Save Our Springs (S.O.S.) Alliance, Inc. v. WSI (II)-COS, L.L.C. (In re Save Our Springs (S.O.S.) Alliance, Inc.)

Summarized by Peter Ruggero , Ruggero Law Firm PC
15 years 1 month ago

Citation:

(5th Cir. Jan. 26, 2011) (No. 09-50990)

Tag(s):

5th Circuit

Ruling:

Fifth Circuit affirmed denial of plan confirmation and dismissal of small business chapter 11 case. Debtor did not satisfy feasibility requirement for proposed plan and improperly classified creditors. Debtor was judicially estopped from amending its petition to designate itself as not being a small business debtor in an effort to avoid dismissal of its case after plan confirmation had been denied.

Procedural context:

Debtor appealed district court's affirmance of bankruptcy court's ruling that: (i) denied plan confirmation, (ii) denied debtor leave to amend petition to designate itself as not being a small business debtor; and (iii) dismissed debtor's chapter 11 petition for failure to meet 300-day deadline for plan confirmation under 11 U.S.C. § 1121(e)(2) in a small business case.

Facts:

Save our Springs (S.O.S.) Alliance, Inc. ("SOS") filed a chapter 11 petition and designated itself as small business debtor. SOS had two large prepetition unsecured judgment creditors, in addition to several other unsecured creditors. SOS filed a proposed reorganization plan that provided a $60,000 creditor fund to be funded within sixty days of plan confirmation. Under the proposed plan, the creditor fund would be distributed to SOS's unsecured creditors on a pro rata basis, with all remaining unsecured claims being discharged. SOS's reorganization plan classified each judgment creditor in its own class, yet the plan treated all unsecured creditors alike. After a five-day confirmation hearing, SOS had presented evidence that it only had pledges for $20,000 of the needed $60,000 funding from its top donors and that SOS believed it could raise the rest of the funds within the sixty-day period. SOS's executive director, however, testified that it would be difficult to raise the rest of the funds. The bankruptcy court found the plan was not feasible because SOS failed to provide evidence of reasonable assurance that SOS could fund the plan. In addition, the bankruptcy court found that SOS improperly classified creditors because unsecured creditors were classified separately without a sufficient basis. To justify separate classification of a similarly situated creditor, SOS needed to show that the similarly situated but separately classified creditor had a non-creditor interest that would cause the creditor to vote on the plan for reasons other than its economic interest in its claim. SOS was unable to show a non-creditor interest existed. After the bankruptcy court denied confirmation, one of SOS's judgment creditors moved for dismissal of the chapter 11 case because the 300-day deadline under 11 U.S.C. § 1121(e)(2) to confirm a plan for a small business case had passed. SOS moved to amend its petition to change its designation to not be a small business debtor. The bankruptcy court denied SOS leave to amend it petition to change its designation of being a small business debtor. The bankruptcy court ruled that SOS was judicially estopped from amending its petition to gain an unfair advantage. Because SOS was denied leave to amend its petition and the deadline for plan confirmation had passed, the bankruptcy court dismissed the case. The district court affirmed the bankruptcy court's rulings. On appeal, the Fifth Circuit affirmed.

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