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. e du/thir dc ir c uit_2000/199Filed September 18, 2000

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Nos. 00-5042 and 00-5074

In re: PWS HOLDING CORPORATION BRUNO'S, INC; FOOD MAX OF MISSISSIPPI, INC;
A.F. STORES, INC; BR AIR, INC.; FOOD MAX OF GEORGIA, INC; FOOD MAX OF TENNESSEE, INC; FOODMAX, INC; LAKESHORE FOODS, INC; BRUNO'S FOOD STORES, INC; GEORGIA SALES
COMPANY; SSS ENTERPRISE, INC

W.R. Huff Asset Management Co., L.L.C., Appellant in 00-5042

HSBC BANK USA, as Indenture Trustee for the 10.5% Senior Subordinated Notes, Appellant in 00-5074

On Appeal From the United States District Court

for the District of Delaware (D.C. Civ. No. 98-cv-00212) District Judge: Honorable Sue L. Robinson

Argued: March 10, 2000

Before: BECKER, Chief Judge, SCIRICA and NYGAARD Circuit Judges.

(Filed: September 18, 2000)EDWARD S. WEISFELNER,

ESQUIRE (ARGUED)
ANDREW DASH, ESQUIRE
JOHN P. BIEDERMANN, ESQUIRE Berlack, Israels & Liberman

120 West 45th Street New York, NY 10036

STEVEN K. KORTANEK, ESQUIRE JOANNE B. WILLS, ESQUIRE Klehr, Harrison, Harvey, Branzburg & Ellers, LLP 919 Market Street, Suite 1000 Wilmington, DE 19801

Counsel for Appellant W.R. Huff Asset Management Co.

PETER D. WOLFSON, ESQUIRE (ARGUED)
CAROL NEVILLE, ESQUIRE Pryor, Cashman, Sherman & Flynn,

LLP
410 Park Avenue New York, NY 10022-4441

JEFFREY C. WISLER, ESQUIRE Connolly, Bove, Lodge & Hutz 1220 Market Building

P.O. Box 2207 Wilmington, DE 19899

Counsel for Appellant HSBC Bank USA, Indenture Trustee

HARVEY R. MILLER, ESQUIRE (ARGUED)
LORI R. FIFE, ESQUIRE MARC D. PUNTUS, ESQUIRE Weil, Gotshal & Manges, LLP

767 Fifth Avenue New York, NY 10153

2THOMAS L. AMBRO, ESQUIRE

DANIEL J. DeFRANCESCHI,
ESQUIRE One Rodney Square

P.O. Box 551 Wilmington, DE 19899

Counsel for Appellees PWS Holding Corp.; Bruno's, Inc.; Food Max of MI, Inc.; AF Stores, Inc.; BR Air, Inc.; Food Max of GA, Inc.; Food Max of TN, Inc.; Foodmax Inc.; Lakeshore Foods, Inc.; Brunos Food Stores; Georgia Sales Co.; SSS Entr, Inc.

HAROLD S. NOVIKOFF, ESQUIRE (ARGUED)
AMY R. WOLF, ESQUIRE Wachtell, Lipton, Rosen & Katz

51 West 52nd Street New York, NY 10019

EDWARD G. BIESTER, III, ESQUIRE Duane, Morris & Heckscher 4200 One Liberty Place Philadelphia, PA 19103-7396

TERESA K.D. CURRIER, ESQUIRE Duane, Morris & Heckscher 1201 Market Street, Suite 1500

P.O. Box 195 Wilmington, DE 19899

Counsel for Appellee

Chase Manhattan Bank

DENNIS S. KAYES, ESQUIRE (ARGUED)
STUART E. HERTZBERG, ESQUIRE I. WILLIAM COHEN, ESQUIRE Pepper, Hamilton, LLP 100 Renaissance Center, 36th Floor Detroit, MI 48243

3DAVID M. FOURNIER, ESQUIRE

MONICA LEIGH LOFTIN, ESQUIRE Pepper, Hamilton, LLP 1201 Market Street, Suite 1600 Wilmington, DE 19801

Counsel for Appellee Official

Committee of Unsecured Creditors

OPINION OF THE COURT

BECKER, Chief Judge.

W.R. Huff Asset Management Co., L.L.C. ("Huff "), a nd HSBC Bank USA ("HSBC") appeal from the order of the District Court confirming a reorganization plan for Bruno's, Inc., (Bruno's), and several affiliates.1 Bruno's i s based in Alabama and operates a chain of supermarkets in the

southeastern United States. Huff was the holder of $290 million in Bruno's subordinated notes; HSBC was the indenture trustee for the subordinated notes (we re fer to them together as Huff). They argue that the Distric t Court should not have confirmed the plan for a host of re asons, most notably because it contains releases that viol ate the absolute priority rule of 11 U.S.C. S 1129(b)(2)(B) (ii) and are thus impermissible under the Bankruptcy Code.

Three separate interests have appeared to defend th e plan: the debtors and debtors-in-possession (referr ed to throughout as the Debtors); the Chase Manhattan Ban k, representing the group of banks (the Banks) that we re the senior lenders to Bruno's before the reorganization ; and the Official Unsecured Creditors' Committee. Together t hey contend that the plan does not violate the absolute priority rule because the releases were not granted "on acco unt of " the interests of the released parties, but rather t he claims

released had little or no value.

___________________________________________________ ______________

1. The affiliates are PWS Holding Corp., Food Max o f Mississippi, Inc, A.F. Stores, Inc., BR Air, Inc., Food Max of Georgi a, Inc., Food Max of Tennessee, Inc., FoodMax, Inc., Lakeshore Foods, In c., Bruno's Foodstores, Inc., Georgia Sales Co., and SSS Enterp rises, Inc.

4The absolute priority rule, found in 11 U.S.C.

S 1129(b)(2)(B)(ii), provides that "the holder of a ny claim or interest that is junior to the claims of [a class o f unsecured claims] will not receive or retain under the plan o n account of such junior claim or interest any property." In Bank of America National Trust and Savings Association v. 2 03 North LaSalle Street Partnership, 526 U.S. 434 (199 9), the Supreme Court interpreted the "on account of " lang uage in S (b)(2)(ii). The Court rejected arguments that "on account
of " means "in satisfaction of " the interest or "i n exchange

for" the interest and concluded that it means"becau se of " the interest. Id. at 450-51. Accordingly, a causal connection between holding the prior claim or interest, and re ceiving or retaining property, will trigger the absolute prior ity rule. Huff submits that this plan, by releasing claims he ld by the bankrupt entity that arose out of the leveraged recapitalization, essentially transferred property to holders of junior equity in violation of the absolute prior ity rule. Huff argues that the release was a transfer to juni or equity because the potential claims included claims agains t junior equity--affiliates of Kohlberg, Kravis, Roberts & C o., L.L.C. (KKR), and other participants in the recapitalizati on. Huff contends that the transfer violated the absolute pr iority rule because senior creditors (including Huff) had not been paid in full.

We conclude that the District Court did not err in the challenged respects.2 The Examiner appointed by the District Court under 11 U.S.C. SS 1104(c) and 105(a ) at the behest of Huff found in a comprehensive report that the claims released had little potential merit. We find no error in the District Court's decision to accept the Exam iner's findings and legal conclusions regarding the viabil ity of the claims, and we reject Huff 's contention that the r eleases were granted "on account of " old equity's interest . We also reject the Debtors' contention that the challenge t o confirmation is equitably moot under In re Continen tal Airlines, 91 F.3d 553, 559 (3d Cir. 1996) (en banc)

.

___________________________________________________ ______________

2. Because the order of reference to the Bankruptcy Court was withdrawn in the District of Delaware, this case wa s heard initially in

the

District Court.

5Huff 's other challenges to confirmation include th at the

plan should not have been confirmed because the Dis trict Court erred in determining that it was proposed in good faith as required by 11 U.S.C. S1129(a)(3). Huff ha s not offered anything but innuendo to support its conten tion that the Debtors violated this portion of the Code, and we

find no error in the District Court's conclusion th at the plan was proposed in good faith.

Additionally, Huff contends that the plan should no t have been confirmed because it violates the following se ctions of the Bankruptcy Code: 11 U.S.C. S 510(a), which prov ides that a "subordination agreement is enforceable in a case under this title to the same extent that such agree ment is enforceable under applicable nonbankruptcy law;" 11 U.S.C. S 524(e), which provides that "[e]xcept as p rovided in subsection (a)(3) of this section, discharge of a d ebt of the debtor does not affect the liability of any other e ntity on, or the property of any other entity for, such debt;" 1 1 U.S.C. S 363, which governs the sale of assets outside of the reorganization plan; 11 U.S.C. S 1129(a)(2), which provides that a court shall confirm a plan only if "[t]he pr oponent of the plan complies with the applicable provisions of this Title;" and 11 U.S.C. S 1129(a)(7), which provides that a court shall confirm a plan only if the debtor demon strated at the Confirmation Hearing that creditors rejectin g the plan would not receive a greater recovery in a Chap ter 7 liquidation.

We reject Huff 's argument under S 510(a) because t he subordinated noteholders' rights under the agreemen t do not arise until the senior indebtedness is paid in full, which has not happened under the plan. We reject the S 52 4(e) argument because we conclude that the limited relea se in Paragraph 58 of the plan does not come within the m eaning of S 524(e) and is consistent with the standard of liability under the Code. We reject Huff 's S 363 argument be cause we do not agree with the contention that the Plan t riggered a duty to fully market the company. We conclude tha t Huff does not have standing to raise the challenge under S 1129(a)(2) because third-party standing is limite d on appeal in bankruptcy cases and Huff cannot show tha t it was personally aggrieved by any alleged failure of

6disclosure. Finally, because we are satisfied that the

Debtors met the S 1129(a)(7) burden of demonstratin g that the creditors would not receive a greater recovery under Chapter 7, we reject the challenge under this secti on as well. We will therefore affirm the order of the Dis trict Court confirming the plan.

I. Factual & Procedural Background

As of the commencement date of the Chapter 11 cases
, Bruno's was a chain of about 200 supermarkets opera ting in the southeastern United States (principally in A labama). In 1995, affiliates of KKR acquired an 83.33% inter est in Bruno's in a leveraged recapitalization. As part of this transaction, then existing shareholders of Bruno's were bought out for approximately $880 million. The leve raged recapitalization was financed by a revolving credit and term loan facility provided by the Banks, an equity cont ribution of $250 million by KKR through Crimson Associates L LP, and the issuance by Bruno's of $400 million in note s due in 2005 pursuant to an indenture. Section 9 of the indenture contains a subordination clause that prov ides that the noteholders' claims are fully subordinated to the payment in full (including interest) of the claims of the senior lenders (the Banks).

For at least two years following the leveraged recapitalization, Bruno's paid all of its debts as they matured (including $97.5 million in interest paymen ts on the subordinated notes). In the summer of 1997, the

Debtors were able to refinance the Bank debt relati ng to the recapitalization at a lower interest rate and on te rms more favorable than the original terms. But by the secon d half of 1997, as a result of either mismanagement by the di rectors selected by KKR and a controversial change in prici ng policy (according to Huff), or as a result of a gre atly increased level of competition in the market (accor ding to the Debtors), Bruno's began to falter. Bruno's had difficulty in meeting payment obligations from the recapitaliz ation and in paying its suppliers and other creditors. On February 2, 1998, it filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. Since thef iling date, the Debtors have remained in possession.

7As of the filing date, Bruno's owed approximately $ 462

million to the Banks, $135 million to trade vendors

, suppliers, and other unsecured creditors, and $421 million on the subordinated notes. In the 90 days prior tof iling for relief, it made payments to a variety of creditors and suppliers amounting to more than $600 million, incl uding to firms that provided professional services to the Debtors.3 However, the only preference action the Debtors pur sued was an action against the Banks seeking to avoid li ens granted to the prepetition lenders in December 1997

.

In February 1998, the Bankruptcy Trustee appointed a nine member "Official Unsecured Creditor's Committe e" (the Committee). Huff, holder of $290 million in subordi nated notes, was the largest creditor of the estate and w as elected

co-chair of the Committee. The other members of the Committee included four representatives of the Bank s, three representatives from the trade, and one repre sentative of the other subordinated noteholders. A representa tive from the United Food and Commercial Workers Union, which represented supermarket employees of Bruno's, was appointed to serve on the Committee from March 1998 to April 1999.

In October 1998, the Debtors presented a business p lan to the Committee. The Committee rejected this plan and then appointed a subcommittee, the "Strategic Alter natives Committee," to work with the Debtors to develop a n ew plan. This Subcommittee conducted a test marketing of the enterprise and sent out a summary information packa ge to two different sets of potential buyers (neither of which included financial buyers). The Subcommittee did no t believe that there would be interest in purchasing the enterprise, and indeed none of the companies contac ted expressed an interest. By January 1999, the Debtors concluded that no potential buyers had an interest in the acquisition.

___________________________________________________ ______________

3. For example, payments to suppliers included appr oximately $19 million to Kraft Foods, $4.1 million to Frito-Lay, and $750,000 to Pillsbury. Payments to providers of professional se rvices included $225,551.69 to Cravath, Swaine & Moore, $1.2 millio n to KKR, and $232,838.71 to Wasserstein Perella & Co.

8Throughout the spring of 1999, the Committee and

subgroups of the Committee convened several times t o develop a reorganization plan. Huff asserts that it was excluded from these meetings and that many of the conferees pursued some interest other than maximizi ng the size of the bankruptcy estate. In March 1999, the D ebtors' law firm determined that legal claims arising out o f the leveraged recapitalization (primarily fraudulent tr ansfer claims) were not worth pursuing because they believ ed that the claims were unlikely to succeed and that litiga tion would be expensive, time consuming, complicated, protracted and vigorously defended, and likely woul d delay the confirmation of the reorganization plan. In Apr il 1999, the Committee voted to deny funds to pursue the cla ims, while preserving the claims for further considerati on. In response, Huff successfully moved for the appointme nt of an independent examiner to evaluate the claims. The Debtors presented the first version of the new plan in May 1999. It was revised several times between May and

December 1999.

As a part of the negotiations regarding reorganizat ion, three independent entities (Wasserstein Perella & C o. (for the Debtors), PricewaterhouseCoopers (for the Commi ttee), and Chilimark Partners (for the Banks)) conducted assessments of the Debtors and reported current val ue estimations ranging between $260 and $315 million. Huff 's expert argued for a valuation at $580 million, but this valuation was rejected by the District Court, and H uff appears to have abandoned any argument for it on ap peal. HSBC still appears to contend that the reorganized enterprise was "significantly undervalued by the De btors and the Bank Group." HSBC does not, however, argue that

the District Court committed clear error in determi ning that the reorganization value of the Debtors was "substa ntially below the amount necessary to allow for the satisfa ction in

full of the Bank claims" and thus that Huff and the other holders of subordinated notes were substantially ou t of the money (by about $300 million). The interests of the holders of the subordinated notes, including Huff and HSBC, were thus wiped out and, by operation of the Code, 11 U. S.C. S 1126(g), the holders are deemed to have rejected the plan.

9Huff and HSBC challenge three separate releases of legal

claims included in the plan. We describe the differ ent releases in the three following subsections, sectio ns I.A-C.

A.

The first releases pertain to the estate's claims a rising out of the leveraged recapitalization. These releas es include "avoidance claims" that, if successful, could have allowed the Debtors to avoid certain aspects of the 1995 le veraged recapitalization. In late 1998, the Debtors, with t he consent of the Committee, undertook a review of the leverag ed recapitalization to determine if any viable fraudul ent transfer claims existed and should be pursued. In M arch 1999, the Debtors' counsel Weil, Gotshal & Manges completed a 100 page report analyzing the claims, concluding that the transaction was not a fraudulen t transfer and that there were no viable claims again st any of its participants. In April 1999, the Committee neve rtheless voted to preserve these causes of action in the pla n. One month later, however, the Committee reversed its po sition and, with the support of the trade representatives and the Banks, voted to support the plan releasing the clai ms.

Huff and HSBC objected to these releases and, as no ted, successfully moved the District Court for the appoi ntment
of an Examiner to evaluate the claims. The District Court appointed Harrison J. Goldin as Examiner. The Exami ner's Final Report, prepared with the aid of eminent coun sel, made extensive findings of fact regarding the lever aged recapitalization.4 The Examiner adopted a model for assessing the viability of the claims that broke th e probability of success into five categories. Under the model, the Examiner concluded that a claim was "highly lik ely" to succeed if he believed that it had an 80% or greate r chance of success; "likely" if the Examiner believed that it had a 60% to 80% chance of success; "reasonable" if the

Examiner believed that the likelihood of success wa s between 40% and 60%; "unlikely" if the Examiner bel ieved its chance of success was only between 20% and 40%; and

___________________________________________________ ______________

4. The Examiner interviewed 19 people and reviewed approximately 75,000 pages of documents relating to the transacti on.

10"remote" if the Examiner concluded that there was l ess

than a 20% chance of success.

As the report details, in August 1995, certain affi liates of KKR, including an Alabama corporation formed for th e transaction, Crimson Associates LLP (of which KKR i s the general partner), acquired 83.33% of the stock of B runo's. To pay for this transaction, Bruno's and its affili ated Debtors obtained cash and credit through the issuan ce of $400 million in notes, a $475 million term loan fac ility from Chemical Bank, and a $125 million revolving credit facility from Chemical Bank (from which approximately $10 mi llion was drawn to fund the 1995 transaction). KKR and it s affiliates contributed $250 million, and Bruno's ap plied $20 million of its existing cash to the transaction.

The net cash proceeds were allocated to the followi ng principal uses: (1) payment of $880.1 million of ca sh merger consideration to the pre-closing shareholder s (the purchase of Bruno's pre-transaction outstanding com mon stock at $12.00 per share); (2) repayment of $200 m illion plus accrued interest in pre-transaction indebtedne ss; and (3) payment of approximately $40 million in fees an d expenses related to the merger.5 The Examiner hired Goldin Associates, L.L.C., to perform a detailed financial analysis of the recapitalization. The analysis covered two p rincipal issues regarding Bruno's at the time of the recapit alization: the solvency of Bruno's, and the adequacy of Bruno' s' capital resources to meet its future needs, includi ng its ability to pay its debts and satisfy its liabilitie s as due. These issues are important to analyzing the claims arising out of the recapitalization because the viability o f the claims depends on whether the recapitalization left Bruno's insolvent or with an unreasonably small amount of a ssets
in relation to the business or the transaction. If the value of the assets acquired in the recapitalization does not exceed the debt incurred, or if the business was le ft with unreasonably small capital, the transaction may be a

___________________________________________________ ______________

5. These fees and expenses included $15 million in fees to KKR, more than $14 million to Chase, and more than $10 millio n to BT Securities for underwriting fees and intrabank funding costs.

11"fraudulent transfer." Transactions in violation of the

prohibition on fraudulent transfers can be avoided. 6

The test of solvency is whether, at the time of the recapitalization, the company's assets exceeded its liabilities. There are two basic approaches to this evaluation: asset by asset evaluation, which ascrib es value to each asset and determines solvency by comparing the sum of those assets to total liabilities, and enter prise valuation, which values the business as a going con cern and includes intangibles such as relationships with customers and suppliers, and the name, profile, and reputation of the business.7 The Examiner concluded that it was likely (i.e., that there was a 60-80% chance ) that a court would apply the business enterprise analysis. The Examiner believed that the business enterprise eval uation was the appropriate measure of solvency because KKR acquired Bruno's as a going concern.

Under the business enterprise evaluation, the Exami ner performed three separate analyses: a comparable pub lic company analysis, a comparable acquisitions analysi s, and a discounted cash flow analysis. The Examiner found that in all but one of the relevant formulations, Bruno' s was solvent at the time of the recapitalization. The ap proach favored by the Examiner, comparing enterprise value derived from a discounted cash flow analysis to lon g-term debt, reflected that the enterprise value of Bruno' s exceeded its long-term debt by approximately $270 million to $690 million. The valuation is a range because the Exami ner used three earnings amounts: sales, EBITDA (earning s

___________________________________________________ ______________

6. Fraudulent transfer actions may be brought by a debtor-in-possession under S 548 of the Code, see 11 U.S.C.S 548, and, p ursuant to S 544(b) of the Code, under applicable state fraudulent tran sfer statutes, see 11 U.S.C. S 544(b). Because the recapitalization occur red approximately two and one-half years before the commencement of the C hapter 11 cases, S 548 is inapplicable, and hence any fraudulent tra nsfer claims would have to be brought under state law through S 544(b) of the Code.

7. In assessing liabilities, the Examiner considere d the bank loans, subordinated notes, capital lease obligations, defe rred tax liability, and contingent and other off-balance sheet liabilities. The Examiner concluded that no material adjustments to the balan ce sheet liabilities were required for purposes of the solvency analysis

.

12before interest, taxes, depreciation, and amortizat ion), and

EBIT (earnings before interest and taxes). The trad ing market enterprise value is divided by these earning amounts to derive multiples, which are applied to B runo's' earnings totals to derive valuation.

The other methods of analyzing solvency also result ed in a range because the Examiner considered multiple ea rnings amounts. The "assets to liabilities" construct, com paring total adjusted enterprise value derived from a disc ounted cash flow analysis to total liabilities, showed tha t Bruno's was solvent by approximately $215 to $635 million. The acquisition multiples test, which gives greater wei ght to an acquisition premium, also indicated that Bruno's wa s solvent, with assets of approximately $188 million to $250 million, using multiples of EBITDA and EBIT, respec tively (and higher if the multiple of sales is applied). 8 The market multiples solvency test, which does not include a c ontrol premium, produced lower margins of solvency ranging from approximately $27 to $104 million. The only test wh ich indicated insolvency applied a southeast sales mult iple. Under this test, the Examiner considered the sales earnings amount for comparable enterprises operating in the southeastern United States only.

The Examiner concluded that the southeast sales tes t was an inappropriate means of measuring the solvenc y of Bruno's and, in any event, should be given less wei ght than

the other valuations standards. The Examiner also n oted that the purchase price itself was probative of Bru no's' value (and thus solvency). The purchase price indic ated an enterprise value of $1.2 billion, which exceeded lo ng-term debt by approximately $245 million. Adding current liabilities of $156.4 million, the sum exceeded tot al liabilities by about $90 million.9 Although he deem ed it unlikely that a court would apply the asset-by-asse t test,

___________________________________________________ ______________

8. The Examiner considered the sales multiple to be a less appropriate measure of solvency than EBITDA and EBIT.

9. The Examiner's Report appears to contain an arit hmetical or typographical error in that it concludes from the a bove numbers that the sum exceeded total liabilities by over $190 million , rather than $90 million. Nothing in this case turns on this point, however.

13the Examiner also conducted an analysis under the a ssetby-asset methodology. The sum of Bruno's assets, va lued piecemeal, was $1,024.8 million. The assets did not exceed the total of liabilities, which were $1,114.1 milli on.

Additionally, the Examiner analyzed whether the recapitalization left Bruno's with unreasonably sma ll capital. The critical question is whether the parti es' projections were reasonable at the time of the tran saction. The analysis looked at historical data, such as cas hflow, net sales, gross profit margins, and net profits an d losses, and whether the parties considered difficulties tha t might arise, such as interest rates fluctuations and mark et downturns, to gauge the reasonableness of the proje ctions in light of working capital needs in the industry a nd actual cash available to service needs. Actual performance of the debtor following the transaction is evidence of whe ther the parties' projections were reasonable.

The Examiner opined that Bruno's was not undercapitalized. He concluded that at the time of the recapitalization Bruno's was a viable enterprise ca pable of substantial improvement, and that the parties' proj ections, although aggressive in some areas, were conservativ e in others. The enterprise failed, in his opinion, not because of inadequate capital, but because a series of unfortu nate decisions, including a change in pricing strategy a nd a decision to close one distribution center, caused s ubstantial erosion in the company's customer base. Declining d emand for Bruno's' services resulted in declining revenue , which led to the bankruptcy.

In part because of these conclusions, the Examiner opined that any claims arising out of the recapital ization were unlikely to succeed (i.e., that they had only a 20-40% chance of success). He reasoned that "the Recapital ization differed fundamentally from prior-leveraged transac tions that have been found to be unlawful; among other th ings, the risks of the transaction were borne by the acqu irer (KKR) and the lenders (who were unsecured), rather than shifted onto pre-transaction creditors." The Examin er also concluded that the claims were "not promising," wer e "limited and speculative," that "significant defens es" were available to each of the principal participants, th e former

14shareholders, the Banks, the subordinated noteholde rs,

and KKR in the recapitalization, and that

[i]n light of the multiple legal and factual obstacles to any substantial fraudulent transfer or illeg al distribution recovery by the Debtors [relati ng to the recapitalization], the examiner believes tha t the prosecution of such claims is extremely diff icult to justify . . . . As a legal matter, the laws of the governing jurisdiction (Alabama, and, if suit is filed in Delaware, the Third Circuit) present formidable obstac les to recovery from the principal defendants.

The releases of these claims do not cover any direc t, personal, non-derivative claims held by creditors a gainst non-debtor third parties. The releases do extinguis h many if not all of the claims arising out of the recapit alization that could have been pursued by the Debtors or on t heir behalf. The parties do not dispute the findings of fact included in the Examiner's Final Report. Huff and H SBC argue, however, that the Examiner's (and the Distri ct Court's) conclusion that there was little value to be had from the claims was flawed because it depended on t he

Examiner's conclusion that Bruno's was left solvent after the recapitalization. Huff argues that the Examiner erred in adopting the enterprise valuation approach.

B.

The second issue regarding the releases has to do w ith Paragraph 58 of the Confirmation order, which relea ses Committee members and professionals who provided services after the petition date from certain liabi lity for their work in the reorganization. The release in Paragrap h 58 is limited to claims brought in connection with work o n the bankruptcy reorganization plan, and it does not eli minate liability but rather limits it to willful misconduc t or gross negligence. Huff and HSBC nevertheless argue that t his release violates S 524(e) of the Bankruptcy Code be cause it affects the liability of another entity for the deb t of the Debtors. The Debtors respond that the releases do n ot come within the meaning of S 524(e) and were consis tent with the standard of liability under the Code.

15C.

The third set of claims concern the waiver of prefe rences, i.e., preference claims to recover from trade credi tors and suppliers for payments made in the 90 days prior to filing for bankruptcy. As noted above, the Debtors paid ou t substantial sums of money during this period. Under bankruptcy law, such payments can be recovered by t he estate; S 547 of the Bankruptcy Code vests exclusiv e discretion to prosecute or not prosecute preference claims with the trustee or debtor-in-possession. Afterfili ng, the Debtors pursued a preference action against the Ban ks, seeking to avoid certain liens granted to the Banks within 90 days of the filing. The action settled; the Bank s agreed to release the liens granted just prior to the bank ruptcy filing against property and assets of the Debtors a nd, in exchange, the Debtors agreed to pay the fees and ex penses of the Banks' attorneys throughout the Chapter 11 c ase. The Debtors waived many other preference actions. T he Debtors represent that they decided to waive these claims as a part of the reorganization plan in order to fa cilitate and rehabilitate post-reorganization relationships with key suppliers.

D.

The District Court confirmed the Debtors' reorganiz ation plan after a three day hearing. The confirmation or der was issued by the District Court pursuant to 28 U.S.C.S 1334, which grants jurisdiction to the district courts ov er bankruptcy matters. Because this is an appeal from a district court exercising original jurisdiction in bankruptcy, our jurisdiction stems from 28 U.S.C. S 1291 rather than 28 U.S.C. S 158(d). See In re Marvel Entertainment Group, Inc., 140 F.3d 463, 470 (3d Cir. 1998). The confirm ation order was a final appealable order. See id. at 469 . We review the District Court's legal determinations de novo, its factual findings for clear error, and its exercise of discretion for abuse thereof. See In re Environmental Energy, Inc., 188 F.3d 116, 122 (3d Cir. 1999).

II. Equitable Mootness

Under the doctrine of equitable mootness, an appeal should be dismissed, even if the court has jurisdic tion and

16could fashion relief, if the implementation of that relief

would be inequitable. See In re Continental Airline s, 91 F.3d 553, 559 (3d Cir. 1996) (Continental I). As we note d in Continental I, "[t]he use of the word`mootness' as a shortcut for a court's decision that the fait accom pli of a plan confirmation should preclude further judicial proceedings has led to unfortunate confusion" betwe en equitable mootness and constitutional mootness. Id. Constitutional mootness implicates the Article III case or controversy requirement; an appeal is moot in the constitutional sense only if events have taken plac e that make it "impossible for the court to grant `any eff ectual relief whatever.' " Church of Scientology of Calif. v. United States, 506 U.S. 9, 12 (1992) (citation omitted). E quitable mootness is a broader concept that has developed in bankruptcy law. It provides that that "[a]n appeal should . . . be dismissed as moot when, even though effect ive relief could conceivably be fashioned, implementation of t hat relief would be inequitable." Continental I , 91 F. 3d at 558 (citing In re Chateaugay Corp., 988 F.2d 322, 325 ( 2d Cir. 1993)).

In Continental I, we dismissed the appeal after fin ding it equitably moot because the appeal had an "integral nexus" with the feasibility of the Continental Debtors' pl an of reorganization. Id. at 564. The Court identified pr udential factors with which to evaluate equitable mootness, including whether the plan has been substantially consummated or stayed, whether the requested relief would affect the rights of other parties, whether the req uested relief would affect the success of the plan, and wh ether it would further the public policy of affording finali ty to bankruptcy judgments. See id. at 560. These factors are given varying weight, depending on the particular circumstances, but the foremost consideration is wh ether the reorganization plan has been substantially consummated. See id. "This is especially so where t he reorganization involves intricate transactions . . . or where

outside investors have relied on the confirmation o f the plan." Id. at 560-61 (citations omitted). We have a lso noted, however, that the doctrine is "limited in scope and [should be] cautiously applied," id. at 559, and that it in volves "a

17discretionary balancing of equitable and prudential factors,"

id. at 560.

The Debtors here argue that, since the stay was den ied and the reorganization has gone forward, this appea l is equitably moot. They argue that the appeal, if succ essful, would necessitate the reversal or unraveling of the entire plan of reorganization. We disagree. There are inte rmediate options. The releases (or some of the releases) cou ld be stricken from the plan without undoing other portio ns of it. We draw instruction in this regard from In re Chate augay Corp., 167 B.R. 776, 780 (S.D.N.Y. 1994), in which the

court stated that

[i]t is difficult to conceive how a potentia l liability of, at most, several million dollars could unravel the Debtors' reorganization, which involved the transfer of billions of dollars, and which has resulted in the reviv al of Debtors into a multibillion dollar operation with $200 million in working capital . . . appellees h ave made no showing that it would "knock the props out f rom under the authorization for every transaction that has taken place and create an unmanageable, uncontroll able situation for the Bankruptcy Court."

(quoting In re Chateaugay Corp., 10 F.3d 944, 952 ( 2d Cir. 1993)).

In balancing the policy favoring finality of bankru ptcy court judgments--particularly reorganization plans- - against other considerations, we conclude that the equities here do not require dismissal. Huff has clearly bee n an active participant in the reorganization and was he ard at length in the confirmation hearing, and in that sen se has had its day in court. It seeks to invalidate releas es that affect the rights and liabilities of third parties. The plan has been substantially consummated, but, as noted above , the plan could go forward even if the releases were str uck, and Huff 's reply brief suggests that it now seeks only alterations to the plan rather than an unraveling o f the reorganization. Cf. In re Continental Airlines , 20 3 F.3d 203, 210 (3d Cir. 2000) (Continental II) (rejecting equi table mootness argument as inadequately pled, but noting also that the argument was unlikely to succeed because"[ n]o

18evidence or arguments have been presented that Plai ntiffs'

appeal, if successful, would necessitate the revers al or unraveling of the entire plan of reorganization"). We therefore hold that this appeal should not be dismi ssed for equitable mootness.

III. The Absolute Priority Rule

Section 1129(b)(2) of the Bankruptcy Code requires that creditors be paid in full before holders of equity receive any distribution. It reads in pertinent part:

(2) For the purpose of this subsection, the condition that a plan be fair and equitable with respe ct to a class includes the following requirements:

. . .

(b) With respect to a class of unsecured cla ims--

. . .

(ii) the holder of any claim or interest tha t is junior to

the claims of such class will not receive or retain under the plan on account of such junior claim or interest
any property.

11 U.S.C. S 1129(b)(2). This provision is the"absol ute priority rule." Huff contends that the District Cou rt erred in confirming the plan because, by releasing the claim s arising out of the recapitalization, the plan awarded an in terest to old equity (KKR and the other participants in the reorganization) "on account of " their interest in the estate in violation of the absolute priority rule. Huff 's theory has several components. First, it makes the legal argum ent that under Bank of America National Trust and Savings Association v. 203 North LaSalle Street Partnership , 526 U.S. 434 (1999), the Supreme Court's most recent ca se construing S 1129(b)(2), no junior class of credito rs or interest holders may receive or retain any property under a plan in which a rejecting class of creditors is not being paid in full. Second, Huff submits that the District Cou rt erred in concluding that the claims were eliminated becau se they were unlikely to succeed and potentially costly to the debtors to pursue. The success of this contention d epends

19on Huff 's ability to establish that the Examiner a nd the

District Court erred in concluding that the claims were unlikely to succeed. We begin by discussing 203 Nor th

LaSalle.

A.

In 203 North LaSalle, 526 U.S. 434 (1999), the Supr eme Court held that, even if it is assumed that there i s a new value corollary to the absolute priority rule (whic h would allow old equity to contribute new value and receiv e interest in the reorganized entity in exchange), allowing ju nior interest holders to have an exclusive opportunity t o obtain an interest in a reorganized entity by providing ne w value, free from competition and without market valuation, violates S 1129(b)(2)(B)(ii). See id. at 458.10 Thi s is because the exclusive opportunity to invest in the reorgani zed entity (and receive equity in it thereby) must be consider ed property received "on account of " the junior claim (the equity interest). Id. Huff argues that the plan, by releasing the claims arising out of the leveraged recapitaliz ation held by the bankrupt entity against holders of junior eq uity (such as KKR) even though senior creditors were not paid in full, essentially transferred property to those holders of junior equity in violation of the absolute priority rule.

There can be little doubt that a legal claim is pro perty within the meaning of the Bankruptcy Code. See Nort hview Motors, Inc. v. Chrysler Motors Corp., 186 F.3d 346 , 350 (3d Cir. 1999) (treating estate's legal claims as estat e property within the meaning of the Code). Similarly, a relea se of liability has value cognizable under the Code. Acco rdingly, when the Debtors extinguished the claims arising ou t of the

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10. For some time, there has been a split of author ity regarding whether there is a "new value" exception or corollary to th e absolute priority

rule. Such a corollary would mean that, when old equity p rovides new value under the reorganization plan, any property it rece ives under the plan

would not be considered to be received "on account of " the old equity

interest and therefore would not violate the absolu te priority rule. The Supreme Court declined to decide whether there is a new value corollary in 203 North LaSalle, 526 U.S. at 454 (1999), and t hat issue is not presented in this case.

20recapitalization, KKR received something of value e ven

though some creditors senior to the equity holder h ad not been paid in full. KKR is a key potential object of the avoidance claims because it was a moving force in t he reorganization, and a holder of equity in the Debto rs. Thus,

if KKR benefitted from the releases "on account of " its interest in the Debtors, then the plan violated the absolute priority rule.

In 203 North LaSalle, the Supreme Court interpreted the "on account of " language in S 1129(B)(2)(b)(ii). T he Court rejected arguments that "on account of " means "in satisfaction of " the interest or "in exchange for" the interest

and concluded that it means "because of " the inter est. 526 U.S. at 450-51. Accordingly, a causal connection be tween holding the prior claim or interest, and receiving or retaining property, will trigger the absolute prior ity rule. The degree of causation required is not defined spe cifically in 203 North LaSalle, because the Court concluded t hat on either of several views the creditor's objection in that case would require rejection of the plan at issue. See i d. at 454. Nevertheless, the Court provided a few points of re ference for defining prohibited "on account of " transactio ns.

First, the Court rejected the amicus curiae positio n of the United States, which had contended that, under a reorganization plan, old equity should not be allow ed to take any property of the debtor if creditors are no t paid in

full. See id. at 451. The Court said that this "sta rchy" position could not be correct because, under this v iew of the absolute priority rule, Congress would have omi tted entirely the phrase "on account of." Id. at 451-52 . This confirms that there are some cases in which propert y can transfer to junior interests not "on account of " t hose

interests but for other reasons.

Second, in considering the necessary level of causa tion, the Court looked to the two basic goals of Chapter 11: those of "preserving going concerns and maximizing property available to satisfy creditors." Id. at 4 53. While emphasizing that it was not providing "an exhaustiv e list of the requirements," id., the Court explained:

Causation between the old equity's holdings and subsequent property substantial enough to di squalify a

21plan would presumably occur on this view of things

whenever old equity's later property would c ome at a price that failed to provide the greatest po ssible addition to the bankruptcy estate, and it wo uld always come at a price too low when the equity hold ers obtained or preserved an ownership interest for less than someone else would have paid.

Id. at 453 (citations omitted).

B.

We do not believe that these releases were made"on account of " KKR's junior interest as that phrase i s construed in 203 North LaSalle. What doomed the pla n in 203 North LaSalle was not that old equity received property under the plan, but the "exclusivity" that old equi ty enjoyed, which suggested that old equity might have

obtained the interest for less than someone else mi ght have paid.11 Under the 203 North LaSalle plan, old equit y set the price for the interest it obtained under the plan, and the right to set this price amounted to a property righ t in itself:

Hence it is that the exclusiveness of the op portunity with its protection against the market's scr utiny of the purchase price by means of competing bids or even competing plan proposals, renders the partne rs' right a property interest extended "on account of " the old equity position and therefore subject to an unpaid senior creditor class's objection.

Id. at 456.

In this case, to the extent that KKR and the other entities

that benefitted from the releases had an exclusive

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11. Huff argues that 203 North LaSalle's prohibitio n on exclusive opportunities was violated here because the Debtors had the exclusive opportunity to dispose of the Debtors' property. Ho wever, to read 203 North LaSalle so broadly would be to undermine the express statutory provision for exclusivity in S 1121(b), which provi des "[e]xcept as otherwise provided in this section, only the debtor may file a plan until after 120 days after the date of the order for reli ef under this chapter." See In re Zenith Electronics, 241 B.R. 92, 106 (Ban kr. D. Del. 1999) (making this point). This we decline to do.

22opportunity to gain the release in the reorganizati on, it was

only because they were on the radar screen as poten tially liable parties. Huff has adduced no evidence that t hey sought out the releases or set a price for them; in deed, Huff itself made several offers for the claims, which we re considered and rejected, demonstrating that KKR enj oyed no exclusivity of opportunity.12

The District Court held that the decision to exting uish the claims arising out of the recapitalization was made because the claims were adjudged to have a negative value to the estate and not because the junior creditors persuaded the Debtors to release them "on account o f "

their interest in the Debtors and in violation of t he absolute priority rule. It concluded that the claims were ex tinguished for three reasons. First, it was persuaded by the E xaminer's

conclusion that there was a low likelihood of recov ery on the claims. At the stay hearing, the Court noted th at

I have to say I was sitting at the end of th e confirmation hearing, still waiting to hear the facts that

would convince me that there . . . was value to be had

. . . and I never heard that. And I remain c onvinced that there was every opportunity to make tha t record,

and that record was not made.

The Examiner concluded that the prospects for succe ssfully prosecuting the claims were "not promising." He not ed that, as a factual matter, the recapitalization transacti on differed markedly from prior highly leveraged transactions t hat had

been found to be unlawful insofar as the risks of t he transaction were born by the acquirer (KKR) and oth er unsecured creditors and not by pre-transaction cred itors. Second, the Court concluded that the potential cost to the

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12. Huff has argued that its own willingness to buy the claims from the bankruptcy estate shows that the claims did have va lue (and thus, by implication, that they were extinguished not becaus e they lacked value but because they had value that the junior creditor s saw and managed to capture in violation of the absolute priority ru le). But Huff offered only $100,000 plus some portion of any future recovery. We do not think that relatively meager and arguably strategic offer demo nstrates that the

claims would have had more value to the estate if t hey had been preserved or sold to Huff than they did under the r eorganization plan.

23estate of prosecuting the action and defending and paying

indemnification claims, cross claims, and countercl aims arising out of the prosecution was high. Third, the Court
believed that there was some likelihood that the Ba nks and the subordinated noteholders, as participants in th e leveraged recapitalization, would be estopped from recovering on the claims.

Huff and HSBC do not challenge the Examiner's (and the District Court's) factual findings, which, at all e vents, are well supported, but contend that the Examiner's ana lysis of

the value of the claims was flawed because he made a legal error in determining that a court would evaluate th e claims on an enterprise evaluation basis, and thus he inco rrectly concluded that the claims were unlikely to succeed. It is on this basis that they challenge the finding made by the Examiner and accepted by the District Court that th e claims were of little value to the estate. Their th eory is that

the claims did have substantial value and thus that the District Court erred in concluding that the claims were released because they were adjudged to be unlikely to

succeed.

C.

The Examiner analyzed the viability of any claims a rising out of the recapitalization primarily under Alabama law.13 Two types of fraudulent transfers, actual and const ructive, are within the scope of the Alabama Fraudulent Tran sfer Act, ALA. CODE 1975, S 8-9A-1 et seq. See McPherson Oil Co., Inc. v. Massey, 643 So.2d 595, 596 (Ala. 1994). An actual fraudulent transfer is one made by a debtor who tra nsfers assets "with actual intent to hinder, delay, or def raud any creditor of the debtor." ALA. CODE 1975, S 8-9A-4(a ). The

trial court considers several factors in determinin g whether the debtor possessed the requisite intent, includin g to

___________________________________________________ ______________

13. Huff does not challenge the decision to analyze claims arising out of the recapitalization under Alabama law. The Examine r canvassed choice

of law rules and determined that Alabama law would apply to the claims

whether suit was filed within the Third Circuit or in Alabama because Alabama's contacts with Bruno's generally, and with the recapitalization specifically, exceeded all others in quantity, subs tance, and significance.

24whom the transfer was made, the amount of assets

transferred, and the financial condition of the deb tor before and after the transfer. See id., S8-9A-4(b); McPher son Oil,

643 So.2d at 596. A constructive fraudulent transfe r occurs when a debtor transfers assets to another without consideration, and the debtor was, or became, insol vent at the time of the transfer. See ALA. CODE 1975, S 8-9 A-5(a); McPherson Oil, 643 So.2d at 596; Champion v. Lockle ar, 523 So.2d 336, 338 (Ala. 1988).

The parties have focused on potential constructive

fraudulent transfer claims.14 To succeed on a claim of constructive fraudulent transfer arising out of the recapitalization, a claimant would have to show tha t Bruno's was insolvent or left with unreasonably sma ll capital at the time of the recapitalization.15 Base d on the conclusion that the leveraged recapitalization did not
render Bruno's insolvent or leave it with unreasona bly small capital, the Examiner concluded that the clai ms had little value.16 He noted as well that, because KKR bore most of the risk of the transaction, the chance that KKR would

be held liable for constructive fraudulent transfer was

remote.

Huff would have us reject the Examiner's conclusion s that Bruno's was solvent after the recapitalization on the

basis that the Examiner used an incorrect method to evaluate solvency. Huff argues that the Examiner er red by evaluating solvency on a "business enterprise" meth od rather than a "piecemeal or asset-by-asset" valuati on method (which does not take goodwill into account e xcept

___________________________________________________ ______________

14. The Examiner concluded that the chances that a claim for actual

fraudulent transfer would succeed were remote.

15. The Examiner concluded that the fraudulent tran sfer claims would not be barred under the applicable statutes of limi tations, and no one has challenged that conclusion.

16. The Examiner also concluded that there was a re asonable possibility

that the subordinated noteholders and the Banks wou ld be estopped from sharing in any fraudulent transfer recoveries. In this regard, it is significant that 87% of the debtors' creditors (i.e . the senior lenders

and the subordinated noteholders) participated in the r ecapitalization.

25insofar as the entity includes separately saleable

intangibles).17

The Examiner used the business enterprise method, a s opposed to the asset-by-asset method, after extensi ve analysis of the case law. He concluded that it was unlikely that a court would analyze fraudulent conveyance cl aims under the asset-by-asset test and that the business enterprise method was consistent with generally acc epted accounting principles (GAAP) and appropriate under the

circumstances. We conclude that the District Court' s decision to credit the Examiner's Report, which con cluded that the business enterprise approach was the appro priate measure of solvency, was not error. The Alabama Fraudulent Transfer Act does not appear to require an asset-by-asset approach.18 The statute limits the d efinition of assets without excluding assets, such as goodwil l, that are typically included in the business enterprise a nalysis

___________________________________________________ ______________

17. The Examiner actually used an "adjusted busines s enterprise" method, in which he considered short-term liabiliti es, which are often left out of a business enterprise analysis. He did so because he concluded that a court analyzing fraudulent transfe r would include short

term liabilities in an assessment of liabilities. T he Examiner also considered contingent and off-balance sheet liabili ties for the same

reason.

18. The statute provides that

(a) A debtor is insolvent if the sum of the debtor's debts is
greater
than all of the debtor's assets at a fair va luation.

(b) A debtor who is generally not paying his debts as they become due is presumed to be insolvent.

***

(d) Assets under this section do not include property that has been transferred, concealed, or removed with inte nt to hinder, delay, or

defraud creditors or that has been transferr ed in a manner making the transfer voidable under this chapter.

(e) Debts under this section do not include an obligation to the extent it is secured by a valid lien on prop erty of the debtor not

included as an asset.

ALA. CODE 1975 S 8-9A-2. No evaluation method is sp ecified by the statute, which does not define "fair valuation."

26but not in an asset-by-asset evaluation. See ALA. C ODE 1975

S 8-9A-2.

Moreover, however value is analyzed, it is clear th at Bruno's functioned soundly for several years after the recapitalization, paying its debts (including all i nterest payments) and successfully renegotiating the intere st rates on some of its loans. Huff has given us no reason t o conclude that the Examiner incorrectly determined t hat Bruno's was solvent at the time of the recapitaliza tion. Huff itself initially invested in Bruno's in December 19 95 (four months after the recapitalization). It made additio nal investments in 1996 and early 1997, and in October 1997 Huff 's analysts were still recommending Bruno's as a "buy." Importantly, and as the District Court noted , at the time of the recapitalization Huff 's own experts ag reed that

Bruno's was solvent:

The credit analysis prepared by Huff 's fina ncial analyst, Allen Gurevich, in August 1995 (Deb tor's Exhibit 18) and the testimony of Huff 's por tfolio manager (tr. pp 122-123) and Huff 's inside attorney Bryan Bloom (tr. 166-0167) that the fair mar ket value of Bruno's at the time of the Leveraged Reca pitalization in August 1995 approximated 1.1 billion.

And as the Examiner noted, "in connection with the transaction, other sophisticated financial inst[itu tions] relied on KKR's projections. From interviews with representatives of all of these institutions and a review of thousands of documents, the Examiner is aware of no instance in which these institutions contemporaneou sly challenged the reasonableness of KKR's projections for Bruno's." Huff 's challenge to the Examiner's and t he District Court's finding that the leveraged recapit alization did not render Bruno's insolvent is unavailing.

As noted above, Huff does not challenge the Examine r's factual findings, and we find no error in District Court's decision to accept the Examiner's decision to evalu ate the claims using the business enterprise method. Huff ' s remaining argument that the release of the claims w as on account of the interest amounts to an argument from res ipsa loquitur: KKR had an equity interest in the co rporation,

27and therefore the Debtors must have made the releas es for

that reason. If we were to accept this position, wi thout some evidence of a causal relationship, any time th at old equity received anything of value under a reorganiz ation plan we would have to conclude that it was received "on account of " the interest--the position rejected by the Supreme Court in 203 North LaSalle. See 526 U.S. a t 451- 52. In this regard, it is significant that claims a gainst all participants in the recapitalization, and not just KKR, were extinguished, including all claims against the note holders (including Huff) and all claims against the shareho lders who were bought out in the recapitalization (who we re the managers of the company when it made the deal for t he reorganization).

The evidence compels the conclusion that the claims were extinguished because, in the judgment of the p lan proponents, extinguishment was the approach most li kely to provide the greatest possible addition to the ba nkruptcy estate. To be sure, the releases were not subjected to a formal "market test," as 203 North LaSalle suggest s may be required. However, in these circumstances, the Exam iner's finding that the claims had little to no value, whi ch was accepted by the District Court, was an appropriate surrogate for a market test and an acceptable safeg uard.

We thus conclude that the District Court did not er r in concluding that the potential cost of defending and paying indemnification claims, cross claims, and countercl aims arising out of the prosecution of the claims was hi gh, and that the claims were extinguished not on account of KKR's interest in the Debtors, but because the Debtors determined that they were unlikely to have any valu e. The

Examiner's and the District Court's conclusions tha t the claims were unlikely to succeed and were potentiall y costly to pursue are legally and factually supported. Huff has failed to demonstrate the requisite causal relation ship

between the transfer of value and KKR's interest in the Debtors. Therefore, we conclude that the plan did n ot violate the absolute priority rule.

This is not to say that a reorganization plan can t ransfer

assets whenever the Trustee or the Debtor-in-Posses sion judges that to do so would be in the best interest of the

28reorganized entity. Rather, we announce a narrow ru le that,

without direct evidence of causation, releasing pot ential claims against junior equity does not violate the a bsolute priority rule in the particular circumstance in whi ch the estate's claims are of only marginal viability and could be costly for the reorganized entity to pursue.

IV. Good Faith

Huff contends that the plan should not have been

confirmed because the District Court erred in deter mining that it was proposed in good faith. Section 1129(a) (3) provides that the court shall confirm a plan only i f "[t]he plan has been proposed in good faith and not by any means forbidden by law." 11 U.S.C. S 1129(a)(3)."[F]or pu rposes of determining good faith under section 1129(a)(3) . . . the important point of inquiry is the plan itself and w hether such a plan will fairly achieve a result consistent with the objectives and purposes of the Bankruptcy Code." In re Abbotts Dairies of Pennsylvania, Inc., 788 F.2d 143 , 150 n.5 (3d Cir. 1986) (quoting In re Madison Hotel Assocs. , 749 F.2d 410, 425 (7th Cir. 1984)) (alteration in origi nal). The District Court's determinations of fact pertaining to good

faith are reviewed for clear error. Cf. Abbotts Dai ries, 788 F.2d at 147 (holding that the standard of review fo r good faith under S 363(m) of the Code is mixed:"we exerc ise plenary review of the legal standard applied by the district and bankruptcy courts, but review the latter court' s findings of fact on a clearly erroneous standard") (citations omitted).

Huff contends that the plan was not proposed in goo d faith because the releases from any claims arising out of the recapitalization were made in a collusive quid pro quo for the waiver of preferences. Huff 's theory of ba d faith is that KKR orchestrated the reorganization and contro lled the Debtors throughout the reorganization in order to a void potential liability arising out of the leveraged recapitalization, and that it persuaded the other c reditors to agree to the reorganization plan by including the w aiver of preferences.

As the District Court found, however, the timing of the releases belies this argument; there is scant evide nce tying

29the release of the claims arising out of the recapi talization

to the waiver of preferences. The Debtors decided n ot to pursue the preferences on March 17, 1999. One month later, the Committee passed a resolution preserving the claims arising out of the recapitalization until fu rther information could be gathered about them. This show s that a month after the Debtors decided not to pursue the preferences, the Committee had not decided whether to release the claims arising out of the recapitalizat ion plans.

At the confirmation hearing, Ms. Schirmang, co-chai r of the Committee, testified that the Debtors did not r elease the claims arising out of the leveraged recapitaliz ation in a quid pro quo deal for the preference claims. She te stified that, when the Committee decided to release the cla ims in May 1999, it did so "in the interest of getting the plan into the hands of creditors and hopefully getting a dist ribution as soon as possible and getting the Debtor out of bankruptcy." Ms. Schirmang also testified that the preference waivers were intended to maintain and rehabilitate post-petition relationships within the trade, and that there was nothing unusual about the waiver of preferences: "to be honest with you, I have never s een a reorganized debtor pursuing preference actions." Th e trade

creditors who benefitted from the waivers included key suppliers to the business. See note 3, supra. Huff has not presented anything but innuendo in support of its argument that the Debtors failed to act in good fai th. Given the record evidence, we conclude that the District Court's finding that the plan was proposed in good faith wa s not in

error.

V. Conformity to Applicable Provision of

Title II of the Code

Section 1129(a)(1) provides that the court shall co nfirm a plan if it "complies with the applicable provisions of this title." 11 U.S.C. S 1129(a)(1). This requires that the plan conform to the applicable provisions of Title II. S ee Lawrence P. King, Collier on BankruptcyP 1129.03[1] , 1129- 25 (15th ed. rev. 1996). Huff argues that the plan should

not have been confirmed because it violates several provisions of Title II.

30A. Section 510(a)

Section 510(a) provides that a "subordination agree ment
is enforceable in a case under this title to the sa me extent that such agreement is enforceable under applicable nonbankruptcy law." Huff argues that it had subroga tion rights under the indenture which are violated by th e terms of the plan. The relevant provision of the indentur e provides

that

[a]fter all senior indebtedness has been pai d in full . . . . Holders shall be subrogated . . . to the rights of

holder of Senior Indebtedness to receive dis tributions [from the debtors] applicable to Senior Inde btedness to the extent that distributions otherwise paya ble to the Holders have been applied to the payment of Senior Indebtedness. No payments or distributions t o the

holders of Senior Indebtedness to which the Holders of

the Securities or the Trustee would be entit led except for the provisions of this Article . . . sha ll, as between the Company, its creditors other than holder s of the

Senior Indebtedness and the Holders of the S ecurities, be deemed to be a payment by the Company to or on account of Senior Indebtedness.

The subordination agreement is an intercreditor arrangement between the Banks (the senior indebtedn ess)

and the subordinated noteholders. It does not relie ve the Debtors of their payment obligations on the subordi nated notes. But the subordinated noteholders' subrogatio n rights under the indenture described in these provisions n ever arose because the Banks' claims were not paid in fu ll under the plan. There is no question that the Banks were not paid in full under the reorganization plan, because the reorganized entity was worth at most $340 million, whereas the Banks had claims of $421 million.

Huff argues that the subordinated noteholders had a right under this provision to subrogation. More spe cifically, Huff argues that it should be awarded warrants to purchase common stock if and when the reorganized company reaches a value of $421 million. But the bankruptcy estate is evaluated and distributions ma de at the time of the effective date of the reorganizatio n plan. See

3111 U.S.C. S 1129(b)(2)(B)(i) (referring to"value, a s of the

effective date of the plan"). After that date, ther e are no remaining claims under which Huff could assert subrogation rights. This contention therefore fails

.

Huff also argues that under an additional clause, t he socalled X clause, the subordinated noteholders shoul d get securities in the new entity subordinated to the Ba nks' interests to the same extent that they had an inter est in the old entity.19 The clause states that

[u]ntil all Obligations with respect to Seni or Indebtedness (as provided in Subsection abov e) are paid in full in cash or cash equivalent, any distribution

to which holders would be entitled but for t his article

shall be made to holders of Senior Indebtedn ess (except that Holder may receive (i) securities that are subordinated to at least the same extent as the Securities to (a) Senior Indebtedness and (b ) any securities issue in exchange for Senior Inde btedness), as their interests may appear.

This clause does not apply to the current situation . The clause requires that, if the Debtors distribute sec urities to the subordinated noteholders, the general obligatio n to turn
over distributions to Senior Indebtedness is waived so long

as the new securities are subordinated "to the same extent as" the existing subordinated debt.

As the Seventh Circuit has explained, these clauses are quite common, and are intended to avoid a procedure of requiring junior creditors to turn over securities and then receive them back once senior creditors are paid in full:

[s]uch clauses are common in bond debentures
, although there is no standard wording. Witho ut the clause, the subordination agreement that it qualifies would require the junior creditors to turn o ver to the senior creditors any securities that they ha d received as a distribution in the reorganization, unl ess the senior creditors had been paid in full. Then
,

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19. The Debtors argue that this issue was not raise d in the District Court, but we are satisfied that it was raised in H SBC's objections to the plan, and in Huff 's argument to the District Court

.

32presumably, if the senior creditors obtained full

payment by liquidating some of the securitie s that had been turned over, the remaining securities w ould be turned back over to the junior creditors. Th e X Clause shortcuts this cumbersome procedure and enha nces the marketability of the securities received by the junior creditors, since their right to posse ss (as distinct from pocket the proceeds of) the securities is uninterrupted.

In the Matter of Envirodyne Indus., Inc., 29 F.3d 3 01, 306 (7th Cir. 1994). We agree. The clause is not a requ irement

that the Debtors distribute to the subordinated not eholders subordinated securities, or warrants to purchase se curities, if the reorganized entity does well in the future s o that the Banks (the Senior Indebtedness) make back their los ses, in proportion to any securities distributed to Senior

Indebtedness.

Huff makes one final argument under this section--t hat the provision of the indenture that states that"not hing in the indenture shall impair, as between the Company and the holders, the obligation of the Company, which i s absolute and unconditional, to pay principal of and interest on the Securities in accordance with their terms," requires the Debtors to preserve a recovery for the notehold ers with the issuance of securities junior to the common sto ck. This is a misreading of the provision, which simply prov ides that the subordination agreement is an intercreditor arrangement, i.e., an arrangement between the Banks (the senior indebtedness) and the subordinated noteholde rs, and does not relieve the Debtors of their payment obligations on the subordinated notes.

B. Section 524(e)

Section 524(e) provides that "[e]xcept as provided in subsection (a)(3) of this section,[20 ] discharge o f a debt of

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20. Subsection (a)(3) provides that a discharge of a case under Title II

operates as an injunction against the commen cement or continuation of an action, the employment of process, or an act, to

33the debtor does not affect the liability of any oth er entity

on, or the property of any other entity for, such d ebt." 11 U.S.C. S 524(e). Huff argues that the release in Pa ragraph 58 of the confirmation order violates S 524(e), bec ause it affects the liability of the members of the Committ ee and professionals who provided services to the Debtors to third parties. However, we believe that Paragraph 58, whi ch is apparently a commonplace provision in Chapter 11 pl ans, does not affect the liability of these parties, but rather states the standard of liability under the Code, an d thus does not come within the meaning of 524(e).21

Section 524(e) "makes clear that the bankruptcy discharge of the debtor, by itself, does not operat e to relieve

non-debtors of their liabilities." In re Continenta l Airlines, 203 F.3d 203, 211 (3d Cir. 2000) (Continental II ) (citations omitted). Section 524(e), by its terms, only provid es that a discharge of the debtor does not affect the liabili ty of nondebtors on claims by third parties against them for the debt discharged in bankruptcy. Thus, for example, S 524( e) makes clear that a discharge in bankruptcy does not

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collect or recover from, or offset against, property of the debtor

of the kind specified in section 541(a)(2) of t his title that is acquired after the commencement of the case, on accou nt of any allowable community claim, except a community claim th at is excepted from discharge under section 523, 1228(a)(1), or 1328(c)(1) of this title, or that would be so excepted, determined in acc ordance with the provisions of sections 523(c) and 523(d) of this title, in a case concerning the debtor's spouse commenced on the date of the filing of the petition in the case concerning the d ebtor, whether or not discharge of the debt based on such communit y claim is waived.

11 U.S.C. 524(a)(3).

21. HSBC argues more generally that "[t]he most obv ious defect of the Plan is that it incorporates releases and provides for extinction of

causes of action against non debtor third parties for no c onsideration." It

argues that under In re Continental Airlines, 203 F.3d 203 , 211 (3d Cir. 2000), a plan with releases is unconfirmable as a matter o f law. HSBC reads S 524(e) and Continental II too broadly. Section 52 4(e) provides that the bankruptcy discharge of the debtor does not operate to relieve nondebtors of their liabilities, but by its terms it d oes not govern provisions in a plan by which a debtor releases its own claims against third parties.34extinguish claims by third parties against guaranto rs or

directors and officers of the debtor for the debt d ischarged in bankruptcy. Indeed, Continental II held that a p lan that enjoined plaintiffs' actions against the debtor's d irectors and officers who "ha[d] not formally availed themse lves of the benefits and burdens of the bankruptcy process, " id. at 211, violated S 524(e), id. at 214. The injunction in that plan protected directors and officers from actions taken prior to bankruptcy that allegedly violated the sec urities laws and thus abrogated the liability of third part ies.

Paragraph 58 does not similarly affect the liabilit y of third parties. Paragraph 58 provides that

[n]one of the Debtors, the Reorganized Debto rs, New Bruno's, the Creditor Representative, the Co mmittee or any of their respective members, officers, d irectors, employees, advisors, professionals or agents shall have or incur any liability to any holder of a Cl aim or Equity Interest for any act or omission in connecti on with, related to, or arising out of, the Chapter 1 1 Cases, the pursuit of confirmation of the Plan, the con summation

of the Plan or the Administration of the Pla n or the property to be distributed under the Plan, e xcept for willful misconduct or gross negligence, and, in all respects, the Debtors, the Reorganized Debto rs, New Bruno's, the Creditor Representative, the Co mmittee and each of their respective members, office rs, directors, employees, advisors, professional s and agents shall be entitled to rely upon the ad vice of counsel with respect to their duties and res ponsibilities under the plan.

Under Paragraph 58, members of the Committee and professionals who provided services to the Debtors remain liable for willful misconduct or gross negligence. Because we conclude that this standard of liability is the standard that already applies in this situation, we believe that Paragraph 58 affects no change in liability.

Section 1103(c) of the Bankruptcy Code, which grant s to the Committee broad authority to formulate a plan a nd perform "such other services as are in the interest of those represented," 11 U.S.C. S 1103(c), has been interpr eted to

35imply both a fiduciary duty to committee constituen ts and

a limited grant of immunity to committee members, s ee In re L.F. Rothschild Holdings, Inc., 163 B.R. 45, 49 (S.D.N.Y. 1994); In re Drexel Burnham Lambert Group, Inc. , 1 38 B.R. 717, 722 (Bankr. S.D.N.Y. 1992), aff 'd, 140 B.R. 3 47 (S.D.N.Y. 1992); In re Tucker Freight Lines, Inc., 62 B.R. 213, 216, 218 (Bankr. W.D. Mich. 1986); Lawrence P. King, Collier on Bankruptcy P 1103.05[4], 1103-32-33 (15t h ed. rev. 1996) ("[A]ctions against committee members in their capacity as such should be discouraged. If members of the committee can be sued by persons unhappy with the committee's performance during the case or unhappy with the outcome of the case, it will be extremely diffi cult to find members to serve on an official committee.").

This immunity covers committee members for actions within the scope of their duties. The committee mem bers and the debtor are entitled to retain professional services to assist in the reorganization. In Pan Am Corp. v. De lta Airlines, Inc., 175 B.R. 438, 514 (S.D.N.Y. 1994), it was held that committee members and those professionals who provide services to the debtor with respect to reorganization, or to the committee members in thei r capacity as committee members, however, do remain l iable

for willful misconduct or ultra vires acts.

We agree with this interpretation of S 1103(c) and hold that it limits liability of a committee to willful misconduct or ultra vires acts. The release in Paragraph 58 se ts forth the appropriate standard for liability that would a pply to actions against the committee members and the entit ies that provided services to the Committee in the even t that they were sued for their participation in the reorg anization.22

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22. Huff also argues that the failure of the Debtor s to enforce the subordinated noteholders' subrogation rights violat es S 524(e) and calls this a provision "extinguish[ing] the Noteholders' rights to seek

recoveries directly against the Banks," which constitutes an i mpermissible nonconsensual third-party release. However, this argum ent is specious for the same reason that Huff 's main argument about th e surbordination agreement is specious: the subordinated noteholders ' subrogation rights only arise when the senior lenders are paid in full . As noted above, the senior creditors in this case were not paid in full under the plan.

36It does not affect the liability of another entity on a debt of

the debtor within the meaning of S 524(e).

Nothing in our recent opinion in Continental II is to the contrary. In that case, we held that a plan that en joined plaintiffs' actions against Continental's directors and officers violated S 524(e). Id. at 214. The release in question

here differs from that in Continental II in a funda mental way: it sets forth the applicable standard of liabi lity under S 1103(c) rather than eliminating it altogether. In Continental II, we concluded that it was clear unde r any rule that the court might adopt that the releases a t issue were impermissible because "the hallmarks of permis sible non-consensual releases--fairness, necessity to the reorganization, and specific factual findings to su pport
these conclusions--are all absent here." Id. at 214 . We did not treat S 524(e) as a per se rule barring any pro vision in a reorganization plan limiting the liability of thi rd parties.

See id. Because of the differences between the rele ases in the two cases, Continental II does not compel the conclusion that this release is impermissible. Inde ed, because this release does not affect the liability of third parties, but rather sets forth the appropriate stan dard of liability, we believe that this release is outside the scope of S 524(e).

C. Sections 363 and 1123

Section 363 governs the sale of assets outside of t he reorganization plan. It permits the trustee (or the debtor-inpossession), after notice and a hearing, to use, se ll, or lease property of the estate outside of the ordinary cour se of business. See 11 U.S.C. S 363(b)(1); In re Rickel H ome Centers, 209 F.3d 291, 297 (3d Cir. 2000). Section 1123(b)(4) provides that a plan may "provide for th e sale of all or substantially all of the property of the est ate, and the distribution of the proceeds of such sale among hol ders of claims or interests." 11 U.S.C. S 1123(b)(4). Huff characterizes the reorganization plan as involving a sale of

assets and tries to transform these two sections of the Bankruptcy Code into a general duty to fully market the company, similar to the duty recognized by the Dela ware Supreme Court in the context of corporate change in

37control transactions. See Paramount Communications v.

QVC Network, 637 A.2d 34, 43 (Del. 1994); Revlon, I nc. v. MacAndrews & Forbes Holdings, 506 A.2d 173, 182 (De l. 1986).

This argument fails because these provisions of the Code, even if they do impose a duty to fully market asset s in some circumstances (a question we do not address), are simply inapplicable to this situation. The plan wip ed out old equity and issued new stock to the creditors. F or tax purposes, this transaction was accomplished by transferring substantially all of the assets of the Debtors to a creditors' representative and immediately thereaf ter to the newly created Bruno's Supermarkets, a corporation w hose equity is owned by the senior lenders. But just bec ause a transaction is a sale or exchange for tax purposes does not mean that it is a sale within the meaning of the Co de. See In re PCH Assocs., 804 F.2d 193, 201 (2d Cir. 1986) (looking to the economic substance of the transacti on to
determine whether it was a sale or a lease within t he meaning of the Code). In a similar case, Major's Fu rniture Mart, Inc. v. Castle Credit Corp., 602 F.2d 538, 54 6 (3d Cir. 1979), we stated that

[i]t is apparent to us that on this record n one of the risks present in a true sale is present here . Nor has the custom of the parties or their relationship, as found by the district court, given rise to more than a debtor/creditor relationship in which Major' s' debt was secured by a transfer of Major's' customer a ccounts to Castle . . . . Accordingly, we hold that on this record

the district court did not err in determinin g that the true nature of the transaction between Major 's and Castle was a secured loan, not a sale.

That the assets passed though the hands of a credit ors' representative before being returned to the reorgan ized Debtors does not transform this plan from a stand-a lone, internally generated plan of reorganization to a sa le of assets to a third party. To hold otherwise would be to read S 1129 of the Code as characterizing the many reorganizations involving the transfer of control f rom a corporation's old equity to its creditors as involv ing a sale, a position without support in our jurisprudence.

38D. Section 1129(a)(2)

Section 1129(a)(2) provides that the court shall co nfirm a plan only if "[t]he proponent of the plan complies with the applicable provisions of this Title." 11 U.S.C.S 11 29(a)(2). We agree with the District Court's conclusion that S 1129(a)(2) requires that the plan proponent compl y with the adequate disclosure requirements of S 1125.23 T itle 11 U.S.C. S 1125(b) mandates the filing of a disclosur e statement containing "adequate information." Huff a rgues that the plan proponents failed to comply with the disclosure requirements by failing to provide adequ ate information regarding the release of the preference s. The Debtors respond that Huff does not have standing to raise this argument.

Appellate standing in bankruptcy cases is more limi ted than standing under Article III or the prudential requirements associated therewith. "Generally, liti gants in federal court are barred from asserting the constit utional rights of others." Kane v. Johns-Manville Corp., 84 3 F.2d 636, 643 (2d Cir. 1988) (citing Warth v. Seldin , 4 22 U.S. 490, 499, 509 (1975)). The court in Kane explained why limits on third-party standing are particularly rel evant to appellate standing in bankruptcy proceedings:

Bankruptcy proceedings regularly involve num erous parties, each of whom might find it personal ly expedient to assert the rights of another pa rty even though that other party is present in the pr oceedings and is capable of representing himself. Thir d-party standing is of special concern in the bankru ptcy context where, as here, one constituency bef ore the

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23. Other courts also have found S 1125 to be one o f the applicable provisions of the Code referenced to in S 1129. See , e.g., Tenn-Fla Partners v. First Union Nat'l Bank of Fla., 229 B.R . 720, 732 (W.D. Tenn. 1999); In re Trans World Airlines, Inc., 185 B.R. 3 02, 313 (Bankr. E.D.Mo. 1995) ("The principal purpose of section 11 29(a)(2) of the Bankruptcy Code is to assure that the plan proponen ts have complied with the disclosure requirements of section 1125 of the Bankruptcy Code in connection with the solicitation of acceptances of the plan."); see

also Lawrence P. King, Collier on BankruptcyP 1129.03[2] at 1126-26.1 & n.14 (15th ed. rev. 1996).

39court seeks to disturb a plan of reorganizat ion based

on the rights of third parties who apparentl y favor the plan. In this context, the courts have been understandably skeptical of the litigant's m otives and have often denied standing as to any claim t hat asserts only third-party rights.

Id. at 644; see also Travelers Ins. Co. v. H.K. Por ter Co., Inc., 45 F.3d 737, 741 (3d Cir. 1995) (adopting the reasoning of Kane).

Title 11 U.S.C. S 1109(b)--which provides that "[a] party in interest, including the debtor, the trustee, a c reditors' committee, an equity security holders' committee, a creditor, an equity security holder, or any indentu re trustee, may raise and may appear and be heard on a ny issue in a case under this chapter"--confers broad standing at the trial level. However, courts do not extend t hat provision to appellate standing:

This rule of appellate standing is derived f rom former section 39(c) of the Bankruptcy Act of 1898, which permitted only a "person aggrieved" to appea l an order of the bankruptcy court. 11 U.S.C. S 67(c) ( 1976) (repealed 1978). Although the present Bankru ptcy Code does not contain any express restrictio ns on appellate standing, courts have uniformly he ld that the "person aggrieved" standard is applicable to cases under the Code.

Kane, 843 F.2d at 641-42.

This court has emphasized that appellate standing i n bankruptcy cases is limited to "person[s] aggrieved ." Travelers Ins. Co., 45 F.3d at 741. We consider a p erson to be aggrieved only if the bankruptcy court's order "diminishes their property, increases their burdens , or impairs their rights." In re Dykes, 10 F.3d 184, 18 7 (3d Cir. 1993) (citation omitted). Thus, only those "whose r ights or interests are directly and adversely affected pecun iarily" by an order of the bankruptcy court may bring an appea l. Id. (internal quotation marks and citation omitted). Th e "person aggrieved" standard is more stringent than the constitutional test for standing. In re O'Brien Env tl. Energy, Inc., 181 F.3d 527, 530 (3d Cir. 1999).

40Huff contends that Bruno's failed to disclose that it had

not done a thorough analysis of preference claims b efore deciding not to pursue them. But Huff itself was aw are of this alleged failing at the time and pointed it out to the other creditors when it opposed the plan. Huff clea rly would not have acted any differently if the disclosure ha d been made as it now argues it should have been. Similarl y, because Huff pointed out the alleged failure to dis close in its statements protesting the plan, it cannot show that it was personally aggrieved because other creditors mi ght have voted differently if they had had the informat ion allegedly missing from the disclosure. Since Huff c annot show that it was personally aggrieved by any failur e to disclose, we conclude that Huff does not have stand ing to

raise this claim. See In re Middle Plantation of Wi lliamsburg, Inc., 47 B.R. 884, 891 (E.D. Va. 1984) ("Holders of impaired

claims who have been induced to vote in favor of a plan are the only ones who may raise the issue of the adequa cy of the Disclosure Statement."), aff 'd, 755 F.2d 928 ( 4th Cir. 1985).

We do not foreclose the possibility that, in anothe r case, a creditor objecting to a plan for lack of disclosu re that actually had the information it complains is missin g from the disclosure might nevertheless have standing if it could show that there is a possibility that other credito rs would have acted differently (thus benefitting the protes ting creditor) if they had had the same information. See In re Perez, 30 F.3d 1209, 1217 (9th Cir. 1994) (concludi ng that a creditor had standing on this theory). But in thi s case, because Huff itself made the information available to the other creditors, it has not made such a showing. Th e chance that the other creditors would have acted di fferently is simply too speculative to be a basis for third p arty standing here.

E. Section 1129(a)(7)

Section 1129(a)(7) provides that a court shall conf irm a plan only if

With respect to each impaired class of claim s or interests--

41(A) each holder of a claim or interest of su ch class--

(i) has accepted the plan; or

(ii) will receive or retain under the plan o n 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 section 1111(b)(2) of this title appl ies 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 i n the property

that secures such claims.

11 U.S.C. S 1129(a)(7). The District Court found th at the

Debtors have demonstrated at the Confirmation Heari ng that creditors rejecting the plan would not receive a greater recovery in a Chapter 7 liquidation. We review this factual finding for clear error.

Huff failed to challenge the Debtors' liquidation a nalysis.

Huff also did not introduce evidence to demonstrate that the recapitalization claims have significant value or that it was in the best interests of the estate to pursue t he preference claims. And as noted above, the Examiner 's District Court findings to the contrary are well su pported. Accordingly, the District Court did not commit clea r error in holding that the Debtors met their burden under S 1129(a)(7).

VI. Conclusion

For the foregoing reasons, the Order of the Distric t Court confirming the Debtor's Second Amended Joint Plan o f Reorganization under Chapter 11 of the Bankruptcy C ode

will be affirmed.

42A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

43