through § 1129(a)(9)(D), which requires that secured tax claims be given the same treatment as unsecured claims. The Fourth Circuit has determined that âpriority tax claimants, which receive preferential treatment under the Code (see 11 U.S.C. § 1129(a)(9)(C)), are not an impaired class that can accept a plan and bind other truly impaired creditors to a cram down.â In re Bryson Properties, XVIII, 961 F.2d 496, 501 n. 8 (4th Cir.1992). Because § 1129(a)(9)(D) requires that secured tax claims be given the same treatment as all other priority tax claims, there is a strong argument to be made that such claims should be treated equally when it comes to purposes of voting and cram down.
The Court recognizes that there are several instances where courts have allowed classes of secured tax claims to vote. See, e.g., In re Sunflower Racing, Inc., 219 B.R. 587, 597 (Bankr.D.Kan.1998), aff'd, 226 B.R. 673 (D.Kan.1998) (noting that class consisting of secured claim of a county treasurer is impaired and has voted to accept a plan); In re Gramercy Twins Assocs., 187 B.R. 112, 115 (Bankr.S.D.N.Y.1995) (noting that a class consisting of a city tax lien was impaired and entitled to vote); In re Ropt Ltd. Pâship, 152 B.R. 406, 411 (Bankr.D.Mass.1993) (declaring that a town was entitled to vote because the plan altered the townâs legal rights with regard to its fully-secured tax lien).
While it is unsettled whether a secured tax claim may be classified for purposes of voting and cram down, the better reasoning suggests that a secured tax claim should not be treated as a âclass.â The Court agrees that given the express statu
The parties also asked the Court to consider, prior to the confirmation hearing, pleadings affecting Jeff Sayersâ proof of claim and vote. Cloud Cap objected to Jeff Sayersâ proof of claim prior to confirmation. As a result, the Debtor moved to have Sayersâ claim temporarily allowed, so that Sayersâ negative vote as to Cloud Capâs Plan could be counted. Should Sayersâ claims be temporarily allowed, then as an initial matter the unsecured class under Cloud Capâs Plan would not have enough votes in an amount to be an impaired accepting class.
Should Jeff Sayersâ Claim Be Allowed to Vote?
11 U.S.C. § 502(a) (2006)
(a) A claim or interest, proof of which is filed under section 501 of this title, is deemed allowed, unless a party in interest, including a creditor of a general partner in a partnership that is a debtor in a case under chapter 7 of this title, objects.
Fed. R. Bankr. P. 3018(a)
(a) Entities entitled to accept or reject plan; time for acceptance or rejection. A plan may be accepted or rejected in accordance with § 1126 of the Code within the time fixed by the court pursuant to Rule 3017. Subject to subdivision
(b) of this rule, an equity security holder or creditor whose claim is based on a security of record shall not be entitled to accept or reject a plan unless the equity security holder or creditor is the holder of record of the security on the date the order approving the disclosure statement is entered or on another date fixed by the court, for cause, after notice and a hearing. For cause shown, the court after notice and hearing may permit a creditor or equity security holder to change or withdraw an acceptance or rejection. Notwithstanding objection to a claim or interest, the court after notice and hearing may temporarily allow the claim or interest in an amount which the court deems proper for the purpose of accepting or rejecting a plan.
Rule 3018(a) allows a bankruptcy judge to âtemporarily allow [an objected to] claim or interest in an amount which the court deems proper for the purpose of accepting or rejecting a plan.â Fed. R. Bankr.P. 3018(a). According to the Tenth Circuit, â[t]he policy behind temporarily allowing claims is to prevent possible abuse by plan proponents who might ensure acceptance of a plan by filing last minute objections to the claims of dissenting creditors.â In re Armstrong, 294 B.R. 344, 354 (10th Cir. BAP 2003), aff'd, 97 Fed.Appx. 285 (10th Cir.2004).
The court has broad authority to determine whether to allow or disallow a claim for purposes of voting. The Bankruptcy Appellate Panel of the Tenth Circuit has determined that â[t]here is no guidance in the Bankruptcy Code to courts as to how to determine whether to permit the temporary allowance of a claim; it is left to a courtâs discretion.â In re Armstrong, 294 B.R. at 354. Various courts have developed factors to consider when determining whether to temporarily allow a claim for purposes of voting on a proposed plan.
One factor that has been considered in determining whether to temporarily allow a claim is the expectations of the parties regarding treatment of the claim as evidenced in their proposed plans. In re Stone Hedge Props., 191 B.R. 59 (Bankr.M.D.Pa.1995). In Stone Hedge, a creditor sought to reclassify as unsecured a portion
Other courts have developed various multi-factor tests for determining whether to temporarily allow a claim for purposes of voting. See, e.g., In re Harmony Holdings, LLC, 395 B.R. 350, 354 (Bankr.D.S.C.2008). The court in Harmony Holdings found persuasive the factors considered in In re Gardinier, Inc., 55 B.R. 601 (Bankr. M.D.Fla.1985), namely â(1) whether the objection to the claim at issue appears to be frivolous or without basis, (2) the effective power which the holder of the disputed claim may have to scuttle the reorganization proceeding, which is almost near completion, and (3) given the facts of that case, that the debtor was willing to preserve funds to pay the disputed claim under the terms of the plan in the event the claim was ultimately allowed.â In re Harmony Holdings, LLC, 395 B.R. at 354.
In Gardinier, the court found that the objected to claim represented roughly 20% of the claims in its class, which may have provided the creditor with âenough leverage to exert pressure on other creditors in this class and persuade them to reject the Planâ and âscuttleâ the reorganization proceeding. In re Gardinier, Inc., 55 B.R. at 604-05. In deciding against temporarily allowing the claim, the court additionally noted that the debtor was willing to preserve funds to pay the creditor âin the event their claim is ultimately allowed with finality.â Id. at 605.
Similarly, in Armstrong the court found that âA creditor may request the temporary allowance of a claim under one of the following nonexclusive circumstances: when an objection to the claim has been filed and âthe objection was filed too late to be heard prior to the confirmation hearing, when fully hearing the objection would delay administration of the case, or when the objection is frivolous or of questionable merit.â â In re Armstrong, 294 B.R. at 354 (quoting 9 Collier on Bankruptcy ¶ 3018.01[5] (Lawrence P. King ed., 15th ed. 2003)).
While several courts have developed various multi-factor tests to apply when determining whether to temporarily allow a claim for purposes of voting, the choice is ultimately one of the courtâs discretion. The most persistent factors considered by the courts are: (1) whether the objection was filed late or âat the last minute,â either to ensure acceptance of a plan or to avoid a proper hearing; (2) whether the allowance or non-allowance of the claim will delay administration of the case; and (3) whether the objection was frivolous. Id. In addition, at least one court has considered the mutual expectations of the parties, as evidenced in their proposed plans, when considering whether to temporarily allow a claim for purposes of voting. In re Stone Hedge Props., 191 B.R. at 66.
Cloud Cap primarily objected to Sayersâ claim as cast in bad faith because by voting no, Sayers could dominate the
Was Sayersâ Vote Cast in Bad Faith?
11 U.S.C. § 1126(e) (2006)
(e) On request of a party in interest, and after notice and a hearing, the court may designate any entity whose acceptance or rejection of such plan was not in good faith, or was not solicited or procured in good faith or in accordance with the provisions of this title.
Under 11 U.S.C. § 1126(e), âthe court may designate any entity whose acceptance or rejection of [a] plan was not in good faith.â âThe consequence of such designation is that the vote is disregarded in the counting of votes to determine whether a class has accepted or rejected the Plan.... â In re Save Our Springs Alliance, Inc. (âSOSâ), 388 B.R. 202, 230 (Bankr.W.D.Tex.2008). Whether a vote is cast in good faith depends on the facts of the particular case. Id. Generally, courts have determined that when a vote is cast for an ulterior motive that is only incidentally related to the creditorâs status as a creditor, the vote should be designated as cast in bad faith. See e.g., id. at 230 (âA creditor may not cast his vote for an ulteri- or purpose and expect to have it counted.... â) (quoting Insinger Mach. Co. v. Fed. Support Co., 859 F.2d 17, 19 (4th Cir.1988); In re Landing Assoc., Ltd., 157 B.R. 791, 807 (Bankr.W.D.Tex.1993)) (â[W]hen the voting process is being used as a device with which to accomplish some ulterior purpose, out of keeping with the purpose of the reorganization process itself, and only incidentally related to the creditorâs status qua creditor, section 1126(e) is rightly invoked.â); In re Holly Knoll Pâship, 167 B.R. 381, 385 (Bankr.E.D.Pa.1994) (âCourts have generally held that if a purchaser of claims in voting the assigned claims is pursuing an interest in addition to its interest as a creditor, bad faith may be found.â).
Not every ulterior motive will be sufficient for designating a vote as being cast in bad faith. See In re Landing Assoc., Ltd., 157 B.R. at 807 (noting that âin many cases, creditors act for a variety of motives, only some of which are directly related to their status as creditors,â and that a vote by a trade creditor for the purpose of ensuring the survival of an entity with which to do business would not be the sort of ulterior motive that should lead to a bad faith designation). When a creditorâs vote is motivated primarily for the accomplishment of receiving some benefit only tangentially related to the creditorâs status as a creditor, however, the vote should be disregarded as having been cast in bad faith. See id. at 803 (â[I]f the creditor fails to convince the court that the questioned activity was motivated by business judgment, then the court must inquire into the creditorâs motives.... Under this approach, then, it is essential to examine the nature of the- true interest being benefitted by the questioned activity.â); See also 7 Collier on Bankruptcy ¶ 1126.06[1] (Lawrence P. King ed., 15th ed. 2003) (âThe inquiry in deciding whether a creditor acted in good faith is whether its vote was cast for the ulterior purpose of securing some advantage to which the creditor would not otherwise have been entitled. The mere pursuit of economic
One of the ways in which courts have sought to ascertain the motives of a creditor in casting its vote has been to look to the way in which the claim was acquired. The court in In re Allegheny Intâl, Inc., 118 B.R. 282 (Bankr.W.D.Pa.1990), noted that the creditor in that case had purchased its claims only after the debtorâs disclosure statement was approved, and then âalmost exactly in the amount required to block the plan of reorganization.â Id. at 289-90. In addition, in determining that the creditorâs true motive was to âtake over and control the debtor,â the court noted that the two classes in which the creditor had purchased claims had âdirectly opposite interests with respect to the ... litigation.â Id.
Similarly, when an insider acquires claims for the purpose of blocking a competing plan, it may be evidence of bad faith. In re Applegate Prop., Ltd., 138 B.R. 827 (Bankr.W.D.Tex.1991). In Ap-plegate, a related entity of the debtor corporation acquired claims shortly before the consideration of competing plans in order to block confirmation of the competing plan. Id. at 830, 834. Based on this fact, the court determined that the true interest being benefited was the debtorâs interest in avoiding liquidation, rather than the related entityâs interest as a creditor. Id. at 834-35. While the acquisition of claims for the purpose of blocking a competing plan is not an act of bad faith in itself, it can be strong evidence of bad faith, especially when the claims are acquired by an insider. Compare id. at 835 (âOne may reasonably infer ... that Congress had in mind the considerations of independent third parties when it directed courts to accede to the desires of creditors in Section 1129(c), rather than the wishes of an insider.â), with In re United Marine, Inc., 197 B.R. 942 (Bankr.S.D.Fla.1996) (noting that insiders held âvalid pre-petition claim[s]â in finding no bad faith on the part of the insiders).
In the instant case, Sayersâ claims arose pre-petition. The Court may still look, however, to the manner in which claims were acquired to determine if Sayersâ vote may have been cast in bad faith. Cloud Cap argues that Sayersâ claims arise from âyears and years of undercapitalization and mismanagement.â (Cloud Capâs Motion for Order Disallowing Claims and Designating Votes Filed by Jeff Sayers, docket no. 122, at 8, Aug. 23, 2004). Unlike the cases cited above, where claims were acquired for the purposes of affecting the outcome of a vote on the plan, Sayersâ claims, arising over âyears and years,â likely were not acquired in bad faith. In fact, the claims facially show loans to the Debtor and forgiveness of debt.
Still, even if Sayersâ claims were not acquired in bad faith, his votes may have been cast in bad faith if they were cast primarily for some ulterior motive only incidentally related to his status as a creditor. One such motive might be financial gain in some other capacity upon confirmation of the plan. See In re Landing, 157 B.R. at 803 (describing Town of Belleair, Fla. v. Groves, 132 F.2d 542 (5th Cir.1942) (where creditors who were also bondholders of the debtor were induced to vote for a plan by âspecial benefits,â which benefited their interests as bondholders rather than as creditors)); see also In re Holly Knoll Pâship, 167 B.R. 381, 388-89 (Bankr.E.D.Pa.1994) (noting that a creditor who voted for the plan would become general partner of the debtor in the event of the planâs confirmation, and would receive substantial fees from the reorganized debtor
According to Cloud Cap, Sayers stands to âown 100% of the equity in the Reorganized Debtor [and] maintain 100% control of the Reorganized Debtor,â if the Debt- orâs plan is confirmed. (Cloud Capâs Objection to Debtorâs Plan of Reorganization, docket no. 112, at 3, Aug. 17, 2011.) Like the creditor in Holly Knoll, Sayers stands to gain control and perhaps financial benefits as the sole equity holder in the reorganized company. The court in Holly Knoll was convinced that this was the primary motivation for the creditorâs vote in favor of the plan. In re Holly Knoll Pâship, 167 B.R. at 388-89. The court found this fact based on the circumstances surrounding the vote, including the purchase of a claim only after learning that the plan could not be confirmed otherwise. Id.
As noted above, the circumstances surrounding the vote in this case do not tend to indicate that Sayers attempted to manipulate the vote by purchasing claims to ensure passage of a specific plan. Rather, Cloud Cap alleges that Sayersâ claims arise from âyears and years of undercapitalization and mismanagement.â (Cloud Capâs Motion, docket no. 122, at 8.) Sayers has much to gain as an equity holder, in terms of corporate control, in the event that the Debtorâs plan is confirmed. It would not be unreasonable to determine that such interests may be the primary motive for Sayersâ vote against Cloud Capâs plan, though without any additional evidence, to do so might be unwarranted. Sayers has another reason for voting against Cloud Capâs Plan. David Turpin testified on behalf of Cloud Cap that Cloud Cap may not pay all of the IRSâs proof of claim. In doing so, should Cloud Cap not pay the trust fund portion of the IRSâs claim, then Sayersâ responsible officer liability for trust fund taxes would be enforceable against him. As such, Sayers has additional tax exposure should Cloud Capâs Plan be approved.
The Second ' Circuit has declared that âbankruptcy courts should employ § 1126(e) designation sparingly.â In re DBSD N. Am., Inc., 634 F.3d 79, 101 (2d Cir.2011). âA party seeking to designate anotherâs vote bears the burden of proving that it was not cast in good faith.â Id. at 102; see also In re United Marine, Inc., 197 B.R. at 947 (âThe burden is on the objecting creditor to sustain its claim under § 1126(e) that acceptance or rejection of the plan was not in good faith.... â). Furthermore, âif a creditor sufficiently manifests a proper motive for the questioned activity, courts have been unwilling to second-guess the wisdom of the creditorâs exercise of business judgment.â In re Landing Assoc., 157 B.R. at 803. In choosing not to second-guess a creditorâs business judgment, the courts have recognized that creditors often have âmixed motivesâ when choosing a plan, and that in most circumstances such other motives are legitimate business interests that should not serve as a basis for a bad-faith designation. Id. at 807-08.
Cloud Cap has merely pointed to Sayersâ expected post-confirmation position "without indicating any behavior on his part indicative of bad faith. In In re DBSD N. Am., Inc., the Second Circuit noted the presence of significant evidence of an ulterior motive in that case, including the creditorâs admissions in court, its position as a competitor of the debtor, its willingness to overpay for the claims it bought, its attempt to propose its own plan, and its internal communications which showed a desire âto obtain a blocking positionâ and âcontrol the bankruptcy process.â In re DBSD N. Am., Inc., 634 F.3d at 104-05. None of these factors are present here. For these reasons, Sayersâ vote should not be designated under 11
Summary of Competing Plans and Differences
Debtorâs First Amended Combined Disclosure Statement and Chapter 11 Plan of Reorganization dated July 28, 2011 (Docket No. 97)
The Debtorâs Plan provides for full payment of administrative claims, priority claims, secured claims, and general unsecured claims. (Debtorâs Plan ¶ 1.2, docket no. 97.) Unsecured claims will be paid over time with initial payments to the general unsecured claims of $1,333.30 per month for the first sixty (60) months of the Plan and then increasing to $6,057.30 per month in month 61 of the Plan. The interest rate on payment of unsecured general claims is at the federal judgment rate of 0.18%. The final payment to unsecured creditors is in July 2022, but if Debtorâs financial projections are accurate, unsecured general claims could be paid as soon as June 2017.
The Debtorâs Plan includes 11 classes of claims. Some of those classes do not contain any filed claims. (Debtorâs Plan ¶ 7.2). Those remaining classes of claims are described as follows:
Administrative Claims
Administrative Claims: Except to the extent that any entity entitled to payment of any Allowed Administrative Claim agrees to a different treatment, each holder of an Allowed Administrative Claim shall receive Cash from funds available from the operations of the Debtor in an amount equal to such Allowed Administrative Claim on the later of the Effective Date or the date such Administrative Claim becomes an Allowed Administrative Claim, or as soon thereafter as practicable.
Any Claims of Professionals approved by the Court shall be paid in Cash in such amounts as are Allowed by Final Order of the Court (a) within five (5) days following the date such Claim of a Professional becomes an Administrative Claim; or (b) upon such other terms as may be mutually agreed upon between such holder of a Claim and the Reorganized Debtor.
Brown McCarroll, L.L.P.âs Professional Claim: Brown McCarroll, L.L.P. has agreed to be paid pursuant to terms that will be disclosed in the Plan Supplement to be filed on or before August 10, 2011.
Class 2: Allowed Priority Non-Tax Claims
This Class shall consist of Allowed Priority Non-Tax Claims arising under Section 507(a)(4), (5) or (7) of the Bankruptcy Code. Each holder of an Allowed Priority Non-Tax Claim shall be paid in full, through quarterly cash payments commencing on the Effective Date, its Allowed Priority Non-Tax Claim, together with interest at the Plan