2016 Bankr. LEXIS 844
Bankr. D. Colo.2016Background
- Debtor Matthew Autterson, a former financial-services executive, controlled family entities (GL3B Partnership and GL3B Trust II) and received substantial pre‑petition transfers; allowed claims by those insider entities total $4,603,250.
- First Citizens Bank obtained a state‑court judgment against Autterson for guaranty liability (~$2.63M) on Nov. 25, 2013.
- The day after the Bank judgment Autterson caused an amendment to the partnership to add GL3B Trust II as a general partner (purportedly diluting his unilateral control) and filed Chapter 11 days later.
- Extensive bankruptcy litigation resolved the amounts of the GL3B claims; the case produced two competing liquidating Chapter 11 plans: the Debtor’s Fourth Amended Plan and the Bank’s competing Plan.
- Debtor’s Fourth Plan relied on an administrative “convenience” Class 6 (one vote from law firm Sherman & Howard) to satisfy §1129(a)(10); the Bank’s Plan proposed an accounting “offset” to treat GL3B claims as satisfied without cash.
- After a four‑day confirmation hearing the court found both plans non‑confirmable, concluded the case was at an impasse, and dismissed the Chapter 11 case rather than convert to Chapter 7.
Issues
| Issue | Plaintiff's Argument (Autterson/GL3B) | Defendant's Argument (Bank) | Held |
|---|---|---|---|
| Whether Debtor’s Fourth Plan complies with §1129 (classification, acceptance, cram‑down) | Class 6 (administrative convenience) accepted; satisfies §1129(a)(10) allowing cram‑down | Bank argued Class 6 was a gerrymander, insider vote, and plan unfairly discriminates | Court: Debtor’s plan unconfirmable — Class 6 improperly drafted, artificially impaired, gerrymandered, and bad faith; fails §1122/§1129 requirements |
| Whether the Bank’s Plan complies with §1129 (treatment of GL3B claims via offsets; impairment) | (Bank) Class 4 unimpaired; proposed offsets of Debtor’s capital account would satisfy GL3B claims so Bank can be paid | Debtor/GL3B argued offsets are legally and factually infeasible and would leave GL3B unpaid | Court: Bank’s offsets legally unsupported, infeasible; Class 4 is impaired; plan discriminates unfairly and is unconfirmable |
| Whether either plan satisfies cram‑down fairness and non‑discrimination under §1129(b) | Debtor/Bank each contend their plan is fair and equitable vis‑à‑vis rejecting classes | Opposing party shows discriminatory treatment (e.g., paying law firm 80% vs. Bank/GL3B 26% or nothing) | Court: Both plans discriminate unfairly and are not fair and equitable under §1129(b) |
| Appropriate remedy if plans fail: convert to Chapter 7, dismiss, or appoint Chapter 11 trustee | Debtor/GL3B preferred conversion to Chapter 7; suggested trustee unnecessary | Bank requested dismissal (preferred); alternatively conversion or trustee | Court: Cause exists to end Chapter 11; appointment of trustee not warranted; in exercise of discretion dismissal (not conversion) is in best interests of creditors and estate |
Key Cases Cited
- Search Mkt. Direct, Inc. v. Jubber (In re Paige), 685 F.3d 1160 (10th Cir.) (plan proponent bears burden to prove §1129 compliance)
- FB Acquisition Prop. I, LLC v. Gentry (In re Gentry), 807 F.3d 1222 (10th Cir.) (plan feasibility standard — reasonable prospect of success)
- Travelers Ins. Co. v. Pikes Peak Water Co. (In re Pikes Peak Water Co.), 779 F.2d 1456 (10th Cir.) (good‑faith standard for plan proposal)
- United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (Supreme Court) (bankruptcy court’s independent duty to ensure plan complies with Code)
- Village Green I, G.P. v. Fed. Nat’l Mortg. Ass’n, 811 F.3d 816 (6th Cir.) (using allied insiders to create artificially impaired convenience class can show bad faith)
- Sandy Ridge Dev. Corp. v. Louisiana Nat’l Bank (Matter of Sandy Ridge Dev. Corp.), 881 F.2d 1346 (5th Cir.) (deeming a class impaired solely to obtain an accepting impaired class may show lack of good faith)
- Hall v. Vance, 887 F.2d 1041 (10th Cir.) (failure to file acceptable plan after reasonable time supports dismissal under §1112(b))
- In re Mastercraft Record Plating, Inc., 32 B.R. 106 (Bankr. S.D.N.Y.) (purpose of §1122(b) convenience class is typically to pay small claims in full to avoid solicitation costs)