589 B.R. 731
D. Kan.2018Background
- ABBK (Abengoa Bioenergy Biomass of Kansas, LLC) filed a Chapter 11 liquidating plan after conversion from an involuntary Chapter 7. The plan subordinated intercompany claims and paid non-affiliate unsecured creditors pro rata; intercompany claims (including four Missouri affiliates' claims) were to receive nothing.
- Drivetrain, liquidating trustee for several Missouri Abengoa debtors (ABC, ABEC, ABT, ABO), objected, asserting those intercompany claims were equivalent to third-party unsecured claims and should be paid pari passu; Drivetrain proposed a competing plan.
- The Bankruptcy Court confirmed ABBK's plan, finding (inter alia) that: (1) intercompany claims were dissimilar to third-party claims; (2) there was either an oral subordination understanding among affiliates or sufficient evidence of an intent to subordinate; (3) classification was not gerrymandering; and (4) the plan satisfied § 1129(a)(7) (best interests test), non-discrimination, and absolute priority.
- Drivetrain moved for a stay pending appeal in bankruptcy court; that court denied the stay. Drivetrain appealed and sought a stay from the district court under Fed. R. Bankr. P. 8007; the district court consolidated appeals and heard expedited briefing.
- The district court applied the four Nken stay factors (likelihood of success, irreparable harm, harm to others, public interest). It concluded Drivetrain failed to show a strong likelihood of success on appeal, failed to substantiate irreparable injury, offered only speculative harm to others, and that the public interest weighed against a stay (including environmental/health risks from abandoned biomass and delay to creditors).
Issues
| Issue | Plaintiff's Argument (Drivetrain) | Defendant's Argument (ABBK / Kozel) | Held |
|---|---|---|---|
| Existence/enforceability of an oral subordination agreement among affiliates | No enforceable oral subordination; Abbott (ABBK) failed to disclose it in plan; due process violated | Bankruptcy Court had record evidence of an agreement/understanding; affiliates shared management, knowledge, and intended subordination | Court: Drivetrain failed to show likelihood of success; factual findings supported and alternate legal bases exist (dissimilarity of claims) |
| Whether separate classification of intercompany claims was impermissible gerrymandering | Separate classification was to depress votes and deny recovery; claims are substantially similar to trade claims | Classification justified because intercompany claims are dissimilar (shared management, access, expectations) and not motivated by gerrymandering | Court: classification permissible; Bankruptcy Court reasonably found dissimilarity and lack of gerrymandering |
| Whether ABBK met § 1129(a)(7) "best interests of creditors" test | Liquidation analysis shows Missouri creditors would get ~18.7% in Chapter 7; the Court should accept debtor's liquidation analysis as binding | Bankruptcy Court may "rationally speculate" what a Chapter 7 trustee would do; may consider subordination understanding and record evidence, so best-interests satisfied | Court: Bankruptcy Court permissibly engaged in rational speculation; Drivetrain unlikely to prevail on appeal |
| Whether a stay pending appeal should issue | Stay necessary to prevent equitable mootness and irreparable harm to Drivetrain's recovery | Stay would delay distributions, deplete estate, harm creditors and public interest (cleanup of abandoned biomass) | Court: Denied stay—Drivetrain failed Nken factors (no strong likelihood of success; irreparable harm unsupported; public interest and potential harm to creditors weigh against stay) |
Key Cases Cited
- Nken v. Holder, 556 U.S. 418 (Sup. Ct.) (sets four-factor standard for stays pending appeal)
- In re Paige, 685 F.3d 1160 (10th Cir.) (standards for appellate review of bankruptcy findings)
- U.S. Bank Nat'l Assn. v. Village at Lakeridge, 138 S. Ct. 960 (Sup. Ct.) (guidance on standards for mixed questions and appellate review)
- In re Sunflower Racing, Inc., 221 B.R. 940 (D. Kan. 1998) (discusses hypothetical Chapter 7 "rational speculation" in best-interests analysis)