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justification for separate classification, and the reader is referred to the discussion above regarding what constitutes similarity.
The Greystone court rejected as "specious" the debtor's attempt to argue economic necessity to treat claims differently and good business reasons to maintain the good will of trade creditors, because the plan did not treat the trade debt any differently than the deficiency claim. The same fact was fatal in Lumber Exchange, where the court held that although there is some authority for separately classifying trade creditors and treating them more generously, the argument was belied by the terms of the proposed plan, which treated trade creditors less favorably than the secured creditor's deficiency claim.
Moreover, the Fifth Circuit's Greystone opinion rejected the argument because "There is no evidence in the record of a limited market in Austin for trade goods and services. Nor is there any evidence that Greystone would be unable to obtain any of the trade services if the trade creditors did not receive preferential treatment under the plan." The Second and Ninth Circuits have basically concurred (albeit in upholding bankruptcy courts' factual conclusions to that effect).
These cases nevertheless suggest that separate classification might be sustained if evidence were presented of a need to treat certain creditors more favorably to retain their services post-confirmation. A good example of this approach is Chateaugay where the Second Circuit permitted the claims held by the insurance company through subrogation to be classified separately from identical claims still held by the debtor's employees. The "legitimate business reason" justifying this separate classification, and preferential treatment of the employees' claims, was that if not so treated the employees "would react so negatively as to jeopardize peaceful labor relations," while the insurance company held no such threat.
The Fifth Circuit subsequently upheld an arguably gerrymandered classification scheme on the "business justification" rationale, even though the separate classes were treated identically. This ruling in Briscoe is discussed more fully in the next section since it was in reality a creditors' interests rationale, focusing on the creditor's interests rather than the
