Alabama Dept. of Economic & Community Affairs v. Ball Healthcare-Dallas, LLC (In re Lett)

Summarized by Paul Avron , Berger Singerman LLP
15 years 3 weeks ago

Citation:

Case No. 09-11697 (11th Cir. Feb. 10, 2011)

Tag(s):

11th Circuit

Ruling:

The primary ruling is that a creditor that fails to object to confirmation of a Chapter 11 plan based upon the absolute priority rule may prosecute an appeal on that ground under the "civil plain error rule" so long as the bankruptcy court adjudicates the cram-down requirements, including the absolute priority rule, on the merits. There was a subsidiary ruling that a Chapter 11 plan may not be equitably moot even where some distributions called for by the Chapter 11 plan have been made.

Procedural context:

Creditor appealed the District Court's ruling that creditor could not raise for the first time on appeal the issue of whether the bankruptcy court properly confirmed a Chapter 11 plan based on the absolute priority rule, finding that there would be no miscarriage of justice. The Debtor and intervenor argued that the appeal should be dismissed as equitably moot but that argument was rejected by the Eleventh Circuit.

Facts:

The Alabama Dept. of Economic and Community Affairs (ADECA) appealed the District Court's affirmance of the bankruptcy court's confirmation order to the Eleventh Circuit. ADECA, an impaired creditor, failed to object to confirmation on the ground that the plan violated the absolute priority rule, but raised that issue on intermediate appeal to the District Court. The District Court held that the ADECA waived the right to appeal the absolute priority issue because it didn't object to confirmation on that ground before the bankruptcy court. On further appeal, the Eleventh Circuit found that the ADECA maintained the right to challenge confirmation on the basis of the absolute priority rule notwithstanding the generally applicable civil plain error rule that issues not raised before the trial court are not preserved for appeal. The Eleventh Circuit focused on the fact that Debtor's counsel madea proffer on the record that the Plan met the requirements for cramdown, including the absolute priority rule, and the bankruptcy court expressly found that the Plan met the requirements for confirmation under Code section 1129(b). The Debtor and intervenor (which did not file any appellate briefs) argued that the appeal was equitably moot because certain payments contemplated by the Plan had been made. The Eleventh Circuit rejected that argument, finding that because the ADECA was only challenging the terms of payments to unsecured creditors the Debtor had not substantially consummated the confirmed Plan such that it was legally and practically impossible to unwind what had been done. Specifically, the Eleventh Circuit stated that reveral wuld not prejudice the rights of absent third parties.

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