Save Our Springs (S.O.S) Alliance, Inc. v. WSI (II)-COS, L.L.C.
632 F.3d 168
5th Cir.2011Background
- SOS filed for Chapter 11 bankruptcy in April 2007 after securing multi-million-dollar attorney's fee awards against it.
- SOS proposed a plan to fund a $60,000 Creditor Fund from donors within 60 days to pay unsecured creditors, discharging remaining unsecured debts.
- The plan created three unsecured-creditor classes, with Sweetwater in a separate class to aid plan passage and potential gerrymandering concerns.
- The bankruptcy court found the plan infeasible due to lack of firm donor commitments and the speculative nature of fundraising during bankruptcy.
- SOS designated itself as a small business debtor under 11 U.S.C. § 101(51D), triggering a 300-day plan-confirmation deadline under § 1121(e)(2).
- After the deadline passed, the petition was dismissed; SOS moved to amend its designation, but the court denied the amendment on judicial estoppel grounds, and the district court affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Feasibility standard applied on plan | SOS argues the court applied an incorrect standard and required certainty. | WSI contends the court applied correct feasibility standard requiring reasonable assurance, not certainty. | Feasibility viewed under correct standard; plan not feasible. |
| Proper class treatment and gerrymandering | SOS asserts class structure was proper and did not Gerrymander voting. | Court found separate treatment of Sweetwater was used to create an impaired class favorable to SOS. | Court upheld finding of improper class gerrymander; plan cannot be confirmed. |
| Judicial estoppel and small-business designation | SOS argues designation could be amended without estoppel. | Court held SOS was judicially estopped from denying small-business status after enjoying benefits. | Judicial estoppel affirmed; designation cannot be amended. |
| Amendment of petition and relation back | SOS contends it may amend petition or file a new plan relating back to old filing. | Court rejected amendment as improper and not relate-back to acceptable plan. | Amendment and new-plan approach rejected; no relief. |
| Class eligibility under 11 U.S.C. § 1122(a) and vote behavior | SOS argues there were valid non-creditor interests justifying separate classification. | Court concluded no sufficient non-creditor interests to justify separate classification. | No valid non-creditor interests; improper classification. |
Key Cases Cited
- Briscoe Enters., Ltd., II, 994 F.2d 1160 (5th Cir.1993) (certainty not required; feasibility requires potential viability)
- Greystone III Joint Venture, 995 F.2d 1274 (5th Cir.1991) (substantial similarity and gerrymandering principles for class placement)
- In re Canal Place Ltd. P'ship, 921 F.2d 569 (5th Cir.1991) (speculative projections insufficient for feasibility)
- In re T-H New Orleans Ltd. P'ship, 116 F.3d 790 (5th Cir.1997) (feasibility and evidentiary standards in plan confirmation)
- In re Ark-La-Tex Timber Co., 482 F.3d 319 (5th Cir.2007) (judicial estoppel factors and application)
- Coleman Enterprises, Inc., 275 B.R. 533 (8th Cir. BAP 2002) (small-business election void ab initio; implications for designation)
- In re Fla. Coastal Airlines, Inc., 361 B.R. 286 (Bankr.S.D.Fla.2007) (plan amendments and relation-back notions in bankruptcy context)
- In re Heritage Org., L.L.C., 375 B.R. 230 (Bankr.N.D.Tex.2007) (context for non-creditor interests and voting considerations)