Brown v. Ferroni (In re Brown)
505 B.R. 638
E.D. Pa.2014Background
- Debtors filed a joint Chapter 11 petition on April 25, 2012; Ferroni filed a motion to dismiss on July 19, 2012 for failure to file a plan or show ability to reorganize.
- Debtors proposed a plan in March 2013 and amended it in July 2013; Ferroni’s unsecured claim of about $489,000 would not be paid in full.
- Plan class arrangement: Ferroni’s claim in class 6; debtors’ interests in class 7; proposed payments of $15,000 per year to class 6 over five years.
- Ferroni objected to the amended plan, arguing it violated the absolute priority rule under 11 U.S.C. §1129(b)(2)(B)(ii).
- Bankruptcy Judge Fox dismissed the case on September 26, 2013, concluding the absolute priority rule was not abrogated by BAPCPA; Browns appealed.
- On February 24, 2014, the district court affirmed the bankruptcy court’s dismissal and held the absolute priority rule remains intact in individual Chapter 11 cases.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether BAPCPA abrogated the absolute priority rule for individuals | BAPCPA abrogates the rule; debtors may keep post-petition property | Rule remains; post-petition property excluded by 1115 does not abandon the rule | Not abrogated; rule preserved |
| How §1115 affects the absolute priority rule in context | §1115 broadens estate to include post-petition property | §1115 clarifies only post-petition property; does not repeal the rule | §1115 does not repeal the absolute priority rule |
| Whether plan can be confirmed if it does not pay all dissenting unsecured creditors | Debtor can cram down under §1129(b)(1) if fair and equitable | Cram-down not possible because absolute priority rule not abrogated | Plan cannot be confirmed; cram-down unacceptable under the preserved rule |
Key Cases Cited
- Bank of America, Nat’l Trust & Sav. Ass’n v. 203 N. LaSalle P’ship, 526 U.S. 434 (U.S. 1999) (establishes the absolute priority framework for cram-downs)
- In re Friedman’s, 738 F.3d 547, 738 F.3d 547 (3d Cir. 2013) (addressed §1129(b)(2)(B)(ii) and §1115 interplay in context of absolute priority)
- In re Maharaj, 681 F.3d 558, 681 F.3d 558 (4th Cir. 2012) (narrow view on post-petition property and absolute priority post-BAPCPA)