632 B.R. 208
Bankr. D. Kan.2021Background
- Debtor Randy L. Robinson (individual, owner/operator of Countryside Funeral Home LLC) filed a Subchapter V Chapter 11 on Dec. 2, 2020 to address large unpaid tax liabilities and a $1.9M personal guaranty.
- Robinson has a history of slot-machine gambling; significant gambling winnings/losses appeared on his 2018–2020 tax returns and were not separately disclosed on some SOFA questions prepetition.
- Postpetition, Robinson disclosed gambling in a December operating report; the UST moved to dismiss for gross mismanagement (denied in Order I). The amended SOFA correcting a gambling loss was filed March 30, 2021.
- Debtor filed an amended Subchapter V plan (Mar. 1, 2021) proposing 36-month payments totaling roughly $4,240/month (plus $500 to unsecured Class 7), later offering to increase Class 7 from $18,000 to $22,000 and to cease gambling.
- Ballots: debtor solicited votes but no creditor in any impaired class returned a ballot; UST objected to confirmation on good-faith grounds and argued the plan could not be confirmed as consensual under §1191(a).
Issues
| Issue | Plaintiff's Argument (UST) | Defendant's Argument (Robinson) | Held |
|---|---|---|---|
| Whether plan was proposed in good faith under §1129(a)(3) | Robinson concealed prolific pre- and postpetition gambling and thus risks diverting funds or failing to perform | Tax returns and the December operating report disclosed gambling; SOFA errors were inadvertent; debtor cooperated and agreed to increase payments and stop gambling | Overruled UST; court found no intent to hide, no evidence of secreted funds, debtor`s plan proposed in good faith (with $4,000 increase and gambling prohibition) |
| Whether plan can be confirmed as a consensual plan under §1191(a) when no ballots were returned | No ballots = no accepting impaired class => fails §1129(a)(8) and (a)(10) for consensual confirmation | Under Tenth Circuit precedent, nonobjecting/nonvoting creditors may be deemed to have accepted the plan; subchapter V streamlines confirmation | Court applied In re Ruti‑Sweetwater (Heins) and deemed nonvoting, nonobjecting impaired classes to have accepted the plan; plan confirmed as consensual under §1191(a) |
| Whether remaining §1129(a) requirements (classification, best‑interests/liquidation, feasibility, payment of administrative/priority claims) are met | (Implied) plan insufficient if not feasible or fails liquidation test | Plan classifies claims properly, pays administrative and priority claims, liquidation analysis shows creditors are better under plan, trustee supports feasibility | Court found plan (as modified) satisfied applicable §1129(a) requirements (classification, feasibility, best‑interests, payments) and so confirmed it as modified |
Key Cases Cited
- In re Paige, 685 F.3d 1160 (10th Cir. 2012) (reaffirming good‑faith test for chapter 11 plans)
- Travelers Ins. Co. v. Pikes Peak Water Co., 779 F.2d 1456 (10th Cir. 1985) (benchmark articulation of the good‑faith/feasibility inquiry)
- Heins v. Ruti‑Sweetwater, Inc. (In re Ruti‑Sweetwater), 836 F.2d 1263 (10th Cir. 1988) (Tenth Circuit holds nonobjecting, nonvoting impaired creditors may be deemed to have accepted a plan under §1129(a)(8))
- In re Trenton Ridge Investors, LLC, 461 B.R. 440 (Bankr. S.D. Ohio 2011) (discusses voting, deemed acceptance exceptions, and plan confirmation mechanics)