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i. Western Real Estate Equities, L.L.C. v. Village at Camp Bowie I, L.P. (In re Village at Camp Bowie I, L.P.), 710 F.3d 239 (5th Cir. 2013)
Issue: Whether a debtor can artificially impair an accepting class to satisfy 11 U.S.C. § 1129(a) (10) for plan confirmation. And if so, whether such artificial impairment of a class constitutes a lack of good faith required by 11 U.S.C. § 1129(a)(3) for plan confirmation.
Holding: The Fifth Circuit, as a matter of first impression, "join[ed] the Ninth Circuit in holding that 11 U.S.C. § 1129(a)(10) does not distinguish between discretionary and economically driven impairment." Two classes voted on the plan: one consisted of a single objecting creditor and the other consisted of unsecured creditors who were to be paid in full over the three months following the effective date. It was undisputed that the debtor could pay the unsecured creditors in full as of the effective, and thus, that it had artificially impaired the unsecured class to comply with Section 1129(a)(10). In holding that such artificial impairment satisfies Section 1129(a) (10), the court reasoned the plain language of the statute fails to input "a motive inquiry or materiality requirement" when determining an impaired class. Additionally, the court held that artificial impairment should be scrutinized under 11 U.S.C. § 1129(a)(3)'s requirement of good faith. Courts use a totality of the circumstances test for good faith, and artificial impairment is but a factor to consider.
ii. In re Neogenix Oncology, Inc., 508 B.R. 345 (Bankr. D. Md. 2014.)
Issue: Corporate Chapter 11 debtor, with support of committee of equity security holders, sought confirmation of plan of liquidation.
Holdings: (1) Members of impaired class under proposed Chapter 11 plan who were corporate debtor's officers or directors when they voted in favor of plan were "insiders" for purposes of plan confirmation requirement that an impaired class of creditors vote to accept plan, without including votes of insiders.
(2) Where person or entity alleged to be "insider" does not fit within one of statutorily listed categories of "insider" under Bankruptcy Code, inquiry becomes fact intensive, and insider determination hinges on the closeness of the relationship between the parties and whether their dealings are at arm's length. Relationship with debtor of one member of impaired class under proposed Chapter 11 plan when plan was developed and voting occurred was not sufficiently close as to warrant subjecting relationship to careful scrutiny, and therefore member was not "insider" in determining whether plan satisfied requirement of having an impaired class vote to accept plan without including votes of insiders, where member was acting as executor of estate of individual who had served as non-executive vice-chairman of debtor's board and who had died two years prior to debtor's petition filing, and neither executor, personally or as executor, nor
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