Wells Fargo Bank, N.A. v. Loop 76, LLC (In Re Loop 76, LLC)
465 B.R. 525
9th Cir. BAP2012Background
- Loop 76, an Arizona LLC, obtained a $23,125,000 construction loan from Wells Fargo secured by the Airpark Property, which matured in 2008 and defaulted amid a real estate downturn.
- Loop 76 filed Chapter 11 in July 2009 and Wells Fargo later sued the guarantors of the Wells Fargo loan, including Wright and Herlihy, in state court.
- Loop 76 proposed a Chapter 11 plan with impaired Class 2 Wells Fargo and Class 3 Genesee Funding, LLC, including an § 1111(b) election and different treatment for unsecured claims.
- Genesee asserted a $7,865 claim secured by a Griphoist, contending it was a legitimate security interest; Wells Fargo objected that the Genesee claim was contrived.
- Genesee’s Loan Agreement with Loop 76 was executed May 4, 2009 and a UCC-1 Financing Statement described the Griphoist on July 21, 2009; Loop 76 received the Griphoist but did not pay for it.
- The bankruptcy court held that Genesee’s Loan Agreement constituted a security agreement and allowed Genesee’s claim to be secured; Wells Fargo appealed the classification and feasibility rulings, leading to an appeal of the Plan’s confirmation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a third-party payment source affects substantial similarity | Wells Fargo argued third-party sources do not affect similarity. | Loop 76 argued Johnston allows considering third-party payment as a distinguishing factor. | Yes; third-party source may render claims dissimilar. |
| Whether Genesee Claim exists as a contract and is not contrived | Wells Fargo contends no enforceable contract and bad faith vote under §1126(e). | Loop 76 asserts a binding security agreement existed and no bad faith finding required. | Genesee claim is a valid security agreement and not contrived; no §1126(e) designation needed. |
| Whether the Plan is feasible | Wells Fargo argues feasibility is not shown for the initial years. | Loop 76 contends evidence supports feasibility with equity contributions and projected cash flow. | Plan are feasible; the bankruptcy court’s feasibility finding affirmed. |
Key Cases Cited
- In re Johnston, 21 F.3d 327 (9th Cir. 1994) (third-party sources can render claims dissimilar for §1122(a))
- In re Barakat, 99 F.3d 1526 (9th Cir. 1996) (business justification governs separate classification of similar claims)
- Los Angeles Land & Invs., Ltd., 282 F. Supp. 448 (D. Haw. 1968) (early framework for claim similarity based on nature of claim)
- In re U.S. Truck Co., 800 F.2d 581 (6th Cir. 1986) (explanation of how Chapter XI/XII influences classification standards in Code)
- In re Baldwin Park Towne Ctr., Ltd., 171 B.R. 374 (Bankr. C.D. Cal. 1994) (considerations of third-party recovery in unsecured claims)