DISH Network Corp. v. DBSD North America, Inc.
634 F.3d 79
| 2d Cir. | 2011Background
- DBSD North America filed for bankruptcy and proposed a plan to deleverage, with senior secured debtors receiving new obligations and the old equity receiving shares/warrants; Sprint (unsecured) and DISH objected to confirmation; the plan contemplated a substantial equity gift to the existing shareholder (ICO Global) paid from the secured creditors’ residual value; the bankruptcy court designated DISH’s vote as not in good faith and disregarded DISH’s First Lien Debt class for voting; the plan was challenged on absolute priority and feasibility grounds; the court ultimately reversed on absolute priority, affirmed on others, and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Sprint has standing to appeal the confirmation | Sprint is aggrieved by value loss | Appellees argue no standing for out-of-money creditor | Sprint has standing to appeal |
| Whether gifting to the existing shareholder violated the absolute priority rule | Plan improperly gave property to junior equity | Gifting permissible where secureds undervalue their recovery | Plan violated 1129(b)(2)(B); gift invalidates confirmation |
| Whether DISH's vote was properly designated as not in good faith | DISH voted to pursue strategic gain | Vote designation inappropriate | Designation proper; vote not in good faith |
| Whether DISH's class could be disregarded for voting purposes | Disregarding class preserves plan | Class should count in voting | Disregarded class properly counted; voting upheld |
| Feasibility of the plan | Plan feasible given capital commitments | Feasibility speculative | Feasibility findings not clearly erroneous; plan feasible |
Key Cases Cited
- In re Coltex Loop Cent. Three Partners, L.P., 138 F.3d 39 (2d Cir.1998) (absolute priority context; interpretation of 'on account of')
- 203 N. LaSalle St. P'ship v. County of Chicago, 526 U.S. 434 (U.S. 1999) (interpretation of 'on account of' in absolute priority)
- Ahlers v. United States, 485 U.S. 199 (U.S. 1988) (strict reading of absolute priority rule; no new-value exception)
- Kane v. Johns-Manville Corp., 843 F.2d 636 (2d Cir.1988) (standing to appeal; impairment and value consideration)
- In re Cosmopolitan Aviation Corp., 763 F.2d 507 (2d Cir.1985) (standing in bankruptcy appeals; aggrieved party)
- In re SPM Manufacturing Corp., 984 F.2d 1305 (1st Cir.1993) (gifting in Chapter 7 context; not controlling in Chapter 11)
- In re Iridium Operating LLC, 478 F.3d 452 (2d Cir.2007) (context on absolute priority; new value considerations)