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noting that the "section is derived from §§ 197, 357 and 452 of the present Act."118 The Code's deletion of the Commission's reference to "rights" and chapter X's reference to "nature" of the claim, which had been thoroughly glossed by Gerdes' interpretation, suggests Congress intended the more liberal chapter XI standard. If that had not been the intent, Congress would have used a term of art that had an accepted and tested meaning for more than forty years, the "nature" of a claim.
The inference that § 1122 was intended to permit more flexible classification than based on legal rights is further supported by the Code's inclusion of the "unfair discrimination" standard in § 1129(b)(1). The legislative history clearly indicates this provision was intended to deal with claims having the same legal rights against the debtor, but which are properly classified separately.119
The House Report used examples of claims that are contractually subordinated to others, such as unsecured senior debt, junior debt and trade debt, but all of which have the same legal claims against the debtor, and therefore the same priority from the debtor's perspective.120 The Congressional Record Statements indisputably contemplated that there could be "classes of equal claims,"121 and the House Report's examples indicate that the factors that might distinguish such classes were not based on their legal rights against the debtor, in which respect they were truly equal.122 The unfair discrimination provision in
118 REPORT OF THE COMMISSION ON THE BANKRUPTCY LAWS OF THE UNITED STATES, H. Doc. No. 93137, 93rd Cong., 1st Sess., July 1973 (hereafter "Commission Report"), Part II at 240-41.
119
A perceived need for an unfair discrimination test under the Act, in addition to the absolute priority rule, purportedly originally arose from cases holding that the absolute priority rule only applied between creditors and equity, not among creditors. E.g., New York Trust Co. v. Continental & Commercial Trust & Savings Bank, 26 F.2d 872 (8th Cir.), cert. denied, 278 U.S. 664 (1928). In fact, however, as the absolute priority rule is worded in § 1129(b)(2)(B), it does apply among unsecured creditor classes and not just between creditors and equity holders. The Bankruptcy Commission's draft did not include an unfair discrimination requirement. COMMISSION REPORT, Part II, § 7-310(d)(2)(B), at 252. The House must therefore have had another reason for adding the unfair discrimination test to the Code. "The criterion of unfair discrimination is not derived from the fair and equitable rule or from the best interests of creditors test." House Report No. 595, 95th Cong., 1st Sess.
120
See House Report, H.R. 8200; K. Klee, "All You Ever Wanted to Know About Cram Down Under the New Bankruptcy Code," 53 AMER. BANKR. L.J. 133, 141-42 (Spring 1979)(hereafter "Klee").
121
House Report, supra, (a plan may be confirmed as long as "classes of equal claims are being treated so that the dissenting class of impaired unsecured claims is not being discriminated against unfairly")(emphasis added).
122
House Report, supra ("One aspect of this [unfair discrimination] test that is not obvious is that whether one class is senior, equal, or junior to another class is relative and not absolute.").
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