472 B.R. 223
Bankr. D. Del.2012Background
- Tribune's October 31, 2011 Confirmation Opinion denied plan confirmation under Bankruptcy Code § 1129.
- Reconsideration Decision (Dec. 29, 2011) struck the Subordination Determination and held fraudulent transfer claims are not Tribune assets for subordination purposes.
- DCL Plan proposed an Allocation Disputes Protocol to resolve inter-creditor priority disputes before plan solicitation.
- Allocation Procedures Order (Jan. 24, 2012) defined Allocation Disputes including PHONES Notes and EGI-TRB LLC Notes issues.
- Court finds PHONES subordination applies to Settlement Proceeds and Creditors’ Trust proceeds, and determines the PHONES claim amount.
- Court also addresses whether Plan's treatment of Other Parent Claims is unfair discrimination under §1129(b) and compares PHONES and EGI seniority.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| PHONES subordination applies to Settlement Proceeds? | WTC argues Settlement Proceeds are not 'assets of the Company' per Cybergenics. | Court previously applied subordination to Litigation Proceeds; same logic should apply to Settlement Proceeds and Creditors’ Trust proceeds. | PHONES subordination applies to Settlement Proceeds and Creditors’ Trust proceeds. |
| What is the allowed PHONES Claim Amount? | Tendering noteholders’ exchange rights may reduce claims due to prepetition exchanges. | Exchange mechanics and timing as of petition date determine allowed amount without post-petition adjustments. | PHONES Claim Amount fixed at $759,252,932. |
| Is equal treatment of Senior Noteholders and Other Parent Claims unfair discrimination under §1129(b)? | Treating equal priority classes differently by sharing subordination benefits with Other Parent Claims is unfair. | Distributions are not materially different in value or risk to dissenting class; rebuttable presumption does not apply. | No unfair discrimination; equal treatment does not rise to material unfairness. |
| Are PHONES and EGI notes properly prioritized (PHONES senior to EGI)? | EGI argues PHONES may be subordinated by EGI Subordination Agreement; parol evidence may show different intent. | PHONES and EGI priority should be determined by intercreditor documents and parol evidence. | PHONES Notes are senior to EGI Notes; EGI is subordinate. |
| Post-petition interest to subordination beneficiaries? | Subordination beneficiaries may be entitled to post-petition interest under policy of seniority. | Post-petition interest is an intercreditor issue; solvency not established; not ripe. | Not ripe for determination; future consideration reserved. |
Key Cases Cited
- In re Washington Mutual, Inc., 461 B.R. 200 (Bankr.D.Del.2011) (divestiture rule and bankruptcy contemporaneous proceedings)
- In re Cybergenics Corp., 226 F.3d 237 (3d Cir.2000) (fraudulent transfer actions and assets of the estate)
- In re 203 North LaSalle Street P’ship, 246 B.R. 325 (Bankr.N.D.Ill.2000) (Rule of Explicitness and postpetition interest interplay)
- In re Goody’s Family Clothing, Inc., 610 F.3d 812 (3d Cir.2010) (interpretation of not-withstanding provisions in bankruptcy)
- In re Greate Bay Hotel & Casino, Inc., 251 B.R. 213 (Bankr.D.N.J.2000) (unfair discrimination and Markell rebuttable presumption)
- Armstrong World Ind., Inc., 348 B.R. 111 (D.Del.2006) (unfair discrimination and rebuttable presumption test)
- In re Unbreakable Nation Co., 437 B.R. 189 (Bankr.E.D.Pa.2010) (rebuttable presumption for unfair discrimination)
- In re Sponsion, 426 B.R. 114 (Bankr.D.Del.2010) (subordination scope and litigation priorities)
- In re Dow Coming Corp., 244 B.R. 696 (Bankr.E.D.Mich.1999) (subordination contract interpretation)