In re Sweetwater
| Decision Date | 28 February 1985 |
| Docket Number | 83A-3258 and 84A-0173.,Bankruptcy No. 83A-2582 to 83A-2584,83A-2579 to 83A-2581 |
| Citation | 57 BR 354 |
| Parties | In re SWEETWATER, a Utah corporation, et al., Debtors and Debtors in Possession. CITICORP ACCEPTANCE CO., INC., Appellant v. RUTI-SWEETWATER, et al, Appellee. |
| Court | U.S. District Court — District of Utah |
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L. Mark Ferre, Salt Lake City, Utah, and John Spelman, New York City, for Citicorp Acceptance Co.
Ralph R. Mabey and Steven J. McCardell (Robert Nelson, on brief), Salt Lake City, Utah, for RUTI-Sweetwater, the reorganized debtor.
This is an appeal from the June 8, 1984, Bankruptcy Court order permitting disbursement of $30,000 to officers of the debtor in satisfaction of those officers' claim for post-petition wages. It is also an appeal from the Bankruptcy Court order confirming the debtors' plan of reorganization.
On November 2, 1984, this court heard oral arguments on the appeal. L. Mark Ferre and John Spelman appeared for the appellant creditor, Citicorp. Ralph R. Mabey and Steven J. McCardell (Robert Nelson with them on the brief) appeared for the appellee, RUTI-Sweetwater, which is the reorganized debtors. At that time, the court affirmed the Bankruptcy Court's order confirming the debtors' plan of reorganization. The court reserved ruling on the question concerning the order permitting the debtors to pay the officers' then unpaid post-petition wages. After considering the arguments advanced by the parties, the court now enters this memorandum opinion.
The debtors in these Chapter 11 cases, Sweetwater and seven related entities (referred to here collectively with RUTI-Sweetwater as "Sweetwater"), operate timeshare vacation condominiums. In late 1983 and early 1984, the eight debtors filed petitions for relief under Chapter 11. The cases were then consolidated for purposes of administration.
The Appellant, Citicorp, filed a proof of claim in the Bankruptcy Court alleging that Citicorp owned certain contracts, notes, and timeshare units in which Sweetwater might assert an interest. Citicorp claimed in the alternative that it was a secured creditor in the amount of $2,256,412.40.
At the conclusion of oral arguments, this court ruled in open court and on the record that the Bankruptcy Court's order confirming the plan of reorganization was an appropriate order. The court now sets forth its reasoning in writing.
Citicorp voices three principal objections to Sweetwater's plan of reorganization. First, Citicorp claims that the plan did not satisfy the so-called "cram down" provisions of section 1129(b).1 Second, Citicorp argues that the plan was modified so extensively during confirmation hearings that the plan as confirmed was based on inadequate disclosure. And third, Citicorp asserts that there was an inadequate factual basis to justify substantive consolidation.
A. Citicorp was Unimpaired Under the Plan. Paragraph 5.50 of Sweetwater's proposed plan of reorganization treated Citicorp's claim as follows:
5.50 Class 4.14. Citicorp Acceptance Company, Inc. The Class 4.14 Claim of Citicorp shall be treated as follows:
Citicorp voted to reject the plan. After three days of hearings, the Bankruptcy Court confirmed the plan. Citicorp then appealed.
Citicorp argues that the plan did not satisfy the legal standards for a "cram down" of Citicorp's claim. Citicorp asserts that before the plan was confirmed, Citicorp had interests in contracts and timeshares unburdened by a potential lawsuit, and that after confirmation, its interests were subject to cloud of potential litigation. Citicorp argued that as a matter of law it did not receive the indubitable equivalent of its claims under the plan. 11 U.S.C. § 1129(b)(2)(A)(iii).
What Citicorp overlooked is that the threat of litigation arose by operation of law — not because of the plan. Citicorp went into the Chapter 11 proceedings either as an owner, as a lien holder with a valid lien, or as a lien holder with an invalid lien. If, in the pending strong-arm action, Citicorp is determined to be an owner, the plan will not affect Citicorp. If Citicorp is determined not to be an owner, then Citicorp holds the same lien after the plan was confirmed that it held when the petition was filed. Once the petition was filed, Citicorp's lien was subject to a potential lawsuit to determine the lien's validity. The plan had absolutely no effect on whether or not the lien is valid.2
Accordingly, the plan left Citicorp with exactly what it had after the petition was filed. It left "unaltered the legal, equitable, and contractual rights" that Citicorp had before the plan was confirmed. 11 U.S.C. § 1124(1). Therefore, Citicorp was not impaired under the plan, section 1129(a)(8)(B) was satisfied, and "cram down" under section 1129(b) was not necessary.
B. The Bankruptcy Court followed Rule 3019. Citicorp next argued that the plan was modified so extensively before confirmation that the disclosure statement was too inadequate to support confirmation. Before reaching the merits of Citicorp's contention, it is necessary to determine whether Citicorp has standing on appeal to challenge this part of the Plan.
Section 39c of the Bankruptcy Act of 1898 provided that only an "aggrieved person" had standing to appeal. 11 U.S.C. § 67(c) (1976) (repealed 1978). Although the Bankruptcy Act of 1978 did not include a provision similar to section 39c, the courts and commentators have uniformly applied the "aggrieved person" test to appeals under the 1978 Code. Fondiller v. Robertson (In re Fondiller), 707 F.2d 441, 442-43 (9th Cir.1983); In re Goodwins Discount Furniture, Inc., 16 B.R. 885, 888 (1st Cir.1982); 1 Collier on Bankruptcy ¶ 3.036b (15th ed. 1984). See also Palm Springs Owners Association v. Sweetwater (In re Sweetwater), 57 B.R. 743 (D.Utah 1985).
To be an aggrieved person, an appellant must be "directly and adversely affected pecuniarily by an order of the bankruptcy court." Fondiller at 442. The order appealed from is the order confirming the Plan of Reorganization. This Court has interpreted the "aggrieved person" test to mean that an appellant who is appealing from a Bankruptcy Court order confirming a plan of reorganization may challenge only those parts of the plan that directly, adversely, and pecuniarily affect the appellant. Palm Springs, at 746.
Even if the Plan was modified so extensively that the Disclosure Statement was too inadequate to support confirmation, Citicorp was not "aggrieved" by the Bankruptcy Court's ruling to the contrary. Citicorp did not vote to accept the Plan. Citicorp rejected the Plan as proposed and has rejected it as modified. Additional disclosure would not have affected Citicorp's vote. Citicorp was not directly affected by the Bankruptcy Court's ruling that the requirements of Rule 3019 had been satisfied and has no standing to appeal from that ruling.
Even assuming Citicorp has standing to appeal, Citicorp's claim has no merit. In essence, Citicorp asserts that the Bankruptcy Court did not comply with Bankruptcy Rule 3019. The Rule provides as follows:
After a plan has been accepted and before its confirmation, the proponent may file a modification of the plan. If the court finds after a hearing on notice to the trustee, any committee appointed under the Code and any other person designated by the court that the proposed modification does not adversely change the treatment of the claim of any creditor or the interest of any equity security holder who has not accepted in writing the modification, it shall be deemed accepted by all creditors and equity security holders who have previously accepted the plan.
Under the Rule, notice must be given to any committee appointed under the code.3 In this case, the committees were represented by counsel during the hearings when the modifications were proposed and accepted. The notice they received during the hearings was "appropriate in the particular circumstances." 11 U.S.C. § 102(1)(A). Additional notice was not necessary.
The Rule also requires the court to hold a hearing to determine whether the proposed modifications would adversely change the treatment of the claim of any creditor or the interest of any equity security holder who has not accepted the modification in writing. In this case, the confirmation hearings doubled as hearings to satisfy the requirements imposed by Rule 3019. All interested parties were aware of the confirmation hearings and had ample opportunity to object and to present evidence or testimony. That is sufficient "opportunity for a hearing as is appropriate in the particular circumstances" to satisfy the requirements of section 102(1)(A).
At the conclusion of the hearings, the Bankruptcy Judge ruled that the modifications would not adversely change the treatment of the claim of...
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