Figter Ltd., In re

• Court: U.S. Court of Appeals — Ninth Circuit
• Writing for the Court: Before HUG, Chief Judge, and FERNANDEZ and RYMER; FERNANDEZ
• Citation: Figter Ltd., In re, 118 F.3d 635 (9th Cir. 1997)
• Decision Date: 24 June 1997
• Docket Number: No. 96-55356,96-55356
• Parties: , Bankr. L. Rep. P 77,470, 97 Cal. Daily Op. Serv. 4847, 97 Daily Journal D.A.R. 7946 In re FIGTER LIMITED, Debtor. FIGTER LIMITED, Appellant, v. TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, Appellee.

Page 635

118 F.3d 635

31 Bankr.Ct.Dec. 17, Bankr. L. Rep. P 77,470,

97 Cal. Daily Op. Serv. 4847,

97 Daily Journal D.A.R. 7946

In re FIGTER LIMITED, Debtor FIGTER LIMITED, Appellant, v. TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, Appellee.

No. 96-55356.

United States Court of Appeals Ninth Circuit.

Argued and Submitted June 6, 1997.

Decided June 24, 1997.

Jeffrey L. Costell, Law Offices of Jeffrey L. Costell, Los Angeles, CA, for appellant.

Lawrence B. Gutcho, Loeb & Loeb, Los Angeles, CA, for appellee.

Appeal from the United States District Court for the Central District of California; Stephen V. Wilson, District Judge, Presiding. D.C. No. CV-95-04462-SVW.

Before HUG, Chief Judge, and FERNANDEZ and RYMER, Circuit Judges.

FERNANDEZ, Circuit Judge.

Figter Limited, a Chapter 11 debtor and owner of Skyline Terrace, an apartment complex, appeals from the district court's affirmance of the bankruptcy court's decision that Teachers Insurance and Annuity Association of America (Teachers), the holder of a $15,600,000 promissory note secured by a first deed of trust on Skyline Terrace, bought twenty-one unsecured claims in good faith and that it could vote each one separately. We affirm.

BACKGROUND

Figter filed a voluntary petition under Chapter 11 of the Bankruptcy Code. It owns Skyline Terrace, a 198-unit residential apartment complex located in Los Angeles. Teachers is a creditor. It holds a $15,600,000 promissory note executed by Figter. The note is secured by a first deed of trust on Skyline Terrace and by $1,400,000 of cash on hand. In fact, Teachers is Figter's only secured creditor and is the only member of Class 2 in a reorganization plan proposed by Figter. The plan contemplates full payment of Teachers' secured claim, but at a disputed rate of interest. Thus, under Figter's plan, Teachers' claim is not impaired. The plan calls for the impairment of Class 3 unsecured claims by payment at only 80% of their face value.

Teachers has opposed Figter's reorganization plan from its inception because, among other things, that plan contemplates the conversion of Skyline Terrace Apartments into condominiums, with payment to and partial releases by Teachers as the units sell. That could easily result in a property that was part condominium and part rentals, if the plan ultimately fails in operation.

Teachers proposed a plan of its own, which provided for the transfer of Skyline Terrace and the cash collateral to Teachers in satisfaction of its secured claim, as well as a payment of Class 3 unsecured claims at 90%. Teachers' plan was premised on the assumption that its claim was partly unsecured. However, on May 31, 1994, before the purchases of other claims took place, the bankruptcy court determined that Skyline Terrace had a value of $19,300,000. Thus, Teachers' claim in the amount of $17,960,000 was fully secured. It did not thereafter pursue its plan. From October 27, 1994 until October 31, 1994, Teachers purchased twenty-one of the thirty-four unsecured claims in Class 3 at one hundred cents on the dollar, for a total purchase price of $14,588.62. Teachers had made the same offer to all of the Class 3 claim holders, but not all accepted it. The offer remained open. Teachers then filed notices of transfer of claims with the court, as is required under Bankruptcy Rule 3001(e)(2). Those notices were served on all affected parties, including Figter. No objections were filed by the unsecured creditors. The district court upheld the bankruptcy court's determination regarding Teachers' purchase of the unsecured claims. As a result, Figter's plan is unconfirmable because it is unable to meet the requirements of 11 U.S.C. § 1129(a)(10); there will not be an impaired, consenting class of claims. That will preclude a "cram down" of Teachers' secured claim under 11 U.S.C. § 1129(b). Figter has appealed in an attempt to avoid that result.

STANDARD OF REVIEW

We do not give deference to the district court's decision or determinations. See Friedkin v. Sternberg (In re Sternberg) 85 F.3d 1400, 1404 (9th Cir.1996); Robertson v. Peters (In re Weisman), 5 F.3d 417, 419 (9th Cir.1993); Wien Air Alaska, Inc. v. Bachner, 865 F.2d 1106, 1108 (9th Cir.1989). However, we review the bankruptcy court's conclusions of law de novo and uphold its findings of fact unless they are clearly erroneous. See Feder v. Lazar (In re Lazar), 83 F.3d 306, 308 (9th Cir.1996); Weisman, 5 F.3d at 419. Here we are asked to review the bankruptcy court's determination that Teachers acted in good faith when it purchased the claims of certain creditors and that it can vote each one separately.

To the extent that our review requires us to define the general parameters of a good faith determination, we are reviewing a question of law. To the extent that we must review a pure historical fact determination, we are reviewing a question of fact. See Boone v. United States, 944 F.2d 1489, 1492 (9th Cir.1991). But, a determination of good faith can partake of both, and we often review mixed questions of law and fact de novo. See id. Nevertheless, a decision that someone did or did not act in good faith is one where the determination is "an essentially factual inquiry" and is driven by the "data of practical human experience." United States v. McConney, 728 F.2d 1195, 1203-04 (9th Cir.1984) (en banc) (citations omitted). For that reason, we have, in various contexts, declared that we will review good faith determinations for clear error. See, e.g., L.K. Comstock & Co., Inc. v. United Eng'rs & Constructors Inc., 880 F.2d 219, 232 (9th Cir.1989) (decision regarding "good faith" for covenant of good faith and fair dealing purposes is reviewed for clear error); Mortgage Mart, Inc. v. Rechnitzer (In re Chisum), 847 F.2d 597, 600 (9th Cir.1988) (for sanctions purposes "good faith" is a key factual determination reviewed for clear error); cf. SKS Die Casting and Machining, Inc. v. NLRB, 941 F.2d 984, 991 (9th Cir.1991) (NLRB decision regarding "good faith" bargaining is a mixed question of law and fact which we review for substantial evidence). Therefore, we will review the bankruptcy court's ultimate good faith determination for clear error.

DISCUSSION

Figter asserts that Teachers should be precluded from voting its purchased Class 3 claims because it did not buy them in good faith. Figter also asserts that even if the claims were purchased in good faith, Teachers cannot vote them separately, but is limited to one total vote as a Class 3 creditor. If Figter were correct in either of its assertions, it could obtain Class 3 approval of its plan and enhance its chances of cramming down Teachers' Class 2 claims. But Figter is not correct.

A. Good Faith.

The Bankruptcy Code provides that "[o]n request of a party in interest, and after notice and a hearing, the court may designate any entity whose acceptance or rejection of [a] plan was not in good faith, or was not solicited or procured in good faith or in accordance with the provisions of this title." 11 U.S.C. § 1126(e). In this context, designate means disqualify from voting. The Bankruptcy Code does not further define the rather murky term "good faith." That job has been left to the courts.

The Supreme Court brought some clarity to this area when it decided Young v. Higbee Co., 324 U.S. 204, 65 S.Ct. 594, 89 L.Ed. 890 (1945). In Young, the Court was discussing the predecessor to § 1126(e) when it declared that if certain persons "had declined to accept [the] plan in bad faith, the court, under section 203 could have denied them the right to vote on the plan at all." Id. at 210-11, 65 S.Ct. at 598 (footnote omitted). It went on to explain that the provision was intended to apply to those "whose selfish purpose was to obstruct a fair and feasible reorganization in the hope that someone would pay them more than the ratable equivalent of their proportionate part of the bankrupt assets." Id. at 211, 65 S.Ct. at 598. In other words, the section was intended to apply to those who were not attempting to protect their own proper interests, but who were, instead, attempting to obtain some benefit to which they were not entitled. See also Insinger Machine Co. v. Federal Support Co. (In re Federal Support Co.), 859 F.2d 17, 19 (4th Cir.1988). While helpful those reflections by the Court do not fully answer the question before us. Other courts have further illuminated the area.

If a person seeks to secure some untoward advantage over other creditors for some ulterior motive, that will indicate bad faith. See In re Marin Town Ctr., 142 B.R. 374, 378-79 (N.D.Cal.1992). But that does not mean that creditors are expected to approach reorganization plan votes with a high degree of altruism and with the desire to help the debtor and their fellow creditors. Far from it.

If a selfish motive were sufficient to condemn reorganization policies of interested parties, very few, if any, would pass muster. On the other hand, pure malice, "strikes" and blackmail, and the purpose to destroy an enterprise in order to advance the interests of a competing business, all plainly constituting bad faith, are motives which may be accurately described as ulterior.

In re Pine Hill Collieries Co., 46 F.Supp. 669, 671 (E.D.Pa.1942). That is to say, we do not condemn mere enlightened self interest, even if it appears selfish to those who do not benefit from it. See id.

Thus, if Teachers acted out of enlightened self interest, it is not to be condemned simply because it frustrated Figter's desires. That is true, even if Teachers purchased Class 3 claims for the very purpose of blocking confirmation of Figter's proposed plan. See 255 Park Plaza Assocs. Ltd. Partnership v. Connecticut General Life Ins. Co. (In re 255 Park Plaza Assocs. Ltd. Partnership), 100 F.3d 1214, 1218-19 (6th Cir.1996). That self interest can extend even further without being an ulterior motive. It has been held that a creditor commits no wrong when he votes...