451 B.R. 505
Bankr. C.D. Cal.2011Background
- Debtor Kamell filed a Chapter 11 case; plan seeks to reorganize with impairment of Class 5 unsecured creditors including JP Morgan Chase’s deficiency claim.
- Class 5 is bifurcated into a secured claim of $1.6 million and an unsecured deficiency of $1,324,062 against the Newport Beach property.
- Debtor proposes to fund a five-year plan with payments that offer Class 5 only a pro rata share of projected disposable income, not full payment.
- Bank opposes confirmation, contending the plan violates the absolute priority rule for an individual Chapter 11, preventing cramdown.
- Post-BAPCPA, §1115 includes post-petition earnings and acquisitions in the estate; §1129(b)(2)(B)(ii) raises questions about pre-petition property treatment.
- Court adopts the “narrow view,” holding that the absolute priority rule is modified but not abrogated by BAPCPA; plan cannot be confirmed as to Class 5.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether BAPCPA abrogated the absolute priority rule for individual Chapter 11s | Kamell argues rule abrogated entirely. | Bank argues abrogation allows cramping unsecureds without pre-petition property. | Narrow view favored; rule not fully abrogated. |
| Whether §1129(b)(2)(B)(ii) and §1115 permit cramdown with pre-petition assets | Kamell contends pre-petition property may be retained post-BAPCPA. | Bank contends pre-petition property must be paid or surrendered for cramdown. | Court finds distinction suffices; supports limited modification, not full abrogation. |
| Whether the plan is fair and equitable to the dissenting Class 5 unsecured creditors | Debtor contends plan treats Class 5 fairly under §1129(b)(2)(B)(ii). | Bank maintains plan is not fair and equitable as to its unsecured claim. | Plan not fair and equitable to Class 5 under current form. |
| Whether cramdown is permissible given dissent in Class 5 | Debtor relies on §1129(b)(2)(B)(ii) to cram down. | Bank challenges viability of cramdown with pre-petition asset retention. | Cramdown not appropriate; plan cannot be confirmed as to Class 5. |
Key Cases Cited
- In re Gbadebo, 431 B.R. 222 (Bankr. N.D. Cal. 2010) (narrow view on BAPCPA affects abrogation analysis)
- In re Mullins, 435 B.R. 352 (Bankr. W.D. Va. 2010) (illustrates narrow view of §1129(b)(2)(B)(ii))
- In re Gelin, 437 B.R. 435 (Bankr. M.D. Fla. 2010) (recognizes limited modification of absolute priority rule)
- In re Shat, 424 B.R. 854 (Bankr. D. Nev. 2010) (discusses interpretation of 1115/1129 relationship)
- Case v. Los Angeles Lumber Products Co., 308 U.S. 106 (1939) (historic basis for absolute priority concept)
- United Savings Assn. of Texas v. Timbers of Inwood Forest Assoc., Ltd., 484 U.S. 365 (1988) (context for property of the estate and interpretation)
- Norwest Bank Worthington v. Ahlers, 485 U.S. 197 (1988) (post-petition value and new value concepts in reorganization)
- Dewsnup v. Timm, 502 U.S. 410 (1992) (limits on assumptions of prior liens and status)
- Lorillard v. Pons, 434 U.S. 575 (1978) (treats legislative history and interpretation guidance)