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Summarizing by Shane Ramsey


Summarizing by Amir Shachmurove


Case Type:
Case Status:
16-16221 (9th Circuit, Jan 25,2018) Published
The Ninth Circuit affirmed the District Court's affirmance of the Bankruptcy Court's confirmation of a cramdown joint plan filed by five related debtors.
Procedural context:
The Bankruptcy Court confirmed the joint plan of five related Debtors, over the objections of the secured creditor. The District Court affirmed on appeal. The Ninth Circuit affirmed the District Court''s ruling.
In 2007, two of the five related Debtors (Operating Debtors) each acquired a resort hotel, financed by a $209 million loan from the Lender secured by the resorts, and a $21.5 million loan (Mezzanine Loan) from the Mezzanine Lender, secured by equity interests of two other Debtors (Mezzanine Debtors) in each Operating Debtor. The other Debtor was the parent company of the Mezzanine Debtors. The Debtors each filed a chapter 11 petition in 2010. The five cases were jointly administered (not substantively consolidated). Post-petition, the Lender acquired the Mezzanine Loan. The Debtors filed a joint chapter 11 Plan under which a third-party investor acquired the Operating Debtors for $30.0 million. The Lender, whose claim was undersecured, made its election under §1111(b)(2) to have its entire claim treated as secured. The Plan restructured the Lender’s secured claim to a term of 21 years, interest only payments with a balloon payment at the end of the term. The Plan included a due-on-sale provision, however, this provision would not apply if the Debtors sold the resorts between years 5 – 15 under the Plan. The Lender voted against the Plan, with other impaired classes accepting the Plan. The Lender asserted two objections to the Plan: first, the Lender contended the due-on-sale provision allowed the Debtors to partially negate the benefits of the Lender’s §1111(b)(2) election; and second, because the Lender was the only class member of the Mezzanine Debtors, with its rejection of the Plan, §1129(a)(10) was not satisfied as to such Mezzanine Debtors and, thus, the Plan could not be confirmed. Over the Lender’s objections, the Bankruptcy Court confirmed the Plan. On appeal, the District Court affirmed. On appeal to the Ninth Circuit, the Lender posited that §1111(b)(2) requires a due-on-sale provision and, under the Plan, the absence of such provision during Plan years 5 -15 partially diminished the Lender’s benefits of its §1111(b)(2) election. After review of the statutory provisions of §§1123, 1111(b)(2) and 1129(b)(2)(A), the Panel held that a due-on-sale provision is not required when a §1111(b)(2) election is made, thus rejecting the Lender’s position that the Plan violated §1111(b)(2). Addressing the Lender’s second objection to the Plan, the Panel declined to accept the Lender’s argument that confirmation of a joint plan must be subject to confirmation on a “per debtor” basis. The Panel held that the plain language of §1129(a)(10) supports a “per plan” approach to confirmation. Section 1129(a)(10) requires one impaired class “under a plan” to approve “the plan,” and makes no distinction concerning creditors of different debtors under “the plan” or between a single-debtor or multiple-debtor plans. The Lender also contended that the Plan effected a substantive consolidation of the five debtors; however, this objection was not raised before the Bankruptcy Court and, accordingly, the Panel ruled that the issue of substantive consolidation was not properly before the Panel. The Ninth Circuit affirmed the District Court’s ruling.
J. Clifford Wallace, Milan D. Smith and Michelle T. Friedland

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