  |
  |
  |
    
  
   |
 | |||
|
|
|
|
| |||
unfair discrimination analysis is appropriate because the claims are of the same priority, e.g., unsecured, some courts have held that discriminatory treatment can be "fair" if it (1) has a reasonable basis, (2) is necessary to any successful plan, (3) is proposed in good faith, and (4) is reasonable in light of its rationale.208 For example, the bankruptcy court in 11,111209 held that it was not unfair discrimination to provide zero dividend to equity holders' unsecured claims, while other unsecured creditors received 40%, because the insiders were in a better position to understand the risks when they made the loans and were in a position to influence the debtor's financial operations, unlike the other unsecured creditors.210 A less controversial basis for finding "fair" discrimination may be where business necessity dictates, as in
Chateaugay.211
One case confirmed a fair discrimination plan based on factors that could be demonstrated in most single asset cases. In Creekstone,212 Bankruptcy Judge Paine approved of a plan to pay 10% on a nonrecourse deficiency claim but 100% on the unsecured trade debt claims. He found this discrimination to be fair because "protection of the debtor's creditworthiness with its vendors is vital to its successful reorganization," while also noting that the nonrecourse nature of the deficiency claim was a factor that could be considered to
208 In re Ambanc La Mesa Ltd. Ptshp, 115 F.3d 650, 656 (9th Cir. 1997); In re Wolff, 22 B.R. 510, 51112 (9th Cir. BAP 1982); Matter of Rochem, Ltd., 58 B.R. 641, 643 (Bankr. D.N.J. 1985)(fair discrimination to pay unliquidated $35 million tort claim $50,000 and to pay 50% to trade debt claims totaling $171,130); In re Ratlege, 31 B.R. 897, 899 (Bankr. E.D. Tenn. 1983)(chapter 13).
209
In re 11,111, Inc., 117 B.R. 478 (Bankr. D. Minn. 1990).
210
Id. at 478. The court approved the discriminatory treatment notwithstanding its earlier determination that the insiders' unsecured claims were not subject to subordination. Id. at 475. The opinion does not explain how the discriminatory treatment the court approved is distinguishable from subordination. The court relied heavily on the Fifth Circuit's similar conclusion in Matter of LeBlanc, 622 F.2d 872 (5th Cir. 1980). Contra, In re Graphic Communication, 200 B.R. 143 (Bankr. E.D. Mich. 1996).
211
E.g., In re Chateaugay Corporation, 89 F.3d 942 (2d Cir 1996)(permissible to give more favorable treatment to employee's directly asserted workers' compensation claims, because their cooperation was essential to the reorganization, as compared to the same claims asserted through subrogation by an insurer who had no role in the reorganization); In re Richard Buick, 126 B.R. 840 (Bankr. E.D. Pa. 1991)(permissible to pay franchisor 100% while other trade creditors receive only 5% because there would be no continuing business otherwise; decision probably influenced by fact that trade creditors as a class accepted the plan, and unfair discrimination argument was made by secured creditor).
212
In re Creekstone Apartments, 168 B.R. 639 (Bankr. M.D. Tenn. 1994). This opinion approves of fair discrimination solely to deny stay relief, but the plan was ultimately confirmed on the same basis. In re Creekstone Apartments Associates, 1995 Bankr. LEXIS 552 (Bankr. M.D. Tenn. 1995), affd, 1995 U.S. Dist. LEXIS 14876 (M.D. Tenn. 1995).
44
