Polite Enterprises Corporation PTY Ltd v. North American Safety Products Inc

Filing 55

MEMORANDUM Opinion and Order signed by the Honorable Edmond E. Chang. For the reasons stated in the Opinion, the judgment of the bankruptcy court is affirmed. Status hearing of 02/06/2014 is vacated. Civil case terminated Mailed notice(slb, )

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
POLITE ENTERPRISES CORPORATION
PTY LTD.,
Appellant-Creditor,
v.
NORTH AMERICAN SAFETY
PRODUCTS, INC.
Appellee-Debtor.

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No. 1:13-cv-01089

Judge Edmond E. Chang

MEMORANDUM OPINION AND ORDER
Creditor Polite Enterprises appeals from the bankruptcy court’s order
confirming North American Safety Products’s Chapter 11 reorganization plan. For
the reasons discussed below, the bankruptcy court’s order is affirmed.1
I. Background
The debtor in this case, North American Safety Products, designs,
manufactures, and sells safety products to industrial users. R. 21-2, Am. Disclosure
Statement at 9. Between 2008 and 2010, North American lost two lawsuits,
resulting in substantial judgments against the company. Id. The first was in 2008,
when Polite Enterprises Corporation prevailed against North American in a patent

The Court has jurisdiction over this bankruptcy appeal under 28 U.S.C. § 158(a)(1).
Citation to this Court’s docket is noted as “R. [docket entry number].” Because the Bates
numbering is inconsistent and at times illegible, page numbers correspond to pagination of
the .pdf in the CM/ECF entry, rather than to internal pagination within a particular
document.When possible, descriptions of the docket entries are included after the docket
number.

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infringement suit, which ended in a $325,638.83 award against North American. Id.
Two years later, Janelle Gedmin, a former North American employee, prevailed
against the company in an employment discrimination suit; the judgment in that
case was $290.742.14. Id. Pursuant to an installment-payment agreement between
Gedmin and North American, the total balance owed Gedmin is $340,742.14. Id.
Unable to satisfy the $665,000 in judgment debts, which were beyond the
debts generated in the ordinary course of business, North American filed for
voluntary relief under Chapter 11 of the Bankruptcy Code in January 2012. Id. at
10. Polite did not file a timely proof of claim, and the case proceeded without it. R. 15 at 47. North American filed its original reorganization plan and disclosure
statement in June 2012. Id. The plan identified one secured creditor, First Midwest
Bank (FMB), and six classes of unsecured claims: general unsecured claims (Class
2); the Gedmin judgment (Class 3); a convenience class of claims under $500 (Class
4a); a convenience class of claims between $501 and $1,000 (Class 4b); insider loans
(Class 5); and equity interests (Class 6). R. 1-3, Bankruptcy Record on Appeal at 62.
Under the proposed plan, FMB would be repaid in full in monthly
installments which would continue beyond the term of the plan. Id. at 63. With the
exception of the convenience classes, unsecured creditors would receive 20% of their
claims in ten quarterly installments. Id. at 62-63. Class 4a creditors would be paid
in full on the initial distribution date. Id. at 63. Class 4b creditors could choose to
receive a 20% distribution or to reduce their claims to $500 and receive payment
with Class 4a. Id. at 64.

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North American’s disclosure statement disclosed its insiders as follows:
President Martin Mobeck and his wife jointly held 85% of the company’s shares; Mr.
Mobeck held an additional 13.5% in his own name; Nicole Pfeiffer (Mr. Mobeck’s
daughter) and Sylvia Smusziewicz each held 1%; and Janelle Wozniak held 0.50%.
Id. at 77. Under the proposed plan, existing shares would be cancelled and new
equity in North American would be sold at auction. Id. at 64. In the absence of
outside bids, the plan provided that Nicole Pfeiffer (who had assumed management
responsibilities after her father suffered a stroke) and her husband James would
acquire 100% of North American’s equity for $35,000 in new value. Id.; R. 19,
Appellee Br. at 3.
In August 2012, Polite filed a motion to extend the time to file its proof of
claim and objections to the proposed plan and disclosure statement. R. 1-3 at 4. By
this time, three of the impaired, non-insider classes had voted to accept the plan,
and notice of the auction had been published in the Chicago Sun Times. Appellee
Br., Exh. 3 at 1; R. 1-7 at 36. The addition of Polite’s claim, however, required
amendment to North American’s reorganization plan. North American filed an
amended plan and disclosure statement in September 2012.
The amended plan added Polite as a new Class 7 and prescribed the same
treatment as for the unsecured creditors: 20% repayment over fourteen
installments, instead of the original ten. R. 1-8, Am. Reorganization Plan at 14. The
plan retained the sale and auction procedures outlined in its predecessor,
establishing again the Pfeiffers’ $35,000 bid as the default sale in the absence of

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outside bidders. Id. at 14-15. A second notice of sale was published in the Chicago
Sun Times on August 8, 2012. R. 26-6 at 2. The bankruptcy court notified all
creditors and parties in interest of the impending sale and bidding procedures. R.
21-5 at 11. Ultimately, no bids were submitted outside of the Pfeiffers’. Appellant
Br. at 10.
Though the exclusivity period had passed, no creditor submitted a competing
plan. Appellee Br. at 4. In the second round of voting, the same three non-insider
classes accepted the amended plan, that is, Class 2 (general unsecured claims) and
Classes 4a and 4b (the two convenience classes). R. 26-7 at 1. Polite, as the sole
member of Class 7, rejected the plan and renewed its objections. R. 21-8, Appellant
Br., Exh. 8 at 2. In light of Polite’s rejection, North American sought so-called
“cramdown” confirmation of its plan pursuant to Section 1129(b) of the Bankruptcy
Code.2
The bankruptcy court held a confirmation hearing in December 2012, during
which the court considered Polite’s objections to the amended disclosure statement
and reorganization plan.3 R. 21-5 at 2. The objections relevant to this appeal allege
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“Generally, a bankruptcy court may confirm a Chapter 11 plan only if each class of
creditors affected by the plan consents. Section 1129(b) creates an exception to that
general rule, permitting confirmation of nonconsensual plans—commonly known as
‘cramdown’ plans—if ‘the plan does not discriminate unfairly, and is fair and
equitable, with respect to each class of claims or interests that is impaired under,
and has not accepted, the plan.’”

RadLAX Gateway Hotel, LLC v. Amalgamated Bank., 132 S. Ct. 2065, 2069 (2012) (internal
citation omitted).
All references to the “disclosure statement” and “reorganization plan” in the remainder of
this Order refer to the amended disclosure statement and amended reorganization plan, as
only those documents are at issue in this appeal.
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(1) North American’s disclosure statement was inadequate; (2) North American
improperly classified its unsecured creditors to ensure creation of a consenting,
impaired class; (3) the proposed auction violates the absolute priority rule; and (4)
the proposed plan is not feasible. R. 1-10 (Polite Objections) at 39–44. Overruling
North American’s objections, the bankruptcy court concluded “the creation of a
convenience class is an appropriate division of the unsecured debt, and . . . the
auction is an appropriate method for maximizing the value of the right to possess
property of the debtor in response to the absolute priority rule.” R. 21-5
(Confirmation Hearing Tr.) at 135. On December 18, 2012, the bankruptcy court
entered an order approving the disclosure statement and confirming the
reorganization plan. On appeal, Polite renews the objections described above.
II. Standard of Review
A federal district court has jurisdiction, pursuant to 28 U.S.C. § 158(a), to
hear appeals from the rulings of a bankruptcy court. On appeal, the district court
reviews the factual findings of the bankruptcy court for clear error and reviews the
bankruptcy court’s legal findings de novo. Wiese v. Cmty. Bank of Cent. Wis., 552
F.3d 584, 588 (7th Cir. 2009). Decisions left to the discretion of the bankruptcy
court, however, are reviewed “only for an abuse of discretion.” Id.

This is an

exacting standard: “a court abuses its discretion when its decision is premised on an
incorrect legal principle or a clearly erroneous factual finding, or when the record
contains no evidence on which the court rationally could have relied.” Corporate
Assets, Inc. v. Paloian, 368 F.3d 761, 767 (7th Cir. 2004).

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III. Analysis
On appeal, Polite contends that the bankruptcy court erred by confirming
North American’s reorganization plan and disclosure statement. Specifically, Polite
argues that (1) the disclosure statement provided inadequate information to satisfy
the purposes of § 1125 of the Bankruptcy Code; (2) the plan violated §§ 1122(a) and
1129(a)(1) by artificially creating an impaired consenting class; (3) the plan’s
improper creation of the convenience classes, Class 4a and Class 4b, violated
§§ 1122(b) and 1129(1) of the Bankruptcy Code; (4) the plan did not satisfy the “fair
and equitable” requirement of cramdown confirmation, in part, because it violated
the absolute priority rule; and (5) North American did not adequately demonstrate
the plan’s feasibility under § 1129(a)(11). Each issue is addressed in turn below.
A. Adequacy of Disclosure Statement
Polite first argues that North American’s disclosure statement failed to
satisfy the purposes of § 1125 and Local Rule 3016-1 because it did not provide
adequate information for creditors to make an informed decision about the
reorganization plan. Polite identifies what it believes are three problems with the
disclosure’s adequacy, starting with the lack of financial information for the year
2011. There is a Local Bankruptcy Rule for the Northern District of Illinois that
generally addresses the required information for a Chapter 11 debtor. Local Rule
3016-1 requires Chapter 11 debtors to submit consolidated annual financial
statements covering “at least one fiscal year prior to bankruptcy filing.” U.S. Bankr.
Ct. Rules N.D. Ill., Rule 3016-1(2)(c). In its disclosure statement, North American

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submitted tax returns for 2009 and 2010, in addition to copies of monthly operating
reports for 2012. Because North American did not submit financial information for
2011, Polite contends the disclosure statement “essentially” failed to comply with
the applicable rule.4 Appellant’s Br. at 13.
But the text of Local Rule 3016-1 mandates disclosure of statements covering
“at least one fiscal year prior to bankruptcy filing”; it does not mandate disclosure of
the fiscal year immediately preceding bankruptcy filing. To be sure, disclosure of an
entity’s most recent financial statements might be most helpful to creditors in
evaluating a reorganization plan, but failure to do so does not amount to a per se
violation of Local Rule 3016-1. This is especially so when an entity files for
bankruptcy in January of a particular year, before its financial statements for the
prior year are likely to be available or finalized. So Local Rule 3016-1 does not
straitjacket debtors (and bankruptcy judges) into mandated disclosure of the
immediately preceding fiscal year’s statements.
Two other points bear mentioning, because they make it even more difficult
to characterize the bankruptcy court’s decision as clearly wrong. First, Polite had an
opportunity to request, via a motion before filing objections, additional financial
documents, see FED. R. BANKR. P. 2004, but Polite did not so. Second, in its response
to Polite’s objections, North American offered to supplement its financial disclosures
if the bankruptcy court asked for a supplement. R. 21-10, North American Response
North American contends Polite failed to raise this issue before the bankruptcy court and
it is thus waived. But in its amended objection to North American’s disclosure statement,
Polite did state that “there is no information whatsoever concerning the results of
operations in calendar year 2011.” R. 21-7, Polite Amended Objection at 150, ¶15.
Accordingly, Polite properly preserved this issue for appeal.

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at 190 ¶ 17. But the bankruptcy court approved the disclosure statement without
requiring any supplementation, R. 21-1, App’x Appellant Br., Exh. 1 at 3, and that
was not clear error because North American did provide financial data for the two
years before filing for bankruptcy and for the available months in 2012.
Polite’s second argument on the disclosure’s adequacy is that, according to
Polite, North American’s liquidation analysis inadequately accounted for the steep
drop in the valuation of inventory from 2010 to 2012. Specifically, North American’s
2010 tax return valued inventory at $426,568, while a September 2012 operating
report valued inventory at $19,000. But North American did adequately address
this issue in its response to Polite’s objections. North American explained that the
age of its equipment (eight to nine years old) justified valuation at liquidation value
rather than resale value. R. 1-11, North American Response at 189. In addition,
North American explained that it had changed its business model, in the hopes of
minimizing costs, to reduce inventory on hand and fulfill orders on an as-needed
basis. Id. The bankruptcy court thus did not clearly err in denying Polite’s objection
on this ground.
Finally, Polite challenges the disclosure statement’s treatment of FMB’s
secured claim. Per the terms of a promissory note, FMB held a fully secured claim
in the amount of $94,835, set to mature on August 17, 2014. The disclosure
statement prescribed the following treatment of FMB’s claim (Class 1):
Upon confirmation of the Plan, Debtor shall continue to pay monthly
installment payments to [FMB] in accordance with the terms of the prepetition agreements between the parties which will continue beyond the term

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of the Plan. . . . Upon payment in full of all payments required by the prepetition agreements . . ., [FMB] shall release their liens.
R. 21-2, Disclosure Statement at 19.
Polite reads this language as evidence of an undisclosed side agreement
between North American and FMB, which would render it “impossible for creditors
to judge the feasibility of what is proposed to FMB as the holder of the Class 1
claim.” Appellant Br. at 14. Polite so concludes because the plan’s treatment of
FMB’s claim differs from that outlined in the promissory note, and any enforceable
loan modification between the parties would need to be in writing. As North
American suggests, however, the reorganization plan itself serves as a written
modification. And the most natural reading of the plan’s treatment of FMB is that
North American’s installment payments to FMB, in satisfaction of the party’s prepetition agreement, will “continue beyond the term of the Plan” until North
American’s debt is paid in full, at which point FMB will release its lien. R. 21-2,
App’x Appellant Br., Exh. 2 at 19. Properly interpreted, there is no hint of an
undisclosed side agreement. Polite’s objection on this ground was properly
overruled.5

Polite also argues the plan improperly characterized FMB (Class 1) as an unimpaired
class, which is not entitled to vote, when really (according to Polite), FMB’s debt was
impaired. See In re Block Shim Dev. Co.-Irving, 118 B.R. 450, 455 (N.D. Tex. 1990) (“A
change in maturity date is an impairment within the meaning of the Code.”). But Polite
fails to explain why reclassification of Class 1 as an impaired class would affect the
adequacy of the information provided in the disclosure statement or the overall feasibility of
North American’s reorganization plan.
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B. Classification of Unsecured Claims
Before a plan is eligible for cramdown confirmation, the Bankruptcy Code
requires it to obtain acceptance by at least one impaired class of creditors. 11 U.S.C.
§ 1129(a)(10). Within an impaired class, approval requires an affirmative vote by
creditors holding at least two-thirds in dollar amount and more than one-half in
number of the class’s claims. 11 U.S.C. § 1126(c). Polite argues that North American
anticipated rejection of the plan by Polite and Gedmin, so North American hatched
a plot to divide unsecured claims into three classes in order to guarantee the
existence of one impaired, consenting class. Polite’s argument is premised on the
notion that if Class 2 (general unsecured claims), Class 3 (the Gedmin judgment),
and Class 7 (the Polite judgment) had been combined into one class of general,
unsecured claims, under § 1126, Polite would have sufficiently controlled the class
to reject the plan. R. 21-5, Confirmation Hearing Tr. at 5.
This argument is made, however, against the backdrop of the considerable
discretion that Chapter 11 debtors are generally afforded in classifying claims
under a reorganization plan. In re Woodbrook Assocs., 19 F.3d 312, 317 (7th Cir.
1994). It is true that the Seventh Circuit has cautioned that “[s]ome limits are
necessary to offset a debtor's incentive to manipulate a classification scheme and
ensure the affirmative vote of at least one impaired class.” Id. Thus, where similar
claims are separately classified, courts must examine the reasons behind a debtor’s
classification scheme.6 Id.; see also In re Greystone III Joint Venture, 995 F.2d 1274,

The Bankruptcy Code provides that “a plan may place a claim or an interest in a
particular class only if such claim or interest is substantially similar to the other claims or
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1278 (5th Cir. 1991) (rejecting separate classification of creditors as a
gerrymandered plan where the creditors were treated identically). But the only
evidence Polite offers to support an inference of improper reason is the plan’s
identical treatment of Classes 2, 3, and 7. Without more, Polite’s argument fails in
this case.
The Seventh Circuit recognizes a number of valid justifications for classifying
similar claims separately: (1) “if significant disparities exist between the legal
rights of the [claimholders] which render the two claims not substantially similar;”
(2) “if there are good business reasons to do so;” or (3) “if the claimants have
sufficiently different interests in the plan.” In re Wabash Valley Power Ass’n, 72
F.3d 1305, 1321 (7th Cir. 1995) (internal quotations omitted), abrogated on other
grounds by In re Castleton Plaza, LP, 707 F.3d 821 (7th Cir. 2013). In Wabash, the
Seventh Circuit upheld separate classification of unsecured claims where a class of
trade creditors’ “ongoing business relationship” with the debtor rendered its stake
in the reorganization sufficiently different from other creditors’. Id. at 1321. Just so
here. Class 2 consists primarily of trade creditors who continue to do business with
North American. Classes 3 and 7, by contrast, are composed of claimholders with no
future relation to North American. Because Class 2 has a markedly different
interest in North American’s reorganization and continued business, both “good

interests of such class.” 11 U.S.C. § 1122(a). Although this language speaks only to the
inclusion of claims within a class, the Seventh Circuit and other courts have recognized a
corollary principle (sometimes referred to as the “one clear rule”) forbidding the separate
classification of similar claims for the purposes of gerrymandering an affirmative vote.
Woodbrook, 19 F.3d at 317; see also In re Greystone III Joint Venture, 995 F.2d 1274, 1278–
79 (5th Cir. 1991).

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business reasons” and “sufficiently different [class] interests” support the plan’s
classification structure.
An additional aspect of Polite’s objection bears discussion. It is true that the
plan treated Class 2 the same as Classes 3 and 7 for purposes of payment. And it is
also true that prescribing different treatment for Class 2 would presumably have
strengthened the credibility of North American’s classification scheme under the
Seventh Circuit’s caselaw construing § 1122(a) of the Bankruptcy Code. See
Greystone, 995 F.2d at 1278. Section 1129(b)(1), however, conditions cramdown
confirmation only on a bankruptcy court’s determination that a proposed
reorganization plan “does not discriminate unfairly . . . with respect to each class of
claims or interests that is impaired under, and has not accepted the plan.” 11 U.S.C.
§ 1129(b)(1). Neither section’s statutory text requires classes to be divided up
according to the treatment of claims, so to hold that identical payment treatment is
conclusive evidence of improper gerrymandering would be to add to the statute.
What’s more, such a holding might encourage debtors to propose different treatment
of classes to avoid the gerrymandering accusation, even when disparate treatment
could hamper confirmation (or the plan’s success) on other grounds. For these
reasons, the Court concludes that the plan’s separate classification of Class 2 was
within North American’s “considerable discretion.” See Woodbrook, 19 F.3d at 317.
As a final note on the classification argument, it is true that the plan’s
distinction between Classes 3 and 7 is less defensible: each class represents a single
claim resulting from a judgment against North American, to be repaid identically,

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to a party with no ongoing relationship to the debtor. But because Class 2 properly
provided the plan with an impaired, consenting class, Polite’s arguments on this
point cannot change the outcome of the appeal, and there is no need to definitively
decide it.7
C. Convenience Classes
Advancing another variation of the improper-classification argument, Polite
challenges the necessity and propriety of Class 4a and Class 4b under the
reorganization plan. The Bankruptcy Code allows a plan to “designate a separate
class of claims consisting only of every unsecured claim that is less than or reduced
to an amount that the court approves as reasonable and necessary for
administrative convenience.” 11 U.S.C. § 1122(b). Class 4a consists of thirteen
claims under $500 each, owed a total of $2,445, to be paid in full on the initial
distribution date. Appellant’s Br. at 20. Class 4b consists of six claims between $501
and $1,000, owed a total of $4,663.71. Id. Class 4b claimholders could choose to
reduce their claims to $500 and receive payment in full with Class 4a. Id. In total,
North American’s convenience classes accounted for nineteen of its thirty-two
unsecured creditors. Id.
Polite contends creation of the convenience classes was not reasonable or
necessary because their claims were too few in number and amount to justify their
creation. The alternative, however—absorbing these claims into Class 2 with the
The bankruptcy court overruled Polite’s improper-classification objection on similar
grounds: concluding that the convenience classes (Classes 4a and 4b) had to be separately
classified, the court determined that Polite’s objection on this ground is also unnecessary to
resolve, in light of the proper classification of Class 2. R. 21-5, Confirmation Hearing Tr. at
4–7.

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other unsecured creditors—would require North American to compute, issue, and
track fourteen quarterly distributions to each creditor for a maximum of $7.14 each.
R. 1-8 at 33. More importantly, the nineteen creditors comprising Classes 4a and 4b
benefitted significantly from the plan by receiving a lump sum payment rather than
reduced distributions spread out over time. For these reasons, there was adequate
justification supporting North American’s creation of the convenience classes.
Polite has an alternative argument: even if the convenience classes were
legitimately created, their impairments were fabricated to manufacture impaired,
consenting classes. With regard to Class 4a, payment in full, plus interest, on the
plan’s effective date would have rendered the class unimpaired. Instead, the plan
offered payment in full, without interest, on the plan’s initial distribution date (30
days after the effective date). With respect to Class 4b, Polite contends that North
American should have been in a position to pay Class 4b’s claimants in full. North
American argues it was not in a financial position to have unimpaired either class.
In light of the Court’s holding, discussed above, that Class 2 (the trade
creditors) was properly classified on its own, the impairment-versus-unimpairment
of the convenience classes does not matter for this appeal. In any event, in the
bankruptcy court, Polite raised this argument for the first time in its reply brief,
which is too late. R. 1-11, Polite Reply Br. at 32-33. At the confirmation hearing, the
bankruptcy court did not rule explicitly on the issue of impairment, but ultimately
concluded “the creation of [a] convenience class is an appropriate division of the
unsecured debt.” R. 21-5, Confirmation Hearing Tr. at 21. Whether North American

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was in a financial position to satisfy its debts to Classes 4a and 4b immediately, and
whether those classes’ claims were impaired, are factual determinations reviewed
only for clear error. Wabash, 72 F.3d at 1321. Polite’s failure to offer sufficient
evidence—or, in fact, any evidence—to suggest the bankruptcy court clearly erred
on this issue constitutes alternative grounds for affirmance.
D. “Fair and Equitable” Requirement
Polite next argues that the plan fails to meet the “fair and equitable”
requirement for cramdown confirmation. As discussed above, the Bankruptcy Code
permits confirmation of a plan only if it “does not discriminate unfairly, and is fair
and equitable, with respect to each class of claims or interests that is impaired
under, and has not accepted, the plan.” 11 U.S.C. § 1129(b)(1). A subset of this
requirement, referred to as the “absolute priority rule,” mandates that “the holder
of any claim . . . junior to the claims of such class will not receive or retain [any
property] under the plan on account of such junior claim.” 11 U.S.C. §
1129(b)(2)(B)(ii); see also Bank of Am. Nat’l Trust & Sav. Ass’n v. 203 N. LaSalle St.
P’ship, 526 U.S. 434, 442 (1999). In other words, “[c]reditors in bankruptcy are
entitled to full payment before equity investors can receive anything.” In re
Castleton Plaza, LP, 707 F.3d 821, 821 (7th Cir. 2013).
Courts have recognized an exception to the absolute priority rule where a
pre-bankruptcy equity investor invests new capital in exchange for equity in the
reorganized debtor. See 203 N. LaSalle, 526 U.S. at 442. This “new value exception”
posits that an investor of new capital is not receiving or retaining an interest “on

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account of” his prior equitable ownership in the debtor. Id. Instead, the investor
gets equity in exchange for the new capital. The Supreme Court considered the new
value exception in 203 North LaSalle. There, a plan offered pre-bankruptcy
partners the exclusive right to contribute new capital to retain ownership in the
reorganized debtor. Id. at 438. The Court rejected the plan not because the prior
owners were given an opportunity to reinvest, but because they were given the
exclusive right to do so. Id. at 454. The plan was doomed, the Court said, “by its
provision for vesting equity in the reorganized business in the Debtor’s partners
without extending an opportunity to anyone else either to compete for that equity or
to propose a competing reorganization plan.” Id.
Because North American’s plan provided for both forms of competition
outlined in LaSalle—an open auction and termination of the exclusivity period,
allowing anyone to submit a competing reorganization plan—the bankruptcy court
overruled Polite’s absolute priority objection. R. 21-5, Confirmation Hearing Tr. at
19–21. The Court agrees. Polite argues that North American’s auction procedures
were merely a “facial attempt” to comply with the post-LaSalle new-value standard.
In support, it outlines additional steps North American could have taken to
maximize the auction’s competitiveness: for example, hiring an outside consultant
to drum up potential bidders or circulating an informational packet. As the
bankruptcy court noted, however, neither LaSalle nor its Seventh Circuit progeny
dictate any particular set of procedures for inviting competition. Here, North
American twice published notice of the sale in the Chicago Sun Times (once for its

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original plan and once for its amended plan). All creditors were notified of the
auction and invited to recruit outside bidders or to bid on the reorganized equity
themselves. And by the time Polite had filed its claim, the exclusivity period had
run, giving Polite the opportunity to submit a competing plan. If Polite deemed the
Pfeiffers’ bid inadequate, it could have submitted a more favorable reorganization
plan or acquired the new equity in North American itself for the $35,000 asking
price—around one-tenth of its claim. Polite did neither. The bankruptcy court’s
finding that North American satisfied the absolute priority rule was not clearly
erroneous. For the same reasons, Polite’s objections under § 1122(b)(1)’s broader
“fair and equitable” requirement are without merit.
E. Feasibility
Next, Polite argues that the plan failed to satisfy the feasibility requirement
of § 1129(a)(11), requiring a determination that “[c]onfirmation of the plan is not
likely to be followed by the liquidation, or the need for further financial
reorganization, of the debtor . . . .” “In determining that the plan was feasible, the
bankruptcy court need not find that it is guaranteed to succeed; [o]nly a reasonable
assurance of commercial viability is required.” In re 203 N. LaSalle St. P’ship, 126
F.3d 955, 960 (7th Cir. 1997) (internal quotation omitted, alteration in original),
rev’d on other grounds, 526 U.S. 434 (1999). The feasibility of a plan is a finding of
fact reviewed for clear error. See In re Paige, 685 F.3d 1160, 1188–89 (10th Cir.
2012); In re Lewis, 459 B.R. 281, 290 (N.D. Ill. 2011).

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Polite’s primary contention is that FMB’s promissory note includes a balloon
payment due on August 17, 2014, which is not provided for in North American’s pro
forma. As discussed above, the plan supersedes the promissory note, rendering any
prior arrangement for a balloon payment to FMB irrelevant to the plan’s feasibility.
Polite also revives its arguments regarding the inadequacy of North American’s
financial disclosures. Without reference to the detailed pro forma North American
attached to its disclosure statement, Polite conclusorily argues the bankruptcy court
could not have found North American’s disclosures adequate. The Court disagrees.
North American’s failure to provide historical data in Polite’s preferred format does
not render the bankruptcy court’s forward-looking feasibility determination clearly
erroneous.
F. Satisfaction of §§ 1129(a)(1), (2), and (3)
On the whole, Polite argues that the all of the alleged inadequacies discussed
above render clearly erroneous the bankruptcy court’s findings that the plan and
disclosure statement satisfied the general requirements of §§ 1129(a)(1), (2), and (3)
of the Code. Section 1129(a) allows a court to confirm a plan only if the following
requirements are met:
(1) The plan complies with the applicable provisions of this title.
(2) The proponent of the plan complies with the applicable provisions of this
title.
(3) The plan has been proposed in good faith and not by any means forbidden
by law.

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11 U.S.C. §§ 1129(a)(1)–(3). But apart from the specific arguments discussed earlier
in the opinion, Polite offers no separate and independent arguments that these
general Code provisions were violated. And combining the meritless arguments still
adds up to no violation of the Code.
IV. Conclusion
For the reasons stated above, the Court affirms the bankruptcy court’s
findings that the plan satisfied the requirements of the Code and that the plan
should be confirmed.

ENTERED:

s/Edmond E. Chang
Honorable Edmond E. Chang
United States District Judge
DATE: January 29, 2014

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