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i. In re Hyatt, 2014 WL 1652415 (Bankr. D.N.M. 2014)
Issue: Whether court could consider classification issues at the hearing on the disclosure statement.
Holdings: (1) Court could consider claim classification and treatment issues which were raised by individual Chapter 11 debtor's proposed plan when deciding whether to approve debtor's proposed disclosure statement. Court stated that proposed Chapter 11 plan was "patently unconfirmable," and bankruptcy court may refuse to approve disclosure statement where (i) confirmation defects cannot be overcome by creditor voting results, and (ii) those defects concern matters upon which all material facts are not in dispute or have been fully developed at disclosure statement hearing.
(2) Individual Chapter 11 debtor could separately classify, apart from claims of other general unsecured creditors, his unsecured liability on his guarantee of debt of his wholly owned corporation.
(3) Court could not determine whether individual Chapter 11 debtor's proposed separate classification and treatment of punitive damages component of creditor's unsecured claim was unfairly discriminatory on its face, so that issue would have to be addressed at confirmation hearing. Best approach in evaluating whether a proposed Chapter 11 plan's disparate treatment of class of claims which has not accepted the plan results in any "unfair discrimination," as that term is used in "cramdown" provision, is to consider the following: (i) whether there is reasonable basis for this disparate treatment; (ii) whether disparate treatment is necessary to confirm the plan; and (iii) whether disparate treatment is proposed in good faith.
(4) Gerrymandering votes to obtain an impaired, accepting class of creditors for purposes of "cramming down" a proposed Chapter 11 plan over a dissenting class's objection is not a sufficient basis for the separate classification
(5) Appropriate mechanism for subordinating claims in Chapter 11 case without relying on equitable subordination provision is separate classification and treatment, subject to the following limitations: (i) there must be a legitimate reason for the separate classification other than to gerrymander an accepting, impaired class; (ii) plan must not discriminate unfairly with respect to the treatment of class of claims which has not accepted the plan; and (iii) absolute priority rule must not bar confirmation of plan.
ii. In re W.R. Grace, 729 F.3d 332 (3d Cir. 2013)
Issue: Whether a plan fails to provide equal treatment to claims within a class by requiring current claimants to litigate in bankruptcy court, while future claimants may litigate in a different forum.
©2014 William L. Norton III
