- 2011 WL 350480
- (1) Rejecting the view that appellate standing requires that an actual pecuniary interest be affected, the majority held that an "out of the money" unsecured creditor had standing to appeal confirmation as long as it held a valid and impaired claim. (2) The court affirmed designation of the competitor's vote because it acted with an ulterior motive to advance an interest other than its interest as a creditor. Here DISH acquired the claims post-petition in order to block the plan to advance its selfish interest in another business and thus fit into the classic case for designation. (3) The absolute priority rule prevents a senior creditor from gifting part of its likely bankruptcy distribution to a junior class through the plan when an intermediate objecting class is not paid in full. The court rejects the argument that the senior creditor is merely using its own property as it wishes. Instead the court focused on the Code's language and found that the junior class receiving the gift was (a) receiving property (b) under the plan (c) on account of its junior interest, thus violating the rule.
- Procedural context:
- Appeal from order confirming chapter 11 plan.
- Plan provided for former first lien holders to receive new secured notes and for former second lien holders to receive most of the equity in reorganized debtor. This would not be sufficient to pay the second lienholders claims in full because the value of the reorganized debtor was too low. Although the former unsecured creditors and equity holders were completely out of the money, the plan gifted approximately 5% of the equity in the reorganized debtor to former equity holders and 0.15 % to unsecured creditors. A competitor, DISH, acquired the first lien claims and a sizeable amont of the second lien claims and voted those claims to reject the plan - in an attempt to block confirmation so that it could obtain control of DBSD. The Bankruptcy Court designated DISH's vote as not in "good faith". In addition, an unsecured class voted to reject the plan. One of the unsecured creditors, Sprint, held an unliquidated and disputed claim and objected to the plan's gifting provisions to old equity as a violation of the absolute priority rule. The Bankruptcy Court confirmed the plan. Both Sprint and DISH appealed.
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