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its votes for both its secured claim and deficiency claim in accordance with its interest as a secured creditor." A Virginia bankruptcy court upheld separate classification of trade debt and a deficiency claim due to the best interests problem discussed in Woodbrook and because the "unsecured creditors have no collateral which motivates them in the decision-making process." A Tennessee bankruptcy court approved of the reference to creditors' relative interests to justify separate classification. A North Carolina bankruptcy court suggested that the deficiency claimant's "non-creditor" interests, such as the fact that it had a guaranty and sought to foreclose its secured debt, might justify separate classification, but not where it would receive the same treatment as other unsecured claims.
Other courts, however, reject the creditors' relative interests argument and conclude the purpose of § 1111(b) was to permit the undersecured creditor to dominate the unsecured class vote. For example, an Illinois bankruptcy court applied Johnston in concluding that the finding of substantial similarity is a fact issue, but ultimately concluded that a tort claim was substantially similar to trade debt contract claims and rejected an argument that the claim holders' differing motivations for voting was a legitimate factor to consider. New Mexico and Massachusetts bankruptcy courts continue to rely on the argument that trade debts may not be separately classified where the purpose is gerrymandering.
One of the separate classification justifications, referred to above as the "business reasons" rationale, is generally rejected by courts unless the separate classes are treated differently. Greystone called this attempted justification "specious" unless there was a business necessity of providing differing treatment. If a plan proponent were to provide different treatment, however, this would raise the separate question of whether that treatment violated the 1129(b) prohibition on unfair discrimination. Although this is not per se a classification issue, it must necessarily be considered, at least in connection with the "business reasons" rationale for separate classification of similar claims.
Probably the leading example of "fair" discrimination under the Code is Chateaugay, discussed above, where the Second Circuit held it fair to give priority treatment to worker's
