881 F.3d 724
9th Cir.2018Background
- Five related debtor entities (two operating hotel owners, two mezzanine owners, one holding company) filed jointly administered Chapter 11 cases after acquiring two resorts and financing them with a senior mortgage (Lender) and a mezzanine loan (later purchased by Lender).
- Debtors proposed a joint Chapter 11 plan selling the operating debtors to a third-party and restructuring the Lender’s loan; the Lender elected treatment under 11 U.S.C. § 1111(b)(2) and opposed the plan.
- The confirmed plan included a due-on-sale clause but carved out a ten-year window (years 5–15) in which sales would not trigger acceleration; the Lender argued this diminished the benefit of its § 1111(b)(2) election.
- The Lender also contended 11 U.S.C. § 1129(a)(10) requires at least one impaired accepting class per debtor (a “per debtor” rule); because the Lender was the sole creditor of the mezzanine debtors and voted no, it argued the plan failed § 1129(a)(10).
- Bankruptcy court confirmed the plan; district court initially dismissed the appeal as equitably moot but, after this court’s remand in Transwest I, the district court on remand upheld confirmation. The Ninth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether § 1111(b)(2) requires a plan to include a due-on-sale clause when creditor elects § 1111(b)(2) | § 1111(b)(2) entitles electing creditor to protections including complete due-on-sale protection; omission of such a clause (for years 5–15) undermines election | § 1111(b)(2) text and Chapter 11 plan provisions do not mandate inclusion of a due-on-sale clause; such clauses govern payment terms, not the statute’s secured-claim treatment | § 1111(b)(2) does not require inclusion of a due-on-sale clause in the plan. |
| Whether § 1129(a)(10) must be satisfied for each debtor in a jointly administered multi-debtor case ("per debtor") or once for the combined plan ("per plan") | § 1129(a)(10) should be read to require at least one impaired accepting class per debtor to protect separate creditors’ rights in multi-debtor cases | Plain statutory language refers to impaired classes "under the plan," with no per-debtor distinction; § 102(7) (singular/plural) does not change that reading | § 1129(a)(10) applies on a "per plan" basis: one impaired accepting class for the plan satisfies the requirement for the entire plan. |
Key Cases Cited
- In re Transwest Resort Props., Inc., 801 F.3d 1161 (9th Cir. 2015) (prior Ninth Circuit decision remanding for merits after rejecting equitable mootness)
- RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S. 639 (2012) (Supreme Court discussion of cramdown confirmation standards)
- In re Airadigm Commc’ns, Inc., 519 F.3d 640 (7th Cir. 2008) (due-on-sale clause characterized as payment-term mechanism, not a lien that must be retained)
- In re Bonham, 229 F.3d 750 (9th Cir. 2000) (test and principles governing substantive consolidation)
- Satterfield v. Simon & Schuster, Inc., 569 F.3d 946 (9th Cir. 2009) (court will not reach alternative arguments when statutory text disposes of the issue)