Creditor JJC of Eau Claire, LLC, filed an objection to Debtor’s third amended plan of reorganization on the grounds of unfair discrimination. Debtor has two creditors: JJC and Royal Credit Union. Under the proposed plan, each creditor is placed in its own class. Royal Credit Union’s under-secured claim of $100,0000 would be paid in full, but JJC’s unsecured $75,000 claim would only be paid 13.3% of the full amount. The Court addressed whether the plan unfairly discriminated against JJC and determined the plan violated 11 U.S.C.§§1122 and 1129. The Court found the claims held by JJC and Royal Credit Union were substantially similar, but debtor failed to articulate a sufficient business reason for separating them. The Court stated that Debtor attempted to gerrymander its way into confirmation of the plan and unfairly and improperly preferred one creditor over the other. Additionally, the Court found that the proposed plan violated the absolute priority rule because Fuerbringer, an equity holder, would retain his interest in the LLC. Debtor argued that Fuerbringer’s interest had minimal value, but the Court determined that was immaterial. While Fuerbringer may only retain a minimal amount of property through his continued equity interest in the LLC, it is enough to be cognizable as property under the Code. As such, Debtor’s plan could not be confirmed. Finally, under 11 U.S.C. §1129, the 45-day period for confirmation had long passed and the Court could not conclude that a plan would be confirmed within a reasonable period of time. The Court declined to permit Debtor to file another Plan and the case was dismissed.
11 U.S.C. §1122 -- Classification of claims or interest
11 U.S.C. §1126(c) -- Acceptance of plan
11 U.S.C. §1129(b)(2)(B) -- Absolute priority rule
Absolute Priority Rule
Classification of Claims