In Re Kamell
451 B.R. 505
Bankr. C.D. Cal.2011Background
- Kamell is an individual Chapter 11 debtor with a Whittier residence and two rental properties in Anaheim and Newport Beach.
- JPMorgan Chase claims a $1.6 million secured lien on the Newport Beach property and a $1,324,062 unsecured deficiency after § 506 valuation.
- The plan proposes to pay Class 5 unsecured claims only a pro rata share of projected disposable income for five years after confirmation.
- Class 5 includes the bank’s unsecured deficiency; the dissent by Class 5 jeopardizes acceptance under § 1129(a)(8).
- The court considers whether the absolute priority rule survives BAPCPA amendments for individual Chapter 11s and whether the plan is fair and equitable.
- The court adopts the narrow view, holding the absolute priority rule is modified but not abrogated; plan denial on fair and equitable grounds remains.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does BAPCPA fully abrogate the absolute priority rule for individuals? | Kamell favors the narrow view: the rule is modified, not abrogated. | Bank favors the broad view: the rule is essentially abrogated for individuals. | Narrow view adopted; absolute priority rule modified, not fully abrogated. |
| What is the meaning of 'included in the estate' in § 1129(b)(2)(B)(ii) read with § 1115? | Post-petition earnings and after-acquired property should be included to balance cramdown. | Inclusion should not undermine pre-petition asset protection; interpretation preserves pre-petition priority. | Court adopts narrow reading: § 1115 limits post-petition assets, preserving pre-petition value concerns. |
| Is the plan fair and equitable to the dissenting Class 5 unsecured creditors? | Plan should be confirmed if it fairly treats unsecured creditors within the modified absolute priority framework. | Plan distributes only a portion of post-petition income and does not pay Class 5 in full, violating fair and equitable standards. | Plan not fair and equitable as to Class 5; cramdown not appropriate. |
| Was cramdown under § 1129(b) permissible given a single dissenting unsecured class? | Cramdown should be available with appropriate conditions consistent with the modified rule. | Cramdown scrutiny remains stringent when pre-petition assets are at issue; not satisfied here. | Cramdown not permitted; plan denied. |
Key Cases Cited
- Case v. Los Angeles Lumber Products Co., 308 U.S. 106 (1939) (foundation of absolute priority principles)
- United Savings Assn. of Texas v. Timbers of Inwood Forest Associates, Ltd., 484 U.S. 365 (1988) (context for changes in treatment of property interests)
- Norwest Bank Worthington v. Ahlers, 485 U.S. 197 (1988) (recognizes absolute priority in cramdown; value of new money)
- Dewsnup v. Timm, 502 U.S. 410 (1992) (limits on reading substantial changes from new statutes)
- In re Gbadebo, 431 B.R. 222 (Bankr. N.D. Cal. 2010) (supports narrow view of BAPCPA effect on absolute priority)
- In re Mullins, 435 B.R. 352 (Bankr. W.D. Va. 2010) (endorses narrow view of § 1129(b)(2)(B)(ii))
- In re Shat, 424 B.R. 854 (Bankr. D. Nev. 2010) (discussion of broad vs. narrow views on BAPCPA)
- In re Karlovich, B.R. (Bankr. S.D. Cal. 2010) (illustrates arguments on interpretation of 1129(b)(2)(B)(ii))