933 F.3d 918
8th Cir.2019Background
- Peabody Energy and affiliates filed Chapter 11 (Apr 2016). Debtors mediated a security-interest dispute with certain noteholders and negotiated a global reorganization plan.
- Plan required $1.5 billion new money via a $750M discounted Rights Offering (common stock) and a $750M discounted Private Placement (preferred stock) for qualifying second-lien and Class-5B creditors.
- Participation in the Private Placement required signing agreements to (1) purchase preferred stock, (2) backstop unsold securities, and (3) support confirmation; participants received discounted purchase rights and stock-based premiums.
- The Ad Hoc Committee declined to sign and proposed alternative plans; the Debtors and Official Committee reviewed and rejected those alternatives as inferior or too delay/costly.
- Bankruptcy court approved disclosure statement, authorized the agreements, and confirmed the plan; Debtors completed substantial consummation (received $1.5B, issued stock, paid distributions) before district-court review.
- District court dismissed appeal as equitably moot or, alternatively, affirmed on merits; Eighth Circuit affirmed on the merits (equal-treatment under 11 U.S.C. § 1123(a)(4) and good-faith proposal).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Private Placement opportunity violated § 1123(a)(4) equal-treatment rule | Ad Hoc: exclusive/discounted participation conferred unequal treatment of claims — a plan-for-claims violation | Debtors: opportunity was consideration for new commitments (backstop, purchase, support), not treatment of prepetition claims | Court: No § 1123(a)(4) violation; participation was consideration for new commitments, not payment on claims |
| Whether LaSalle controls to invalidate the preferential offering | Ad Hoc: LaSalle bars giving prepetition stakeholders exclusive postpetition investment opportunities linked to their prior position | Debtors: distinguishable — Ad Hoc could have participated, participants gave up value, and Debtors considered alternatives | Court: LaSalle distinguished on facts; did not invalidate plan |
| Whether plan was proposed in good faith under § 1129(a)(3) | Ad Hoc: plan failed to maximize estate value, granted disproportionate benefits, and used coercive solicitation | Debtors: mediated settlement, broad creditor support, alternatives considered; discounts/premiums necessary to secure commitments and avoid delay/costs | Court: No clear error; plan was proposed in good faith given totality of circumstances |
| Whether solicitation timing was coercive enough to defeat good faith | Ad Hoc: early election deadlines coerced participation before full disclosures | Debtors: time-critical coal markets, delay cost estimates, and support agreements prevented sabotage; process justified | Court: Troubling but insufficient to overturn; no firm conviction of error, good-faith finding stands |
Key Cases Cited
- Bank of America National Trust & Savings Ass’n v. 203 N. LaSalle St. P’ship, 526 U.S. 434 (1999) (limits plans that give exclusive postpetition investment rights to prepetition equity where those rights are effectively ‘on account of’ prior interests)
- Acequia, Inc. v. Clinton (In re Acequia, Inc.), 787 F.2d 1352 (9th Cir. 1986) (upheld preferential treatment tied to non-claim roles like officer/director duties)
- AOV Indus., Inc. v. Integrated Resource, Inc. (In re AOV Indus., Inc.), 792 F.2d 1140 (D.C. Cir. 1986) (discusses lack of Code definition for equal-treatment standard)
- Madison Hotel Assocs. v. In re Madison Hotel Assocs., 749 F.2d 410 (7th Cir. 1984) (good-faith inquiry requires consideration of the totality of circumstances)
- Hanson v. First Bank of S.D., N.A., 828 F.2d 1310 (8th Cir. 1987) (good-faith plan inquiry is factual and reviewed for clear error)