In re American Trailer and Storage, Inc.

• Decision Date: 09 November 2009
• Docket Number: No. 08-43929-DRD.,08-43929-DRD.
• Citation: 419 B.R. 412
• Court: U.S. Bankruptcy Court — Western District of Missouri
• Parties: In re AMERICAN TRAILER & STORAGE, INC., Debtor.

419 B.R. 412

In re AMERICAN TRAILER & STORAGE, INC., Debtor.

No. 08-43929-DRD.

United States Bankruptcy Court, W.D. Missouri.

November 9, 2009.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Eric L. Johnson, Lisa A. Epps, Spencer Fane Britt & Browne, Kansas City, MO, for Debtor.

MEMORANDUM OPINION

DENNIS R. DOW, Bankruptcy Judge.

This matter came before the Court for hearing August 21 and August 25, 2009 on the First Amended Plan of Reorganization, as amended, (the "Plan")¹ filed by American Trailer & Storage, Inc. ("Debtor"). Debtor's largest secured creditor, Bank of the West ("BOW") voted against the Plan and filed an objection to confirmation. BOW objected to the Plan on a number of bases. The following issues remain before the Court regarding confirmation of the Plan: (1) whether the Plan, as amended, satisfies 11 U.S.C. § 1125, or whether Debtor should be required to submit an amended disclosure statement and re-solicit votes based on the same; (2) whether the Plan is feasible; (3) what the appropriate rate of interest is for BOW's claim, (4) whether the Plan impermissibly strips BOW of its lien rights; and (5) whether the Plan is discriminatory among creditors. The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334(b) and 157(a) and (b). This is a core proceeding which the Court may hear and determine pursuant to 28 U.S.C. § 157(b)(2)(L). This opinion contains the Court's Findings of Fact and Conclusions of Law as required by Rule 52 of the Federal Rules of Civil Procedure made applicable to this proceeding by Rules 7052 and 9014(c) of the Federal Rules of Bankruptcy Procedure. For all the reasons stated below, the Court will confirm Debtor's Plan as amended.²

I. FACTS

Debtor is in the business of buying and selling, renting and leasing portable storage containers and semi-trailers. Debtor commenced this case by filing a voluntary petition under Chapter 11 on September 23, 2008. During the case, Debtor has remained in possession. Debtor has continued to use the revenues generated from its assets in the ordinary course of business pursuant to the court-approved cash collateral order that Debtor negotiated with BOW.

On June 15, 2009, Debtor filed its Second Amended Disclosure Statement and First Amended Plan of Reorganization. By an order entered June 24, 2009, the Court approved Debtor's Second Amended Disclosure Statement. Debtor then disseminated the amended order approving the disclosure statement, the first amended plan, the second amended disclosure statement and the ballot to all parties in interest in the case. The Debtor has subsequently amended its First Amended Plan of Reorganization several times and has moved the Court to determine that said modifications were made pursuant to 11 U.S.C. § 1127(c), and that the Plan modifications satisfy the requirements of 11 U.S.C. § 1125.

BOW is the only secured creditor that objected to the Plan. The remaining secured creditors have minor claims compared to that of BOW. The Plan proposes to pay BOW's claim in the total amount of $5,583,964.21,³ at the interest rate of 5% per annum, or such other interest rate determined by the Court, based upon the evidence, to satisfy the requirements of 11 U.S.C. § 1129(a)(11) and (b) in monthly payments to amortize the principal balance over a 10-year period, with a final balloon payment of any unpaid balance at the end of five years. BOW has objected to confirmation of the Plan.

II. DISCUSSION AND ANALYSIS

A. Procedural Issues

In its objection to confirmation, BOW raises two procedural issues, which it argues require the Debtor to resubmit an amended disclosure statement for Court approval and then recirculate it and an amended plan to creditors for a re-vote. The first issue raised by BOW is that Debtor failed to give proper notice to creditors of the deadline for voting on the Plan. Bankruptcy Rule 3017 states that the proponent of a plan is required to send a copy of the court approved disclosure statement, the plan, and a ballot to each creditor entitled to vote. Rule 3017 also advises that the court is required, on or before approval of the disclosure statement, to fix a time within which creditors may accept or reject the plan. Pursuant to Bankruptcy Rule 2002(b), creditors are entitled to 25 days notice of the deadline for filing objections to confirmation of the plan.

In this instance, the Court issued the Amended Order Approving Debtor's Second Amended Disclosure Statement on June 24, 2009, and set the confirmation hearing for August 21, 2009.⁴ Pursuant to the Court's order, the deadline for voting on the Plan was set for August 14, 2009. BOW objects as a procedural matter because the deadline for accepting or rejecting the Plan on the ballot submitted to creditors was August 5, 2009 instead of August 14th. BOW does not argue that creditors were necessarily prejudiced by this error, but rather, that strict compliance with Rule 3017 is mandated and resolicitation of the disclosure statement with a new deadline for voting is the only appropriate remedy. BOW does not argue that creditors did not receive the required 25 days notice because it could not. The amended order approving the disclosure statement and establishing deadlines for filing ballots and objections was entered on June 24, 2009, and served by Debtor on June 26, 2009, 40 days before the voting deadline set forth in the ballot and 49 days before the ballot deadline established by the Court.

Debtor asserts that this error caused absolutely no prejudice to creditors and BOW is simply attempting to buy additional time to get its own disclosure statement and plan on the table for creditors to consider.⁵ Debtor states that it remedied its error by quickly identifying it and promptly notifying creditors. Upon realizing that there was an error, on August 2, 2009, Debtor sent all creditors entitled to receive notice, a notice of its intent to honor ballots received through August 14, 2009, and filed the same with the Court.⁶ The evidence is that Debtor received ballots after the erroneous August 5th deadline and counted the same as valid and timely. Additionally, the error was corrected by BOW's own solicitation letter to creditors which identified the correct deadline of August 14, 2009. Additionally Debtor's Certificate of Service, which was mailed to all parties entitled to vote, included along with the ballot and the first amended plan, the Amended Order Approving Second Amended Disclosure Statement and Setting Hearing, which sets forth the proper August 14th deadline for submitting votes.⁷ The Court finds that Debtor's swift identification of the error and prompt steps taken to correct it, and the fact that Debtor counted ballots as valid and timely after the erroneous deadline, in addition to the Court's Order and BOW's solicitation letter, sufficient to ensure that the integrity of the voting process was not impaired and that re-solicitation of a new disclosure statement and the amended version of the Plan, based solely on this discrepancy, is not warranted.

The second procedural issue raised by BOW is whether Debtor should be required to obtain court approval of a modified disclosure statement and re-circulate the same along with its amended Plan for re-voting pursuant to § 1127(c). Section 1127 of the Bankruptcy Code allows pre-confirmation plan modifications if the modified plan otherwise complies with classification, content, and disclosure requirements. See 11 U.S.C. § 1127(c)⁸, 11 U.S.C. §§ 1122, 1123, 1125.⁹ If modifications made to a plan prior to confirmation (but after the ballots have been counted) are minor, impact only a creditor who has been fully involved, and do not adversely impact any other creditor, then it is not necessary to solicit new acceptances. In re Sentinel Mgmt. Group, Inc., 398 B.R. 281, 301 (Bankr.N.D.Ill.2008) citing Fairfax Savings v. Sherwood Square Assocs. (In re Sherwood Square Assocs.), 87 B.R. 388, 390 (Bankr.D.Md.1988). A new disclosure statement is not necessary every time a modification is made; if the modification is minor, the existing disclosure statement will suffice. In re Concrete Designers, Inc., 173 B.R. 354, 356 (Bankr. S.D.Ohio1994). The Bankruptcy Code is designed to encourage consensual resolution of claims and disputes through the plan negotiation process, which includes pre-confirmation modifications. In re Rhead, 179 B.R. 169, 176 (Bankr.D.Ariz. 1995). The rules applicable to such modifications should be read and interpreted consistent to that end. In re Jartran, Inc., 44 B.R. 331, 363 (Bankr.N.D.Ill.1984). However, if a modification materially and adversely affects any of the voting parties' interests, who previously voted for the plan, they must be afforded an opportunity to change their vote. In re Am. Solar King Corp., 90 B.R. 808, 825 (Bankr. W.D.Tex.1988). "A modification is material if it so affects a creditor or interest holder who accepted the plan that such entity, if it knew of the modification, would be likely to reconsider its acceptance." Am. Solar King, 90 B.R. at 824 citing 8 Collier on Bankruptcy, ¶ 3019.03, p. 3019-3 (15th ed.1987). The severity of the modification need not be such as would motivate a claimant to change its vote, rather, the question is whether it would be likely to reconsider the prior acceptance of the plan. See Am. Solar King, 90 B.R. at 824.

In this case, the primary modification at issue is a change in the interest rate proposed to be paid to BOW. In the Plan which was submitted to creditors for voting, the rate of interest proposed by the Debtor was 3.97% per annum. Thereafter, on or about August 11, 2009, Debtor filed an amendment to its Plan, which modified the rate of interest to be paid to BOW to "5% per annum, or such other interest rate determined by the Court, based upon the evidence, to satisfy the requirements of 11 U.S.C § 1129(a)(11) and (b)...."¹⁰ At the heart of BOW's...