Alabama Department of Economic & Community Affairs v. Ball Healthcare-Dallas, LLC (In Re Lett)
632 F.3d 1216
11th Cir.2011Background
- Dr. Charles Lett, Sr. filed a voluntary Chapter 11; ADECA holds a multi‑million judgment lien against Lett.
- Lett’s plan divided ADECA’s claim into a secured portion in Class 7 and an unsecured portion in Class 8, with substantial unsecured claims in Class 8 paid at 1%.
- ADECA objected at various plan stages to the plan’s treatment, including alleged violations of the absolute priority rule, but ADECA did not object on that ground at the bankruptcy court.
- The bankruptcy court confirmed Lett’s plan in 2008 after a hearing where Lett’s counsel proffered compliance with § 1129(a) and (b); ADECA appealed.
- The district court held ADECA’s absolute priority challenge was not preserved and that the case was not moot; the Eleventh Circuit vacated and remanded to address the merits of ADECA’s absolute priority arguments.
- On appeal, the Eleventh Circuit held that the cram‑down process and the absolute priority rule in § 1129(b)2 require independent judicial scrutiny by the bankruptcy court and may be reviewed on appeal even if not formally objected to in the bankruptcy court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an impaired dissenting class may challenge cram-down absolute priority on appeal | ADECA argues Plan violates 1129(b)(2) absolute priority. | Lett/Ball contend preservation or mootness forecloses review. | Yes; may be reviewed on appeal despite no objection. |
| Whether the plan's absolute priority noncompliance was properly preserved for review | ADECA preserved the issue by the record and court duties. | District court found failure to preserve barred review. | Preserved and reviewable on appeal; district court erred. |
| Whether civil plain error doctrine applies to cram‑down absolute priority challenges | Civil plain error should not bar review given bankruptcy context. | Civil plain error should foreclose unraised issues. | Civil plain error rule does not bar review in this narrow cram‑down context. |
| Whether the district court must address the merits of ADECA’s absolute priority challenge on remand | Merits review is required; the district court should adjudicate on the merits. | Remand could defer resolution of the issue. | Remand to address merits consistent with the opinion; vacate and remand. |
Key Cases Cited
- Bank of Am. Nat'l Trust & Sav. Ass'n v. 203 N. LaSalle St. P'ship, 526 U.S. 434 (U.S. 1999) (absolute priority rule central to cram downs)
- Norwest Bank Worthington v. Ahlers, 485 U.S. 197 (U.S. 1988) (unsecured creditors must be paid in full before equity holders)
- In re Club Assocs., 956 F.2d 1065 (11th Cir. 1992) (circumstances for considering mootness and relief in bankruptcy appeals)
- In re Perez, 30 F.3d 1209 (9th Cir. 1994) (absolute priority rule and review in bankruptcy appeals)
- In re Monetary Group, 91 B.R. 138 (Bankr. M.D. Fla. 1988) (civil plain error rule in bankruptcy context)
- Princeton Homes, Inc. v. Virone, 612 F.3d 1324 (11th Cir. 2010) (flexible application of civil plain error in bankruptcy)
- In re Air Conditioning, Inc. of Stuart, 845 F.2d 293 (11th Cir. 1988) (bankruptcy context preserves issues not raised below)