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Nature of Suit Code: 442
Nature of Suit: Civil Rights Employment
Cause of Action: 

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.. 

ROBERT l.. HOECKER 

CLERK 

~nitro ~tates Qlourt of J\ppeafs 

TENTH CIRCUIT 

OFFICE OF THE CLERK 

C404 UNITED STATES COURTHOUSE 

DENVER, COLORADO 80294 

February 1, 1988 

TO ALL RECIPIENTS OF THE CAPTIONED OPINION 

Re: 85-1390; Ruti-Sweetwater Inc. v. Heins 

(Lower docket: C-84-0528-J) 

85-1391; Ruti-Sweetwater Inc. v. Heins 

(Lower docket: C-84-0529-J) 

TELEPHONE 

(303) 844·3157 

(FTSl 564·3157 

Enclosed is a copy of the court's opinion amending the opinion 

of the court filed January 8, 1988. Please substitute this 

opinion for the court's earlier opinion. 

Enclosure 

RLH/lwb 

Very truly 

Appellate Case: 85-1390 Document: 01019290377 Date Filed: 02/01/1988 Page: 1 
PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

IN RE: RUTI-SWEETWATER, INC.: ) 

SWEETWATER; RESORT SYSTEMS; ) 

SWEETWATER PROPERTIES; TIMESHARE } 

REALTY, INC.; FIRST WESTERN SECURITY; ) 

SWEETWATER PARK; SWEETWATER CONDOSHARE ) 

EXCHANGE, ) 

) 

Debtors, ) 

} 

ALLAN HEINS; JANET HEINS; and ) 

HILDEGARD HEINS, ) 

) 

Appellants, ) 

) 

v. ) 

) 

RUTI-SWEETWATER, INC.; SWEETWATER; ) 

RESORT SYSTEMS; SWEETWATER PROPERTIES; ) 

TIMESHARE REALTY, INC.; FIRST WESTERN ) 

SECURITY; SWEETWATER PARK; SWEETWATER ) 

CONDOSHARE EXCHANGE, ) 

) 

Appellees. ) 

FILED 

United States Court of Appeals 

Tenth Circuit 

FEB 011988 

ROBERT L. HOECKER 

Clerk 

No. 85-1390 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF UTAH 

(C84-0528J and C84-0529J) 

Richard F. Bojanowski (Peter J. Kuhn with him on the brief), Salt 

Lake City, Utah, Attorneys for Appellants. 

Jeffrey C. Swinton, Michael z. Hayes, and Ronald L. Dunn of 

Larsen, Mazuran & Verhaaren, Salt Lake City, Utah, (on the brief) 

Attorneys for Appellees. 

Before HOLLOWAY, Chief Judge, and BARRETT and BALDOCK, Circuit 

Judges. 

BARRETT, Senior Circuit Judge. 

Appellate Case: 85-1390 Document: 01019290377 Date Filed: 02/01/1988 Page: 2 
Allan Heins, Janet Heins and Hildegard Heins, hereinafter 

collectively referred to as "Heins" or appellants, seek reversal 

of an order of the district court affirming a bankruptcy ruling. 

During the early 1980s, Ruti-Sweetwater and seven related 

entities, hereinaffer referred to as "debtors" or "reorganized 

debtors," were actively engaged in the business of vacation time 

sharing. As structured, the debtors provided thousands of 

customers with time use at various resorts. In late 1983 and 

early 1984, debtors filed petitions for relief under Chapter 11 of 

the Bankruptcy Code. Their eight cases were procedurally 

consolidated for purposes of administration. 

At the time of their filings, the debtors faced demands from 

secured and unsecured creditors holding claims of millions of 

dollars in addition to the obligations owed to thousands of 

timeshare owners. Following their filings, the debtors prepared a 

complicated (120 pages) Plan of Reorganization which included 

treatment of eighty-three separate classes of secured creditors 

and forty separate classes of time share owners. 

The Heins are judgment lien creditors of debtors in the 

amount of $30,000 plus $8,000 in interest. The Heins secured a 

lien by filing a transcript of their judgment prior to ninety days 

before debtors' petition date. The Heins' lien attached to a 

parcel of real estate known as the Ferrell Spencer property. 

Under the Plan of Reorganization, the Heins were treated as a 

separate subclass and entitled to vote as a separate subclass. 

·The Plan provided that Heins' lien was to be transferred to unsold 

timeshare intervals, whereby the Heins would realize a small 

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Appellate Case: 85-1390 Document: 01019290377 Date Filed: 02/01/1988 Page: 3 
portion of their claim when each interval was sold. The Plan also 

provided, however, that the Heins would receive the entire amount 

of their claim, with interest, within the first forty-eight months 

following confirmation of the Plan. 

In accordance with Bankruptcy Rules 3017(c) 1 and 3020(b)(l) 2 , 

the bankruptcy court set May 28, 1984, as the final date for 

filing written objections to confirmation of the Plan and May 30, 

1984, as the final date for voting on the Plan. The Heins did not 

file written objections to the Plan nor did they exercise their 

right under 11 u.s.c. § 11263 to vote on the Plan. Twenty 

separate classes of secured claims, including the Heins, failed to 

vote. 

The bankruptcy court held confirmation hearings on debtors' 

Plan on June 1, ~. and 5, 1984. The Heins did not appear at the 

hearings, either in person or through counsel. On June 5, the 

bankruptcy court approved the sale of the Ferrell Spencer 

property, free and clear of all liens, including the Heins' lien. 

On June 8, 1984, the bankruptcy court entered an order confirming 

debtors' Plan. During the confirmation hearings, the bankruptcy 

court ruled that the non-voting creditors were deemed to have 

1 Rule 3017(c) provides in part: "The court shall fix a time 

within which the holders of claims and interests may accept or 

reject the plan and may fix a date for hearing on the 

confirmation." 

2 Rule 3020(b)(l) provides in part: "Objections to 

confirmation of the plan shall be filed with the court and served 

on the debtor - and on any other entity designated by the court 

within a time fixed by the court." 

3 § 1126 provides in part: "The holder of a claim or interest 

may accept or reject a plan." 

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Appellate Case: 85-1390 Document: 01019290377 Date Filed: 02/01/1988 Page: 4 
accepted the Plan for purposes of 11 U.S.C. S 1129(b)(l) 4 . This 

ruling was made after ~ of the creditors at the hearing 

objected thereto: 

Mr. Mabey [Counsel for Debtor]: We believe that it is the 

law that those parties in interest who have failed to vote 

are deemed, under Section 1129(a)8 to have voted in favor of 

the plan in order to avoid the requirement of having to 

affect [sic -- effect] a cram-down. 

The Court: Your statement is they are deemed to have 

accepted rather than they wouldn't be counted or otherwise it 

would be the same thing without it? 

Mr. Mabey: Yes, your Honor. We argue only that they should 

be deemed to have accepted for purposes of relieving the plan 

proponent of the cram-down requirements. That is the only 

avenue which we believe must be perceived at this hearing. 

* * * 

The Court: Thank you. It appears that those -- there is no 

challenge to the leval [legal] concept that those non-voted 

creditors will be deemed to have accepted [sic] for the 

purpose of cram-down provisions. That will be the Court's 

ruling on all of the claims that you enumerated, Mr. Mabey. 

R. Tr. June 8, 1984, Appellees' Brief, Exhibit C. 

On June 12, 1984, the bankruptcy court held a hearing on the 

distribution of the proceeds of the June 5, 1984, sale of the 

Farrell Spencer property, during which the Heins, represented by 

counsel, appeared for the first time and challenged the Plan. 

They attacked those provisions of the Plan under which the Heins' 

secured interest in the Ferrell Spencer property was removed: 

Mr. Bojanowski (Counsel for Heins): Now, the problem 

arises, when, as debtor's counsel indicated, that the 

Heins family would be treated under section 4.28; 

namely, the secured interest that they would have in 

this property would be removed by virtue of the 

4 All United States Code citations hereinafter will 

u.s.c. unless otherwise indicated. 

be to 

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11 

Appellate Case: 85-1390 Document: 01019290377 Date Filed: 02/01/1988 Page: 5 
confirmed plan which would go into effect on June 19th, 

'84. However, it is the creditor's position that the 

sale was consummated prior to the effective date of the 

plan. An offer was made, an acceptance was received, 

submitted to the Court for approval. That approval was 

obtained I believe that was obtained on June 5th, '84, 

that the effective date of the plan would remove their 

lien would not take place until June 19th • • . • [t]he 

distribution of the funds, therefore, should be based 

upon the creditor's legal position as a judgment lien 

creditor not affected by any provisions in a plan. That 

will not take effect until June 19th. . • • 

* * * 

Mr. Mabey (Counsel for Debtors): Your Honor, the 

argument of the Heins claimants is that even though they did not object to confirmation of a plan which removed 

their lien, even though the sale under section 363 was 

an inherent and integral part of that plan, even though 

the Court, therefore, went ahead and confirmed the plan, 

nevertheless, they are entitled to ignore the plan and 

take under the sale under other circumstances. This 

cannot be a (sic -- should be "the"] law. In the first 

instance, the sale itself is an integral part of the 

plan of reorganization. In the second instance, section 

363(f) under which the sale occurred was carefully 

designed for a purpose of allowing sales to go forward 

free and clear of liens and then later determining the 

value itself of the liens .. 

* * * 

The Court: I'm going to backtrack a little, Mr. 

Bojanowski. I don't think I fully comprehended what you 

were trying to do in your argument. I think I'm going 

to have to rule that the rights of your client, the 

Heinses, are governed by the plan notwithstanding the 

fact that the sale took place, as you argue, on the 5th. 

If I were to rule in your favor, I would have to say that no creditor whatsoever is going to be bound by the 

plan if their transaction took place before the 

effective date of the plan. So I'm going to rule right 

now that the Heins claimants are treated properly in the 

plan and governed by the plan. 

R., Tr. June 12, 1984, pp. 3-8. 

The Heins appealed the order of the bankruptcy court 

confirming debtors' Plan of Reorganization. The district court 

entered its order affirming the ruling of the bankruptcy court 

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Appellate Case: 85-1390 Document: 01019290377 Date Filed: 02/01/1988 Page: 6 
confirming the Plan of Reorganization. The court found/held: 

Whether a secured creditor accepts a plan of 

reorganization is important in determining whether the 

plan must comply with the so-called "cram down" 

prov~s~ons of section 1129(b). If a class of creditors 

does not accept the plan, and if that class is impaired 

under the plan (it is undisputed that the Heins are 

impaired under· the Plan), the Bankruptcy court may 

confirm the 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. 

Sll29{b). However, if a class of creditors accepts the 

plan under section 1129(a)(8), the bankruptcy court may 

confirm the plan without showing that the plan satisfies 

the "unfair discrimination" and "fair and equitable" 

standards of section 1129(b). 

* * * 

Accordingly, if any creditor in a class votes, any 

other creditors in that class who fail to vote are 

entirely disregarded for the purpose of determining 

whether the class has accepted or rejected the plan. 

The presumption under the prior law that non-voting 

creditors rejected the plan has been removed. Nonvoting creditors are deemed neither to have accepted the 

plan nor rejected it; they are simply bound by the 

result produced by those who vote. The necessity of 

deeming a failure to vote as either an acceptance or a 

rejection of a plan arises only when [as here] no 

members of a class cast a vote. 

R., Vol. II at pp. 460-461, 462. 

The court upheld the bankruptcy court's ruling that a nonvoting, non-objecting creditor who is the only member of a class, 

such as the Heins, is deemed to have accepted the plan for 

purposes of S 1129(b). On appeal, the Heins contend that the 

district court erred in affirming the bankruptcy court's ruling 

that non-voting, non-objecting creditors who are the only members 

of a class are deemed to have accepted the Plan of Reorganization 

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Appellate Case: 85-1390 Document: 01019290377 Date Filed: 02/01/1988 Page: 7 
for purposes of S 1129(a)(8) 5 and§ 1129(b). 6 

Heins argue that: under S 1129(a)(8), the bankruptcy court 

shall confirm a plan only if each class has affirmatively or 

actually accepted the plan or each class is not impaired under the 

Plan: they did not accept the Plan and their lien was impaired 

under the plan: Congress has stated that S 1129(b) is "triggered 

only when an impaired creditor has not accepted the debtor's 

plan": and, since they had not voted to accept or reject the Plan, 

the court erred in finding that their failure to vote constituted 

an acceptance of the Plan for purposes of S 1129. 

In response, the debtors argue that the Heins, as non-voting, 

non-objecting creditors, should be deemed to have accepted the 

Plan for purposes of S 1129; it is reasonable to presume the 

acceptance of a plan by parties who do not vote on the plan after 

receiving the court's approved disclosure statement: and that nonvoting, non-objecting creditors who fail to object during the plan 

confirmation hearings should not be heard to later complain if the 

5 S 1129(a)(8) provides: 

With respect to each class of claims or interests -

(A) such class has accepted the plan: or 

(B) such class is not impaired under the plan. 

6 S 1129(b)(l) provides in part: 

Notwithstanding section SlO(a) of this title if all of the 

applicable requirements of subsection (a) of this section other 

than paragraph (8) are met with respect to a plan, the court, on 

request of the proponent of the plan, shall confirm the plan 

notwithstanding the requirements of such paragraph 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. 

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Appellate Case: 85-1390 Document: 01019290377 Date Filed: 02/01/1988 Page: 8 
plan is not to their liking. 

We observe at the outset that our review of factual findings 

by a district court is not de novo; rather, it is guided by the 

clearly erroneous standard. Thompson v. Rockwell International 

Corporation, 811 ~.2d 1345 (lOth Cir. 1987). Questions of law, 

however, such as here, are considered de novo. Allis Chalmers 

Credit Corp., et al. v. Tri-State Equipment, Inc., 792 F.2d 967 

(lOth Cir. 1986); Vibra-Tech Engineers, Inc. v. United States, 787 

F.2d 1416 (lOth Cir. 1986). Furthermore, mixed questions of fact 

and law which involve "primarily a consideration of legal 

principles" are considered de novo. Mullan v. Quickie Aircraft 

Corporation, 797 F.2d 845, 850 (lOth Cir. 1986), quoting Allis 

Chalmers Credit Corp., et al v. Tri-State Equipment, Inc., supra. 

The question of whether the Heins, as non-voting and non-objecting 

members of a class, should be deemed to have accepted debtors' 

Plan of Reorganization for purposes of S 1129 is a mixed question 

of fact and law to be considered de novo. It is also a case of 

first impression for this Court. 

We hold that the district court correctly affirmed the 

bankruptcy court's ruling that Heins' inaction constituted an 

acceptance of the Plan. To hold otherwise would be to endorse the 

proposition that a creditor may sit idly by, not participate in 

any manner in the formulation and adoption of a plan in 

reorganization and thereafter, subsequent to the adoption of the 

plan, raise a challenge to the plan for the first time. Adoption 

of the.Heins• approach would effectively place all reorganization 

plans at risk in terms of reliance and finality. 

-aAppellate Case: 85-1390 Document: 01019290377 Date Filed: 02/01/1988 Page: 9 
Adoption of the Heins• approach would relieve creditors from 

taking an active role in protecting their claims. We agree with 

the District Court's finding that creditors are obligated to take 

an active role in protecting their claims: 

The Code"contemplates that concerned creditors will 

take an active role in protecting their claims. 

Otherwise, Bankruptcy Rule 3017, which provides for 

fixing a deadline for filing rejections of a plan, and 

Bankruptcy Rule 3020(b), which provides for fixing a 

deadline for filing objections to confirmation, would 

have no substance. See In re Record Club of America, 38 

B.R. 691, 696 (M.D. Penn. 1983). Moreover, if nonvoting, non-objecting creditors are not deemed to have 

accepted the plan, the debtor would be placed in the 

unique position of anticipating these creditors• 

objections to the plan and presenting evidence and 

arguments to refute those hypothetical objections in the 

confirmation hearing. 

R., Vol. II at pp. 462-63. 

The ruling that the Heins• inaction constituted an acceptance 

of debtors• Plan of Reorganization for purposes of§ ll29(b)(l) is 

also supported by general provisions in the Bankruptcy Act. 

Although actual acceptance of a plan by at least one class of 

impaired claims is necessary for a bankruptcy court's confirmation 

of a plan under § 1129{a)(l0), Hanson v. First Bank of South 

Dakota, N.A., 828 F.2d 1310, 1313 (8th Cir. 1987), not every 

creditor is obligated to vote on a plan. Nothing in the 

Bankruptcy Act requires that each creditor votes on a plan prior 

to its confirmation; rather, § ll26(a) provides only that a 

creditor 11may accept or reject a plan." Furthermore, whereas the 

former Bankruptcy Act (~ H.R. Rep. No. 95-595, 95th Cong. 1st 

Sess. 410 (1977)) provided that a failure to vote was considered a 

rejection of the plan, the present Bankruptcy Act does not 

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Appellate Case: 85-1390 Document: 01019290377 Date Filed: 02/01/1988 Page: 10 
indicate whether a failure to vote, such as here, is deemed to be 

an acceptance or rejection of the plan. The present Bankruptcy 

Act has, however, retained various other presumptions supportive 

of the bankruptcy court's ruling. 

For purposes of acceptance of a plan, S 1126(f) provides that 

a class that is not impaired under the plan is "conclusively 

presumed" to have accepted the plan. Section 1126(g) provides 

that "a class is deemed not to have accepted a plan" if the plan 

does not entitle the members of the class to receive or retain 

any property based on their claims or interests. Similar 

"presumptions" also exist under S 1129, Confirmation of Plan. 

Section 1129(a)(l0) provides for confirmation where "one 

class of claims that is impaired under the plan has accepted the 

plan." Under this section, only one class of impaired claims need 

vote for acceptance of the plan for purposes of confirmation under 

S 1129(a) and S 1129(b). Once a class of impaired claims has 

accepted a plan, a plan may be "crammed down" over the objections 

of every other class of creditors pursuant to S 1129(b). See In 

Re Powell Brothers Ice Company, 10 CBC 2nd 328,331 (D. Ks. 1984). 

Furthermore, a plan may be confirmed even if no secured creditors 

accept a plan if the provisions of SS 1129(a)(l0) and 1129(b) are 

met. Id. As such, under the present Bankruptcy Act, a plan is 

not only "presumed" confirmable, but is confirmable under S 

1129(a} or 1129(b) where only one class of impaired claims has 

accepted the plan and the other elements of S 1129(a) or S 1129(b) 

are met. 

The Heins were one of eighty-three separate classes of 

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Appellate Case: 85-1390 Document: 01019290377 Date Filed: 02/01/1988 Page: 11 
secured creditors and one of twenty separate classes of secured 

creditors who opted not to vote during the confirmation hearings. 

None of the secured creditors who appeared at the June 8, 1984, 

confirmation hearings voiced an objection to the bankruptcy 

court's finding that the "non-voted creditors will be deemed to 

have accepted [the plan] for the purpose of the cram down 

provisions." Since the Heins did not object to the Plan at any 

time prior to its confirmation and because the Heins unilaterally 

opted not to vote on the confirmation of the Plan, the bankruptcy 

court did not err in presuming their acceptance of the Plan for 

purposes of S 1129(b). 

Once acceptance was properly presumed, the court was not 

obligated to inquire as to whether the Plan discriminated unfairly 

or was not fair and equitable to the Heins under S 1129(b)(l). 

When the Heins failed to object to the Plan, they waived their 

right to challenge the Plan or to assert, after the fact, that the 

Plan discriminated unfairly and was not fair and equitable. 

AFFIRMED. 

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