In the Matter of Greystone III Joint Venture, Debtor. Phoenix Mutual Life Insurance Company v. Greystone III Joint Venture

$145,000. approximately authorities The GARZA, POLITZ, Before REYNALDO G. bankruptcy court valued Phoenix’s secured JONES, Judges. Circuit $5,825,000, claim at appraised value of concerning “good 1. No issue Venture, faith” of Humble Place Joint 936 F.2d 814 Chapter Cir.1991); stone's filing has been raised in the In re Little Creek Dev. papers pertinent appeal. (5th Cir.1986). Compare to this In re leaving an unse- modified building, Plan. district the office $3,500,- deficiency approximately upheld the confirmation. cured aggregate difference between 000—the appeals Phoenix Mutual now on several its secured claim. owed Phoenix and (a) grounds: classified Phoenix’s filed, Greystone’s Second Amended As deficiency separately unsecured (the “Plan”), Reorganization the con- Plan of that of other unsecured creditors for no valid challenged ap- in this firmation which (b) reason; the “new value to the peal, separately classified the Code-created passage absolute rule did survive Mutu- claim Phoenix (e) Code; Bankruptcy unpaid ten- 1111(b), al, 11 U.S.C. and the unse- see security ant deposits were not creditors. The cured claims of the trade plan.2 claims that could vote on the the trade proposed pay Phoenix and Plan slightly less than four cents on the claims, but it also dollar for their unsecured II. Greystone’s general partner provided that the credi- satisfy the balance of trade Phoenix first attacks classifi- would confirmation of the Plan. tors’ claims after cation of its unsecured claim in a separate class from that of other unse- class, separate pro- the Plan further In a against cured claims the debtor. This issue security deposit by held vided for “claims” background explanation. benefits from some building. existing tenants of the office These notwithstanding promised, were claimants Chapter 11 requires classification assumption eventual of their the debtor’s against leases, of claims a debtor for two reasons. § deposits 11 25% of their U.S.C. class of creditors be approval of their Each will treated upon of Plan 50% expiration respective plan reorganization upon at the of their of deposits debtor’s based stipulated general that leases. The Plan similarity of its members’ status legal obligations partner would “retain its legal rights against the debtor’s other pay [tenant] ... ... creditors the Proper § assets. 11 U.S.C. classifica upon confirmation.” balance of their claims tion is essential to ensure creditors with against claims of similar the debtor’s Finally, Greystone’s contemplated Plan a Second, similarly. are treated assets $500,000capital part- infusion the debtor’s separately ap must vote whether to classes ners, they reacquire of for which would 100% reorganization. prove plan a debtor’s of reorganized equity Grey- interest in the (10). 1129(a)(8), § planA not be stone. U.S.C. (1) approved by confirmed unless either it is Plan, rejected Unsurprisingly, two-thirds in amount and more than one-half while the trade creditors and the class of class, 11 “impaired” in number each U.S.C. of security deposits holders of tenant voted to (2) 1126(c), 1129(a)(8); §§ one or at least 27, 1989, January accept it. On the bank- approves plan, class a confirmation ruptcy hearing held at 1129(a)(10), § and the debtor fulfills orally the Debtor which modified its Plan to 1129(b) requirements § to en cramdown of general part- delete the statements that the notwithstanding plan’s able confirmation pay the ner would balance trade debt and rejection by impaired classes. one or more security deposit tenant claims after confirma- integ of claims thus affects the Classification representative A Phoenix tion. testified that for, rity voting process, if claims could company willing the insurance was to fund its classes, arbitrarily placed separate in be reorganization by paying all own off always possible for the debt- would almost creditors in cash in full after con- clas manipulate “acceptance” or to artful court refused to firmation. proposal and then confirmed sification. consider this issues, orally at the confir- the debtor modified its

2. Because the on these case resolved appellant’s hearing. we need not discuss further conten- mation required tion that disclosure was after additional case, Greystone’s plan separate In this classified the classification of these unsecured separate Phoenix claim secured and unse- claims. We must address each of these ar- classes, cured a dual status afforded 11 guments. 1111(b) despite § U.S.C. the nonrecourse na- prescribes Section 1122 classification of ture of Phoenix’s debt. Because of Phoenix’s reorganization claims for a as follows: opposition reorganization, Greystone to a (a) (b) Except provided in subsection only hope lay knew that its for confirmation section, plan may or this place a a claim or Bankruptcy provi- Code’s cramdown particular an interest class if such 1129(b). sion. U.S.C. The substantive substantially claim or interest is similar to impact of cramdown will be discussed later. the other claims or interests of such Procedurally, Greystone faced a dilemma in claims. deciding approval how to obtain the of its (b) plan may A designate plan by cramdown at least one class “im- class of consisting only every claims claims,

paired” requires.3 as the Code unsecured claim 1129(a)(10). is less than or re- Greystone anticipated U.S.C. duced to an amount ap- the court an adverse vote of Phoenix’s secured claim. proves necessary as reasonable and If the Phoenix million unsecured defi- $3.5 administrative convenience. ciency shared same class as claims, stone’s other unsecured trade language We observe from this that the low- $10,000 swamp would voting their value in suggestion § er courts’ that 1122 does not against only confirmation. argu- The other prevent classification sepa- of like claims in ably impaired class consisted of tenant secu- oversimplified. rate classes is It is true that claims, rity deposit which, 1122(a) § only governs permissible terms found, impaired were not at all. inclusions of requir- claims in a class rather ing that all similar grouped togeth- be Greystone claims surmounted hurdle clas- er. One categorically cannot conclude that sifying deficiency Phoenix’s unsecured claim 1122(a) § prohibits the claims, formation of different separately from the although trade types classes from similar of claims. both But if classes were to be treated alike under 1122(a) § wholly permissive is regarding the and would payment receive a cash classes, creation of such there would be no equal to 3.42% of each creditor’s claim. 1122(b) § need specifically Greystone to authorize a then the required achieved favor- claims, class of smaller unsecured a common able vote of the trade claims class. feature plans reorganization past cases contends that misap- present.4 interpretation broad § plied classifying its unsecured 1122(a) § adopted by the lower courts would separately from those of trade credi- 1122(b) § superfluous, render a result is that tors. The lower rejected courts Phoenix’s anathema elementary principles to of statuto- argument First, steps. in three they held ry construction. § that 1122 of the Code unambigu- does not ously prevent classification of like claims in Section 1122 consequently must con classes. The question is template what some limits on classification of types of among class differentiations like priority. claims of similar reading A fair Second, acceptable. claims are both suggests ordinarily subsections deficiency “legally claims,” claim is “substantially differ- similar those which ent” from that of the- trade claims because it rights share common against 1111(b). statutorily, pursuant estate, § arises to placed debtor’s should be in the same Third, “good 1122(b) business justify reasons” class. expressly Section creates one impaired 3. An claim is defined at 11 employ provision U.S.C. did the lower courts § present purposes, 1124. say For it suffices to analysis. suggestion their There no impaired that Phoenix was both Code, secured and however, that a class be created un- unsecured creditor. 1122(b) § manipulate der in order to the out- plan, simply come of the vote on a rather than to sought justify sepa- has never its plan. enhance administration of the 1122(b), § rate class of trade under creditors nor by permitting to this rule exception small that classification scheme should not have separately approved. been unsecured claims be classified larger counterparts their if the from court so Greystone’s reliance on Brite v. Sun Coun- approves for administrative convenience. try Inc., Development, 764 F.2d 406 acknowledged The lower courts the force of Cir.1985), allegedly as an contrary rule is totally permissive this narrow rather than misplaced. That case allowed the debtor to § going justify construction of on to impair previously unimpaired class of credi- Greystone’s segregation of the Phoenix claim. tors not purposes of vote-getting but otherwise, essentially Put the lower courts because the belatedly discovered that found that Phoenix’s unsecured it did not have pay sufficient funds to “substantially claim is not similar” to those of creditors’ claims in full. The court found the trade creditors. that the debtor’s reclassify decision to previ- ously unimpaired creditors as was not, however, Those courts did adhere necessary. Id. at Country 408. Sun does emerges to the one clear rule that support Greystone’s argument otherwise muddled on caselaw claims proponents possess unlimited discretion to classification: classify thou shalt not similar classify unsecured separately. claims differently gerrymander claims in order to 1122(a) conclude that if permits classifica- reorganization plan. an affirmative vote on a tion of “substantially similar” claims in differ- the Sixth As Circuit observed: classes, ent such may only classification undertaken for independent reasons [Tjhere must be some limit on a debtor’s debtor’s motivation to secure the vote of an

power classify in such a man- impaired, assenting ner_ class of claims. To those require- Unless is some there proffered reasons we now turn. keeping ment of together, similar claims nothing would way stand in the of a debtor Greystone contends that “legal (or seeking impaired out a few difference” deficiency between Phoenix’s creditor) even one such who will vote for claim and the trade creditors’ claims is suffi plan the them in their placing own cient to sustain its classification scheme. class. alleged The distinction legal between the at tributes of the unsecured claims is that under 581, (6th In re U.S. Truck 800 F.2d 586 state law Phoenix against has no recourse Cir.1986). Holywell See also In re: Corp., However, personally. the debtor state law is (11th Cir.1990); 913 F.2d 873 Hanson v. where, here, irrelevant the Code has elimi Dakota, 1310, First Bank South legal nated the distinction between non-re (8th Cir.1987); 1313 In re Lumber Each. Ltd. deficiency course and other claims 1000, Partnership, 125 B.R. 1005-1006 1111(b)(1)(A); 11 § claims. See U.S.C. In re (Bankr.Minn.1991); Waterways Barge In re Associates, Ltd., Tampa Bay 864 F.2d 47 (N.D.Miss. Partnership, 104 B.R. 783-86 (5th Cir.1989); Hanson, 828 F.2d at 1313.5 1989) (good discussion); In re Mastercraft Inc., Plating, Record 32 B.R. 1111(b) purpose § The pro is to (Bankr.S.D.N.Y.1983), rev’d on other vide an underseeured creditor an election (S.D.N.Y.1984). grounds, 39 B.R. 654 We respect with to the of its deficien treatment rule, agree Greystone’s with this if prof- cy Generally, may claim. the creditor elect “reasons” for separately classifying fered the recourse right status and obtain the to vote deficiency simply class, may claim mask in the unsecured or it elect to gerrymander voting process, intent forego gain recourse to an allowed secured Greystone argues that Hanson is not control- an unsecured trade not on claim turns fact find- ling because the issue there was whether it ings legal was but on their This is an characteristics. clearly bankruptcy erroneous for the court to law, freely appeal. issue of on reviewable See deny separate whereas the classification issue Bank, N.A., Leasing Capital Co. v. Richmond clearly here is whether it was erroneous for the 1985). Subsidiary F.2d fact Cir. approve clearly court to The classification. however, findings entitled to the defer- application erroneous rule no has in this context. clearly ence of the Id. erroneous test. deficiency legally Whether is claim similar to bankruptcy of the If claim for the entire amount debt. court’s concern for the viabil- separate ity classification of unsecured deficien- plans of cramdown If overstated. cy arising from non-recourse debt claims Phoenix’s unsecured claim were lower and solely ground permitted on the that the were higher, the trade debt were or if there were law, under state is non-recourse plan, other classes that favored the right to vote in the unsecured class would be plan a cramdown would be more realistic. meaningless. proponents effec- Plan could That plan may cramdown not tively the holders of such disenfranchise succeed on the facts before us does dis- by placing separate claims them in a class prove utility provision. cramdown objection confirming over their The state law distinction between Code-cre- voting by cramdown. With its unsecured ated unsecured claims and other eliminated, rights effectively electing sep- unsecured claims does not alone warrant ability negotiate satisfactory creditor’s arate classification. of either its secured or unsecured settlement argues next seriously It claims would be undercut. justified “good classification was business likely seems the creditor would often bankruptcy The reasons.” court found that to take an allowed have to “elect” secured good the debtor trade to maintain “need[s] 1111(b)(2) hope § in the claim under operations.” will for future In re collateral value of the would increase after Venture, supra III Joint at 570. The court Thus, the case is closed.6 the election under further reasoned: 1111(b) essentially meaningless. would be Congress expectation believe did not intend this re- [I]f of trade creditors is [they] sult. frustrated ... have little recourse doing but to refrain from business with the bankruptcy As the viewed enterprise. resulting negative reputa- The issue, ability debtor’s achieve a cram- quickly spreads tion communi- trade preferred down should be over the cred ty, making it difficult to obtain services in 1111(b) rights itor’s election because of the any the future on but the most onerous policy facilitating reorganization. Code’s terms. policy court resorted to con Greystone argues Id. that the “realities of Congress siderations because believed did justify separate business” more than classifi- potential impact not foresee of an elect cation of the trade from debt Phoenix’s defi- ing deficiency creditor’s claim on the debtor’s ciency argument specious, claim. This for aspiration plan. disagree to cramdown a distinguish it fails to First, between approach with this for three reasons. classifica- 1122, tion of claims and the treatment of claims. violating by § here in gerry it results Greystone’s justification vote, separate for classifi- mandering plan for the sake of 1129(b) might § cation of the if allegedly effectuating a trade claims be valid cramdown. “Policy” the trade creditors were to receive different justify prefer considerations do not Indeed, Code, ring one section of treatment from Phoenix. much less ele vating implicit “policies” initially its a separate over other sec created class of unsecured tions, statutory language where the no draws could be wooed to vote for the Second, shown, by such distinctions. it plan promise pay remaining virtu to their 1111(b) ally § eliminates the plan. election for se claims in full outside the Third, type changed cured creditors this of case. then course and eliminated its case, classification, example, Greystone proposed by separate In this eliminated Phoenix $3,500,000 extinguish deficiency Phoenix's leverage persuade has no the Debtor to consid- $140,000. by promised payment claim of er a more Had sce- reasonable settlement. process, Under the valuation it confined Phoe- option triumphed, nario Phoenix's most realistic $5.8 nix's secured claim to § million. 11 U.S.C. might have been to take an allowed secured 506(a). obviously objects to this ar- hope eventually claim in the the market because, future, rangement might ulti- building of office will increase more mately receive more than the written-down value 140,000 presently $ than over the estimated value building liquidation following of the office in a of the collateral. Yet, voting rights effectively foreclosure. with its promise. Because there is no treat- A Chapter debtor in 11 must ei case, reject ment of the trade creditors in this we ther assume or its leases with third Greystone’s reject § “realities of business” ar- parties. 11 U.S.C. 365. If the debtor does neither, gument. the leases continue in effect and the provable against lessees have no claim Greystone’s Even if Plan had bankruptcy estate. See Matter Whitcomb differently treated the trade creditors from Mortgage 375, & Keller 715 F.2d 378-79 Phoenix, the classification scheme here is still (7th Cir.1983); Park, College In re Cochise improper. hearing, At the confirmation none Inc., 1339, 1352 Cir.1983). 703 F.2d Un any of the Debtor’s witnesses offered reason Code, only der the creditors are entitled to classifying separately the trade debt reorganization. vote on a See deficiency Phoenix’s unsecured claim. There 1126(c). § U.S.C. party A to a lease is con is no evidence in the record of a limited vote, sidered a “creditor” who is allowed to goods market in Austin for trade and servic 1126(c), § 11 U.S.C. party has when any Grey- es. Nor is there evidence that against a claim the estate that arises from any stone would be unable obtain rejection of a lease. In re Perdido Motel if the trade trade services creditors did not Inc., (Bankr. Group, 101 B.R. 293-94 preferential receive treatment under N.D.Ala.1989). If, however, the debtor ex Thus, finding Plan. court’s lease, pressly assumes a the lessee has no good there were business reasons for 1126(a). against “claim” the debtor under separate classification support is without §§ 365(g), 502(g). See 11 U.S.C. rights clearly the record and must be set aside as by assumption created of the lease constitute erroneous.7 post-petition administrative claim under deficiency ap- Phoenix’s unsecured 503(b)(1)(A) section of the Code. Corp. LJC $3,500,000, proximates while the claims of the (D.C.Cir. Boyle, 1494 n. 6 unsecured trade creditors voted to ac- who 1985). The holder of such a claim is not $10,000. cept the Plan total less than entitled to vote on a reorganization. scheme, stone’s classification which effective- 1126(a); Distrigas U.S.C. In re Corp., ly disenfranchised Phoenix’s Code-created (Bankr.D.Mass.1986). 66 B.R. 385-86 claim, is sanctioned neither Here, Greystone rejected never its Code nor caselaw. The lower courts leases with the tenants. There is thus no in approving erred it. support for the assertion that the tenants’ Greystone’s “claims” entitled them to vote on III. ' Plan. The district court erred in alternative position, Greystone argues As fall-back ly permitting confirmation the Plan based office-building that the tenants constitute an on the tenants’ affirmative votes. class whose votes for Although simply must we remand because Plan should have pur- been considered for Greystone the Plan mis-classified creditors’ poses satisfying pre-condition the of cram- claims, possible it remains assenting, impaired down that there be one propose' plan incorporating, will another as bankruptcy class. The court held that the one, “exception” did this the the to absolute tenants were not an class and could priority judicial rule. For the sake of econo- not vote on the Plan because had my, possibility we consider that next. assumed their leases. The district court dis- agreed despite and held that the Debtor’s IV. leases, assumption of the the tenants could impaired accepting Greystone’s be counted as an upon class. relied the “new val- Plan argues this exception” priority was error. to ue the “absolute rule” appellate apply 7. Two standards of review to the issues our de novo. See n. 5 .reviewable debtor's classification of claims. Issues such supra. any good Whether there were business similarity priority legal the in and attributes and support separate reasons to the debtor's classifi- question the ultimate whether treatment in the question cation of claims is a of fact. necessary, legal same or classes is are 1282 justify' retaining to ownership of the office equitable” and had an meaning established building notwithstanding plan’s the that, write- circumstances, under certain allowed a 33%, million, down of over or $3.5 of its debt deviation from the priority absolute rule if to Outside of Phoenix. bankruptcy, such a equity agreed put owners to cash into the unthinkable, result be would for Phoenix company in exchange for an appropriate could have foreclosed and taken back its See, ownership interest. e.g., Case v. Los building for better or worse. cur- Whether Angeles 106, Lumber Products 308 U.S. permits rent egregious law 121-22, 1, 10-11, (1939) S.Ct. 84 L.Ed. 110 rights alteration of without the secured credi- (dictum). Second, because the Code did not generated tor’s consent has considerable con- specifically prior overrule judicial the under- troversy.8 The lower in courts favor of held standing the standard, fair and equitable it Greystone. We do not. must, incorporated have by in- standard face, On its the Code does appear not to cluding exception” “new value in equity allow of bankrupt owners a enter- 1129(b)(2)(B). Third, 1129(b)(2)(B) §if prise, any junior or matter, creditors for that does not specifically codify the “new value to retain or obtain ownership and control of exception,” represents only partial a defini- appropriate debtor without the consent of tion of equitable” “fair that leaves room senior creditors. This priority “absolute Fourth, for one. $500,- Greystone’s offer of 1129(b)(2)(B)

rule” is codified at 11 U.S.C. 000 satisfies the new exception. value as a definition of the “fair equitable” respect With due ingenuity standard for Thus, confirmation. stone’s statutory any agreement, holder of construction or interest we junior that is feel compelled to the claims of an nevertheless to paraphrase class not Gertrude any receive Stein: property on “There is no account of its claim there there.” obvious, instance, or It is interest until the senior repaid are that the claims Case undisputed full. It is “new Id. right meaningful reorganized run the context property. Chapter business is reorganization ll’s provi- Worthington Ahlers, sions, Norwest Bank which differ markedly prior from 963, 969, U.S. 108 S.Ct. 99 L.Ed.2d decided, 169 law. When Case was the unanimous (1988). purpose of this section is to consent of all creditor required classes was stratify equity creditors and interests so that addition ato fair and equitable plan conform- cramdown, a nonconsensual, or plan will not ing to the priority Case, absolute rule. redistribute a dissenting property creditor’s U.S. at 114 n. 60 at S.Ct. n. 6. The 1978 rights junior to those with right a or interest Code, Bankruptcy however, permits less- in the debtor. Such a result would nei- than-unanimous acceptance of a creditor ther equitable. fair nor III, In Greystone re class to suffice even if the absolute 102 B.R. at 574. rule is not satisfied alternatively speci- Greystone’s It fies was conditions for burden to cramdown plans. demonstrate 1129(a), 1129(b)(2). §§ how its U.S.C. $500,000 owners’ offer infuse into This in- debtor, paying off creased tiny flexibility arguably fraction of renders Case claim, exception Phoenix’s unnecessary satisfied abso- certainly and is sig- lute rule. argument nificant distinction the statutory back- proceeds phases. First, in four adop- ground before to that decision. In re Outlook/Cen- tion of Bankruptcy Code the term “fair tury, Ltd., supra. Ahlers, In Worthington Cir.1990) Norwest Bank exists); v. 485 (exception In re Truck U.S. 197, 963, 3, U.S. 108 S.Ct. 967 n. 99 L.Ed.2d 169 581, (6th Cir.1986). 800 F.2d 587-88 Bankrupt (1988), Supreme the expressly Court declined to cy sharply courts have been divided on the issue. rule on whether a exception” "new value to the Compare Ltd., Outlook/Century, In re 127 B.R. priority absolute rule survived enactment of the 650, (Bankr.N.D.Cal.1991) 656 and re In Lumber Bankruptcy Code. The circuit courts are divid- Exchange Partnership, Ltd. 125 B.R. 1000 See,e.g., ed. Kham & Nate’s Shoes 2No. v. First (Bankr.Minn.1991) (no exception), new value Bank, (7th Cir.1990) (dicta) 908 F.2d 1351 (ques- n withIn re Sawmill Inc., Hydraulics, 454, 72 B.R. tioning vitality continued priority of absolute (Bankr.C.D.Ill.1987). 456 n. 1 rule); Anderson, 530, (8th In re 532-33

1283 Bankruptcy Proposed Commission’s “Modi- statutory parse to the Greystone’s efforts Rule, Priority the Absolute 48 of the incorporation language for evidence fications” of (1974). Am.Bankr.L.J. 305 In re Out- similarly unper- exception” are “new value Ltd., history look/Century, supra. in From this phrases on two Greystone relies suasive. 1129(b)(2). Congress infer acted knowl- by defin- one can contended that It is edgeably codifying priori- “in- a strict equitable to absolute standard” ing the “fair history ty rule. Such also contradicts the following requirements,” the defini- clude the leaving suggestion exception” the “new value demonstrably incomplete, im- tion is merely “logical expansion” a of the codified exception. This for a new value plicit room rule, III, priority In re quoted phrase absolute unlikely, because seems 574, part it of the a fair and 102 B.R. at because was a minimum standard sets pre-Code equitable” “fair standard. may be confirmed over plan that equitable Further, arguments these to the extent that Matter D &F Construc- objections. creditor (5th Cir.1989). from the abso- tion, Inc., equitable advocate variations F.2d rule, contrast, priority they conflict with Ahlers’ di- lute exception,” The “new value equitable powers observation that “whatever requirement. lutes the minimum courts must and remain Alternatively, Greystone focuses on can exercised within the confines 1129(b)(2)(B)(ii) junior §in that a condition Ahlers, Bankruptcy supra, 485 Code.” may or retain interest not receive claim or at 108 S.Ct. at 968-69. U.S. until more on account its interest property brief, suggest- In an amicus a final reason argu- fully satisfied. This parties are senior applying ed for the “new value equity” if “old infuses new holds that ment priority rule is within the codified absolute debtor, retaining its money it is not into the prohibit does not a cramdown that the Code equity sta- ownership “on account of’ its old the debtor to reorganization plan that sells wordplay, This is mere because tus. owners, the “new value equity its former prevent creditors stone intends necessary poten- in that exception” is to rein ownership property of the on acceding to disagree self-dealing. with tial force unique as an status account of permits a non- assumption that the Code plan. to the More equity contributor old its old plan to “sell” debtor to consensual prevent Greystone desired to a specifically, equity owners. This flies face property, at which competitive auction of the Chap- principle control embodied in creditor bid, precisely credit because of Phoenix could accepted by Ahlers: ter 11 and equity status. Greystone’s old Appeals well have be- statutory language in such a The Court of cannot read the petitioners or other unsecured way. lieved that self-serving respon- if creditors would be better off if the Greystone next contends that statute plan was confirmed. reorganization dents’ imply excep value express or new does is for the creditors But that determination tion, merely codify pre-existing intended specified to make in the manner with such law. and is not inconsistent law 1126(c). 11 U.S.C. Code. weight to too little position This attributes 206, 108 S.Ct. at 969. 485 U.S. at which “we are to take statutory language, courts, Moreover, pursuant permitting pre-Code when it alters seriously ... even rather than exception,” value No. 2 v. to a “new Kham & Nate’s Shoes practices.” Cir.1990) creditors, Bank, under a strict absolute 908 F.2d 1351 First rule, of former (Easterbrook, J.), the conditions citing Pennsylvania Dept. determine reorganized participation in a equity owners’ Davenport, 495 U.S. of Welfare (1990). enormously complicat 2126, 2130-31, introduces an L.Ed.2d 588 S.Ct. bargaining carefully balanced Moreover, ing factor in a Judge Easterbrook and others the “new proposed test for observed, rejected Congress clearly structure. have exceedingly vague exception” is Bankruptcy Commission to proposal —re (a) money’s money or infusion quiring rule when it modify absolute (d) (c) value, (b) See, new substantial e.g., Brudney, The worth the Code. enacted reasonably equivalent to the cy extent of why old reason the court should have arbi- equity’s proposed participation in reorga trarily rejected competing bid (e) debtor, necessary nized to such reor equity into infuse the debtor after the Warren, ganization. Amicus Brief of Prof. at exclusivity period lapsed. See 11 U.S.C. factual, essentially 12. If these criteria are § 1121. bankruptcy impose then each court can its freewheeling reorganization policy view of V. appellate

without fear of reversal. Creditors guess, and the are left not what reasons, foregoing For the judgment position each other’s “bottom line” is for a court affirming bankruptcy district plan, particu consensual but rather what the court’s confirmation of plan of lar court sees as a “bottom line” cash contri reorganization is REVERSED. The case is permit bution that will of an cramdown old REMANDED for proceedings consistent equity plan the “new exception.” under opinion. with this It is suppose dubious to that courts will ordinarily possess superior foresight than the ON PETITION FOR REHEARING AND concerning themselves the credi SUGGESTION FOR REHEARING Here, instance, tors’ best interests. for EN BANC. Greystone owed Phoenix million above $3.5 collateral, yet POLITZ, the value of its the court al Judge, Before Chief $140,000 pay lowed it to obligation on that JONES, G. REYNALDO GARZA and complete and retain ownership Judges. for a half- Circuit capital Meanwhile, million dollar infusion. obligated remains about PER CURIAM: million originally $5.8 on what was an $8.8 majority A panel having voted to

million loan. If the courts grant rehearing part, opinion of the value,” implement “new nonconsensual reor disposing court in of this appeal is as follows: ganization plans governed by amor such standards, phous one why Congress wonders Part panel opinion, IV of the found at 995 ground bothered to frame elaborate rules for Cir.1991), F.2d 1281-84 hereby achieving plans. Negotiations consensual be withdrawn and opinion. deleted In tween creditors and the debtor against such determination, connection with that the last exception” “new value backdrop would be paragraph of Part III also is deleted. Fur- enormously skewed in equity favor of old ther, in the first sentence para- second seriously would utility erode the of the credi graph opinion, of the the word “three” is tors’ votes. “two,” changed to and the last sentence of that paragraph is deleted. Part ofV Neither in language, the Code’s nor in the opinion is renumbered to In IV. withdraw- context of a previous, reorganiza- different ing portion panel opinion of the law, we em- legislative tion nor in history, nor in phasize that the bankruptcy opinion court’s policy is there room for a excep- “new value on the “new value to the absolute tion” to the absolute rule now de- priority rule has been vacated and we ex- 1129(b)(2)(B). by § fined press no part view whatever on that of the conclusion, Because of this it is unneces- bankruptcy court’s decision. sary to determine whether the lower courts properly applied a “new value exception” revisions, than Other these original note, the absolute rule. opinion howev- is reinstated petition and the er, though that even the “standards” for that panel rehearing Further, is DENIED. no exception are most difficult to panel consider effec- judge member or in active ser- tively appeal, on the bankruptcy court erred having requested vice the court be in refusing to consider proposed polled Phoenix’s rehearing banc, on en see Fed. equity plan along R.App.P. contribution with that of suggestion Local Rule equity. former There statutory poli- is no or for rehearing en banc is DENIED. JONES, Judge, dissenting: EDITH H. approach issues of a statu-

How one should

tory arising Bankrupt- from the construction clouded, view, my cy has been Code — U.S.-, Timm,

Dewsnup v. S.Ct. (1991). Nevertheless,

773, 116 L.Ed.2d 903 reaffirming I wrote about the what “new original in Part IV voting against

opinion, and therefore

rehearing, hope I would to stand with Gali-

leo, who, higher temporal rebuffed au- breath,

thority, “Eppur under his si muttered (“And moves.”) yet

muove.” America,

UNITED STATES

Plaintiff-Appellee,

Jerry Wayne MERGERSON, and Richard Anunaso,

Uchechukwu Defendants-

Appellants.

No. 92-1179. Appeals,

United States Court of

Fifth Circuit.

July

Case Details

Case Name: In the Matter of Greystone III Joint Venture, Debtor. Phoenix Mutual Life Insurance Company v. Greystone III Joint Venture

Court Name: Court of Appeals for the Fifth Circuit

Date Published: Feb 27, 1992

Citation: 995 F.2d 1274

Docket Number: 90-8529

Court Abbreviation: 5th Cir.