# U ni te d S ta te s Co ur t of A pp ea ls

For the Eig hth Circu it

__ __ __ __ __ __ __ __ __ __ __ __ __ _

No. 1 8- 13 02

__ __ __ __ __ __ __ __ __ __ __ __ __ _

In re: Peab od y

Ener gy Corp or at io n

ll ll ll ll ll ll ll ll ll ll l Deb to r

----- ----- ----- ----- ----- -----

Ad Ho c Co m

m it te e o f Non -Co ns en ti ng Cred it or s

ll ll ll ll ll ll ll ll ll ll l

App el la nt

v.

Peab od y Ener gy Corp or at io n; Cit ib an k, N.A.; Au rel is Cap it al Man ag em en t, LP;

Ell io tt Man ag em en t Co rp or at io n; So ut h Dak ot a In ve st m en t Co un ci l; Pan ni ng

Cap it al Man ag em en t, LP; Po in tS ta te Cap it al , LP; Co nt rari an Cap it al Man ag em en t,

LLC; Di sc ov ery Cap it al Man ag em en t; So ut h Dak ot a Ret ire m en t Syste m ;

W il m in gt on Sav in gs Fu nd So ci et y , FSB; Offic ia l Co m m it te e o f Uns ecu red

Cred it or s o f Pea bo dy Energ y Co rp or at io n

ll ll ll ll ll ll ll ll ll ll l

App el le e s

__ __ __ __ __ __

App eal fro m

Uni te d S ta te s Di st ric t Co ur t

fo r th e Eas te rn Dis tri ct of M is so ur i - St . Lou is

__ __ __ __ __ __

Su bm it te d: Apri l 1 6, 2 01 9

Fi le d: Aug us t 9 , 20 19

__ __ __ __ __ __

Befo re SHEPHERD, MELLOY, and GRASZ, Cir cu it Ju dg es

.

__ __ __ __ __ __MELLOY, Circu it Ju dg e.

In Apri l 2 01 6, Pe ab od y

Ener gy Corp or at io n a nd it s af fil ia te s (t he “ Deb to rs ”)

fil ed a vo lu nt ary reo rg an iz at io n p et it io n u nd er Ch ap te r 11 of th e Ban kr up tc y Co de

.

In Ma r c h 2 0 1 7

, ov er th e ob jecti on of th e Ad Hoc Co m m it te e of Non -Co ns en ti ng

Cred it or s (th e “ Ad Hoc Co m m it te e ” )

, th e ba nk ru pt cy co ur t co nf irmed a

reo rg an iz at io n pl an pr op os ed b y th e Deb to rs

. The Ad Hoc Co m m it te e ap pe al ed to

th e di st ric t co ur t, whi ch di sm is se d th e ap pe al as eq ui ta bl y m oo t. Alt ern at iv el y

, th e 1

di st ric t co ur t ap p r ov ed th e pl an on th e m eri ts

, ho ld in g th at th e pl an : (1 ) co m po rte d

wit h th e req ui rem en t in 11 U.S.C. § 11 23 (a)( 4) th at al l cl ai m s in a pa rti cu la r cl as s be

tre at ed th e sa m e; an d (2 ) was pr op os ed in go od fai th

. W e, to o, affi rm on th e m eri ts

.

I. Back gr ou nd

The Deb to rs are an Am eri can co al co m pa ny an d so m e of it s su bs id ia rie s. Ove r

th e m id dl e y ears of th is de cad e, a va rie ty of fact o r s d ecre as ed th e de m an d fo r an d

pr ic e of Am eri can -p ro du ced co al

. The de crea se d de m an d and lo wer pr ic es res ul te d

in a sh arp de cl in e in th e Deb to rs ’ rev en ue s. Im pa ct ed by th es e fal li ng rev en ue s an d

weig he d do wn by wh at th e Deb to rs cal l “ su bs t an ti al de bt ob li ga ti on s,” th e Deb to rs

fil ed for reo rg an iz at io n u nd er Ch ap te r 11

.

Befo re f i l in g th ei r reo rg an iz at io n pe ti ti on , h owe ve r, a di sp ut e aro se be twee n

se ve ral of th e Deb to rs ’ se cu red an d se ni or -u ns ecu red cred it or s (th e “ se cu rit y -in te res t

di sp ut e”). The cred it or s di sa gr eed ov er th e ex te nt to whi ch th e Deb to rs ’ as se ts se rv ed

a s c o l l a t e ral fo r th e se cu red cred it or s’ de bt s. The Deb to rs fil ed th ei r pe ti ti on an d

th en

, to res ol ve th e se cu r i t y- i n te res t di sp ut e, co m m en ced an ad ve rs ary pr oc eed in g

se ek in g a de cl arat or y

jud gm en t o n t he m at te r.

The Hon or a b l e A u d rey G. Fl ei ss ig

, Uni te d St at es Dis tri ct Ju dg e fo r th e 1

East ern Dis tri ct of M is so ur i.

-2

-Non -b in di ng m ed ia ti on fo ll owe d. Neg ot ia ti on s in th e m ed ia ti on gr ad ua ll y

ex pa nd ed fro m res ol vi ng th e se cu rit y -in te res t di sp ut e to fo rm ul at in g a reo rg an iz at io n

pl an . The n eg ot ia ti ng pa rti es in cl ud ed th e Deb to rs an d a gr ou p of se ve n ho ld ers of

th e Deb to rs ’ se co nd -li en an d se ni or -u ns ecu red no te s. On ap pe al

, th e pa rti es refe r to

th is gr ou p as th e “ Not eh ol de r Co -Pro po ne nt s.” Mem be rs of th e Ad Hoc Co m

m it te e

di d no t pa rti ci pa te in th e m ed ia ti on

, th ou gh th ey di d rece iv e no ti ce. Eve nt ua ll y

, th e

ne go ti at in g pa rti es craf

te d a co m

pl ex pl an fo r reo rg an iz at io n as pa rt of a gl ob al

se tt le m en t. The pl an was ex pr es sl y co nd it io ne d on ap pr ov al by th e ba nk ru pt cy co ur t.

In ge ne ral

, th e pl an th at em erg ed fro m th e m ed ia ti on pr ov id ed a way fo r th e

Deb to rs to rai se $1 .5 bi ll io n in ne w m on ey to pa y fo r di st rib ut io ns un de r th e pl an an d

fu nd op erat io ns fo ll owi ng reo rg an iz at io n. Thi s was to be acco m pl is he d by two sa le s.

The fir st was a sa le of co m m on st oc k at a di sc ou nt to cert ai n cl as se s of cred it or s. The

se co nd was an ex cl us iv e sa le of di sc ou nt ed pr efer red st oc k to qu al ifyi n g c r e di to rs

.

As wil l be di sc us se d in gr eat er de ta il be lo w, cred it or s co ul d qu al ify to bu y th e

pr efer red st oc k by ex ecu ti ng cert ai n ag reem en ts th at ob li ga te d th em to : (1 ) bu y a se t

am ou nt of pr efer red st oc k; (2 ) ag ree to ba ck st op (i.e

., pu rch as e sh ares of co m m on an d

pr efer red st oc k th at di d n o t s e l l ) bo th sa le s; an d (3 ) su pp or t th e pl an in th e

co nf irmatio n pr oc es s. The am ou nt of pr efer red st oc k qu al ifyin g cred it or s co ul d an d

were req ui red to bu y de pe nd ed on th e po rti on of th e pr eb an kr up tc y de bt th ey own ed

an d al so on whe n th ey be cam e qu al ifyin g cred it or s (i.e

., ho w qu ic kl y th ey to ok act io n

to qu al ify). Qua li fy in g cr e d i t o r s a ls o rece iv ed se ve ral pr em iu m s fo r ex ecu ti ng th e

ag reem en ts

.

Mo re sp eci fic al ly, th e pl an in cl ud ed th e f o l l o w i n g el em en ts

. Fi rs t, th e pl an

req ui red th e reo rg an iz ed Deb to rs to en ga ge in a $7 50 m il li on “ Ri g h t s O ffer in g”

fo ll owi ng reo rg an iz at io n. The Ri gh ts Offeri ng al lo wed ho ld ers of cert ai n un se cu red

no te s k no wn as Cla ss -5 B clai m s and sec on d- li en no te ho ld ers to pu rch as e co m m on

st oc k in th e reo rg an iz ed co m pa ny a t a 4 5 % di sc ou nt to th e va lu e th e ne go ti at in g

pa rti es ag reed th e co m

m on st oc k sh ou ld be wor th (wh at th e Ad Hoc Co m m it te e refe rs

to as “ Pl an Equ it y Valu e”). The pa rti es ag ree th at th is el em en t of th e p l a n is no t

co nt es te d.

-3

-Seco nd

, th e pl an req ui red th e reo rg an iz ed Deb to rs to en ga ge in a $7 50 m il li on

“ Pri va te Pl acement” whe reb y qu al ifyin g cred it or s co ul d pu rch as e pr efer red st oc k in

th e reo rg an iz ed Deb to rs a t a 35 % di sc ou nt to th e Pl an Equ it y Valu e. A cred it or

qu al ifi ed to pa rti ci p a t e i n th e Pri va te Pl acement if it : (1 ) he ld a se co nd -li en no te or

Cl as s- 5B cl ai m ; (2 ) si gn ed a “Pr i v at e Pl acement Agr eem en t” th at co m m it te d th e

cred it or to pu rch as e a cert ai n am ou nt of pr efer red st oc k ba se d on whe n it si gn ed th e

ag reem en t; (3 ) ag reed to ba ck st op th e Ri gh ts Offeri ng ; an d (4 ) ag reed to su pp or t th e

reo rg an iz at io n p la n t hr ou gh ou t t he co nf irmatio n p ro ces s.

The ne go ti at in g pa rti es de ve lo pe d an in tri cat e th ree- ph as e sys t e m f or

de te rm in in g who co ul d and m us t bu y wha t in th e Pri va te Pl acement. In Ph as e One

,

th e Not eh ol de r Co -Pro po ne nt s were gi ve n th e ex cl us iv e rig ht an d ob li g a t i o n t o

pu rch as e th e fir st 22 .5% of pr efer red st oc k at th e di sc ou nt ed pr ic e. The Not eh ol de r

Co -Pro po ne nt s als o had to pu rch as e wha t re m ai ne d o f th e 77 .5% of prefe rred st oc k

th at di d no t se ll in th e ne xt two ph as es

. In Ph as e Two, th e Not eh ol de r Co -Pro po ne nt s

pl us an y cred it or who to ok act io n t o q ua li fy by an in it ia l de ad li ne (th e “ Ph as e-Two

in ve st or s” ) rece iv ed th e ex cl us iv e rig ht an d ob li ga ti on to pu rch as e th e ne xt 5% of th e

pr efer red st oc k at th e di sc ou nt ed pr ic e. The Ph as e-Two in ve st or s were al so ob li ga te d

to pu rch as e wha te ve r r e mai ne d un so ld of th e 72 .5% of pr efer red st oc k in th e ne xt

ph as e. Fi na ll y

, in Ph as e Thre e, t h e N ot eh ol de r Co -Pro po ne nt s, th e Ph as e-Two

in ve st or s, pl us an y cred it or who to ok act io n to qu al ify aft er Ph as e Two bu t be fo re th e

cl os e of th e sa le rece iv ed th e ex cl us iv e rig ht an d ob li ga ti on to pu rch as e th e rem ai ni ng

72 .5% o f pr efer red st oc k a t t he di sc ou nt ed pri ce.

The Deb to rs ag reed to pa y cred it or s who pa rti ci pa te d in th e Pri va te Pl acement

cert ai n pr em iu m s “ in co ns id erat io n fo r” th ei r ag reem en ts

. Fo r ag reei ng to ba ck st op

th e Ri gh ts Offeri ng

, th e cre dit ors were pr om is ed a “ Bac ks to p Co m m it m en t Prem iu m ”

wor th $6 0 m il li on (i.e ., 8% o f th e $ 75 0 m il li on rai se d) . They were al so pro m is ed a

“ Tick in g Prem iu m ” wor th $1 8,7 50 ,00 0, whi ch was to be pa id mo nt hl y th ro ug h a

de sig nate d cl os in g da te

. Co rres po nd in g co m m it m en t an d ti ck in g pr em ium s w er e pa id

-4

-to cred it or s who ag r e e d t o bu y th ei r po rti on of th e pr efer red st oc k in th e Pri va te

Pl acement. All th e pr em iu m s were pa id in co m m on st oc k of th e reo rg an iz ed Deb to rs

.

In es se nc e, ho ld ers of se co nd -li en an d Cl as s- 5B cl ai m s co ul d bu y a si gn ifi can t

am ou nt of st oc k in th e reo rg an iz ed Deb to rs at a di sc ou nt an d rece iv e si gn ifi can t

pr em iu m s in ex ch an ge fo r pr om pt ly a g r e e i ng to ba ck st op th e arra ng em en t an d

su pp or t th e pl an

. Mo reo ve r, un de r t he pl an

, ho ld ers of se co nd -li en an d Cl as s- 5B

cl ai m s were al so en ti tl ed to reco ve r si gn ifi can t po rti on s of th ei r cl ai m s reg ard le ss of

whe th er th ey pa rti ci pa te d in th e Pri va te Pl ac e ment

. Hol de rs of se co nd -li en cl ai m s,

fo r in st an ce, were ex pe ct ed to rece iv e an est im at ed 52 .4% o f th e fac e v al ue of t he ir

cl ai m s, an d ho ld ers of Cl as s- 5B cl a i m s were ex pe ct ed to rece iv e ap pr ox im at el y

22 .1%.

On Decem

be r 22

, 20 16

, th e Deb to rs m ov ed to ap pr ov e a di sc lo su re st at em en t

an d se t a co nf

irmatio n he ari ng da te

. The ne xt da y , t he Deb to rs m ov ed fo r an or de r

ap pr ov in g th e Pri va te Pl acement an d ba ck st op ag reem en ts an d au th o r i z i n g th e

Deb to rs to en te r in to th os e ag reem en t s

. Th i s s ta rte d th e cl oc k ti ck in g on whe n

cred it or s ha d to qu al ify to pa rti ci pa te in th e va rio u s p h as es of th e Pri va te

Pl acement— cred it or s ha d th ree da y s to qu al ify to pa rti ci pa te in Ph as e Two, an d

th irt y -th ree da y s t o qu al ify to pa rti ci pa te in Ph as e Thre e. The ag reem en t-a pp ro va l

m ot io n al so as ke d fo r au th or iz at io n to en te r in to a pl an -s up po rt ag reem en t an d fo r

ap pr ov al of t he Rig ht s Off eri ng

.

Mem be rs of th e Ad Hoc Co m

m it te e el ect ed no t to si gn th e va rio us ag reem en ts

.

Th us

, th ey ne ve r qu al ifi ed to pa rti ci pa te in th e Pri va te Pl acement. In st ead

, sh or tl y

aft er th e Deb to rs fil ed th e m ot io ns jus t de sc rib ed

, th e Ad Hoc Co m m it te e su bm it te d

th e fir s t o f s e ve ral al te rn at iv e-p la n pr op os al s to th e Deb to rs an d th e Offi ci al

Co m m it te e of Uns e c u r e d Cred it or s (th e “ Offi ci al Co m m it te e”). The pr op os al s

in cl ud ed an of

fer to ba ck st op a $1 .77 bi ll io n rig ht s of feri ng th at wou ld ta ke th e pl ace

of th e Ri gh ts Offeri ng an d Pri va te Pl acement pr op os ed by th e D e b to rs ’ pl an

.

Acco rd in g to te st im on y an d swo rn st at em en ts fro m th e Deb to rs ’ CFO, each ti m e th e

-5

-De b t o r s rece iv ed an al te rn at iv e-p la n pr op os al

, th ey rev ie wed th e pr op os al wit h

ad vi so rs an d co ns id ered it at bo ard m eet in gs

, a n al y zi ng each pr op os al ag ai ns t th e

Deb to rs ’ m ai n go al s fo r reo rg an iz at io n. W it h each pr op os al

, th e Deb to rs de te rm in ed 2

th at th e p ro po se d a lt ern at iv e ei th er: (1) wou ld no t acco m pl is h th ei r go al s as well as

th e Deb to rs ’ pr op os ed pl an wou ld ; or (2 ) wou ld ad d si gn ifi can t le ga l ex p e ns es an d

de la y to th e al read y ex pe n s iv e an d le ng th y reo rg an iz at io n pr oc es s. The Offi ci al

Co m m it te e in de pe nd en tl y re v i e w e d th e Ad Hoc Co m m it te e’s pr op os al s an d fo un d

th em to be in feri or to th e Deb to rs ’ pr op os ed pl an

.

On Ja nu ary 26

, 20 17

, th e ba nk ru pt cy co ur t he ld a he ar i n g o n th e Deb to rs ’

mo t i o n s

. The ba nk ru pt cy co ur t ap pr ov ed th e di sc lo su re st at em en t an d sc he du le d a

co nf irmatio n he ari ng

. The ba nk ru pt cy co ur t al so

, o v e r t h e Ad Hoc Co m m it te e’s

ob jecti on s, gr an te d th e Deb to rs ’ ag reem en t-a pp ro va l m ot io n. By th e da te of th e

co nf irmatio n he ari ng

, al l twen ty cl as se s of th e Deb to r s ’ cred it or s ha d vo te d

ov erwh el m in gl y to ap pr ov e th e pl an an d ap pr o x im at el y 95 % of th e Deb to rs ’

un se cu red cred it or s ha d a g r e e d t o pa rti ci pa te in th e Pri va te Pl acement an d m ak e

ba ck st op co m

m it m en ts

. The ba nk ru pt cy co ur t he ld th e co nf irmatio n he ari ng an d

co nf irmed th e Deb to rs ’ pr op os ed pl an . The Ad Hoc C om m it te e pr om pt ly ap pe al ed

to th e d is tri ct co ur t.

Fo ll owi ng co nf

irmatio n an d th e Deb to rs ’ fo rm al em erg en ce fro m ba nk ru pt cy

as a r eo rg an iz ed co m

pa ny, th e reo rg an iz ed Deb to rs be ga n co ns um m at in g th e pl an

.

By Apr il 4, 20 17 , t he reo rg an iz ed Debt or s h ad rece iv ed $1 .5 bi ll io n fro m in ve st or s

pu rs ua nt to th e Ri gh ts Offeri ng an d Pri va te Pl acement an d ha d is su ed an d di st rib ut ed

m il li on s of sh ares of pr efer red an d co m m on st oc k in th e ne wly reo rg an iz ed co m pa ny

The Deb to rs ha ve co ns is te nt ly d ecl ared th ro ug ho ut th e ba nk ru pt cy 2

pr oc eed in gs th at th ei r go al s fo r reo rg an iz at io n were to : (1 ) em erg e fro m ba nk ru pt cy

wit h ad eq ua te li qu id it y to weat he r th e vo la ti le bu si ne ss cy cl e s i n h eren t in th e co al

in du st ry ; (2 ) en su re th at fo ll owi ng em erg en ce th ey co ul d pa y th ei r de bt s on ti m e; (3 )

m ax im iz e th e si ze of th ei r es ta te fo r th e cred it or s’ be ne fit s; an d (4 ) ach ie ve th e

br oa de st co ns en su s among cred it or s p os si bl e.

-6

-to co m

pe ns at e th os e in ve st or s. The reo rg an iz ed Deb to rs ha d al so rece iv ed ex it

fin an ci ng

, pa id ov er $3 .5 bi ll io n in cl ai m di st rib ut io ns un de r th e pl an

, an d co m pl et ed

m an y m or e p la n- rel at ed tra ns act io ns be fo re t he di st ric t co ur t re vi ewed th e cas e.

Aga in st th at ba ck dr op , t he di st ric t co ur t gr an te d a m ot io n to d i sm is s fil ed by

th e Deb to rs

. The di st ric t co ur t he ld th at th e ap pe al was “ eq ui ta bl y m oo t” be cau se th e

pl an ha d be en su bs ta nt ia ll y co ns um m at ed

. Alt ern at iv el y

, th e di st ric t co ur t affi rm ed

th e jud gm en t of th e ba nk ru pt cy co ur t, fin di ng th at th e eq ua l-t reat m en t r e q u i r em en t

of 11 U.S.C. § 11 23 (a)( 4) ha d be en sa ti sf ie d a nd th at th e Deb to rs ha d p ro po se d th e

pl an in go od fai th . The Ad Hoc C om m it te e ti m el y ap pe al ed

.

II. Dis cu ss io n

At is su e be fo re us is whe th er th e ba nk ru pt cy co ur t erre d in de te rm in in g th at th e

Deb to rs ’ pl an sa ti sf

ie d th e eq ua l-t reat m en t ru le an d was pr op os ed in go od fai th

.

Bec au se we fin d no erro r, we ne ed no t ad dr es s th e Deb to rs ’ arg um en t th at th e Ad Hoc

Co m m it te e’s ap pe al is eq ui ta bl y m oo t.

“ As th e se co nd rev ie win g co ur t in a ba nk ru pt cy cas e, we ap p l y th e sa m e

st an da rd of rev ie w as th e di st ric t co ur t.” Mel ik ia n Ent ers

., LLLP v. McC or m ic k, 86 3

F.3 d 80 2, 80 6 (8t h Cir. 20 17 ) (ci ta ti on om it te d)

. W e rev ie w th e ba nk ru pt cy co ur t’s

le ga l co nc lu si on s de no vo an d i ts fact ua l fi nd in gs for cl ear erro r. Id

. “ A f in di ng is

cl earl y erro ne ou s whe n al th ou gh th ere is ev id en ce to su pp or t it

, th e rev ie win g co ur t

on th e en ti re ev id en ce is le ft wit h th e de fin it e an d fir m co nv ic ti on th at a m is ta ke ha s

be en co m m it te d.” Hil l v. Sn y de r, 91 9 F.3 d 10 81

, 10 84 (8 th Ci r. 20 19 ) (in te rn al

qu ot at io n m ark s an d c it at io n o m it te d)

.

W he th er a reo rg an iz at io n pl an was pr op os ed in go od fai th is a fact ua l qu es ti on

.

See Han so n v. Fi rs t Ban k of S.D., N.A., 8 2 8 F

. 2 d 13 10

, 13 15 (8 th Ci r. 19 87 )

(rev ie win g a ba nk ru pt cy co ur t’s fin di ng th at a pl an ha d be en pr op os ed in go od fai th

fo r cl ear erro r), pa rti al ly ab ro ga te d on ot he r gr ou nd s by Pi on eer In v. Serv s. Co v.

-7

-Bru ns wick Ass oc s. Ltd

. P’sh ip

, 50 7 U.S. 38 0, 38 7 n

. 3

, 3 9 4 (1 99 3) ; se e al so In re

And reu ccet ti

, 97 5 F.2 d 41 3, 42 0 (7 th Ci r. 19 92 ) (s ta ti ng th at a fin di ng whe th er a

reo rg an iz at io n pl an was pr op os ed in go od fai th “ is on e o f f a c t

, whi ch we wil l no t

ov ert ur n un le ss it is cl earl y erro ne ou s ” )

. We h av e no t ad dr es se d whe th er a

de te rm in at io n th at th e eq u a l -tr eat m en t ru le ha s be en sa ti sf ie d is a fact ua l fin di ng

su bjec t to cl ear- erro r rev ie w or a le ga l co nc lu si on su bjec t to de no vo rev ie w. At le as t

on e ci rcu it ha s co nc lu de d th at it is a fact ua l fin di ng an d sh o u l d n o t be di st ur be d

un le ss cl earl y erro ne ou s. See Aceq ui a, In c. v. Cl in to n (In re Aceq ui a, In c.), 78 7 F.2 d

13 52

, 13 58 & n.4 (9 th Ci r. 19 86 ). W e ne ed no t de ci de th e is su e he re. Eve n as su m in g

th e st an da rd of rev ie w is de no vo

, ou r co nc lu si on a s to th e al le ge d eq ua l-t reat m en t

vi ol at io n i n t hi s ca se wou ld be th e sa m e.

A. Equa l Trea tm en t

The Ad Hoc Co m

m it te e arg ue s th at th e rig ht of qu al ifyin g c r e d i t o r s to

pa rti ci pa te in th e Pri va te Pl acement was un eq ua l tre at m en t fo r th ei r cl a i ms

, a

vi ol at io n of 11 U.S.C. § 11 23 (a)( 4)

. Sect io n 11 23 (a)( 4) st at es th at a reo rg an iz at io n

pl an m us t “ pr ov id e th e sa m e tre at m en t fo r each cl ai m or in te res t of a pa rti cu la r cl as s,

un le ss th e ho ld er of a pa rti cu la r cl ai m or in te res t ag rees to a le ss fav or ab le tre at m en t

of su ch pa rti cu la r c l a i m o r in te res t.” Neit he r th e Su pr em e Co ur t no r ou r Co ur t ha s

in te rp ret ed th at pr ov is io n, an d th e Co de do es no t de fin e th e st an da r d o f e qu al

tre at m en t. See In re AOV In du s., In c., 79 2 F.2 d 11 40

, 11 52 (D.C. Ci r. 19 86 ) (n ot in g

t h a t “ ne it he r th e Co de no r th e le gi sl at iv e hi st or y pr eci se ly de fin es th e st an da rd s o f

eq ua l t reat m en t” ).

Cas es fro m ot he r ci rcu it s th at ha ve de al t wit h th e is s u e

, h owe ve r, ap pe ar to

ag ree th at a reo rg an iz at io n pl an m ay t r e a t on e se t of cl ai m ho ld ers m or e fav or ab ly

th an an ot he r so lo ng as th e tre at m en t is no t fo r th e cl ai m bu t fo r di st in ct , leg it im at e

rig ht s or co nt rib ut io ns fro m th e fav or ed gr ou p se pa rat e fro m th e cl ai m

. The Seco nd

Ci rcu it

, fo r in st an ce, he ld th at § 11 23 (a)( 4) was no t vi ol at ed whe re a pl an tre at ed an

eq ui ty ho ld er be tt er th an ot he r eq ui ty ho ld ers in th e cl as s be cau se th e eq ui ty ho ld er:

-8

-(1 ) ha d a se cu red cl ai m se pa rat e fr o m i t s eq ui ty in te res t; an d (2 ) ha d “ ag reed to

at tri bu te ” to th e reo rg an iz ed de bt or cert ai n “ca u s e s of act io n ag ai ns t th ird pa rti es .”

Ahu ja v. Lig ht Sq ua red In c., 64 4 F. App ’x 24

, 29 (2 d Ci r. 20 16 ). The Fi fth Ci rcu it

co nc lu de d th at a pl an pr o p o n e n t ’s pa y m en ts to cert ai n m em be rs of a de bt or po wer

co op erat iv e di d no t vi ol at e § 11 23 (a)( 4) be cau se th e pa y m en ts were “ rei m bu rs em en t

fo r pl an an d li ti ga ti on ex pe ns es ,” no t pa y m en ts “ m ad e i n sa ti sf act io n of th e

[m em be rs ’] cl ai m s ag ai ns t [th e de bt or ]. ” Mab ey v. Sw. Elec

. Po wer Co

. (In re Caju n

Elec

. Po wer Co op

., In c.), 15 0 F

. 3 d 5 03

, 51 8– 19 (5 th Ci r. 19 98 ). And th e Nin th

Ci rcu it up h e l d a p la n th at pr ov id ed pr efer en ti al tre at m en t to on e of a de bt or ’s

sh areh ol de rs ap pa ren tl y be cau se th e pr efer en ti al tr e a t m en t was ti ed to th e

sh areh ol de r’s se rv ic e to th e d eb to r as a di rect or an d o ffi cer o f th e d eb to r, no t t o t he

sh areh ol de r’s own ers hi p i n t eres t. See Aceq ui a, 78 7 F.2 d at 13 62 –6 3 (“ [The

sh areh ol de r’s] po si ti o n as di rect or an d of fic er of th e Deb to r is se pa rat e fro m he r

po si ti on as a n e qu it y

sec ur it y ho ld er.”).

Here, th e op po rtu ni ty to pa rti ci pa te in th e Pri va te Pl ac em en t was no t “ tre at m en t

fo r” th e pa rti ci pa ti ng cred it or s’ cl ai m s. 11 U.S.C. § 11 23 (a)( 4)

. It was co ns id erat io n

fo r va lu ab le ne w co m

m it m en ts m ad e by th e pa rti ci pa ti ng cred it or s. The pa rti ci pa ti ng

cred it or s wer e in ve st or s wh o p ro m is ed to su pp or t t he pl an

, bu y pr efer red st oc k t ha t

di d no t se ll in th e Pri va te Pl acement, an d ba ck st op th e Ri gh ts Offeri ng

. In ex ch an ge

,

th ey rece iv ed th e op po rtu ni ty to bu y pr efer red st oc k at a di sc ou nt as well as pr em iu m s

de si gn ed to co m

pe ns at e th em

for sh ou ld eri ng si gn ifi can t ri sk s.

The Ad Hoc Co m

m it te e arg ue s th at Ban k of Am eri ca Nati on al Trus t & Sav in gs

Ass ’n v. 20 3 Nor th LaSal le St reet Part ne rs hi p, 52 6 U.S. 43 4 ( 1 9 9 9 )

, c a ll s fo r a

di ffer en t co nc lu si on

. W e di sa gr ee. In LaSal le

, th e Su pr e me Co ur t reject ed a

reo rg an iz at io n pl an th at ga ve a de bt or ’s pr eb an kr up tc y eq ui ty ho ld ers th e ex cl us iv e

op po rtu ni ty to rece iv e own ers hi p in te res ts in t h e r eo rg an iz ed de bt or if th e eq ui ty

ho ld ers wou ld in ve st ne w m on ey in th e reo rg an iz ed de bt or

. Id

. at 43 7. The pl an in

LaSal le ha d be en “ cram m ed do wn” un de r 11 U.S.C. § 11 29 (b ) de sp it e th e ob jecti on s

of a se ni or cl as s of th e de bt or ’s im pa ire d cred it or s who cl ai m ed th at th e pl an vi ol at ed

-9

-th e ab so lu te pri or it y rul e. See id

. at 44 1– 43 ; see als o 11 U.S.C. § 1 12 9( b) (2 )(B) (ii )

(s ta ti ng th at in a cram do wn si tu at io n “ th e ho ld er of an y cl ai m or in te res t th at is jun io r

to th e cl ai m s of [a cl as s of un se c u red cl ai m s m ay ] no t rece iv e or ret ai n un de r th e

[p ro po se d] pl an on acco un t of su ch jun io r cl ai m or in te res t an y pr op ert y ”). The Co ur t

ex pl ai ne d th at th e ex cl us iv e op po rtu ni ty gi ve n to th e eq ui ty ho ld ers was “ a pr op ert y

i n te res t ex te nd ed ‘on acco un t of ’” th e eq ui ty ho ld ers ’ eq ui ty in te res ts in th e

reo rg an iz in g deb to r. LaSal le

, 52 6 U.S. at 45 6. The Co ur t fou nd tro ub li ng th e fact s

th at th e eq ui ty h ol de rs ha d pa id no th in g fo r th e va lu ab le ex cl us iv e op po rtu ni ty an d

th e de bt or ha d no t co ns id ered an y al te rn at iv e way s of rai si ng cap it al

. Id

. Giv en th es e

fact s, th e Co ur t co nc lu de d th at th e “ ve ry pu rp os e of th e who le tra ns act io n” m us t ha ve

be en

, “ at le as t in pa rt, to do ol d eq ui ty a fav or

. . . be cau se of ol d e q u i ty’ s pr io r

in te res t” in th e d eb to r. Id.

LaSal le is di st in gu is ha bl e fro m t hi s cas e in at le as t th ree way s. Fi rs t, th e Ad

Hoc Co m m it te e was no t ex cl ud ed fro m an y op po rtu ni ty li ke th e cred it or s in LaSal le

were. The Ad Hoc Co m

m it te e co ul d ha ve pa rti ci pa te d in th e Pri va te Pl acement at an y

ph as e ha d th ey ti m el y ta ke n th e ne ces sa ry act io ns t o q u al ify. Seco nd

, un li ke th e 3

eq ui ty h o ld ers in LaSal le , c red it or s who pa rti ci pa te d in th e Pri va te Pl acement ga ve

so m et hi ng of va lu e up fro nt in ex ch an ge fo r th ei r rig ht to pa rti ci pa te : The y pr om is ed

to su pp or t th e pl an

, bu y pr efer red st oc k th at di d no t se ll in th e Pri va te Pl acement, an d

ba ck st op th e Ri gh ts Offeri ng

. Thi rd

, un li ke th e de bt or in LaSal le

, th e Deb to rs he re 4

To t h e e xt en t th at th e Ad Hoc Co m m it te e arg ue s th at it was un ab le t o 3

pa rti ci pa te in th e fir st ph as e of th e Pri va te Pl acement, we no te

, as di d th e ba nk ru pt cy

co ur t, th at th e Ad Hoc Co m m it te e co ul d ha ve in te r v e n e d i n th e no n- bi nd in g

m ed ia ti on th at res ul te d in th e fo rm ul at io n of th e pl an

. See Fed

. R. Ban kr

. P. 20 18 (a)

(“ In a cas e un de r th e Co de , a fte r he ari ng on su ch no ti ce as th e co ur t d ire ct s an d fo r

cau se sh own

, th e co ur t m ay pe rm it an y in te res te d en ti ty to in te rv en e ge ne ral ly or wit h

res pe ct to an y

sp eci fie d m at te r.”).

The Ad Hoc Co m

m it te e fo cu se s on th e fact th at un de r th e Pri va te Pl acement 4

an d ba ck st op ag reem en ts th e pa rti ci pa nt s were pa id ha nd so m e pr em iu m s fo r th ei r

ag reem en t to bu y

all un so ld pre ferr ed st oc k a nd ba ck st op th e Ri gh ts Offeri ng . The

-1 0-co ns id ered se ve ral al te rn at iv e way s to rai se cap it al

, in cl ud in g pr op os al s su bm it te d by

th e Ad Hoc Co m

m it te e. The Deb to rs rev ie wed each alt ern at iv e-p la n p ro po sa l wi th

ad vi so rs an d an al y zed th e m eri ts of each at bo ard m eet in gs

. W it h each pr op os al

, th e 5

Deb to rs de te rm in ed th at th e pr op os ed al te r n a t i v e wou ld ei th er be le ss effe ct iv e at

acco m pl is hi ng th ei r go al s th an th ei r pl an

, or it wou ld co st to o m uc h in te rm s of ti m e

or m on ey

. In de ed

, th e Deb to rs ’ CFO te st ifi ed at th e co nf irmatio n he ari ng th at de la y

was li ke ly to c o s t t h e Deb to rs aro un d $3 0 m il li on pe r m on th

, no t in cl ud in g an y

li ti ga ti on ex pe ns es rel at ed to res ol vi ng th e se cu rit y -in te res t d is pu te . Mor eo ve r, th e

Offi ci al Co m

m it te e, act in g in a fid uc ia ry cap aci ty, in de pe nd en tl y rev ie wed th e Ad

Hoc Co m m it te e’s pr op os al s an d fo un d th em to be in feri or to th e Deb to rs ’ pr op os ed

pl an

. Bec au se it is d i st in gu is ha bl e, LaSal le do es no t co nv in ce us th at § 11 23 (a)( 4)

ha s b een vi ol at ed he re.

In su m

, we ag ree with th e ba nk ru pt cy co ur t th at th e ri gh t t o p art ic ip at e in th e

Pri va te Pl acement was no t “ tre at m en t fo r” a cl ai m

. 11 U.S.C. § 11 23 (a)( 4)

. The rig ht

to pa rti ci pa te in th e Pri va te Pl acement w a s c o n si de rat io n fo r va lu ab le ne w

co m m it m en ts

. Co ns eq ue nt ly, th e pl an di d no t vi ol at e th e eq ua l-t reat m en t ru le of

§ 1 12 3( a)(4 ).

rig ht to bu y th e p r e ferr ed st oc k at a di sc ou nt , t he Ad Hoc Co m m it te e arg ue s, co ul d

no t al so ha ve be en co ns id erat io n fo r th os e co m m it m en ts

. W e di sa gr ee. The Pri va te

Pl acement pa rti ci pa nt s di d r e c ei ve pr em iu m s fo r co m m it ti ng to bu y th e un so ld

pr efer red st oc k an d to ba ck st op th e Ri gh ts Offeri ng

. Howev er, th e rig ht to bu y th e

pr efer red st oc k at a di sc ou nt m ay al so be se en as an in cen ti ve to ag ree to su pp or t th e

pl an or to st op pu rs ui ng th e se cu rit y -in te res t di sp ut e. Mo reo ve r, th e ri gh t t o b uy at

a d is co un t an d th e pr em iu m s co ul d, to ge th er, be vi ewed as n eces sa ry co ns id erat io n

fo r th e pr om is es to bu y th e un s o l d p r efer red st oc k an d to ba ck st op th e Ri gh ts

Offeri ng

, e s p e c i al ly g iv en th e vo la ti li ty o f co al m ark et s at th e ti m e an d un cert ai nt y

as to th e Deb to rs ’ fu tu re.

The Ad Hoc Co m

m it te e do es no t ch al le ng e t h e D e b t or s’ as se rti on th at th e 5

Deb to rs co ns ul te d wit h ad vi so rs an d co ns id ered th e al te rn at i v e

- pl an pr op os al s at

bo ard m eet in gs

. -1 1-B. Goo d F ai th

The se co nd is su e be fo re us is whe th er th e ba nk ru pt c y c o u r t erre d in

de te rm in in g th at th e Deb to rs pr op os ed t h e i r pl an in go od fai th

. The Ad Hoc

Co m m it te e arg u e s a la ck of go od fai th fo r th ree reas on s: (1 ) “ th e Pl an fai le d to

m ax im iz e th e va lu e of th e Deb to rs ’ es ta te ” be cau se th e pr efer red st oc k was no t so ld

fo r it s fu ll va lu e; (2 ) “ th e Pl an g a v e cert ai n cl as s m em be rs ad di ti on al be ne fit s in

ex ch an ge fo r se tt li ng cl as s- wid e di sp ut es ”—n am el y

, th e Not eh ol de r Co -Pro po ne nt s

were abl e to bu y

m or e pr efer red st oc k in th e Pri va te Pl acement th an ot he r m em be rs

of th ei r cl as s; an d (3 ) “ th e Pl an Pro po ne nt s em pl oyed a co erci ve pr oc es s th at in du ced

ho ld ers to vo te to acce pt th e Pl an .” (Em ph as is om it te d)

.

A ba nk ru pt cy co ur t “ sh al l co nf irm a pl an on ly i f

. . . [t]he pl an ha s be en

pr op os ed in go od fai th .” 11 U.S.C. § 11 29 (a)( 3)

. “ [T]he te rm ‘goo d f a i t h ’ i s le ft

un de fin ed by t he Co de .” Han so n, 82 8 F.2 d at 13 15 . Ho wev er, “ [i]n t he co nt ex t of

a ch ap te r 11 reo rg an iz at io n,

. . . a pl an is co ns id ered pr op os ed in go od fai th ‘if th ere

is a reas on ab le li ke li ho od th at th e pl an wil l ach i e v e a r e s ul t co ns is te nt wit h th e

st an da rd s pr es cri be d un de r th e Co de .’ ” Id

. (ci ta ti on om it te d)

. To de te rm in e whe th er

a pl an ha s be en pr op os ed in go od fai th

, th e “ to ta li ty o f t h e ci rcu m st an ces ”

su rro un di ng th e crea ti on of th e p l a n mu s t b e co ns id ered

. In re Mad is on Hot el

Ass oc s., 74 9 F.2 d 41 0, 42 5 (7 th Ci r. 19 84 ) (q uo ti ng Ja si k v. Co nr ad (In re Ja si k)

, 72 7

F.2 d 13 79

, 13 83 (5 th Ci r. 19 84 )). Bec au se “ [t]he ba nk ru pt cy ju dg e is in th e be st

po si ti on to as se ss th e go od fai th of th e pa rti es ’ pr op os al s,” id

. (al te rat io n in or ig in al )

(ci ta ti on om it te d) , we rev ie w th e q ue st io n o f go od fai th fo r cl ear erro r, se e Han so n,

82 8 F .2d at 1 31 2, 1 31 5 (a rti cu la ti ng th e st an da rd of r ev ie w).

W e ho ld th at th e ba nk ru pt cy co ur t di d no t cl earl y err in fin di ng th at th e Deb to rs

pr op os ed th ei r pl an in go od fai th

. The reco rd sh ows th at th e Deb to rs m ed ia te d wit h

th ei r cred it or s to res ol ve a m ajor di s pu te be twee n th os e cred it or s. The Deb to rs

reac he d a se tt le m en t wit h su bs ta nt ia l in pu t fro m t h e ne go ti at in g pa rti es

. Oth er

cred it or s who rece iv ed no ti ce, inc lu di ng m em be rs of th e Ad Ho c Co m

m it te e, co ul d

-1 2-ha ve joi ne d ha d th ey ch os en to in te rv en e in th e m ed ia ti on

. The se tt le m en t rev ol ve d

aro un d a pl an th at al lo wed al l fir st -li en ho ld ers to be pa id of f, al l se co nd -li en ho ld ers

to rece iv e ap pr ox im at el y

52 .4% o f th e face va lu e of th ei r cl ai m s, an d al l un se cu red

cred it or s to rece iv e ap pr o x i matel y 22 .1% of th ei r cl ai m s’ face va lu e. The pl an

ga rn ered tre m en do us co ns en su s— al l twen ty cl as se s of cred it or s vo te d

ov erwh el m in gl y to ap pr ov e th e pl an an d ap pr ox im at el y 95 % of th e Deb to rs ’

un se cu red cred it or s ag reed to pa rti ci pa te in th e Pri va te Pl acement an d m ak e ba ck st op

co m m it m en ts

. And th e Deb to rs pe rm it te d al te rn at iv e pl an s to be pr op os ed

, al l of

whi ch th e Deb to rs co ns id ered wit h a dv is or s an d a t b oa rd m eet in gs

.

The Ad H o c C o mm it te e di sa gr ees

, arg ui ng th at th e pl an fai le d to m ax im iz e

va lu e. W e ack no wled ge th at th e Deb to rs m ig ht ha ve m ad e m or e m on ey se ll in g th e

pr efer red st oc k at fu ll pr ic e. Howev er, th is arg um en t ig no res t h e p o i n t th at th e

Deb to rs m ig ht no t ha ve co nv in ced th e pa rti es to th e se cu rit y -in te res t di sp ut e to se tt le

or co m m it to an y nu m

be r of th e ot he r ag reem en ts if th e Deb to rs ha d n ot of fere d th e

pr efer red st oc k at a di sc ou nt

. The Deb to rs ’ ov eral l effo rts to reo rg an iz e m ig ht ha ve

ot he rwis e be en th wart ed ha d th ey fo ll owe d th e co ur se pr op os ed by th e Ad Hoc

Co m m it te e. W e can no t lo ok m erel y at th e po te nt ia l vi r t u e s o f th e Ad Hoc

Co m m it te e’s pr op os ed al te rn at iv e whi le ig no rin g th e po te nt ia l ri s k s i n vo lv ed

. See

In re Mad is on Hot el Ass oc s., 74 9 F.2 d at 42 5 (s ta ti ng th at whe n co ns id eri ng whe th er

a pl an ha s be en pr op os ed in go od fai th

, th e to ta li ty o f t h e ci rcu m st an ces m us t be

co ns id ered ).

The Ad Hoc Co m

m it te e al so arg ue s th a t t he Not eh ol de r Co -Pro po ne nt s

rece iv ed a di sp ro po rti on at e op po rtu ni ty to pa rti ci pa te in th e Pri va te Pl acement. W e

se e no m eri t to th ei r co nc ern

. A s u b

- gr ou p of a cred it or cl as s cert ai nl y ob ta in ed

fav or ed tre at m en t by p art ic ip at in g in th e m ed ia ti on a n d i n th e of feri ng s fo rm

ul at ed

in th at m ed ia ti on

. H o w ev er, th at su b- gr ou p to ok on m or e ob li ga ti on s th an ot he r

m em be rs of th e cl as s: The y pu t th em se lv es on th e ho ok to bu y m or e of th e pr efer red

st oc k if it di d no t se ll

, so m et hi ng th at m ig ht eas il y ha ve ha pp en ed as th e Deb to rs were

em erg in g fr om

m ed ia ti on du rin g v ol at il e co al -m ark et sea so ns

.

-1 3-Fi na ll y

, th e Ad Hoc Co m m it te e arg ue s th at th e Deb to rs co erci ve ly so li ci te d

vo te s in fav or of th e pl an

. W e are so m ewh at sym pa th et ic to th is arg um en t. It is

tro ub li ng th at cred it or s wish in g to tak e p art in th e Pri va te Pla cem en t h ad to ele ct to

do so be fo re ap pr ov a l o f a l l th e ag reem en ts an d th e di sc lo su re st at em en t. W e are

co nv in ced

, ho wev er, by th e Deb to rs ’ arg um en t th at ti m e was of th e es se nc e gi ve n th e

vo la ti le na tu re of th e co al m ark et

. Mo reo ve r, as no te d ab ov e, de la y was li ke ly to co st

th e Deb to rs aro un d $3 0 m il li on pe r m on th in ad di ti on to ot he r li ti ga ti o n c o st s. W e

al so fin d co nv in ci ng an arg um en t m ad e by t he Offi ci al Co mm i t t e e th at , we re it no t

fo r th e ex is te nc e of a su pp or t a gr eem en t, Pri va te Pl acement pa rti es m ig ht ha ve ha d

an in cen ti ve to sa bo ta ge t h e p la n an d ob ta in br eak up fees sh ou ld co al -m ark et

co nd it io ns wors en

.

Thu s, de sp it e an y res erv at io n we m ig ht ha ve reg ard in g th e go od fai th qu es ti on

,

we ha ve no t be en le ft wit h a “ de fin it e an d fir m co nv ic ti on th at a mi s t a ke ha s be en

co m m it te d.” Hil l, 91 9 F .3d at 1 08 4 (c it at io n o m it te d)

. W e th eref or e do no t di st ur b

th e ba nk ru pt cy co ur t’s fact ua l f i n d i n g t ha t th e Deb to rs pr op os ed th ei r pl an in go od

fai th

.

III. Co nc lu si on

W e aff irm th e jud gm en t o f th e d is tri ct co ur t o n t he m eri ts

.

__ __ __ __ __ __ __ __ __ __ __ __ __ __ __

-1 4-