United States Court of Appeals

For the Eighth Circuit

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No. 18-1302

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In re: Peabody Energy Corporation

lllllllllllllllllllllDebtor

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Ad Hoc Committee of Non-Consenting Creditors

lllllllllllllllllllllAppellant

v.

Peabody Energy Corporation; Citibank, N.A.; Aurelis Capital Management, LP;

Elliott Management Corporation; South Dakota Investment Council; Panning

Capital Management, LP; PointState Capital, LP; Contrarian Capital Management,

LLC; Discovery Capital Management; South Dakota Retirement System;

Wilmington Savings Fund Society, FSB; Official Committee of Unsecured

Creditors of Peabody Energy Corporation

lllllllllllllllllllllAppellees

____________

Appeal from United States District Court 

for the Eastern District of Missouri - St. Louis

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Submitted: April 16, 2019

Filed: August 9, 2019

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Before SHEPHERD, MELLOY, and GRASZ, Circuit Judges.

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MELLOY, Circuit Judge.

In April 2016, Peabody Energy Corporation and its affiliates (the “Debtors”)

filed a voluntary reorganization petition under Chapter 11 of the Bankruptcy Code. 

In March 2017, over the objection of the Ad Hoc Committee of Non-Consenting

Creditors (the “Ad Hoc Committee”), the bankruptcy court confirmed a

reorganization plan proposed by the Debtors. The Ad Hoc Committee appealed to

the district court, which dismissed the appeal as equitably moot. Alternatively, the

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district court approved the plan on the merits, holding that the plan: (1) comported

with the requirement in 11 U.S.C. § 1123(a)(4) that all claims in a particular class be

treated the same; and (2) was proposed in good faith. We, too, affirm on the merits.

I. Background

The Debtors are an American coal company and some of its subsidiaries. Over

the middle years of this decade, a variety of factors decreased the demand for and

price of American-produced coal. The decreased demand and lower prices resulted

in a sharp decline in the Debtors’ revenues. Impacted by these falling revenues and

weighed down by what the Debtors call “substantial debt obligations,” the Debtors

filed for reorganization under Chapter 11.

Before filing their reorganization petition, however, a dispute arose between

several of the Debtors’ secured and senior-unsecured creditors (the “security-interest

dispute”). The creditors disagreed over the extent to which the Debtors’ assetsserved

as collateral for the secured creditors’ debts. The Debtors filed their petition and

then, to resolve the security-interest dispute, commenced an adversary proceeding

seeking a declaratory judgment on the matter.

The Honorable Audrey G. Fleissig, United States District Judge for the

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Eastern District of Missouri.

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Non-binding mediation followed. Negotiations in the mediation gradually

expanded fromresolving the security-interest dispute to formulating a reorganization

plan. The negotiating parties included the Debtors and a group of seven holders of

the Debtors’ second-lien and senior-unsecured notes. On appeal, the parties refer to

this group as the “Noteholder Co-Proponents.” Members of the Ad Hoc Committee

did not participate in the mediation, though they did receive notice. Eventually, the

negotiating parties crafted a complex plan for reorganization as part of a global

settlement. The plan was expressly conditioned on approval by the bankruptcy court.

In general, the plan that emerged from the mediation provided a way for the

Debtorsto raise $1.5 billion in new money to pay for distributions under the plan and

fund operationsfollowing reorganization. This wasto be accomplished by two sales. 

The first was a sale of common stock at a discount to certain classes of creditors. The

second was an exclusive sale of discounted preferred stock to qualifying creditors. 

As will be discussed in greater detail below, creditors could qualify to buy the

preferred stock by executing certain agreements that obligated them to: (1) buy a set

amount of preferred stock; (2) agree to backstop (i.e., purchase shares of common and

preferred stock that did not sell) both sales; and (3) support the plan in the

confirmation process. The amount of preferred stock qualifying creditors could and

were required to buy depended on the portion of the prebankruptcy debt they owned

and also on when they became qualifying creditors (i.e., how quickly they took action

to qualify). Qualifying creditors also received several premiums for executing the

agreements.

More specifically, the plan included the following elements. First, the plan

required the reorganized Debtors to engage in a $750 million “Rights Offering”

following reorganization. The Rights Offering allowed holders of certain unsecured

notes known as Class-5B claims and second-lien note holders to purchase common

stock in the reorganized company at a 45% discount to the value the negotiating

parties agreed the common stock should be worth (what the Ad HocCommittee refers

to as “Plan Equity Value”). The parties agree that this element of the plan is not

contested.

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Second, the plan required the reorganized Debtors to engage in a $750 million

“Private Placement” whereby qualifying creditors could purchase preferred stock in

the reorganized Debtors at a 35% discount to the Plan Equity Value. A creditor

qualified to participate in the Private Placement if it: (1) held a second-lien note or

Class-5B claim; (2) signed a “Private Placement Agreement” that committed the

creditor to purchase a certain amount of preferred stock based on when it signed the

agreement; (3) agreed to backstop the Rights Offering; and (4) agreed to support the

reorganization plan throughout the confirmation process.

The negotiating parties developed an intricate three-phase system for

determining who could and must buy what in the Private Placement. In Phase One,

the Noteholder Co-Proponents were given the exclusive right and obligation to

purchase the first 22.5% of preferred stock at the discounted price. The Noteholder

Co-Proponents also had to purchase what remained of the 77.5% of preferred stock

that did not sell in the next two phases. In Phase Two, the Noteholder Co-Proponents

plus any creditor who took action to qualify by an initial deadline (the “Phase-Two

investors”) received the exclusive right and obligation to purchase the next 5% of the

preferred stock at the discounted price. The Phase-Two investors were also obligated

to purchase whatever remained unsold of the 72.5% of preferred stock in the next

phase. Finally, in Phase Three, the Noteholder Co-Proponents, the Phase-Two

investors, plus any creditor who took action to qualify after Phase Two but before the

close of the sale received the exclusive right and obligation to purchase the remaining

72.5% of preferred stock at the discounted price.

The Debtors agreed to pay creditors who participated in the Private Placement

certain premiums “in consideration for” their agreements. For agreeing to backstop

the Rights Offering, the creditors were promised a “Backstop Commitment Premium”

worth $60 million (i.e., 8% of the $750 million raised). They were also promised a

“Ticking Premium” worth $18,750,000, which was to be paid monthly through a

designated closing date. Corresponding commitment and ticking premiums were paid

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to creditors who agreed to buy their portion of the preferred stock in the Private

Placement. All the premiums were paid in common stock of the reorganized Debtors.

In essence, holders ofsecond-lien and Class-5B claims could buy a significant

amount of stock in the reorganized Debtors at a discount and receive significant

premiums in exchange for promptly agreeing to backstop the arrangement and

support the plan. Moreover, under the plan, holders of second-lien and Class-5B

claims were also entitled to recover significant portions of their claims regardless of

whether they participated in the Private Placement. Holders of second-lien claims,

for instance, were expected to receive an estimated 52.4% of the face value of their

claims, and holders of Class-5B claims were expected to receive approximately

22.1%.

On December 22, 2016, the Debtors moved to approve a disclosure statement

and set a confirmation hearing date. The next day, the Debtors moved for an order

approving the Private Placement and backstop agreements and authorizing the

Debtors to enter into those agreements. This started the clock ticking on when

creditors had to qualify to participate in the various phases of the Private

Placement—creditors had three days to qualify to participate in Phase Two, and

thirty-three days to qualify to participate in Phase Three. The agreement-approval

motion also asked for authorization to enter into a plan-support agreement and for

approval of the Rights Offering. 

Members of the Ad Hoc Committee elected not to sign the various agreements. 

Thus, they never qualified to participate in the Private Placement. Instead, shortly

after the Debtors filed the motions just described, the Ad Hoc Committee submitted

the first of several alternative-plan proposals to the Debtors and the Official

Committee of Unsecured Creditors (the “Official Committee”). The proposals

included an offer to backstop a $1.77 billion rights offering that would take the place

of the Rights Offering and Private Placement proposed by the Debtors’ plan. 

According to testimony and sworn statements from the Debtors’ CFO, each time the

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Debtors received an alternative-plan proposal, they reviewed the proposal with

advisors and considered it at board meetings, analyzing each proposal against the

Debtors’ main goals for reorganization. With each proposal, the Debtors determined 2

that the proposed alternative either: (1) would not accomplish their goals as well as

the Debtors’ proposed plan would; or (2) would add significant legal expenses and

delay to the already expensive and lengthy reorganization process. The Official

Committee independently reviewed the Ad Hoc Committee’s proposals and found

them to be inferior to the Debtors’ proposed plan.

On January 26, 2017, the bankruptcy court held a hearing on the Debtors’

motions. The bankruptcy court approved the disclosure statement and scheduled a

confirmation hearing. The bankruptcy court also, over the Ad Hoc Committee’s

objections, granted the Debtors’ agreement-approval motion. By the date of the

confirmation hearing, all twenty classes of the Debtors’ creditors had voted

overwhelmingly to approve the plan and approximately 95% of the Debtors’

unsecured creditors had agreed to participate in the Private Placement and make

backstop commitments. The bankruptcy court held the confirmation hearing and

confirmed the Debtors’ proposed plan. The Ad Hoc Committee promptly appealed

to the district court.

Following confirmation and the Debtors’ formal emergence from bankruptcy

as a reorganized company, the reorganized Debtors began consummating the plan. 

By April 4, 2017, the reorganized Debtors had received $1.5 billion from investors

pursuant to the Rights Offering and Private Placement and had issued and distributed

millions of shares of preferred and common stock in the newly reorganized company

The Debtors have consistently declared throughout the bankruptcy 2

proceedings that their goals for reorganization were to: (1) emerge from bankruptcy

with adequate liquidity to weather the volatile business cycles inherent in the coal

industry; (2) ensure that following emergence they could pay their debts on time; (3)

maximize the size of their estate for the creditors’ benefits; and (4) achieve the

broadest consensus among creditors possible.

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to compensate those investors. The reorganized Debtors had also received exit

financing, paid over $3.5 billion in claim distributions under the plan, and completed

many more plan-related transactions before the district court reviewed the case.

Against that backdrop, the district court granted a motion to dismiss filed by

the Debtors. The district court held that the appeal was “equitably moot” because the

plan had been substantially consummated. Alternatively, the district court affirmed

the judgment of the bankruptcy court, finding that the equal-treatment requirement

of 11 U.S.C. § 1123(a)(4) had been satisfied and that the Debtors had proposed the

plan in good faith. The Ad Hoc Committee timely appealed.

II. Discussion

At issue before usis whether the bankruptcy court erred in determining that the

Debtors’ plan satisfied the equal-treatment rule and was proposed in good faith. 

Because we find no error, we need not address the Debtors’ argument that the Ad Hoc

Committee’s appeal is equitably moot.

“As the second reviewing court in a bankruptcy case, we apply the same

standard of review asthe district court.” Melikian Enters., LLLP v. McCormick, 863

F.3d 802, 806 (8th Cir. 2017) (citation omitted). We review the bankruptcy court’s

legal conclusions de novo and its factual findings for clear error. Id. “A finding is

clearly erroneous when although there is evidence to support it, the reviewing court

on the entire evidence is left with the definite and firm conviction that a mistake has

been committed.” Hill v. Snyder, 919 F.3d 1081, 1084 (8th Cir. 2019) (internal

quotation marks and citation omitted). 

Whether a reorganization plan was proposed in good faith is a factual question. 

See Hanson v. First Bank of S.D., N.A., 828 F.2d 1310, 1315 (8th Cir. 1987)

(reviewing a bankruptcy court’s finding that a plan had been proposed in good faith

for clear error), partially abrogated on other grounds by Pioneer Inv. Servs. Co v.

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Brunswick Assocs. Ltd. P’ship, 507 U.S. 380, 387 n.3, 394 (1993); see also In re

Andreuccetti, 975 F.2d 413, 420 (7th Cir. 1992) (stating that a finding whether a

reorganization plan was proposed in good faith “is one of fact, which we will not

overturn unless it is clearly erroneous”). We have not addressed whether a

determination that the equal-treatment rule has been satisfied is a factual finding

subject to clear-error review or a legal conclusion subject to de novo review. At least

one circuit has concluded that it is a factual finding and should not be disturbed

unless clearly erroneous. See Acequia, Inc. v. Clinton (In re Acequia, Inc.), 787 F.2d

1352, 1358 & n.4 (9th Cir. 1986). We need not decide the issue here. Even assuming

the standard of review is de novo, our conclusion as to the alleged equal-treatment

violation in this case would be the same.

A. Equal Treatment

The Ad Hoc Committee argues that the right of qualifying creditors to

participate in the Private Placement was unequal treatment for their claims, a

violation of 11 U.S.C. § 1123(a)(4). Section 1123(a)(4) states that a reorganization

plan must “provide the same treatment for each claim or interest of a particular class,

unless the holder of a particular claim or interest agrees to a less favorable treatment

of such particular claim or interest.” Neither the Supreme Court nor our Court has

interpreted that provision, and the Code does not define the standard of equal

treatment. See In re AOV Indus., Inc., 792 F.2d 1140, 1152 (D.C. Cir. 1986) (noting

that “neither the Code nor the legislative history precisely defines the standards of

equal treatment”).

Cases from other circuits that have dealt with the issue, however, appear to

agree that a reorganization plan may treat one set of claim holders more favorably

than another so long as the treatment is not for the claim but for distinct, legitimate

rights or contributions from the favored group separate from the claim. The Second

Circuit, for instance, held that § 1123(a)(4) was not violated where a plan treated an

equity holder better than other equity holders in the class because the equity holder:

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(1) had a secured claim separate from its equity interest; and (2) had “agreed to

attribute” to the reorganized debtor certain “causes of action against third parties.” 

Ahuja v. LightSquared Inc., 644 F. App’x 24, 29 (2d Cir. 2016). The Fifth Circuit

concluded that a plan proponent’s payments to certain members of a debtor power

cooperative did not violate § 1123(a)(4) because the payments were “reimbursement

for plan and litigation expenses,” not payments “made in satisfaction of the

[members’] claims against [the debtor].” Mabey v. Sw. Elec. Power Co. (In re Cajun

Elec. Power Coop., Inc.), 150 F.3d 503, 518–19 (5th Cir. 1998). And the Ninth

Circuit upheld a plan that provided preferential treatment to one of a debtor’s

shareholders apparently because the preferential treatment was tied to the

shareholder’s service to the debtor as a director and officer of the debtor, not to the

shareholder’s ownership interest. See Acequia, 787 F.2d at 1362–63 (“[The

shareholder’s] position as director and officer of the Debtor is separate from her

position as an equity security holder.”). 

Here, the opportunity to participate in the Private Placement was not “treatment 

for” the participating creditors’ claims. 11 U.S.C. § 1123(a)(4). It was consideration

for valuable new commitments made by the participating creditors. The participating

creditors were investors who promised to support the plan, buy preferred stock that

did not sell in the Private Placement, and backstop the Rights Offering. In exchange,

they received the opportunity to buy preferred stock at a discount as well as premiums

designed to compensate them for shouldering significant risks.

The Ad HocCommittee argues thatBank of America National Trust & Savings

Ass’n v. 203 North LaSalle Street Partnership, 526 U.S. 434 (1999), calls for a

different conclusion. We disagree. In LaSalle, the Supreme Court rejected a

reorganization plan that gave a debtor’s prebankruptcy equity holders the exclusive

opportunity to receive ownership interests in the reorganized debtor if the equity

holders would invest new money in the reorganized debtor. Id. at 437. The plan in

LaSalle had been “crammed down” under 11 U.S.C. § 1129(b) despite the objections

of a senior class of the debtor’s impaired creditors who claimed that the plan violated

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the absolute priority rule. See id. at 441–43; see also 11 U.S.C. § 1129(b)(2)(B)(ii)

(stating that in a cramdown situation “the holder of any claim or interest that isjunior

to the claims of [a class of unsecured claims may] not receive or retain under the

[proposed] plan on account ofsuch junior claimor interest any property”). The Court

explained that the exclusive opportunity given to the equity holders was “a property

interest extended ‘on account of’” the equity holders’ equity interests in the

reorganizing debtor. LaSalle, 526 U.S. at 456. The Court found troubling the facts

that the equity holders had paid nothing for the valuable exclusive opportunity and

the debtor had not considered any alternative ways of raising capital. Id. Given these

facts, the Court concluded that the “very purpose ofthe whole transaction” must have

been, “at least in part, to do old equity a favor . . . because of old equity’s prior

interest” in the debtor. Id.

LaSalle is distinguishable from this case in at least three ways. First, the Ad

Hoc Committee was not excluded from any opportunity like the creditors in LaSalle

were. The Ad Hoc Committee could have participated in the Private Placement at any

phase had they timely taken the necessary actions to qualify. Second, unlike the

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equity holders in LaSalle, creditors who participated in the Private Placement gave

something of value up front in exchange for their right to participate: They promised

to support the plan, buy preferred stock that did not sell in the Private Placement, and

backstop the Rights Offering. Third, unlike the debtor in LaSalle, the Debtors here 4

To the extent that the Ad Hoc Committee argues that it was unable to

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participate in the first phase of the Private Placement, we note, as did the bankruptcy

court, that the Ad Hoc Committee could have intervened in the non-binding

mediation that resulted in the formulation of the plan. See Fed. R. Bankr. P. 2018(a)

(“In a case under the Code, after hearing on such notice as the court directs and for

cause shown, the court may permit any interested entity to intervene generally or with

respect to any specified matter.”).

The Ad Hoc Committee focuses on the fact that under the Private Placement 4

and backstop agreements the participants were paid handsome premiums for their

agreement to buy all unsold preferred stock and backstop the Rights Offering. The

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considered several alternative ways to raise capital, including proposals submitted by

the Ad Hoc Committee. The Debtors reviewed each alternative-plan proposal with

advisors and analyzed the merits of each at board meetings. With each proposal, the

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Debtors determined that the proposed alternative would either be less effective at

accomplishing their goals than their plan, or it would cost too much in terms of time

or money. Indeed, the Debtors’ CFO testified at the confirmation hearing that delay

was likely to cost the Debtors around $30 million per month, not including any

litigation expenses related to resolving the security-interest dispute. Moreover, the

Official Committee, acting in a fiduciary capacity, independently reviewed the Ad

Hoc Committee’s proposals and found them to be inferior to the Debtors’ proposed

plan. Because it is distinguishable, LaSalle does not convince us that § 1123(a)(4)

has been violated here.

In sum, we agree with the bankruptcy court that the right to participate in the

Private Placement was not “treatment for” a claim. 11 U.S.C. § 1123(a)(4). The right

to participate in the Private Placement was consideration for valuable new

commitments. Consequently, the plan did not violate the equal-treatment rule of

§ 1123(a)(4).

right to buy the preferred stock at a discount, the Ad Hoc Committee argues, could

not also have been consideration for those commitments. We disagree. The Private

Placement participants did receive premiums for committing to buy the unsold

preferred stock and to backstop the Rights Offering. However, the right to buy the

preferred stock at a discount may also be seen as an incentive to agree to support the

plan or to stop pursuing the security-interest dispute. Moreover, the right to buy at

a discount and the premiums could, together, be viewed as necessary consideration

for the promises to buy the unsold preferred stock and to backstop the Rights

Offering, especially given the volatility of coal markets at the time and uncertainty

as to the Debtors’ future.

The Ad Hoc Committee does not challenge the Debtors’ assertion that the

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Debtors consulted with advisors and considered the alternative-plan proposals at

board meetings.

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B. Good Faith

The second issue before us is whether the bankruptcy court erred in

determining that the Debtors proposed their plan in good faith. The Ad Hoc

Committee argues a lack of good faith for three reasons: (1) “the Plan failed to

maximize the value of the Debtors’ estate” because the preferred stock was not sold

for its full value; (2) “the Plan gave certain class members additional benefits in

exchange for settling class-wide disputes”—namely, the Noteholder Co-Proponents

were able to buy more preferred stock in the Private Placement than other members

of their class; and (3) “the Plan Proponents employed a coercive process that induced

holders to vote to accept the Plan.” (Emphasis omitted).

A bankruptcy court “shall confirm a plan only if . . . [t]he plan has been

proposed in good faith.” 11 U.S.C. § 1129(a)(3). “[T]he term ‘good faith’ is left

undefined by the Code.” Hanson, 828 F.2d at 1315. However, “[i]n the context of

a chapter 11 reorganization, . . . a plan is considered proposed in good faith ‘if there

is a reasonable likelihood that the plan will achieve a result consistent with the

standards prescribed under the Code.’” Id. (citation omitted). To determine whether

a plan has been proposed in good faith, the “totality of the circumstances”

surrounding the creation of the plan must be considered. In re Madison Hotel

Assocs., 749 F.2d 410, 425 (7th Cir. 1984) (quoting Jasik v. Conrad (In re Jasik), 727

F.2d 1379, 1383 (5th Cir. 1984)). Because “[t]he bankruptcy judge is in the best

position to assess the good faith of the parties’ proposals,” id. (alteration in original)

(citation omitted), we review the question of good faith for clear error, see Hanson,

828 F.2d at 1312, 1315 (articulating the standard of review). 

We hold that the bankruptcy court did not clearly err in finding that the Debtors

proposed their plan in good faith. The record shows that the Debtors mediated with

their creditors to resolve a major dispute between those creditors. The Debtors

reached a settlement with substantial input from the negotiating parties. Other

creditors who received notice, including members of the Ad Hoc Committee, could

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have joined had they chosen to intervene in the mediation. The settlement revolved

around a plan that allowed all first-lien holders to be paid off, all second-lien holders

to receive approximately 52.4% of the face value of their claims, and all unsecured

creditors to receive approximately 22.1% of their claims’ face value. The plan

garnered tremendous consensus—all twenty classes of creditors voted

overwhelmingly to approve the plan and approximately 95% of the Debtors’

unsecured creditors agreed to participate in the Private Placement and make backstop

commitments. And the Debtors permitted alternative plans to be proposed, all of

which the Debtors considered with advisors and at board meetings.

The Ad Hoc Committee disagrees, arguing that the plan failed to maximize

value. We acknowledge that the Debtors might have made more money selling the

preferred stock at full price. However, this argument ignores the point that the

Debtors might not have convinced the parties to the security-interest dispute to settle

or commit to any number of the other agreements if the Debtors had not offered the

preferred stock at a discount. The Debtors’ overall efforts to reorganize might have

otherwise been thwarted had they followed the course proposed by the Ad Hoc

Committee. We cannot look merely at the potential virtues of the Ad Hoc

Committee’s proposed alternative while ignoring the potential risks involved. See

In re Madison Hotel Assocs., 749 F.2d at 425 (stating that when considering whether

a plan has been proposed in good faith, the totality of the circumstances must be

considered). 

The Ad Hoc Committee also argues that the Noteholder Co-Proponents

received a disproportionate opportunity to participate in the Private Placement. We

see no merit to their concern. A sub-group of a creditor class certainly obtained

favored treatment by participating in the mediation and in the offerings formulated

in that mediation. However, that sub-group took on more obligations than other

members of the class: They put themselves on the hook to buy more of the preferred

stock if it did not sell, something that might easily have happened asthe Debtors were

emerging from mediation during volatile coal-market seasons.

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Finally, the Ad Hoc Committee argues that the Debtors coercively solicited

votes in favor of the plan. We are somewhat sympathetic to this argument. It is

troubling that creditors wishing to take part in the Private Placement had to elect to

do so before approval of all the agreements and the disclosure statement. We are

convinced, however, by the Debtors’ argument that time was of the essence given the

volatile nature of the coal market. Moreover, as noted above, delay waslikely to cost

the Debtors around $30 million per month in addition to other litigation costs. We

also find convincing an argument made by the Official Committee that, were it not

for the existence of a support agreement, Private Placement parties might have had

an incentive to sabotage the plan and obtain breakup fees should coal-market

conditions worsen.

Thus, despite any reservation we might have regarding the good faith question,

we have not been left with a “definite and firm conviction that a mistake has been

committed.” Hill, 919 F.3d at 1084 (citation omitted). We therefore do not disturb

the bankruptcy court’s factual finding that the Debtors proposed their plan in good

faith.

III. Conclusion

We affirm the judgment of the district court on the merits.

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