In Re Walsh
447 B.R. 45
Bankr. D. Mass.2011Background
- Debtor Mary Ann Walsh filed a Chapter 11 petition on July 29, 2009, owning 56 residential units across five Barnstable County locations, plus a home and vacation property.
- Properties are encumbered by multiple mortgages; Corinth Investors Trust holds secured and unsecured interests; other creditors are largely accommodated under the plan.
- On Oct. 13, 2010 Walsh filed an Amended Disclosure Statement and Amended Plan classifying creditors into seven secured classes, an unsecured class, and equity class; unsecured claims would receive 5% over five years, with property to revest in Walsh on plan effectiveness.
- Corinth objected to the disclosure statement and preserved objections to plan confirmation, including absolute priority, dragnet clauses, merger/valuation issues, and collateralization disputes.
- A hearing on the Plan was postponed due to counsel illness; the court issued a preliminary decision addressing absolute priority and dragnet clause issues, with a full evidentiary hearing scheduled for May 13, 2011.
- Key issues focus on whether the Absolute Priority Rule applies to an individual Chapter 11 debtor post-BAPCPA and the effect of dragnet/ cross-collateralization clauses on creditor claims and voting.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the Absolute Priority Rule apply to Walsh as an individual debtor post-BAPCPA? | Walsh argues new-value exception allows retention of estate property. | Corinth contends APR remains applicable despite 1115. | APR applies; Walsh must satisfy §1129(b) to confirm plan. |
| Are the dragnet and cross-collateralization clauses enforceable to extend Corinth's claim to secure Cape Cod Bank's debt ahead of Corinth's secured claim? | Cape Cod Bank argues dragnet clauses extend security to all Borrower obligations. | Corinth asserts dragnet cannot undermine secured claims or alter voting. | Dragnet clauses generally enforceable; however, creditor scope limited by signer language, affecting cross-collateralization analysis and Class 6 voting. |
| What is the effect of the dragnet/combined liability language on the plan's treatment of secured vs. unsecured claims? | Plan intends to prioritize certain secured claims; dragnet could shift some to unsecured. | Corinth maintains its secured status should be preserved over dragnet constructs. | Valuation and treatment to be determined at the evidentiary hearing; preliminary ruling adjusts voting rights based on interpretation of cross-collateralization language. |
Key Cases Cited
- In re Shat, 424 B.R. 854 (Bankr. D. Nev. 2010) (interprets 'included in the estate' under §1115 in individual Chapter 11)
- In re Tegeder, 369 B.R. 477 (Bankr. D. Neb. 2007) (alternative reading of §1115 and 1129(b)(2)(B)(ii))
- In re Roedemeier, 374 B.R. 264 (Bankr. D. Kan. 2007) (alternative reading of §1115)
- In re Gbadebo, 431 B.R. 222 (Bankr. N.D. Cal. 2010) (analysis of §1115 and §1129(b) alignment)
- In re Gelin, 437 B.R. 435 (Bankr. M.D. Fla. 2010) (case addressing 1115 integration in individual cases)
- In re Mullins, 435 B.R. 352 (Bankr. W.D. Va. 2010) (supports interpretation of §1115 scope for individuals)
- Perry v. Miller, 330 Mass. 261 (Mass. 1953) (Massachusetts authority cited on dragnet/priority principles)
- Foxborough Sav. Bank v. Ballarino, 180 B.R. 343 (D. Mass. 1995) (dragnet clause permissibility and interpretation)