Opinion
Case No. 04-13611.
September 16, 2005
PACHULSKI, STANG, ZIEHL, YOUNG, JONES WEINTRAUB P.C. Laura Davis Jones Michael R. Seidl Sandra G. McLamb Wilmington, DE.
Richard M. Pachulski Brad R. Godshall Malhar S. Pagay Los Angeles, CA and BASS, BERRY SIMS, PLC Paul G. Jennings Nashville, TN Counsel for the Debtor and Debtor in Possession
MEMORANDUM IN SUPPORT OF CONFIRMATION OF LIQUIDATION PLAN OF DEBTOR MURRAY, INC., AS MODIFIED
I PRELIMINARY STATEMENT
This Memorandum of Points and Authorities (this "Memorandum"), together with the Affidavits of Brian Callahan (the "Callahan Affidavit") and Henry Colvin (the "Ballot Affidavit") filed with the Court, present a comprehensive analysis of the legal and factual issues before the Court regarding confirmation ("Confirmation") of the Liquidation Plan of Debtor Murray, Inc., as Modified (the "Plan") filed by the above-captioned debtor and debtor in possession ("Debtor" or "Murray"), and provides the evidentiary basis necessary (when coupled with whatever additional evidence may be presented at the hearing on Confirmation (the "Confirmation Hearing")) for the Court to confirm the Plan pursuant to Bankruptcy Code § 1129(a).
Capitalized terms used without definition in this Memorandum have the meaning attributed to such term in the Plan or the Motion for Order (1) Approving Liquidating Plan of Murray, Inc. as Modified, Pursuant To Bankruptcy Code § 1127 and Bankruptcy Rule 3019 and (2) Deeming Acceptances of Plan to be Acceptances Of Second Amended Plan, as Modified (the "Modification Motion"), as applicable.
The Plan is the result of extensive pre- and post-petition negotiations among Murray and the Creditors Committee herein (the "Committee"), and other significant parties in interest. As reflected in the Ballot Affidavit, each impaired Class of Claims has voted overwhelmingly in support of the Plan. Class 10 General Unsecured Creditors holding more than ninety-nine percent (99%) in amount of all voting Claims (as well as over 94% in number of all Creditors actually voting) have submitted ballots accepting the Plan. (Class 1 Priority Claimants also voted in support of the Plan by a wide margin.)
As more fully explained in the Disclosure Statement in support of the Plan (the "Disclosure Statement") and the Modification Motion, this case represents a constructive use of the chapter 11 process. Specifically, Murray used the chapter 11 process to maximize the value of a failing business in order to satisfy its secured debts, preserve jobs and provide a modest return on unsecured claims. Now, Murray proposes to complete its liquidation through the vehicle of a liquidating trust, the trustee of which will be William Kaye, the chairman of Murray's Official Creditors Committee (the "Committee"). At every turn in this case, Murray has worked with its Committee to achieve consensual resolutions of sometimes complex issues. The overwhelming creditor support for the Plan is a by-product of this ongoing cooperation.
Murray has now received seven (7) objections (the "Objections") to Confirmation of the Plan. The Objections have been filed by (a) Microsoft Corporation and Microsoft Licensing, GP (collectively, "Microsoft" and the "Microsoft Objection"), (b) Delta Systems, Inc. ("Delta" and the "Delta Objection"), (c) City of Lawrenceburg and Lawrence County Trustee (collectively, "City of Lawrenceburg" and the "Lawrenceburg Objection"), (d) Evers Construction Co., Inc. ("Evers" and the "Evers Objection"), (e) Alex and Pattie Beebe ("Beebe"), (f) Gary Clarke ("Clarke") and (g) Dusty Lene Woodham, the Estate of Jodi Paige Woodham, Sandy Williams, Breezie Leann Woodham and Mary Elizabeth Woodham (collectively, the "Woodhams", and together with Beebe and Clarke, the "Beebe Objectors"). Murray expects all objections other than those of the Beebe Objectors to be resolved prior to the hearing on confirmation of the Plan.
A summary of the objections is as follows:
• Microsoft objects to the cure amount concerning their executory contracts. Murray believes Microsoft is mistaken as to its calculation, as Microsoft has ignored a credit memo that Microsoft has sent to Murray. Murray believes that Microsoft will withdraw the Microsoft Objection prior to the Confirmation Hearing.
• Delta also objects to the stated cure amount concerning its executory contract. Murray will resolve this objection by deleting Delta's agreement from the contracts to be assumed and assigned pursuant to the Plan. (Such an assumption and assignment is unnecessary, as the contract was previously assumed and assigned by prior order of the Court.)
• Lawrenceburg objects to the proposed payment of Priority Tax Claims over six years. Murray has agreed to modify its Plan in resolution of this objection to provide that such claims will be paid in full promptly upon allowance.
• Evers objects that the Plan is vague in respect of the treatment of Evers' alleged "Other Secured Claim." Murray does not believe that Evers has an Other Secured Claim. In any event, however, Murray believes that the objection is not well taken, because the Plan is clear: to the extent Evers has an Other Secured Claim, it will receive its collateral in full satisfaction of its secured claim as soon as practicable following the Effective Date.
As set forth in the Evers Objection, Evers holds a mechanics lien on real property owned by Murray which is set for foreclosure on September 27. The first lienholder on such property is owed millions of dollars more than such real property is worth. This foreclosure therefore will extinguish any theoretical Other Secured Claim that Evers might have. To the extent a surplus does exist (it won't), Evers is entitled to receive such surplus pursuant to the Plan.
• Finally, the Beebe Objectors hold General Unsecured Claims in Plan Class 10, which, as indicated, voted overwhelmingly in support of the Plan. The Beebe Objectors have now filed a "kitchen sink" objection, in many instances raising alleged ambiguities and infirmities in the Plan that are irrelevant to the Beebe Objectors' pecuniary interest. The Beebe Objectors appear to raise at least six alleged infirmities in the Plan. None of the specific objections raised by the Beebe Objectors have merit. Those objections are discussed with particularity below.
Murray fully responds to the Objections in Article IV of this Memorandum. Notwithstanding these Objections, as demonstrated below, the Plan satisfies all of the requirements of Bankruptcy Code § 1129(a). The Objections should be overruled and the Plan should be confirmed.
II FACTUAL BACKGROUND
A. Procedural History
This chapter 11 case (this "Case") was commenced on November 8, 2004 (the "Petition Date").
Murray continues in possession of its assets and its operating its business pursuant to sections 1106 and 1107 of the Bankruptcy Code, 11 U.S.C. §§ 101, et seq. (the "Bankruptcy Code").
B. Overview of Business Operations
Murray was a Tennessee-based manufacturer and seller of outdoor products. Murray was founded in 1919. The company is headquartered in Brentwood, Tennessee, and operates a 42.7 acre manufacturing facility in Lawrenceburg, Tennessee. As of October 1, 2004, the company employed approximately 200 salaried and 1,200 hourly employees at its two Tennessee facilities.
Murray products were sold at major home products retailers such as Sears, Wal-Mart, and Home Depot, with whom Murray had longstanding relationships from 20 to 50 years.
Murray and its related sister companies and subsidiary (i.e., the "Murray Group") achieved revenues in fiscal years 2001 through 2003 of $739 million, $631 million and $606 million, respectively, resulting in EBITDA of $20 million, $33.8 million and $16.9 million. As of the fiscal year ended October 2, 2004, the Murray Group's gross revenues were approximately $629.4 million with adjusted EBITDA of $14.3 million. As of October 2, 2004, Murray Group had aggregate assets of approximately $335,208,000.00 and aggregate liabilities of approximately $311,583,000.00.
C. Debts
As of the Petition Date, Murray estimated that it had unsecured debt in excess of $194 million, including $106 million in trade debt, including approximately $70 million owed to major key suppliers, $45 million in underfunded pension obligations (of which approximately $6.3 million was past due) (the "Past Due PBGC Obligations"), $3 million in taxes, $3.5 million in accrued customer program liabilities, $5 million in products liability claims, $3.6 million in vacation pay, $3 million in third-party management fees, $3 million in supplemental retiree benefits and $19 million in other liabilities including personal injury claims.
As is typical, the face amount of filed claims against Murray far exceeds the foregoing estimates of actual legitimate claims. With respect to personal injury claims alone, the amount of filed claims is well in excess of $100 million.
The face amount of the filed claims of the Beebe Objectors aggregates $5.4 million a very small percentage of the universe of filed personal injury claims.
Murray also owed as of the Petition Date approximately $108.2 million to a lending group agented by GECC (the "Prepetition Secured Indebtedness"). The Prepetition Secured Indebtedness was secured by a first priority security interest in essentially all of Debtor's real and personal property.
Pursuant to statute, the Pension Benefit Guaranty Corporation (the "PBGC") also asserted a lien in respect of the $6.3 million in Past Due PBGC obligations, plus additional amounts, on essentially all of Murray's assets.
Murray also had a number of miscellaneous other secured obligations, as reflected in the Plan.
D. Impetus for the Filing
By Fall 2004, Murray's continuing liquidity crisis threatened the company's ability to address production requirements for the upcoming Spring 2005 lawn and garden product production season. Accordingly, management began to more actively explore strategic transaction alternatives, either in the form of a sale of the company.
Ultimately, Murray sold its assets to Briggs Stratton Power Products Group, LLC ("Briggs") in a transaction consummated in February 2005 (the "Sale"). The Sale proceeds were used to satisfy the Pre-Petition Secured Indebtedness. As part of the Sale negotiation, Murray (with the active involvement of the Committee) also negotiated a consensual resolution of the PBGC's claims, which threatened to overwhelm the Estate and leave unsecured creditors with no recovery. The Plan now effectuates the liquidation of Murray's remaining assets, distributing the proceeds thereof to Murray's creditors.
E. Plan History
On June 17, 2004, Murray filed its original Plan and the Disclosure Statement with the Court. The Plan was negotiated heavily with the Creditor's Committee and the PBGC.
Debtor submitted a modified Plan on August 4, 2005. This plan also had the support of the Committee. The Disclosure Statement concerning the Plan was approved on or about August 4, 2005 (the "Disclosure Statement Order"). The Disclosure Statement Order also established the solicitation procedures to be followed in this case.
The Disclosure Statement Order, among other things, (i) fixed September 9, 2005, at 4:00 p.m. (Central time) as the date and time by which all ballots to accept or reject the Plan (the "Ballots") must have been completed and received (the "Balloting Deadline") by September 9, 2005 (the "Balloting Agent"), Murray's tabulation agent, (ii) fixed September 9, 2005, as the last day for creditors and other parties in interest to file objections to confirmation of the Plan, (iii) fixed September 22, 2005, at 9:00 a.m. (Central time) as the date and time to consider confirmation of the Plan (the "Confirmation Hearing"), and (iv) prescribed the form and manner of notice with respect to the foregoing. As set forth in the various affidavits of service that are on file with this Court, Murray has fully complied with each of the directives of the Disclosure Statement Order.
As indicated above, each of the two voting classes "Class 1 and Class 10" voted overwhelmingly in favor of the Plan. With respect to Class 10 General Unsecured Creditors, approximately 94% of all creditors voting (holding in excess of 99% of the voting claims) voted in favor of the Plan.
On September 16, 2005, Murray filed its Modification Motion. As discussed with more particularity in the Modification Motion, the Motion serves three principal purposes: to clarify ambiguities, improve Post-Confirmation Estate mechanics and to address certain objector concerns. None of the modifications adversely affect the treatment of any creditor claims.
All references to the Plan in this Memorandum should be construed as a reference to the Plan as modified by the Modification Motion.
III THE PLAN SATISFIES THE REQUIREMENTS OF SECTION 1129 OF THE BANKRUPTCY CODE
Bankruptcy Code § 1129 sets forth the plan confirmation requirements. Murray must demonstrate that the Plan satisfies the provisions of Bankruptcy Code §§ 1129(a) (other than subsection 1129(a)(8)) and 1129(b)) by a preponderance of the evidence, which means more likely than not. Heartland Federal Savings Loan Ass'n v. Briscoe Enterprises, Ltd. II (In re Briscoe Enterprises, Ltd. II), 994 F.2d 1160, 1163 (5th Cir.) (citation omitted), cert. denied, 510 U.S. 992 (1993).
As illustrated below, all of the applicable subsections of Bankruptcy Code § 1129(a) have been satisfied with respect to the Plan.
A. The Plan Complies With All of the Provisions of Bankruptcy Code § 1129(a)
1. Section 1129(a)(1) (Compliance with the Bankruptcy Code.
Bankruptcy Code § 1129(a)(1) provides that a court may confirm a plan of reorganization only if "the plan complies with the applicable provisions of this title." The phrase "applicable provisions" has been interpreted to mean Bankruptcy Code §§ 1122 and 1123, which govern the classification of claims and interests and the contents of a plan of reorganization. Kane v. Johns-Mansville Corp., 843 F.2d 636, 648-9 (2nd Cir. 1988); In re Century Glove, Inc., 1993 WL 239489, *6 (D. Del. Feb. 10, 1993); H.R. Rep. No. 95-595, at 412 (1977); S. Rep. No. 95-989, at 126 (1978).
a. The Plan Complies with § 1122 of the Bankruptcy Code.
Bankruptcy Code § 1122 governs the classification of claims and interests. Section 1122(a) requires that a plan "place a claim or an interest in a particular class only if such claim or interest is substantially similar to the other claims or interests in such class." Here, the Plan designates eleven (11) Classes of Claims and Interests based upon differences in the legal nature and/or priority of such Claims and Interests.
Class 1 provides for the separate classification of Claims entitled to priority under Bankruptcy Code § 507(a), other than Administrative Claims or Tax Claims which are not classified and are separately treated. Class 1 Claims are appropriately classified separately since, pursuant to Bankruptcy Code § 1129(a)(9), each Holder of a Priority Claim must generally receive payment in full.
Class 2 through 9 provides for the separate classification of various secured claims. Separate classification of each secured creditor is appropriate. See, e.g., In re Commercial Western Finance Corp., 761 F.2d 1329, 1338 (9th Cir. 1985); In re Orosco, 77 B.R. 246, 252 (Bankr. N.D. Cal. 1987); In re Sullivan, 26 B.R. 677, 678 (Bankr. W.D.N.Y. 1982).
Class 9 consists of "Other Secured Claims" in case any party successfully asserts an otherwise uncategorized secured claim. Murray believes that no such claims exist.
Class 10 constitutes General Unsecured Claims. The Beebe Objectors assert that the Plan does not comply with § 1122 because unsecured personal injury claims and the claims of insurance companies "are significantly different than other general unsecured claims, and therefore these Claims must be classified separately." See, e.g., Beebe Objection, at p. 3. According to the Beebe Objectors, personal injury claims "do not share the same legal rights as other general unsecured claims, because such claims have recourse to available insurance coverage whereas other general unsecured claimants do not." Id. The Beebe Objectors offer no explanation why they believe that the unsecured claims of Murray's insurance carriers must be separately classified. See id.
The Beebe Objectors do not cite a single case where a bankruptcy court has ever required a plan proponent to separately classify unsecured personal injury claims from other unsecured claims simply because the debtor in question might hold insurance that might cover such claims. The presumption is certainly to the contrary — unsecured claims generally should be placed within a single class, notwithstanding asserted distinctions in character of the claims:
The Beebe Objectors cite In re Sacred Heart Hospital of Norristown, 182 B.R. 413, 421 (Bankr. E.D. Pa. 1995) as their sole support for this proposition. In Sacred Heart Hospital of Norristown, however, a bankruptcy court simply permitted a debtor to separately classify claims that had the benefit of insurance coverage. See id. This is a proposition far removed from whether a plan proponent is required to so-separately classify.
"The general rule regarding classification is that `all creditors of equal rank with claims against the same property should be placed in the same class.'"
See, e.g., In re National/Northway Limited Partnership, 279 B.R. 17, 25 (Bankr. D. Mass. 2002). As stated in In re Pearce Goods Shops Co., L.P., 188 B.R. 778, 781 (Bankr. M.D.N.C. 1995), "Unsecured claims, trade, tort, unsecured notes or deficiency claims of secured creditors, are generally included in a single class under chapter 11 plan because they are of equal rank entitled to share pro rata in values remaining after payment of secured and priority claims." Id. (citing FGH Realty Credit Corp. v. Newark Airport Hotel Limited Partnership, 155 B.R. 93 (D.N.J. 1993)). See also In re Hillside Park Apartments, L.P., 205 B.R. 177, 185 (Bankr. W.D. Mo. 1997) (deficiency claim must be classified with trade claims); In re Tucson Property Corp., 193 B.R. 292, 301 (Bankr. D. Ariz. 1995) (same); In re Boston Post Road Limited Partnership, 21 F.3d 477, 481 (2d Cir. 1994), cert. denied 513 U.S. 1109 (same).
As indicated, the Beebe Objectors offer no explanation as to the demanded separate classification of insurance carriers. As to personal injury claims that might be covered by insurance, the Beebe Objectors' argument is based on a meaningless distinction. The fact that certain creditors of Murray might have an alternative payment source (such as a guarantor, insurance company, etc.) simply does not render the claims in question "substantially dissimilar" to other unsecured claims against the estate — the claims hold precisely the same payment priority in respect of distributable estate assets irrespective of the possible rights some creditors might have against third parties. See In re Thornwood Assoc., 161 B.R. 367, 372 (Bankr. M.D. Pa. 1993) (aff'd 162 B.R. 438 (1994)) (the classification of general unsecured creditors is not driven by creditor rights against third party guarantors). This aspect of the Beebe Objection is therefore without merit.
In sum, each of the Claims or Interests in each particular Class is substantially similar to the other Claims or Interests in such Class. The classification of Claims and Interests in the Plan therefore complies with Bankruptcy Code § 1122.
b. The Plan Complies With Bankruptcy Code § 1123
Bankruptcy Code § 1123 sets forth the mandatory and permissive contents of a Plan. As demonstrated below, the Plan contains each of the mandatory provisions listed in Bankruptcy Code § 1123(a), as well as other provisions permissible under the Bankruptcy Code.
(1) Bankruptcy Code § 1123(a)(1) (Designation Of Classes Of Claims And Interests)
Bankruptcy Code § 1123(a)(1) requires that a plan designate classes of claims and interests, other than claims of a kind specified in Bankruptcy Code §§ 507(a)(1) (administrative expenses), 507(a)(2) (claims arising during the "gap" period in an involuntary case), and 507(a)(7) (tax claims). The Plan designates the Classes of Claims and Interests. The Plan therefore complies with the requirements of § 1123(a)(1).
(2) Bankruptcy Code § 1123(a)(2) (Specification Of Unimpaired Classes)
Bankruptcy Code § 1123(a)(2) requires that a plan "specify any class of claims or interests that is not impaired under the plan." The Plan specifies that Claims in Classes 2-9 are unimpaired under the Plan. The Plan therefore complies with the requirements of § 1123(a)(2).
(3) Bankruptcy Code § 1123(a)(3) (Specification Of Treatment Of Impaired Classes)
Bankruptcy Code § 1123(a)(3) requires that a plan "specify the treatment of any class of claims or interests that is impaired under the plan." The Plan specifies the treatment of each impaired Class of Claims and Interests. The Plan therefore complies with the requirements of § 1123(a)(3).
(4) Bankruptcy Code § 1123(a)(4) (Same Treatment Of Claims Within A Class)
Pursuant to Bankruptcy Code § 1123(a)(4) a plan must "provide the same treatment for each claim or interest of a particular class unless the holder of a particular claim or interest agrees to a less favorable treatment of such particular claim or interest." The Plan provides for such similar treatment. The Plan therefore complies with § 1123(a)(4).
The Beebe Objectors assert that the Plan does not comply with § 1123(a)(4) because the Plan does not provide for "a proper reserve" in respect of disputed Class 10 General Unsecured Claims. See, e.g., Beebe Objection at p. 5.
The Plan provisions concerning reserves are set forth at page 37. The Plan states in this regard that:
The Liquidating Agent and the Disbursing Agent shall maintain, in accordance with their powers and responsibilities under the Plan and the Post-Confirmation Estate Agreement, a reserve on account of any distributable amounts required to be set aside on account of Disputed Claims pursuant to the Post-Confirmation Estate Agreement and the Plan. Such amounts (net of any expenses, including any taxes, of the escrow relating thereto) shall be distributed, as provided herein and in the Plan, as such Disputed Claims are resolved by Final Order, and shall be distributable in respect of such Disputed Claims as such amounts would have been distributable had the Disputed Claims been Allowed Claims as of the Effective Date. There shall be distributed together with such amounts any net earnings of the reserve related thereto. Distribution on account of this reserve shall be made at least annually concurrent with other distributions from the Post Confirmation Estate.
See Plan at p. 37.
According to the Beebe Objectors, this reserve requirement is insufficient because "the reserve must be established in an amount sufficient to cover the face amount of all such claims." Id. The Beebe Objectors again cite no legal precedent for their proposition that the reserve must equal the face amount of every disputed claim. Debtor respectfully submits that the Plan provisions are sufficient to protect the holders of disputed claims, while preserving some flexibility in the administration of the post-confirmation estate. This aspect of the Beebe Objection is therefore again without merit.
(5) Bankruptcy Code § 1123(a)(5) (Adequate Means For Implementation Of The Plan)
Bankruptcy Code § 1123(a)(5) requires that a plan "provide adequate means for the plan's implementation." Article VIII of the Plan sets forth the means for implementation of the Plan. The Beebe Objectors incorrectly argue that these means are not adequate in respect of the resolution of disputed claims — an issue addressed in Article IV below.
(6) Bankruptcy Code § 1123(a)(6) (Charter Of Reorganized Debtor)
Bankruptcy Code § 1123(a)(6) requires that a plan for a corporate debtor provide for the inclusion in the debtor's charter of "a provision prohibiting the issuance of nonvoting equity securities" and "as to the several classes of securities possessing voting power, an appropriate distribution of such power among such classes."
The Plan provides for the liquidation of Murray. Section 1123(a)(6) is therefore irrelevant.
(7) Bankruptcy Code § 1123(a)(7) (Selection Of Officers And Directors)
Bankruptcy Code § 1123(a)(7) requires that a plan contain only provisions that are consistent with the interests of creditors and equity security holders and with public policy with respect to the manner of selection of any officer, director, or trustee under the Plan, and any successor to such officer, director, or trustee.
The Plan and the Disclosure Statement identify each individual proposed to serve in a management capacity in the Post-Confirmation Estate. The Plan therefore complies with § 1123(a)(7).
2. Bankruptcy Code § 1129(a)(2) (Plan Proponent Compliance with the Bankruptcy Code)
Bankruptcy Code § 1129(a)(2) provides that a court may confirm a plan only if "[t]he proponent of the plan complies with the applicable provisions of this title." The "principal purpose of 11 U.S.C. § 1129(a)(2) is to assure that the proponents have complied with the requirements of 11 U.S.C. § 1125 in the solicitation of acceptances to the plan." In Re Texaco, Inc., 84 B.R. 893, 906 (Bankr. S.D. N.Y 1988).
a. Bankruptcy Code § 1125
Bankruptcy Code § 1125 provides in pertinent part:
An acceptance or rejection of a plan may not be solicited after the commencement of the case under [the Bankruptcy Code] from a holder of a claim or interest with respect to such claim or interest unless, at the time of or before such solicitation, there is transmitted to such holder the plan or a summary of the plan, and a written disclosure statement approved, after notice and a hearing, by the court as containing adequate information. . . .
The same disclosure statement shall be transmitted to each holder of a claim or interest of a particular class, but there may be transmitted different disclosure statements, differing in amount, detail, or kind of information, as between classes.
11 U.S.C. § 1125(b) and (c).
The Court has entered the Disclosure Statement Order approving the Disclosure Statement as containing "adequate information" pursuant to § 1125 of the Bankruptcy Code. Pursuant to the Solicitation Order, the Disclosure Statement (which included the Plan as an exhibit), ballots, the Confirmation Hearing Notice and other notices, as appropriate, were served by Murray's noticing agent, AlixPartners, LLC, on creditors who were entitled to vote on the plan as follows: AlixPartners LLC served the appropriate solicitation material on August 12, 2005, on all known Holders of Claims and Interests in the Voting Classes.
A Confirmation Notices, without ballots, was also sent to parties requesting special notice pursuant to Bankruptcy Rule 2002 and creditors holding unimpaired claims. Notice of the confirmation hearing and applicable deadlines also was transmitted to reach all other parties in interest in these chapter 11 cases.
b. Bankruptcy Code § 1126
Bankruptcy Code § 1126 specifies the requirements for acceptance of a plan of reorganization. Under § 1126, only holders of allowed claims and allowed equity interests in impaired classes of claims or equity interests that will receive or retain property under a plan on account of such claims or equity interests may vote to accept or reject such plan. As set forth in § 1126:
(a) The holder of a claim or interest allowed under section 502 of [the Bankruptcy Code] may accept or reject a plan. . . .
. . . .
(f) Notwithstanding any other provision of this section, a class that is not impaired under a plan, and each holder of a claim or interest of such class, are conclusively presumed to have accepted the plan, and solicitation of acceptances with respect to such class from the holders of claims or interests of such class is not required.
(g) Notwithstanding any other provision of this section, a class is deemed not to have accepted a plan if such plan provides that the claims or interests of such class do not entitle the holders of such claims or interests to receive or retain any property under the plan on account of such claims or interests.
11 U.S.C. § 1126(a), (f), (g).
As set forth in the Disclosure Statement and the Ballot Affidavit, in accordance with Bankruptcy Code § 1126, Murray solicited acceptances and rejections of the Plan from Holders of Claims in Classes 1 and 10 and such Classes were entitled to vote to accept or reject the Plan.
Based upon the foregoing, Murray submits that the requirements of § 1129(a)(2) have been satisfied.
The Plan identifies Class 1 (Priority Claims) as impaired under § 1124 because such post-petition interest will not be paid on such claims. A controversy exists among the courts as to whether a lack of payment of post-petition interest is sufficient to constitute "impairment." Compare In re Monclova Care Center, Inc., 254 B.R. 167, 177 (Bankr. N.D. Ohio 2000) with In re Seasons Apartments, Limited Partnership, 215 B.R. 953, 959 (Bankr. W.D. La. 1997). Debtor took a conservative approach and identified Class 1 as impaired. The Beebe Objectors now complain that Class 1 is not impaired — an issue that is wholly irrelevant to the interests of the Beebe Objectors. The issue is entirely academic, as Class 1 Creditors voted to support the Plan.
3. Bankruptcy Code § 1129(a)(3) (Plan Proposed in Good Faith)
Bankruptcy Code § 1129(a)(3) requires that a plan be "proposed in good faith and not by any means forbidden by law." The good faith standard requires that the plan be "proposed with honesty, good intentions and a basis for expecting that a reorganization can be effected with results consistent with the objectives and purposes of the Bankruptcy Code." In re Zenith Elecs. Corp., 241 B.R. 92, 107 (Bankr. D. Del. 1999) (quoting In re Sound Radio, Inc., 93 B.R. 849, 853 (Bankr. D.N.J. 1988), aff'd in part, remanded in part, 103 B.R. 521 (D.N.J. 1989), aff'd, 908 F.2d 964 (3d Cir. 1990)).
"The primary goal of Chapter 11 is to promote the restructuring of the debtor's obligations so as to preserve the business and avoid liquidation," as well as the attendant loss of jobs. In re Piece Goods, 188 B.R. 778, 790 (Bankr. M.D.N.C. 1995) (citing NLRB v. Bildisco Bildisco, 465 U.S. 513, 528 (1984)). The fact that a plan is supported by a creditors' committee as well as the debtor is strong evidence that the plan is proposed in good faith. Id. at 791.
In Zenith, supra, 241 B.R. at 110-111, the debtor proposed a plan which provided for the substantial reduction of debt and the elimination of shareholder interests. The Court ruled that the plan was proposed with the legitimate purpose of restructuring its finances to permit it to reorganize successfully. The Court stated: "Readjustment of [the debtor's] debt structure and forgiveness of a substantial amount of its debt is necessary for it to operate properly . . . This reorganization is exactly what chapter 11 of the Bankruptcy Code was designed to accomplish." 241 B.R. at 108. Accordingly, the Court held that the plan was proposed in good faith.
Murray's Plan has clearly been proposed with the legitimate and honest purpose of maximizing the value of Murray's assets and providing a return to creditors. Support for the Plan is overwhelming — holders of over 99% (in amount) of all allowed voting Class 10 General Unsecured Claims voted in favor of the Plan. Murray's proposal of such a widely accepted liquidation is the very essence of good faith. The Plan therefore complies with § 1129(a)(3).
As discussed in more detail below, the Beebe Objectors challenge Murray's good faith in proposing the Plan, asserting that the "Plan was not proposed in good faith where the voice of personal injury claimants has been systematically distorted, if not silenced in this case, where the Plan provides no adequate mechanism, procedure or other means for resolving, disputed, contingent and unliquidated claims." See, e.g., Beebe Objection at p. 4. This contention is meritless and is discussed with more particularity in Article IV below.
4. Bankruptcy Code § 1129(a)(4) (Disclosure of Payments)
Bankruptcy Code § 1129(a)(4) provides that the Court shall confirm a plan only if "[a]ny payment made or to be made by the proponent, by the debtor, . . . for services or for costs and expenses in or in connection with the case, or in connection with the plan and incident to the case, has been approved by, or is subject to the approval of, the court as reasonable." In other words, the debtor must disclose to the Court all professional fees and expenses, and such fees and expenses must be subject to Court approval. Texaco, 85 B.R. at 939.
Fees incurred thus far in Murray's case have been fully disclosed. These fees have therefore been subject to objections by interested parties as well as to Court review and approval. The Plan therefore complies with § 1129(a)(4).
5. Bankruptcy Code § 1129(a)(5) (Disclosure of Officers, Directors and Insiders)
Bankruptcy Code § 1129(a)(5)(A)(i) provides that a court may confirm a plan only if the plan proponent discloses "the identity and affiliations of any individual proposed to serve, after confirmation of the plan, as a director, officer or voting trustee of the debtor . . . or a successor to Murray under the plan."
Bankruptcy Code § 1129(a)(5)(A)(ii) requires that the appointment to, or continuance of a director, officer or voting trustee be "consistent with the best interests of creditors and equity holders and with public policy." In re Produce Hawaii, Inc., 41 B.R. 301, 304 (Bankr. D. Hawaii 1984); In re Parks Lumber Co, Inc., 19 B.R. 285, 291 (Bankr. W.D. La. 1982).
Bankruptcy Code § 1129(a)(5)(B) provides that a Court may confirm a plan only if the plan proponent discloses "the identity of any insider that will be employed or retained by the reorganized debtor, and the nature of any compensation for such insider."
The Plan and Disclosure Statement provide: (i) the identity and affiliations of any individual proposed to serve, after the Effective Date, in a management capacity of the Post-Confirmation Estate. The nature of any compensation for such person is also set forth in the Disclosure Statement.
The Plan therefore complies with § 1129(a)(5).
6. Bankruptcy Code § 1129(a)(6) (Rate Change Approved By Regulatory Commission)
Bankruptcy Code § 1129(a)(6) requires that any regulatory commission having jurisdiction over the rates charged by the reorganized debtor in the operation of its business approve any rate change provided for in the plan. This provision is inapplicable because the Plan does not provide for or contemplate any rate change that would require the approval of any regulatory agency.
7. Bankruptcy Code § 1129(a)(7) (The "Best Interest of Creditors Test")
Bankruptcy Code § 1129(a)(7) requires that a plan be in the best interests of creditors and equity holders. Specifically, § 1129(a)(7) provides:
With respect to each impaired class of claims or interests —
(A) each holder of a claim or interest of such class —
(i) has accepted the plan; or
(ii) will receive or retain under the plan on account of such claim or interest property of a value, as of the effective date of the plan, that is not less than the amount that such holder would so receive or retain if the debtor were liquidated under chapter 7 of this title on such date; or
(B) if § 1111(b)(2) of this title applies to the claims of such class, each holder of a claim of such class will receive or retain under the plan on account of such claim property of a value, as of the effective date of the plan, that is not less than the value of such holder's interest in the estate's interest in the property that secures such claims.
As was set forth in the Disclosure Statement and the liquidation analysis attached thereto, all Persons holding impaired Claims will receive property having a value of at least as much or more under the Plan than in a chapter 7 liquidation. This is logical, as the Plan provides for a liquidation in any event.
In short, Murray believes that the Best Interest Test is easily satisfied as to all Creditors.
8. Bankruptcy Code § 1129(a)(8) (Class Acceptance or Unimpaired)
Subject to the exceptions contained in Bankruptcy Code § 1129(b), Bankruptcy Code § 1129(a)(8) requires that each class of claims or interests must either have accepted the plan or not be impaired under the plan. A class of claims accepts a plan if the holders of at least two-thirds in dollar amount andmore than one-half in the number of claims vote to accept the plan — counting only those claims whose holders actually vote. A class of interests accepts a plan if holders of at least two-thirds of the amount of interests vote to accept the plan, counting only those interests whose holders actually vote.
As set forth in the Ballot Affidavit to be supplied certifying the Ballots accepting and rejecting the Plan, both voting Classes have accepted the Plan.
9. Bankruptcy Code § 1129(a)(9) (Administrative and Priority Claims)
Bankruptcy Code § 1129(a)(9) requires that persons holding claims entitled to priority under § 507(a) of the Bankruptcy Code receive specified cash payments under the plan. Unless the holder of a particular claim agrees to a different treatment with respect to such claim.
In accordance with § 1129(a)(9)(A) of the Bankruptcy Code, the Plan provides for the payment in full on the Effective Date of all Administrative Claims and Priority Tax Claims. The Plan therefore satisfies the requirements of § 1129(a)(9).
10. Bankruptcy Code § 1129(a)(10) (Acceptance by One Impaired Class)
Bankruptcy Code § 1129(a)(10) requires the affirmative acceptance of the Plan by at least one Class of impaired Claims, "determined without including any acceptance of the plan by any insider." Both voting Classes have voted in favor of the Plan. The Plan therefore meets the requirements of § 1129(a)(10).
11. Bankruptcy Code § 1129(a)(11) (Feasibility)
Bankruptcy Code § 1129(a)(11) provides that a court may confirm a plan only if "[c]onfirmation of the plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the debtor or any successor to the debtor under the plan, unless such liquidation or reorganization is proposed in the plan."
As demonstrated in the Callahan Affidavit, Murray can comfortably make the Effective Date payments required under the Plan. Liquidation is contemplated by the Plan. The Plan therefore meets the standards of § 1129(a)(11).
12. Bankruptcy Code § 1129(a)(12) (Fees)
Bankruptcy Code § 1129(a)(12) provides that a court may confirm a plan only if "[a]ll fees payable under § 1930 of Title 28, as determined by the court at the hearing on confirmation of the Plan, have been paid or the plan provides for the payment of all such fees on the effective date of the plan." The Plan defines "Administrative Claim" to include any fees due to the U.S. Trustee under 28 U.S.C. § 1930(a)(6). The Confirmation Order requires that Allowed Administrative Claims will be paid on the Effective Date. The Plan therefore satisfies the requirements of § 1129(a)(12).
13. Bankruptcy Code § 1129(a)(13) (Retiree Benefits)
Bankruptcy Code § 1129(a)(13) provides that a court may confirm a plan only if "[t]he plan provides for the continuation after its effective date of payment of all retiree benefits." Section 1129(a)(13) is inapplicable in this case.
IV THE PLAN OBJECTIONS ARE RESOLVED OR SHOULD BE OVERRULED
Based on the foregoing, Murray responds to the Objections as follows:
A. The Microsoft Objection Will Be Resolved
As indicated above, the Microsoft Objection relates solely to the cure amount necessary to assume the relevant agreements with Microsoft. Microsoft asserts that the correct cure amount is $124,640.68. Murray believes that Microsoft is mistaken and that Microsoft will withdraw its objection. In any event, to the extent that Microsoft and Murray are unable to agree on the correct cure amount, Murray proposes that the confirmation order provide that the agreements in question will be assumed and assigned on the Effective Date with the correct cure amount to be determined at a later date established by the Court. Murray will, of course, reserve an amount agreed upon with Microsoft pending such hearing.
B. The Delta Objection Is Resolved.
As indicated, Delta also objects to the cure amount in respect of the Delta contract in question that is assumed and assigned pursuant to the Plan. The Delta contract was inadvertently included in the Plan as a contract to be assumed and assigned the contract (as well as two others included in the Plan) were previously assumed and assigned pursuant to prior order of the Court. Murray therefore proposes to resolve the Delta Objection by deleting the relevant contract from the Plan Assumption/Assignment Schedule.
C. The Lawrenceburg Objection
The Lawrenceburg Objection is also resolved pursuant to the Modification Motion. Specifically, Lawrenceburg objected to the alternative payment of priority claims over six years that is provided in the Plan. The Modification Motion resolves this objection by removing this alternative payment treatment — Priority Tax Claims will now be paid in cash immediately upon the later of the Effective Date of the Plan or the allowance of such Claims. D. The Evers Objection
Evers holds a mechanics lien on real property owned by the Estate but expected to be foreclosed upon by Tomkins on September 27, 2005. The real property in question is encumbered by indebtedness in favor of Tomkins in an amount which is millions of dollars more than the real property is worth. As such, Evers holds no collateral of any value and the collateral will cease to exist as of September 27, 2005.
The Evers Objection contends that the Plan is vague as to the treatment of "Other Secured Claims". The Plan, however, is clear in providing that holders of Other Secured Claims "shall receive indefeasible payment of the full amount of their Allowed Secured Claim in Cash or the return of the collateral that secured such Claims (at the option of Debtor) on, or as soon as practicable following, the Effective Date." See Plan at IV.A.8. As such, to the extent a surplus does exist following the foreclosure, Evers shall receive that surplus up to the allowed amount of its Other Secured Claim. Murray therefore does not believe that the Evers Objection has merit.
E. The Beebe Objections
As indicated above, the Beebe Objectors have asserted a "kitchen sink" objection. Several of the specific objections contained in the Beebe Objection have already been discussed. Murray's specific response as to each of the objections raised by the Beebe Objectors is as follows:
1. The Plan Does Not Artificially Impair Class 1
Initially, the Beebe Objectors assert that the Plan creates an "artificial impairment" of Class 1 intended to create an affirmative class. As discussed above at p. 22, supra, this is not the case, given that the holders of over 99% of voting Class 10 General Unsecured Claims voted in favor of the Plan, the notion that Murray has attempted to "artificially impair" Class 1 in order to create an affirmative voting class is absurd.
2. The Plan Does Not Violate Bankruptcy Code §§ 1129(a)(1) and 1122(a)
Next, as previously discussed, the Beebe Objectors assert that the Plan violates Bankruptcy Code §§ 1129(a)(1) and 1122(a) because it places unsecured personal injury claims and the claims of insurance carriers in the same class as other unsecured claims. The Beebe Objectors assert that the Bankruptcy Coderequires that Murray separately classify from other General Unsecured Claims (i) claims that might benefit from insurance coverage, and (ii) possible reimbursement claims of Murray's insurance carriers. See, e.g., Beebe Objection at p. 3. As discussed above (see discussion at p. 9, supra.), (a) the Beebe Objectors do not cite a single case which has required a plan proponent to establish such a separate classification of personal injury claims (or the claims of insurance carriers) and (b) the case law is rather overwhelming that unsecured claims should generally be classified together. As also discussed above, from Murray's perspective, unsecured personal injury claims and the unsecured claims of Murray's insurance carriers are indistinguishable from any other unsecured trade or litigation claim. The fact that the holder of a claim might have redress against a third party is simply irrelevant. The fact that the holder of a claim might be an insurance company is also irrelevant. As such, there is simply no legal basis for the Beebe Objectors' demand that claims that might be covered by insurance and the claims of insurance carriers be classified separately from other Class 10 General Unsecured Claims.
3. The Plan Was Proposed in Good Faith
The Beebe Objectors next assert that Murray did not propose the Plan in good faith because (a) "the voice of personal injury claimants has been systematically distorted, if not silenced in this case" and (b) the Plan allegedly provides "no adequate mechanism, procedure or other means for resolving disputed, contingent and unliquidated claims." The Beebe Objectors' "good faith" objection is frivolous on both counts.
a. Murray has not attempted to "systematically distort" or improperly "silence" personal injury claims.
Initially, Murray has proposed a plan with the full consent, cooperation and input of its Committee. Holders of in excess of 99% of voting General Unsecured Claims support the Plan. All of the Plan structures concerning the liquidation of disputed and contingent claims were negotiated with the Committee and, to a large extent, represent the wishes and desires of the Committee charged with representing all holders of unsecured claims. The Beebe Objectors hold claims in the face amount of $5.4 million. Even in the universe of filed personal injury claims against Murray (in excess of $70 million), the Beebe Objectors hold an almost trivial amount of the claims against Murray. No other holder of a personal injury claim has even filed an objection to the Plan, let alone alleged that Murray has attempted to "silence" them.
In short, Murray has done nothing other than to simply follow the dictates of the Bankruptcy Code in attempting to liquidate its assets and distribute available funds within the priorities set forth in the Bankruptcy Code, all with the cooperation and support of the Committee. Murray therefore puts the Beebe Objectors to their proof as to what Murray has done to "systematically distort if not silence" them.
b. The Plan Provides Adequate Means of Implementation
As indicated, the Beebe Objectors also assert that the Plan is not proposed in good faith because it allegedly lacks "adequate means for implementation" concerning personal injury claims. This objection is again meritless — the Beebe Objectors appear to confuse the concept of "adequacy" with what they would unilaterally prefer. Specifically, the Plan provides at Article XI that, following the Effective Date, "the Liquidating Agent shall have the authority to pursue, and be responsible for pursuing, any objection to the allowance of any Claim. . . ."See Plan at Article XI.A. The Plan further provides that any such objection to claim must be filed within 365 days following the Effective Date. See id. at § XI.C. The Plan further requires the Liquidating Agent to maintain reserves in respect of disputed claims while claim objections are pending (see discussion at page 12, supra.) and provides that, once a disputed claim is allowed, distribution shall be made in respect of such claim (see id.). The Plan also provides (at the request of the Beebe Objectors) that all litigation rights of holders of claims covered by insurance may sue such carriers directly and may name Murray as a nominal defendant to the extent required by non-applicable bankruptcy law (the "Direct Suit Provision"). See id. at § X.M.
Murray incorporated the Direct Suit Provision in the August 4 version of the Plan (although it had no legal obligation to do so) in an attempt to cooperate with the Beebe Objectors (who now allege ominously that Murray has attempted to "silence" them). Even absent the Direct Suit Provision, however, Murray respectfully submits that the Plan provisions concerning disputed claims are more than adequate and, in fact, rather standard. Again, the holders of over 98% of the filed claims in this case would seem to agree — the Beebe Objectors stand alone in their contention that the Plan is "inadequate."
The Beebe Objectors assert that the Plan must be amended to include provisions that the Beebe Objectors believe will allow them to liquidate their claims "within a reasonable time". Beebe Objection at p. 4. When one gets past the rhetoric of the Beebe Objection, the objection amounts to nothing more than an argument that Murray must agree in its Plan to a series of demands by the Beebe Objectors designed to assist the Beebe Objectors in litigating with Murray's insurance carriers. This alleged "inadequacy" is specious — the Bankruptcy Code does not include as a confirmation requirement that a plan proponent must incorporate into its plan a set of one-size-fits-all claim litigation procedures unilaterally satisfactory to three personal injury claimants. Murray expects that many personal injury claimants will simply resolve their claims consensually. If the Beebe Objectors elect to litigate their Claims, they are free to follow the appropriate litigation procedures in accordance with applicable law.
In sum, the Plan provides adequate means for implementation. Those means of implementation are standard, are consistent with the Bankruptcy Code and are supported by almost every creditor in this case. These means of implementation are not rendered "inadequate" simply because the Beebe Objectors would prefer something different.
4. The Plan Does Not Impermissibly Provide for a Discharge Injunction.
Next, the Beebe Objectors assert that the Plan violates the Bankruptcy Code (and Bankruptcy Code § 1141(d)(3)) because Murray is liquidating, but the Plan allegedly provides for a § 1141(d)(3) discharge of Murray. This objection is also meritless, because the Plan nowhere provides Murray with a discharge. The Beebe Objectors cite to no specific provision of the Plan which purports to grant Murray a § 1141(d)(3) discharge. The word "discharge" is used in the Plan twice, but only in the generic sense of Murray being "released." (The Plan provides, for example, that any unfiled and untimely administrative claims will be deemed disallowed and "discharged" and that Murray's responsibility under extinguished securities are "discharged". Such use of the word "discharge" at two places in the Plan does not amount to a § 1141(d)(3) discharge.) In any event, so as not to offend the sensibilities of the Beebe Objectors, the Modification Motion deletes the word "discharge" where it is used.
The Beebe Objectors also assert that Plan sections XII.A and XII.C violate § 1141(d)(3). Beebe Objection at pp. 6-7. Section XII.A, however, is a release of indemnified officers of Murray in respect of claims that Murray might hold against them. Section XII.A therefore cannot in any respect be viewed as an impermissible discharge of a liquidating debtor.
Confusingly, the Beebe Objectors assert that, "as it is impossible to grant Murray a discharge in this case, any such discharge a fortiori may not extend to any of the third party Releasees listed in the Section XII.A provisions." Id. This argument attempts to compare apples to oranges. Whether or not Murray is entitled to a § 1141(d)(3) discharge has nothing whatsoever to do with whether the Plan appropriately includes releases of certain officers and directors from any potential liability to the estate. Those releases (on any estate claims, as opposed to by creditor claims), were specifically negotiated with the Committee as consideration for the efforts of the Releasees in working towards confirmation of the Plan and are again rather standard. The estate, in consultation with the Committee, has every right to release its own claims against its officers and directors. See, e.g., PWS Holding Corp., 228 F.3d 224, 235 (3d Cir. 2000); Debtors v. Walton (In re United Artist Theater Co.), 315 F.3d 217, 227 (3d Cir. 2003); Class 5 Nevada Claimants v. Dow Corning Corp. (In re Dow Corning Corp.), 280 F.3d 648, 656-57 (6th Cir. 2001) (permitting third party injunctions); Monarch Life Insurance Co. v. Ropes Gray, 65 F.3d 973 (1st Cir. 1995); In re Drexel Burnham Lambert Group, Inc., 960 F.2d 285, 293 (2d Cir. 1992) (Bankruptcy Court has jurisdiction to approve release of identified non-debtor third parties in plan); Republic Supply Co. v. Shoaf, 185 F.2d 1046, 1050 (5th Cir. 1987). Whether Murray itself is entitled to a § 1141(d)(3) discharge is irrelevant to that analysis.
Finally on the discharge issue, the Beebe Objectors assert that the injunction against filing suit against the Section XII.C Releasees must also fail because (a) the Section XII.A releases must fail, and (b) Bankruptcy Code § 524 only permits a discharge injunction concerning the debtor. See Beebe Objection at p. 7. As discussed above, however, the Section XII.A releases are proper and the injunction in question is not a discharge injunction — it is an injunction supporting the plan releases which simply enjoins third parties from asserting the estate's released claims against such parties. The Beebe Objectors' attack on Section XII.C therefore is also meritless.
5. A Plan Proponent Is Not Required To Expressly Provide That Disputed Claims Will Be Reserved At Face Amount Under All Circumstances.
The Beebe Objectors next argue that the Plan is not confirmable because it does not expressly provide that the Liquidating Agent will maintain reserves in full face amount of disputed claims until such claims are finally resolved. As discussed above, however, the Bankruptcy Code contains no such requirement. The Liquidating Agent must have flexibility to, for example, maintain reserves at amounts consistent with his judgment in respect of expected recoveries. (If this was not the case, a party could file an absurd $1 billion claim the day after the Plan is confirmed, take every possible appeal of such claim after it is disallowed, and stymie essentially any distribution of any funds to any other creditor for years.) Again, the Plan language concerning reserves for disputed claims was specifically negotiated by the Creditors' Committee and is fully protective of the holders of unsecured claims. This objection therefore is also without merit.
6. The Plan Does Not Impermissibly Attempt to Extinguish Setoff Rights
Finally, the Beebe Objectors assert that the Plan impermissibly attempts to eliminate setoff rights that a party may have under the law against a claim asserted by Murray. Beebe Objection at p. 7. The Plan, however, has no such provision. The Beebe Objectors assert that the Plan "could be read" to extinguish such rights because the Plan is "silent" on the issue. Id. at p. 8. The Beebe Objectors again assert no precedent for the contention that set-off rights available under applicable law can be eviscerated through Plan silence on the issue. This objection is therefore again without merit.
V CONCLUSION
Accordingly, Murray respectfully submits that the Plan should be confirmed.