1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

ORDERED PUBLISHED

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. NV-11-1728-DKiPa

) NV-11-1737-DKiPa

WINDMILL DURANGO OFFICE, LLC, ) (Related appeals)

)

Debtor. ) Bk. No. 10-25594-lbr

______________________________)

)

BEAL BANK USA, )

)

Appellant, )

)

v. ) O P I N I O N

)

WINDMILL DURANGO OFFICE, LLC;)

UNITED STATES TRUSTEE; DP AIR )

CORPORATION, )

)

Appellees. )

______________________________)

Argued and Submitted on June 15, 2012

at Las Vegas, Nevada

Filed - June 27, 2012

Ordered Published - July 6, 2012

Appeal from the United States Bankruptcy Court

for the District of Nevada

Honorable Linda B. Riegle, Bankruptcy Judge, Presiding

 

Appearances: Jeffrey R. Sylvester of Sylvester & Polednak, Ltd.

argued for Appellant Beal Bank USA. Shara Larson

of Marquis Aurbach Coffing argued for Appellee

Windmill Durango Office, LLC.

 

Before: DUNN, KIRSCHER and PAPPAS, Bankruptcy Judges.

FILED

JUN 27 2012

SUSAN M SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

 Unless otherwise indicated, all chapter, section and rule 1

references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and

to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.

 Beal Bank has two related appeals before us: NV-11-1737 2

and NV-11-1728. The first appeal, NV-11-1737, involves the

ballot order. The second appeal, NV-11-1728, involves the plan

confirmation order.

Beal Bank and the debtor submitted briefs and records in

each appeal. We refer to Beal Bank’s opening and reply briefs in

the first appeal as “Appellant’s Ballot Motion Opening Brief” and

“Appellant’s Ballot Motion Reply Brief,” respectively. We refer

to Beal Bank’s opening and reply briefs in the second appeal as

“Appellant’s Plan Confirmation Opening Brief” and “Appellant’s

Plan Confirmation Reply Brief,” respectively.

We refer to the debtor’s brief in the first appeal as

“Appellee’s Ballot Motion Brief.” We refer to the debtor’s brief

in the second appeal as “Appellee’s Plan Confirmation Brief.”

2

DUNN, Bankruptcy Judge:

Beal Bank USA (“Beal Bank”) appeals two of the bankruptcy

court’s orders concerning the chapter 11 plan of the debtor,

Windmill Durango Office, LLC. Specifically, Beal Bank appeals 1

the bankruptcy court’s order (“ballot order”) denying its motion

to permit it to change a ballot accepting the debtor’s chapter 11

plan (“ballot motion”). Beal Bank also appeals the bankruptcy 2

court’s order confirming the debtor’s chapter 11 plan (“plan

confirmation order”) over Beal Bank’s objection. We AFFIRM the

bankruptcy court’s rulings in both appeals.

FACTS

A. The debtor’s prepetition history

The debtor owns 4.49 acres of commercial real estate

developed with a Class A office building (“real property”). The
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

 The debtor also leases a small office space to 1-800- 3

Registry, which entered into a short-term lease with the debtor

in October 2010.

 The promissory note matured by its non-accelerated terms 4

on December 26, 2011.

3

real property is valued at $18.99 million.

The debtor leases most of the office building space to

Allegiant Air (“Allegiant”). Allegiant is a national airline 3

company, running its corporate headquarters out of the leased

office building space. It is the debtor’s primary tenant,

occupying 87% of the office building and providing 95% of the

real property’s revenue.

Under the lease, Allegiant pays a monthly rent of

$182,006.12, including common area maintenance expense (“CAM”)

and parking. Allegiant’s lease began in April 2008 and ends in

April 2018. Allegiant may exercise an option to terminate the

lease in April 2015. According to the debtor, if Allegiant

exercises this option, it must pay the debtor an estimated $1.2

million cancellation fee.

The debtor purchased the real property prepetition through a

loan with Community Bank of Nevada and Colonial Bank

(collectively, “original lenders”). To document the loan, the

debtor executed a promissory note in the original principal

amount of $16.5 million, secured against the real property.4

The original lenders later were closed down and placed into

receivership with the FDIC. Until that time, the debtor was

current on loan payments. The debtor tried to negotiate a

purchase of the loan from the FDIC. During negotiations with the
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

 According to Beal Bank, the debtor failed to make payments 5

from September 2009 to March 2010.

 Allegiant’s debt arose from a state court order requiring 6

Allegiant to pay this amount to the receiver for the debtor’s

benefit.

4

FDIC, the debtor defaulted on the loan. The FDIC ultimately 5

sold the loan to Beal Bank.

On April 1, 2010, Beal Bank commenced a state court action

against the debtor for breach of contract (“state court action”). 

It also sought and eventually obtained the appointment of a state

court receiver. Beal Bank recorded a notice of default and

election to sell on April 9, 2010.

B. The debtor’s chapter 11 bankruptcy case

1. The changing kaleidoscope of unsecured claims

The debtor filed its single asset real estate chapter 11

bankruptcy petition on August 17, 2010. Windmill Durango, LP is

the sole owner of the debtor.

The debtor scheduled $1,121,261.11 in loans owed by Windmill

Durango, LP, and $168,000 in loans owed by Windmill Durango

Office II, LLC as accounts receivable. It also scheduled

$99,844.79 in past due rent and CAMs owed by Allegiant as an

account receivable.6

The debtor scheduled Beal Bank as its only secured creditor. 

The debtor initially reported a total of $268,000 in unsecured

nonpriority claims in its original Schedule F; Windmill Durango

Office II, LLC held the largest unsecured nonpriority claim in

the amount of $265,000. The debtor specified the amount of only

one other unsecured nonpriority claim: a $3,000 business expense
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

 The debtor filed the first amended Schedule F on 7

September 23, 2010 (docket no. 40), the second amended Schedule F

on February 3, 2011 (docket no. 89) and the third amended

Schedule F on March 24, 2011 (docket no. 125).

5

owed to Green Thumb Maintenance. The debtor listed the remaining

unsecured nonpriority claims in “unknown” amounts. The debtor

named DP Air Corp. and Otis Elevator Company among the creditors

holding unsecured nonpriority claims in unknown amounts. It also

reported in its Schedule H executory contracts with DP Air Corp.

and Otis Elevator Company.

The debtor amended its Schedule F three times over the

course of its bankruptcy case. In the first amended Schedule F, 7

the debtor reduced Windmill Durango Office II, LLC’s unsecured

nonpriority claim to $32,000. In the second amended Schedule F,

the debtor listed Marquis & Aurbach with a $6,835.02 unsecured

nonpriority claim for prepetition attorney fees incurred in the

state court action. In the third amended Schedule F, the debtor

listed John Benedict, Esq. (“Benedict”) with a $1,520 unsecured

nonpriority claim for prepetition attorney fees incurred from

representing the receiver in the state court action.

The deadline for general creditors to file proofs of claim

was January 5, 2011 (“claims bar date”). Otis Elevator Company,

DP Air Corp., Marquis & Aurbach and Benedict filed proofs of

claim, all of which were unsecured nonpriority claims based on

services performed for the debtor. Otis Elevator Company and

DP Air Corp. timely filed their proofs of claim. The two

remaining creditors filed their proofs of claim some weeks after

the claims bar date; Marquis & Aurbach filed its proof of claim
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

 Benedict filed two proofs of claim, claim no. 6 and claim 8

no. 7. Claim no. 7 amended claim no. 6.

 The debtor stated in the amended disclosure statement that 9

the real property was valued at $19.4 million. In the third

amended plan filed on December 19, 2011, see infra n. 11, the

(continued...)

6

on March 1, 2011, and Benedict filed his original proof of claim

on March 21, 2011, and his amended proof of claim on April 1,

2011.

The total amount of the unsecured nonpriority claims filed

was $14,673.12. Otis Elevator Company filed two proofs of claim;

the first was in the amount of $1,500 and the second was in the

amount of $648.59. DP Air Corp.’s proof of claim was in the

amount of $4,506.20. Marquis & Aurbach’s proof of claim was in

the amount of $6,498.33. Benedict’s proof of claim was in the

amount of $1,520.8

2. The debtor’s disclosure statement

The debtor filed its original disclosure statement and plan

on January 26, 2011. An amended disclosure statement and amended

plan were filed on March 16, 2011. Although Beal Bank objected

to the original disclosure statement, it did not object to the

amended disclosure statement.

Under the amended disclosure statement, the debtor placed

Beal Bank into Class 1 and the unsecured nonpriority creditors

into Class 3. It estimated Beal Bank’s total secured claim to be

$16,188,110.62. It believed that the real property had

$3 million in equity based on an appraised value of

$19.4 million. The debtor pointed out that Beal Bank never 9
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

(...continued) 9

debtor iterated this value. At the December 13, 2011 hearing,

the bankruptcy court found that the real property was “worth as

all concede at a minimum of $18.99 million.” Tr. of December 13,

2011 hr’g, 5:18-19.

7

disputed the appraised value of the real property. It further

noted that Beal Bank was over-secured, given the appraised value

of the real property and the amount of its secured claim.

The debtor proposed paying Beal Bank a total principal

amount of $16,188,100.62, fully amortized over 30 years with

2.75% interest. It proposed paying $66,086.53 per month, with

the balance of the unpaid principal of $12,189,347.85 due and

payable in ten years. The debtor would make a final balloon

payment on the unpaid principal balance.

The debtor intended to refinance or sell the real property

in order to make the proposed balloon payment. It believed that

the real property’s value would increase over ten years. Even if

the real property’s value remained the same, the debtor estimated

that there would be 40% in equity built up at the end of the

plan’s ten-year term.

The debtor also proposed to pay 100% of the allowed claims

of the unsecured nonpriority creditors without interest ninety

days after entry of the plan confirmation order.

Following hearings on March 9, 2011, and March 30, 2011, the

bankruptcy court entered an order approving the amended

disclosure statement (“disclosure statement order”) on April 5,

2011. The bankruptcy court set May 31, 2011, as the deadline by

which creditors were required to submit their ballots accepting
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

 Otis Elevator Company withdrew its proof of claim on 10

May 10, 2011, and DP Air Corp. withdrew its proof of claim on

May 13, 2011.

8

or rejecting the plan (“ballot deadline”).

3. Beal Bank’s ballot motion

Beal Bank, Marquis & Aurbach and Benedict timely submitted

their ballots. Beal Bank voted to reject the plan, but Marquis &

Aurbach and Benedict voted to accept the plan. Two and a half

weeks before the ballot deadline, Otis Elevator Company and

DP Air Corp. withdrew their respective proofs of claim.10

One week before the ballot deadline, Beal Bank filed an

“Unconditional Transfer and Assignment of Claim After Proof of

Claim Filed” (“claim transfer”). Beal Bank disclosed in the

claim transfer that Benedict assigned his claim to Beal Bank in

exchange for $1,250.

Three days after filing the claim transfer, Beal Bank filed

the ballot motion. In the ballot motion, it sought the

bankruptcy court’s permission to withdraw Benedict’s vote

accepting the plan and submit a substitute ballot rejecting the

plan under Rule 3018(a).

Beal Bank admitted that it purchased Benedict’s claim in

order to block plan confirmation, as the debtor was seeking

cramdown under § 1129(b)(2)(B). It noted that if the bankruptcy

court allowed Beal Bank to withdraw Benedict’s ballot and change

the vote, the debtor could not use cramdown under the plan, as it

would have no consenting impaired class as required under

§ 1129(a)(10).

Beal Bank averred that its purchase of Benedict’s claim as a
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

9

means to block plan confirmation did not constitute bad faith. 

It asserted that it had no improper motivation in wanting to

withdraw Benedict’s ballot voting to accept the plan. Rather,

Beal Bank simply wanted to protect its own claim. It also

pointed out that it sought to withdraw Benedict’s ballot and

change the vote before the ballot deadline.

The debtor opposed the ballot motion, arguing that Beal Bank

failed to satisfy Rule 3018(a). Rule 3018(a) requires that a

creditor must show cause to change or withdraw an acceptance or

rejection of the plan. The debtor contended that Beal Bank

failed to show cause for withdrawing acceptance of the second

amended plan. Instead, Beal Bank merely stated that it was

trying to protect its interest and that it was making the change

before the ballot deadline.

The debtor cited In re Kellogg Square P’ship, 160 B.R. 332

(Bankr. D. Minn. 1993), for the proposition that a bankruptcy

court usually allows a creditor to change its vote as long as the

creditor’s reason for the change is not improperly motivated. If

the creditor’s proposed change is challenged, it must demonstrate

the propriety of the change. According to the debtor, in Kellogg

Square P’ship, the bankruptcy court determined that where an

entity acquires a creditor’s claim after the creditor voted to

accept or reject the plan, the assigning creditor’s “evidenced

commitment to that specific participation in the case is a

permanent, binding limitation on the transferred claim.” Id. at

335. Here, Beal Bank did not provide any evidence indicating

that Benedict’s vote accepting the second amended plan was

contrary to his true intention.
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

10

At the June 13, 2011 hearing on the ballot motion, Beal Bank

again admitted that it sought to change Benedict’s vote “so it

could block confirmation inasmuch as the debtor would not be able

to meet the numerosity requirements to have a consenting impaired

class.” Tr. of June 13, 2011 hr’g, 5:11-14. See also Tr. of

June 13, 2011 hr’g, 6:8-10. It also admitted that it knew that

Benedict had voted to accept the second amended plan at the time

it purchased his claim and that it had purchased Benedict’s claim

after he voted. Beal Bank claimed, however, that there was

nothing “untoward . . . in its efforts to obtain a blocking

vote.” Tr. of June 13, 2011 hr’g, 6:11-12. Beal Bank argued

that simply because its purpose in changing the vote was selfmotivated did not mean that it was improperly motivated.

Quoting Kellogg Square P’ship, Beal Bank further contended

that “creditors should be given the full benefit of the right of

franchise under Chapter 11 so long as it complied in the first

instance with the ministerial rules governing that exercise.” 

Tr. of June 13, 2011 hr’g, 15:13-15. Benedict complied with the

disclosure statement order by timely casting his vote, so he

should be given the full benefit of his right of franchise to

change his vote, especially if he did so before the ballot

deadline. Beal Bank argued that the fact that Benedict assigned

his claim to Beal Bank was of no import. As successor-ininterest, Beal Bank also should be able to exercise the right of

franchise to change the vote accepting the second amended plan.

The bankruptcy court denied Beal Bank’s ballot motion,

determining that Beal Bank did not show cause for changing or

withdrawing Benedict’s vote. It opined that cause “can’t merely
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

 The debtor titled the second amended plan as “Windmill 11

Durango Office, LLC’s [Proposed] Chapter 11 Plan of

Reorganization.” It filed a third amended plan on December 19,

2011, following hearings on July 7, 2011, and December 13, 2011. 

The debtor titled the third amended plan as “Windmill Durango

Office, LLC’s Second Amended Chapter 11 Plan of Reorganization.”

11

be I want to change my mind or else why [did Rule 3018(a)] use

the word ‘cause’?” Tr. of June 13, 2011 hr’g, 16:17-18. See

also Tr. of June 13, 2011 hr’g, 16:21-23 (“cause include[d]

something other than I’ve changed my mind or else you don’t need

the word ‘cause’ [in Rule 3018(a)].”). The bankruptcy court

determined that cause could not “be shown by the fact that [Beal

Bank] want[ed] to block confirmation.” Tr. of June 13, 2011

hr’g, 20:7-8. The bankruptcy court opined that it was not

“appropriate [for creditors] to wait ‘til the plans [were]

balloted and then decide what claims [they were] going to buy.” 

Tr. of June 13, 2011 hr’g, 20:9-10.

The bankruptcy court moreover reasoned that “it [did] the

process violence by the buying of a claim to specifically block

confirmation after [the balloting was done].” Tr. of June 13,

2011 hr’g, 20:21-24, 21:3-4.

The bankruptcy court entered the ballot order, which

incorporated the fact findings and legal conclusions orally made

on the record at the June 13, 2011 hearing. Beal Bank timely

appealed the ballot order.

4. The debtor’s plan confirmation

The debtor filed its second amended plan on April 6, 2011. 11

The second amended plan repeated the terms set forth in the
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

 Beal Bank filed a proof of claim in the amount of 12

$16,979,353. At the time of plan confirmation, it contended the

amount of its secured claim was $17,404,669.85. The debtor

countered that the amount of Beal Bank’s secured claim was

$16,188,110.62.

12

amended disclosure statement.12

Beal Bank objected to the second amended plan (“plan

objection”), arguing that the debtor did not satisfy the

requirements of § 1129(a) and (b). It noted that the debtor

proposed a nonconsensual cramdown plan, which required the debtor

to satisfy all applicable elements of § 1129(a) and (b). It

contended that the debtor failed to satisfy §§ 1129(a)(10) and

1126(c) which require at least one impaired class to accept the

plan and for that impaired class to accept a plan by creditors

holding 2/3 in the allowed claim amount and more than 1/2 in the

number of allowed claims. It pointed out that the debtor only

had two impaired classes: Beal Bank formed one impaired class and

Maquis & Aurbach and Benedict formed the other impaired class

(“unsecured nonpriority creditor class”). Beal Bank voted to

reject the second amended plan. It also acquired Benedict’s

claim “for the express purpose of controlling the unsecured class

vote.” Thus, even if Marquis & Aurbach voted to accept the plan,

Beal Bank argued, the debtor did not have the requisite number of

consenting creditors under § 1126(c). Without a consenting

impaired class, the debtor could not use the cramdown provisions

of § 1129(b) to confirm its second amended plan.

Beal Bank contended that the debtor also failed to satisfy

§ 1129(a)(3) because it did not file the second amended plan in
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

13

good faith, as it artificially impaired the unsecured nonpriority

creditor class. Although the claims of the unsecured nonpriority

creditor class only totaled $8,018.33 and sufficient operating

cash was available to pay them, the debtor nonetheless proposed

to pay the unsecured nonpriority creditor class without interest

after ninety days. Beal Bank contended that the debtor purposely

impaired the unsecured nonpriority creditor class to force the

second amended plan upon Beal Bank, the only truly impaired

creditor.

Beal Bank also objected to the proposed interest rate to be

paid on its secured claim as it did not provide sufficient value. 

Under Till v. SCS Creditor Corp., 541 U.S. 465 (2004), the

appropriate rate of interest is the prime rate plus a 1% to 3%

adjustment for risk factors. Here, the debtor proposed paying

Beal Bank 2.75% interest on its secured claim, even though the

prime rate of interest was 3.25% at the time. The interest rate

proposed by the debtor therefore fell below the minimum

established by Till.

Beal Bank further argued that the debtor’s second amended

plan was not feasible as required under § 1129(a)(11). The

debtor primarily relied on the rental income from its lease with

Allegiant to fund the second amended plan. If Allegiant

exercised its option to terminate the lease early, the debtor

would be unable to continue business operations and fund the

second amended plan. Beal Bank moreover questioned the debtor’s

ability to make the proposed balloon payment in ten years, given

that the debtor did not provide any information regarding the

probability of refinancing.
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

14

The debtor filed its ballot summary on June 14, 2011. It

reported that the sole creditor in class 1, Beal Bank, voted to

reject the second amended plan. The debtor further reported that

both Marquis & Aurbach and Benedict voted to accept the plan.

The debtor also filed a reply to Beal Bank’s plan objection. 

It noted in its reply that it would amend the plan to provide an

appropriate rate of interest consistent with its expert witness

testimony, to the extent that the bankruptcy court found that the

proposed interest rate on Beal Bank’s secured claim was

inappropriate for cramdown purposes.

The debtor argued that it did not file the second amended

plan in bad faith because it had economic and business

justifications for not paying the unsecured nonpriority creditors

preconfirmation. It claimed that it needed to have significant

cash reserves to maintain Allegiant’s office space, as Allegiant

required the office space to be fully functional 24 hours a day,

7 days a week. It also needed significant cash reserves to pay

for any maintenance and repair for the office building’s

equipment and utilities.

The debtor further explained it needed cash reserves

following tax season and any CAM reconciliation disputes with

Allegiant. It also needed cash reserves to make any tenant

improvements, should it secure a new tenant.

The debtor pointed out that Beal Bank would receive

substantially more through the second amended plan than through

any other available alternative. Under the second amended plan,

Beal Bank would receive deferred cash payments totaling the

allowed amount of its claim plus interest while retaining its
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

15

lien on the real property.

As to Beal Bank’s argument regarding feasibility, the debtor

purposely chose to pay $66,086 per month to Beal Bank so it could

save the difference between its monthly operating budget and the

monthly rents to continue funding the plan in the event Allegiant

terminated its lease early. As noted above, the debtor would be

entitled to a $1.2 million cancellation fee if Allegiant

terminated the lease early.

The debtor also anticipated that in ten years, the real

property would be encumbered by less debt, the economy would have

improved, and the real property’s value would have increased. 

Even if the real property’s value remained stagnant,

approximately 35 to 40% of the real property’s value would

provide an equity cushion for the debtor.

With respect to Beal Bank’s argument regarding the proposed

interest rate on its secured claim, the debtor offered to adjust

it to 4.25%. It revealed that, in light of the ballots submitted

and objections filed, its expert witness, Kenneth Funsten

(“Funsten”) believed that the second amended plan should be

assessed under Till. Even at the 2.75% interest rate, the second

amended plan proposed to pay Beal Bank over $20 million in

principal and interest over ten years, which exceeded the present

value of Beal Bank’s secured claim.

Two days before the July 7, 2011 evidentiary hearing on the

second amended plan (“evidentiary hearing”), the debtor and Beal

Bank filed a joint pretrial statement (docket no. 222). In the

joint pretrial statement, the debtor and Beal Bank presented the

following issues to be determined by the bankruptcy court at the
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

16

evidentiary hearing: (1) whether an impaired class existed with a

genuine interest to consent to the second amended plan;

(2) whether the debtor filed the second amended plan in good

faith; (3) whether the second amended plan sets forth the

appropriate interest rate on Beal Bank’s secured claim for the

purposes of cramdown; and (4) whether the second amended plan was

feasible.

At the start of the evidentiary hearing, the bankruptcy

court found that at least one impaired class (i.e., class 3, the

unsecured nonpriority creditor class) had accepted the debtor’s

second amended plan. Relying on Conn. Gen. Life Ins. Co. v.

Hotel Assocs. of Tucson (In re Hotel Assocs. of Tucson), 165 B.R.

470 (9th Cir. BAP 1994), it held that the debtor satisfied the

requirement of § 1129(a)(10), though it acknowledged that the

issue of class gerrymandering might be relevant to the issue of

good faith under § 1129(a)(3).

The bankruptcy court heard testimony from various witnesses,

including the debtor’s expert witnesses, on the appropriate

interest rate to be paid on Beal Bank’s secured claim and the

value of the real property. During the evidentiary hearing, the

bankruptcy court emphasized that the second amended plan’s

feasibility depended on a determination of the appropriate

interest rate to be paid on Beal Bank’s secured claim.

At the end of the evidentiary hearing, the bankruptcy court

asked the parties to submit supplemental briefs as to the second

amended plan’s feasibility. The parties were to include

calculations of the potential monthly payment amounts and the

balloon payment amount, based on the interest rates and the
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

 Beal Bank included in the record before us a copy of the 13

debtor’s supplemental brief, but did not include a copy of its

own supplemental brief. We obtained a copy of Beal Bank’s

supplemental brief from the bankruptcy court’s electronic docket. 

See O’Rourke v. Seaboard Sur. Co. (In re E.R. Fegert, Inc.),

887 F.2d 955, 957-58 (9th Cir. 1988); Atwood v. Chase Manhattan

Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP

2003).

 The debtor continued to maintain, however, that the 14

amount of Beal Bank’s secured claim was $16,188,110.62.

17

amounts of Beal Bank’s secured claim as advanced by each of the

parties. The debtor and Beal Bank both filed their supplemental

briefs on September 19, 2011 (docket nos. 254 and 255).13

The debtor contended in its supplemental brief that the

second amended plan was feasible if the bankruptcy court accepted

any of the interest rates proposed by the debtor. The debtor

claimed that the appropriate interest rate was 4.25%, the Till

build-up rate. But even at the highest interest rate of 4.79%,

the blended rate, or at 4.52%, the average of the Till build-up

rate and the blended rate, the debtor’s second amended plan still

was feasible. Applying any of these interest rates to the higher

claim amount of $17,404,669.85 asserted by Beal Bank, the debtor

noted that the calculated monthly payments were close to the

$88,047 monthly adequate protection payment it had been making to

Beal Bank over the course of the bankruptcy case. The debtor

calculated that the monthly payment to Beal Bank would be

$85,620.51 at the 4.25% interest rate, $88,393.86 at the 4.52%

interest rate or $91,211.10 at the 4.79% interest rate.14

The debtor also anticipated that it would be able to make

the balloon payment at the end of the plan term. The debtor
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

18

asserted that it would have $6 million in equity to work with at

the end of the plan term, based on its proposed payoff schedule

and the assumption that the real property’s market value remained

static. The debtor therefore believed that it would be able to

refinance successfully or sell the real property to satisfy the

balloon payment.

Beal Bank argued that the appropriate interest rate was

8.1%, the blended rate, as calculated by its own expert, Daniel

Van Vleet (“Van Vleet”). Applying this interest rate to the

$17,404,669.85 claim amount asserted by Beal Bank, the monthly

payment amortized over thirty years would be $128,925. Even at

the $16,188,111 claim amount asserted by the debtor, Beal Bank

calculated that the monthly payments amortized over thirty years

would be $119,913.

Beal Bank pointed out that the debtor’s proposed loan term

was ten years, maturing in 2021. If Allegiant early terminated

its lease in April 2015 or continued with the lease to the end of

its contracted term in April 2018, the debtor’s cash flow

potentially would be severely restricted well before the proposed

loan maturity date. According to Beal Bank, the debtor did not

provide any evidence that it could continue to service the debt

obligation to Beal Bank following early termination or

termination of the lease with Allegiant. Thus, Beal Bank

concluded, the debtor’s second amended plan was not feasible.

On December 13, 2011, the bankruptcy court held a hearing,

orally issuing its fact findings and legal conclusions on the

record. The bankruptcy court made detailed fact findings as to

feasibility under § 1129(a)(11). With respect to the issue of
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

19

good faith under § 1129(a)(3), the bankruptcy court stated that

“the [second amended] plan meets all the other requirements of

Chapter 11 . . . .” Tr. of December 13, 2011 hr’g, 15:3-4. See

also Tr. of December 13, 2011 hr’g, 4:3-4.

The bankruptcy court found that the 4.52% interest rate

testified to by the debtor’s expert was the appropriate cramdown

interest rate. It adopted the 4.52% interest rate in light of

the approach set forth by Till, which required the bankruptcy

court to start with the prime rate and then build up or add to it

based on risk factors. The bankruptcy court opined that Till

only set 1% to 3% as the general range for risk factors, not as

the limit.

The bankruptcy court adopted the findings set forth by

Funsten, the debtor’s expert, agreeing with his analysis of the

risk factors. It adopted his conclusions “based upon the

character of the loan, the fact that . . . [there was] a building

that’s rented, a stable tenant, and the rent above market and

above the amount needed to pay the debt, the collateral which

again relate[d] to the building, and the circumstances peculiar

to this debtor.” Tr. of December 13, 2011 hr’g, 13:15-20. The

bankruptcy court explained that it adopted the 4.52% interest

rate “to account for the high risk if the debt [was] equal to

[Beal Bank’s] current claim.” Tr. of December 13, 2011 hr’g,

13:24-25, 14:1.

It found Van Vleet’s calculation of the interest rate to be

flawed in several respects. The bankruptcy court determined that

Van Vleet used a coerced-loan approach, not the blended-rate

approach he claimed to have used. It moreover found that he
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

20

“double-calculated” the risk to Beal Bank under the plan,

applying an equity investor rate.

The bankruptcy court determined that the second amended plan

was feasible based on the 4.52% interest rate proposed by the

debtor and the $17,404,669.85 claim amount asserted by Beal Bank. 

The bankruptcy court was careful to note that it was assuming the

higher claim amount without deciding, “[f]or the purposes of

determining the appropriate rate of interest which, in turn,

require[d] an analysis based upon the amount of the debt[.]” 

Tr. of December 13, 2011 hr’g, 4:11-14.

The bankruptcy court also found it reasonably possible that

the second amended plan was feasible because the debtor had

sufficient income to fund it as the debtor received rental income

exceeding the monthly payment amount to Beal Bank and would

receive substantial damages from Allegiant in the event of early

lease termination. The bankruptcy court believed it unlikely

that Allegiant would early terminate the lease, given relocation

costs and the special features offered by the office building. 

The bankruptcy court further reasoned that even if Allegiant did

not renew the lease in April 2018, the debt to Beal Bank would be

reduced to $15,153,193.

It also recognized that the debtor had been making payments

to Beal Bank in an amount equal to or close to the amount

proposed under the second amended plan. The bankruptcy court

further noted that the debtor’s most recent operating report

revealed that the debtor had a healthy cash balance.

The bankruptcy court found it reasonably possible that the

debtor would be able to sell or refinance the real property such
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

21

that it would be able to make the balloon payment at the end of

the ten-year plan term. The bankruptcy court determined that

Funsten’s report provided evidence as to the feasibility of a

sale or refinance of the real property. It further determined

that there was “nothing to suggest that the subject [real]

property [would] decline in value,” though it acknowledged that

“any attempts to opine on the market conditions may be pure

speculation with respect to the state of the economy and the

market [in the area] in ten years[.]” Tr. of December 13, 2011

hr’g, 8:1-5. The bankruptcy court thus concluded that Beal Bank

not only had an equity cushion at the time of the evidentiary

hearing, but would have an even greater one in ten years because

the debtor would have made payments under the second amended

plan.

The bankruptcy court entered the plan confirmation order on

December 21, 2011. Beal Bank timely appealed the plan

confirmation order.

At oral argument, it was reported that the general unsecured

claims had been paid in full, and payments to Beal Bank under the

confirmed plan were current.

JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C.

§§ 1334 and 157(b)(2)(L) and (O). We have jurisdiction under

28 U.S.C. § 158.

ISSUES

(1) Did the bankruptcy court err in denying Beal Bank’s

ballot motion?

(2) Did the bankruptcy court err in confirming the debtor’s
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

22

second amended plan by finding that the debtor demonstrated that

it was feasible?

(3) Did the bankruptcy court err in confirming the debtor’s

second amended plan by finding that the debtor filed it in good

faith?

STANDARDS OF REVIEW

The debtor and Beal Bank initially disagreed as to the

standard of review that we should apply in reviewing the

bankruptcy court’s ruling under Rule 3018(a). At oral argument,

counsel for the debtor agreed with Beal Bank that we should

conduct our review under the abuse of discretion standard.

We have been unable to locate authority within the Ninth

Circuit and elsewhere directly addressing this issue. We further

note that the Bankruptcy Code does not define “cause.” We

nonetheless agree with the parties that the abuse of discretion

standard of review applies here, as, within the context of

chapter 11 cases, this standard of review has been applied to

dismissals of chapter 11 cases for bad faith as “cause” under

§ 1112(b). See Marsch v. Marsch (In re Marsch), 36 F.3d 825, 828

(9th Cir. 1994) (per curiam) (reviewing for abuse of discretion

bankruptcy court’s decision to dismiss chapter 11 case as bad

faith filing under § 1112(b)). We also note that Rule 3018(a)

provides that the bankruptcy court may, but not necessarily must,

permit a creditor to change its cast ballot, certainly implying

that the court is vested with discretion in making its decision. 

We also review the bankruptcy court’s decision to confirm a

chapter 11 reorganization plan for an abuse of discretion. 

Computer Task Group, Inc. v. Brotby (In re Brotby), 303 B.R. 177,
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

23

184 (9th Cir. BAP 2003).

We apply a two-part test to determine objectively whether

the bankruptcy court abused its discretion. United States v.

Hinkson, 585 F.3d 1247, 1261-62 (9th Cir. 2009) (en banc). 

First, we “determine de novo whether the bankruptcy court

identified the correct legal rule to apply to the relief

requested.” Id. Second, we examine the bankruptcy court’s

factual findings under the clearly erroneous standard. Id. at

1262 & n.20. We must affirm the bankruptcy court’s factual

findings unless those findings are “(1) ‘illogical,’ (2)

‘implausible,’ or (3) without ‘support in inferences that may be

drawn from the facts in the record.’” Id.

“Of course, a determination that a plan meets the requisite

confirmation standards necessarily requires a bankruptcy court to

make certain factual findings and interpret the law.” Brotby,

303 B.R. at 184. We review the bankruptcy court’s factual

determinations regarding feasibility under § 1129(a)(11) and good

faith under § 1129(a)(3) for clear error. Id. We will not

disturb the bankruptcy court’s factual determinations unless,

after reviewing the entire evidence, we have a definite and firm

conviction that a mistake has been made. Hinkson, 585 F.3d at

1260. We reverse the bankruptcy court only if we conclude that

the bankruptcy court’s factual determinations were illogical,

implausible or without support in the record. Id. at 1261. If

the bankruptcy court’s “account of the evidence is plausible in

light of the record viewed in its entirety,” we may not reverse,

even if we are convinced that, had we been in the position of

factfinder, we would have weighed the evidence differently. 
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

 Rule 3018(a) provides, in relevant part, “For cause 15

shown, the court after notice and hearing, may permit a creditor

. . . to change or withdraw an acceptance or rejection.”

24

Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 573-74

(1985). “Where there are two permissible views of the evidence,

the factfinder’s choice between them cannot be clearly

erroneous.” Id. at 574.

We review de novo the following issues as they involve

questions of law: (1) whether plan treatment “impairs” a

creditor’s claim and (2) the bankruptcy court’s determination of

what factors to apply in a value determination. Conn. Gen. Life

Ins. Co. v. Hotel Assocs. of Tucson (In re Hotel Assocs. of

Tucson), 165 B.R. 470, 473 (9th Cir. BAP 1994). We accord

substantial deference to the bankruptcy court’s cramdown interest

rate determinations. Id.

We may affirm on any basis supported by the record. Shanks

v. Dressel, 540 F.3d 1082, 1086 (9th Cir. 2008).

DISCUSSION

A. The bankruptcy court did not err in denying Beal Bank’s

ballot motion

Rule 3018(a) allows a creditor to change its vote only on 15

a showing of cause. As one bankruptcy court points out, the

Bankruptcy Code does not provide any guidance as to what

constitutes cause under Rule 3018(a). In re CGE Shattuck, LLC,

2000 WL 33679416 (Bankr. D.N.H. 2000).

The test for determining whether cause has been shown

should not be a difficult one to meet. As long as the

reason for the vote change is not tainted, the change of

vote should usually be permitted. The court must only

ensure that the change is not improperly motivated.
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

25

Kellogg Square P’ship, 160 B.R. at 334 (citing 8 Collier on

Bankruptcy ¶ 3018.01[4] (15th ed. 1990)).

Here, Beal Bank emphasizes that the threshold to show cause

under Rule 3018(a) is low. A creditor only need demonstrate that

it has no “tainted” or improperly motivated reason for

withdrawing its vote. Beal Bank freely admitted to the

bankruptcy court and at oral argument that it bought Benedict’s

claim for the express purpose of blocking confirmation of a plan

it believed to be proposed in bad faith by the debtor. According

to Beal Bank, the bankruptcy court did not find this reason for

its request to change Benedict’s vote to be either tainted or

improperly motivated. Appellant’s Ballot Motion Opening Brief

at 15. Because it did not find Beal Bank’s request to withdraw

Benedict’s vote to be improper, Beal Bank argues, the bankruptcy

court simply should have granted the ballot motion.

Beal Bank moreover contends that cause under Rule 3018(a)

should be presumed to exist when a creditor seeks to withdraw its

vote before the ballot deadline. Appellant’s Ballot Motion

Opening Brief at 26. Beal Bank argues that to deny a creditor’s

request to withdraw its vote when it was made before the ballot

deadline would deprive the creditor “the full benefit of their

right of franchise under Chapter 11.” Appellant’s Ballot Motion

Opening Brief at 28. As long as the debtor suffers no prejudice

from the creditor’s withdrawal of the vote, Beal Bank reasons,

the bankruptcy court should allow the creditor to do so. Id.

Little authority exists addressing this issue. In In re

Kellogg Square P’ship, 160 B.R. 332 (Bankr. D. Minn. 1993), the

bankruptcy court faced facts similar to the matter before us. In
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

26

Kellogg Square P’ship, Prudential Insurance Company of America

(“Prudential”), the debtor’s largest and only secured creditor,

purchased claims from several of the debtor’s unsecured

creditors. Prudential obtained assignments of these claims after

these creditors had cast their votes accepting the debtor’s plan. 

Prudential then moved to change the acceptances to rejections

under Rule 3018(a). Like Beal Bank, Prudential’s strategy in

purchasing the claims and changing the votes was to defeat

confirmation of the debtor’s plan so as to avoid cramdown

treatment of its secured claim.

The bankruptcy court found that Prudential did not show

cause under Rule 3018(a) to modify the votes, as the only cause

alleged by Prudential was that it would not have voted the claims

in favor of the debtor’s plan. Kellogg Square P’ship, 160 B.R.

at 335. The bankruptcy court reasoned that allowing an assigneecreditor to change the vote previously cast by the assignor

undermines a basic principle of assignments. Id. Generally, “an

entity which acquires a claim [against a bankruptcy estate] steps

into the shoes of that claimant, enjoying both the benefits and

the limitations of the claim, as a successor in interest.” Id.

(quoting In re Applegate Prop., Ltd., 133 B.R. 827, 833 (Bankr.

W.D. Tex. 1991) (internal quotation marks omitted)). The

bankruptcy court concluded that “where an entity acquires a

creditor’s claim after the creditor has already cast a vote on a

plan of reorganization, the assignor-creditor’s evidenced

commitment to that specific participation in the case is a

permanent, binding limitation on the transferred claim.” Id.

It further reasoned that allowing an assignee-creditor to
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

27

change the assignor’s previously cast vote would undercut the

“certainty in the dynamics of reorganization under chapter 11.” 

Id. “[W]ere pre-transfer votes not binding on the assignees of

claims, creditors would be left to select not the best plan [of

reorganization] but the best deal they might be able to

individually negotiate, with the major constituencies vying for

control of the case, behind the scene of the confirmation

process.” Id. (quoting Applegate Prop., Ltd., 133 B.R. at 836

(internal quotation marks omitted)).

Beal Bank contends that the reasoning of Kellogg Square

P’ship goes against current Ninth Circuit authority concerning

the law of assignments as set forth in Boyajian v. New Falls

Corp. (In re Boyajian), 564 F.3d 1088 (2009). Boyajian

established that an assignee-creditor may pursue a § 523(a)(2)(B)

action against a debtor as long as the assignee-creditor shows

that the original creditor relied on the debtor’s materially

false statement. Because the reasoning of Kellogg Square P’ship

conflicts with Boyajian, Beal Bank argues, it does not apply

here.

We do not quibble with Beal Bank in its assertion that, as

the assignee-creditor, it had the right to seek withdrawal of

Benedict’s vote. But Beal Bank misses the essential point of

Kellogg Square P’ship: like the bankruptcy court here, the

Kellogg Square P’ship bankruptcy court found that Prudential did

not establish cause under Rule 3018(a) to change the vote of the

assignor-creditors.

The bankruptcy court in In re MCorp Fin., Inc., 137 B.R. 237

(Bankr. S.D. Tex. 1992), also considered a motion to allow a
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

28

change in vote on a chapter 11 plan. In MCorp Fin., Inc., an

unsecured creditor moved to change his vote rejecting the chapter

11 plan to one accepting it shortly after he reached an agreement

with the debtor regarding treatment of his claim in the chapter

11 plan. After pointing out that a change in vote under Rule

3018(a) is the exception rather than the rule, id. at 238, the

bankruptcy court went on to indicate that the standard for such a

change is fairly relaxed, echoing the Kellogg bankruptcy court in

citing Collier. The bankruptcy court then listed examples

justifying vote changes, including “a breakdown in communications

at the voting entity, misreading the terms of the plan, or

execution of the first ballot by one without authority. In such

circumstances, the vote could be changed in order to allow the

voting entity to intelligently express its will.” Id.

The bankruptcy court in MCorp Fin., Inc. ultimately denied

the unsecured creditor’s motion to change his vote, determining

that his requested vote change was “prompted by a subsequent

agreement, and was made in writing only after testimony in the

confirmation hearing which made the ballot important.” Id. at

239. It found that “the timing of the change [was] highly

suspect, and the evidence [did] not overcome the possibility of

improper motivation.” Id. The bankruptcy court concluded that

the unsecured creditor failed to meet his burden of proof to

establish that the requested change was not improperly motivated. 

Id.

Beal Bank maintains that the bankruptcy court did not find

that it had an improper motivation in seeking to withdraw

Benedict’s claim. But the bankruptcy court did make such a
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

finding: it found that Beal Bank’s reason to block confirmation

“did the process violence.” It further found that it was not

“appropriate [for creditors] to wait ‘til the plans [were]

balloted and then decide what claims [they were] going to buy.”

The bankruptcy court moreover found that “cause” under

Rule 3018(a) required something more than a mere change of heart. 

It determined that withdrawing a previously cast vote for the

purpose of strategy (i.e., for the purpose of blocking plan

confirmation) was not cause under Rule 3018(a).

The bankruptcy court found that Beal Bank did not establish

cause for withdrawing Benedict’s vote. It further found that

Beal Bank’s reason for withdrawing Benedict’s vote was improperly

motivated. While it is a close question, we conclude that the

bankruptcy court did not abuse its discretion in denying the

ballot motion.

B. The bankruptcy court did not err in finding that the

debtor’s second amended plan was feasible

“To confirm a plan, a bankruptcy court must find that the

plan is feasible, meaning that confirmation of the plan is not

likely to be followed by the liquidation, or the need for further

financial reorganization, of the debtor.” Sherman v. Harbin

(In re Harbin), 486 F.3d 510, 517 (9th Cir. 2007). Feasibility

requires only that the debtor demonstrate that the plan has a

“reasonable probability of success.” Acequia, Inc. v. Clinton

(In re Acequia, Inc.), 787 F.2d 1352, 1364 (9th Cir. 1986). “The

Code does not require the debtor to prove that success is

inevitable or assured, and a relatively low threshold of proof

will satisfy § 1129(a)(11) so long as adequate evidence supports
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

30

a finding of feasibility.” Wells Fargo Bank v. Loop 76, LLC

(In re Loop 76, LLC), 465 B.R. 525, 544 (9th Cir. BAP 2012). The

debtor cannot confirm a plan that is “a visionary scheme which

promises more than the debtor can deliver.” Id. (quoting Wiersma

v. O.H. Kruse Grain & Milling (In re Wiersma), 324 B.R. 92,

112-13 (9th Cir. BAP 2005), aff’d in part, rev’d in part on other

grounds, 227 Fed. Appx. 603 (9th Cir. 2007) (internal quotation

marks omitted)). “Because feasibility is an issue of fact, we

give due regard to the bankruptcy court’s evaluation of witness

testimony and any inferences drawn by the court.” Loop 76, LLC,

465 B.R. at 544.

Beal Bank contends that the debtor failed to provide

evidence of sufficient cash flow to fund and maintain its

business operations and pay its plan obligations. Beal Bank

moreover argues that the debtor did not provide any evidence that

it likely will be able to refinance or sell the real property at

the end of the plan term to make the balloon payment. In

particular, Beal Bank argued that the debtor offered no expert

testimony on feasibility or on the likelihood of refinancing the

real property and no projections or other “concrete” evidence of

sufficient cash flow. Beal Bank further argued that the debtor

also failed to offer evidence as to the value of the real

property beyond the confirmation date; it provided no evidence of

the real property’s value on early termination or termination of

the lease with Allegiant or the maturity date of the loan with

Beal Bank.

Beal Bank points out that the bankruptcy court relied on a

statement made by Funsten in his interest rate report in
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

 We also point out that the debtor presented evidence that 16

it intended to save the difference between the rental income from

(continued...)

31

determining that the plan was feasible. Specifically, on page

520 of his report, Funsten stated that “if commercial property

values in 2021 are no different than today, the remaining

principal to be refinanced will have a loan-to-value (“LTV”) of

68%.” Beal Bank stresses that Funsten was the debtor’s interest

rate expert and was not qualified as an expert on financing or

any other aspect of feasibility. It also contends that the real

property valuation report provided by the debtor’s other expert

witness, Charles Jack, was faulty in its assumption that the real

property’s value will remain unchanged.

Beal Bank overstates the bankruptcy court’s reliance on

Funsten’s report in its feasibility determination. The

bankruptcy court mentioned that Funsten’s report provided

evidence as to the potential for refinancing or sale of the real

property, but it looked to other evidence in determining the

second amended plan’s feasibility. The bankruptcy court found

that the second amended plan was feasible because: (1) the debtor

had sufficient income to fund the second amended plan because the

rental income it received exceeded the monthly payments to Beal

Bank; (2) the debtor stood to receive substantial damages

(approximately $1.2 million) from Allegiant in the event of early

lease termination; (3) Beal Bank had a sizeable equity cushion,

based on the current real property valuation, which only would

grow over time as the debtor made payments under the second

amended plan; and (4) the debtor had a healthy cash balance.16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

(...continued) 16

Allegiant and the payments to Beal Bank to build up its cash

reserves to continue funding the plan if Allegiant terminated the

lease early.

32

The bankruptcy court further determined that there was

nothing in the evidence before it suggesting that the real

property’s value would decline. It also determined that it was

unlikely that Allegiant would terminate the lease early, based on

the real property’s unique characteristics and the costs to

Allegiant in relocating. Beal Bank moreover did not offer any

evidence indicating that the real property’s value would decline. 

Beal Bank also did not dispute the debtor’s current valuation of

the real property.

Although the debtor apparently did not provide income

projections, its monthly operating reports suffice to show that

it had sufficient cash flow to fund the second amended plan. 

Beal Bank did not object to any of the monthly operating reports

submitted by the debtor or offer any evidence of its own

indicating that the debtor had insufficient cash flow to fund the

second amended plan.

Based on the record before us, we conclude that it supports

the bankruptcy court’s feasibility determination.

C. The bankruptcy court made determinations as to good faith

under § 1129(a)(3)

“Section 1129(a)(3) does not define good faith. A plan is

proposed in good faith where it achieves a result consistent with

the objectives and purposes of the Code. The requisite good

faith determination is based on the totality of the
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

33

circumstances.” Platinum Capital, Inc. v. Sylmar Plaza, LP

(In re Sylmar Plaza, LP), 314 F.3d 1070, 1074 (9th Cir. 2002)

(citations omitted). The creation of an impaired class in “an

attempt to gerrymander a voting class of creditors is indicative

of bad faith” for purposes of § 1129(a)(3). Conn. Gen. Life Ins.

Co. v. Hotel Assocs. of Tucson (In re Hotel Assocs. of Tucson),

165 B.R. 470, 475 (9th Cir. BAP 1994).

Beal Bank asserts that the debtor did not propose the second

amended plan in good faith because it created an artificially

impaired class by providing deferred, no-interest payments to

Marquis & Aurbach and Benedict, though the debtor had ample funds

with which to pay them in full on the effective date.

The record in its totality amply supports a conclusion that

the debtor’s second amended plan achieves a result consistent

with the objectives and purposes of the Bankruptcy Code. See

Shanks, 540 F.3d at 1086; In re Sylmar Plaza, LP, 314 F.3d at

1074. The debtor presented a feasible plan that will pay all

allowed claims in full over time. Beal Bank will retain its

security interest in the real property until its allowed claim,

with interest at an appropriate rate, is paid in full. As noted

above, the evidence submitted by the debtor in support of

confirmation presented multiple business and economic reasons for

deferring payment of allowed unsecured claims. In light of our

review of the entire record, we do not have a definite and firm

conviction that the bankruptcy court erred in determining that

the debtor proposed its second amended plan in good faith, or in

its ultimate determination that the debtor satisfied the

requirements for confirmation of its second amended plan.
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

34

CONCLUSION

Because the bankruptcy court did not find that Beal Bank had

cause under Rule 3018(a) to withdraw Benedict’s vote accepting

the second amended plan, it did not err in denying Beal Bank’s

ballot motion. The bankruptcy court also did not err in finding

that the debtor satisfied the requirements for confirming its

second amended plan. We therefore AFFIRM the bankruptcy court’s

rulings on the ballot motion and plan confirmation.