In Re Draiman
450 B.R. 777
Bankr. N.D. Ill.2011Background
- Draiman filed a voluntary Chapter 11 petition in May 2009 in the NDIL, Eastern Division, and remains in possession as debtor-in-possession.
- The fourth amended disclosure statement and Chapter 11 plan propose a three-group asset structure with a Liquidation Trust to liquidate nonexempt assets for creditors.
- Dynegy Marketing and Trade objects to confirmation, and moves to dismiss or convert the case; an Examiner was appointed due to book-keeping and disclosure concerns.
- Dynegy holds an allowed unsecured claim arising from a district court judgment against Multiut and Draiman (and related litigation), with ongoing appeals and related litigation with other Plan parties.
- The plan classifies Dynegy in Class 11 (unsecured, disputed) while other unsecured claims are in Class 10, and contemplates a reserve for unresolved Class 11 claims pending litigation outcomes.
- The court ultimately sustains in part Dynegy’s objections and denies confirmation, scheduling a May 2011 hearing to decide whether to convert to Chapter 7 or dismiss.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1122(a) classification of Dynegy's claim | Draiman's classification places Dynegy in Class 11, separate from allowed unsecureds in Class 10. | Classification is permissible for business reasons given ongoing litigation and potential setoffs against other Class 11 claimants. | Plan classification complies with 1122(a); no improper gerrymander. |
| 1123(a)(4) same-treatment requirement among class members | Plan purportedly treats Class 11 members uniformly; differences are justified by ongoing litigation and inter-claim setoffs. | Different treatment among legitimately classified classes is permissible if rational and based on legitimate considerations. | Plan provides uniform treatment within Class 11; no violation of 1123(a)(4). |
| 1123(b)(3) reservation and transfer of avoidance actions to Liquidation Trust | Reservation and transfer of estate claims to the Liquidation Trust must be explicit and well-identified to avoid res judicata bars. | The plan lists the avoidance actions by code sections and attaches exhibits naming potential defendants; this satisfies the express reservation requirement. | Reservation and transfer are express and sufficiently specific; no 1123(b)(3) objection. |
| Feasibility and best interests under 1129(a)(11) and 1129(b) | Plan may be feasible and creditors will receive value; some evidence supports the plan's liquidation pathway and distributions. | Projected disposable income, asset valuations, and future liquidity are unreliable; plan fails feasibility and best-interest tests. | Plan fails feasibility; cannot be confirmed under §1129(a)(11) and §1129(b) as to cram down. |
Key Cases Cited
- In re 203 N. LaSalle St. P'ship, 126 F.3d 955 (7th Cir.1997) (defines cram-down standards and 1129(a) requirements)
- In re Bloomingdale Partners, 170 B.R. 984 (Bankr.N.D.Ill.1994) (classification discretion under 1122; purpose of plan classification)
- In re S. Beach Sec, Inc., 376 B.R. 881 (Bankr.N.D.Ill.2007) (notice and adequacy considerations for plan confirmations)
- In re Dow Corning Corp., 244 B.R. 445 (E.D.Mich.1999) (substantive 1123(a)(4) treatment standards; not require absolute equality)
- Norwest Bank Worthington v. Ahlers, 485 U.S. 197 (1988) (absolute priority rule framework in Chapter 11)