In re Gosman, 01-30953-BKC-PGH.

• Decision Date: 30 July 2002
• Docket Number: No. 01-30953-BKC-PGH.,01-30953-BKC-PGH.
• Citation: 282 B.R. 45
• Parties: In re Abraham David GOSMAN, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Florida

282 B.R. 45

In re Abraham David GOSMAN, Debtor.

No. 01-30953-BKC-PGH.

United States Bankruptcy Court, S.D. Florida, West Palm Beach Division.

July 30, 2002.

Paul J. Battista, Miami, FL.

Charles W. Throckmorton, Miami, FL.

MEMORANDUM DECISION AND ORDER SUSTAINING THE OBJECTION BY THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS TO CONFIRMATION OF THE DEBTOR'S AMENDED CHAPTER 11 PLAN BY MEANS OF CRAMDOWN

PAUL G. HYMAN, Jr., Bankruptcy Judge.

THIS MATTER came before the Court on June 5, 2002 upon one of the objections raised by the Official Committee of Unsecured Creditors (the "Committee") to the approval of the Debtor's Amended Disclosure Statement. The specific issue before the Court (the "Cramdown Issue") concerns the Debtor's ability, as a matter of law, to confirm his Amended Plan of Liquidation (the "Debtor's Plan") by means of cramdown under 11 U.S.C. § 1129(b)(2)(B)(ii) without contributing all of his exempt property under such Plan.

The Court, considering the arguments of the parties, the Memorandum of Law by the Committee in Support of Its Objection to Confirmation of The Debtor's Amended Chapter 11 Plan by Means of Cramdown Under Section 1129(b) of The Bankruptcy Code, the Memorandum of Law filed by the Debtor in connection with the Cramdown Issue, the record and pleadings filed in this case and otherwise being fully advised in the premises, hereby makes the following findings of fact and conclusions of law.

FINDINGS OF FACTS

On March 2, 2001, the Debtor filed a voluntary petition under Chapter 11 of the Bankruptcy Code. The Committee was formed by the Office of the United States Trustee on April 9, 2001. Thereafter, the meeting of creditors, pursuant to 11 U.S.C. § 341, was held on April 19, 2001.

Under the Debtor's Plan, the Debtor proposes to liquidate all of his non-exempt assets for the benefit of his creditors and at the same time partially retain his interests in several items of valuable exempt property, including without limitation, a mansion on the ocean in Palm Beach, Florida valued on the Debtor's schedules at $40 million, a collection of artwork valued on the Debtor's schedules at approximately $11 million, a valuable collection of antique furniture and an interest in a corporation that owns a piece of undeveloped real property in Palm Beach valued on the Debtor's schedules at $7.5 million (collectively, the "Exempt Property").

Under the Debtor's Plan, the Debtor would retain the Exempt Property, but would contribute the proceeds from a portion thereof to the unsecured creditors, the amount of which depended on certain conditions under the Debtor's Plan. The Cramdown Issue arises because the Debtor's Plan did not provide that the Debtor would contribute all of the Exempt Property to pay unsecured creditors.

On March 13, 2002, the Court conducted a hearing on the approval of the competing disclosure statements filed by the Debtor and the Committee. In connection with such hearing, the Committee filed an extensive objection to the Debtor's disclosure statement. The Debtor also filed an extensive objection to the Committee's disclosure statement. In the Committee's objection, the Committee raised several issues concerning the legal structure of the Debtor's Plan and argued that because the Committee believed that the Debtor's Plan was not confirmable on its face, the Debtor's disclosure statement should not be approved.

At the March 13, 2002 hearing, the Court resolved certain of the objections raised by both parties to the other's disclosure statement, but instructed the parties to submit legal memoranda on the Cramdown Issue, namely, whether the Debtor, who does not propose to pay all of his unsecured creditors in full under the Debtor's Plan, was able, as a matter of law, to confirm the Debtor's Plan, which is a plan of liquidation, by means of a cramdown under Section 1129(b) of the Bankruptcy Code over a dissenting class of unsecured creditors while at the same time retain some or all of the Exempt Property.

In its pleadings on the Cramdown Issue, the Committee objected to the Debtor's Plan on the ground that it violated the absolute priority rule under the Bankruptcy Code. The Committee argues that the Debtor's attempt to retain Exempt Property under the Debtor's Plan is not authorized by the plain language of the Bankruptcy Code, namely Section 1129(b)(2)(B)(ii), or the case law thereunder unless the Debtor is able to obtain the acceptance of the class of unsecured creditors under the Debtor's Plan.¹ Thus, according to the Committee, the Debtor cannot confirm the Debtor's Plan by means of cramdown under Section 1129(b)(2)(B)(ii) of the Bankruptcy Code unless he contributes all of the Exempt Property to the Debtor's Plan for the benefit of creditors on the basis that the Debtor's retention of any property (even Exempt Property) would constitute a violation of the absolute priority rule.

The Debtor disagrees with the Committee and argues that there is ample case law supporting the proposition that a debtor may retain exempt property via the cramdown provisions of the Bankruptcy Code. The Debtor also relies on bankruptcy policy, arguing that an unfavorable ruling would deny individual debtors effective relief under Chapter 11.

CONCLUSIONS OF LAW

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334(b), 157(b)(1) and 157(b)(2)(L). This is a core proceeding in accordance with 28 U.S.C. § 157(b)(2)(L).

In order to obtain confirmation of a Chapter 11 plan, a debtor must meet the requirements of 11 U.S.C. § 1129(a). In connection therewith and subject to the exception contained in Section 1129(a)(8), all impaired classes under the plan must vote in favor of and accept the plan. In the event one impaired class votes to reject the plan, then the debtor is left with the alternative of achieving confirmation of the plan through the means of the cramdown provisions of 11 U.S.C. § 1129(b). In order to achieve a cramdown against a dissenting class of unsecured creditors, a debtor must satisfy the "fair and equitable" requirement of Section 1129(b)(2)(B)(ii) as to such dissenting class of unsecured creditors. This section provides:

With respect to a class of unsecured creditors —

...

(ii) the holder of any claim or interest that is junior to the claims of such class will not receive or retain under the plan on account of such junior claim or interest any property.

(emphasis added). As such, if unsecured creditors do not receive payment in full on their allowed claims, then no holder of a claim or interest junior to those of the unsecured creditors may retain any property under the plan. This provision is commonly referred to as the "absolute priority rule."

There can be no question that the Debtor in this case is a "holder of an interest that is junior" to the claims of unsecured creditors. The Debtor owns an interest in the Exempt Property. See In re Unruh v. Rushville State Bank, 987 F.2d 1506 (10th Cir.1993); In re East, 57 B.R. 14 (Bankr.M.D.La.1985). Further, it is "generally held that a debtor's ownership interest in property is `junior' to the claims of unsecured creditors." In re Fross, 233 B.R. 176, 1999 WL 26886 *9, 1999 Bankr.LEXIS 15, *26 (10th Cir. BAP 1999)(unpublished decision); See also In re Drimmel, 108 B.R. 284 (Bankr.D.Kan.1989); In re Knutson, 40 B.R. 142 (Bankr.W.D.Wis.1984); In re Tomlin, 22 B.R. 876 (Bankr.M.D.Ala.1982). Lastly, the Debtor is proposing to retain property, namely Exempt Property, on account of such junior interest. In fact, it is the Debtor's "ownership interest in the home that gives [him] any exemption rights under [Section] 522(b) and [state] law at all." Fross, 233 B.R. 176, 1999 WL 26886 at *9, 1999 Bankr.LEXIS at *25.

I. The Plain Language of § 1129(b)(2)(B)(ii)

As a result of the above, the core dispute in this matter centers on whether the term "any property" as used in Section 1129(b)(2)(B)(ii) encompasses property which is "exempt property." The Committee contends that the statutory section is clear and unambiguous on its face and therefore should be afforded its plain meaning. The Court agrees.

The interpretation of the Bankruptcy Code first begins with the language itself. See In re Griffith, 206 F.3d 1389, 1393 (11th Cir.2000); United States v. Ron Pair Enters., 489 U.S. 235, 241, 109 S.Ct. 1026, 1030, 103 L.Ed.2d 290 (1989). If the language is plain and unambiguous, then the Court must enforce the Bankruptcy Code according to its terms. Id.

Here, the Court looks no further than the words "any property." The term "property," while not defined under the Bankruptcy Code, is meant to be broad in scope and all encompassing. See Norwest Bank of Worthington v. Ahlers, 485 U.S 197, 108 S.Ct. 963, 969, 99 L.Ed.2d 169 (1988) ("as that term is used in § 1129(b) ... Congress' meaning was quite broad."). No distinction is made between intangible and tangible property. In addition, no distinction is also made between valuable and valueless property.

Notwithstanding this lack of distinction, the Debtor would have this Court conclude that Congress intended to make a distinction between exempt and non-exempt property in Section 1129(b)(2)(B)(ii) when it chose to use the word "property." The Debtor's position is simply not supported by the four corners of the text in Section 1129(b)(2)(B)(ii). See In re Fross, 233 B.R. 176, 1999 WL 26886, 1999 Bankr.LEXIS 15 (10th Cir. BAP 1999); In re Ashton, 107 B.R. 670, 674 (Bankr.D.N.D.1989); Matter of Yasparro, 100 B.R. 91, 95 (Bankr.M.D.Fla.1989); In re Johnson, 101 B.R. 307, 309 (Bankr.M.D.Fla.1989).

In the context of an individual Chapter 11 proceeding, there is no dispute that if the Debtor were to retain certain property of the estate, i.e., non-exempt property, then the Debtor would be in violation of the absolute priority rule if the dissenting class of unsecured creditors are not paid in full because he would be the holder of a "junior interest" retaining property at...