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compensation claims held by workers, in order to preserve labor peace, but nonpriority treatment to identical claims held by the insurance company that had paid and was subrogated to such claims in other states. Another leading example is the Seventh Circuit's holding in 203 N. LaSalle. Under that plan, trade debts were to be paid in full, without interest, whereas the deficiency claim would be paid only 16%. This was found to be "fair discrimination" because the secured claim was nonrecourse and therefore nothing would have been paid on the deficiency claim in a chapter 7 liquidation. The Seventh Circuit affirmed the bankruptcy court's approval of this discrimination as "narrowly tailored to meet the requirements of the 'best interest' test," apparently applying the "clear error" standard of review for factual findings. It did not expressly mention that the bankruptcy court had applied a two-prong test for unfair discrimination - there must be a reasonable basis for the discrimination and it must be necessary for the reorganization - rather than the four-prong test that some courts have adopted from chapter 13 cases.
The unfair discrimination analysis has been applied when there is separate classification of unsecured claims that have the same rights against the debtor. Where the 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. For example, the bankruptcy court in 11,111 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. A less controversial basis for finding "fair" discrimination may be where business necessity dictates, as in Chateaugay.
One case confirmed a fair discrimination plan based on factors that could be demonstrated in most single asset cases. In Creekstone, Bankruptcy Judge Paine approved of a plan to pay 10% on a nonrecourse deficiency claim but 100% on the unsecured trade debt
