## In the



# U n ited S ta tes Co urt o f Ap p ea ls

F o rth eS e v e n th C ir cu it
N os. 09

- 3079 , 09

- 3177 I N RE : S OUT H B EA CH S ECURI TI ES, I NC ., D e b t or . A PP E A L OF : S CAT T ER ED C OR PO RA T I ON, I NC ., AN D S OUT H B EA CH S ECURI TI ES, I NC ., A pp ella nts.

A pp ealsfr o m the United S t ates Di strictC our t fo r the N o rthernDi stricto f Illino is, Eas tern Div isi on. No . 08 C1135

—Jo an H umph reyL efk ow, Judge
.
A RG UE D F EB RU AR Y 19, 2010

— D ECI DE D M AY 19, 2010

Befo re P OSNER, F LA UM, a nd W OO D , C ircu it Judges . P OSNER, Cir cu i tJudg e . A corpor ati on cal l ed So uth Beach Se curi ti es fi led a peti ti on under Chapter11 o fthe Bankr upt cyCo de an d s ubmi tt ed a pl an of reo r g an i za ti o n. The bankr up tcy j ud ge re fused to co nfi rm the pla n and dism iss ed th e b an kr u p tc y p ro c ee d in g. In re South Beach Secur it ie s, Inc. , 376 B.R. 88 1 ( Bankr. N

. D. I l l

. 20 07)
. S outh2 N os. 09

- 3079 , 09

- 3177 Be a c h a nd i t s o nl y c r e di t o r, Scat t e r e d C o r po r a t i o n, a ppeal ed to the dis tr i ct c ourt, wh i ch affi rm ed. 42 1 B. R. 45 6 ( N
. D. I l l

. 20 09). S c att er ed and So uth Beach now app ealto us but S o uth Bea ch ha s ado pte d S ca tt er ed' s br iefa nd m ake s no se parat e a rgum ents. L ed b y L eo n A . G re enb lat t III

— a “ch aract er” ifev er there wa s on e , s e e Ga r y Was hb urn & Ki m Ba r k e r, “ Ra nd o l ph Tow erRunning Up a Tab : Ci ty Say s Ow ner Face s a H efty B ill,” Chic ago Tri b une, Mar
. 2 0 , 2 0 0 1 , p . 1 ; Gr e gBu r ns , “Sc att er ed’s Ch i ef Bu oye d b y SEC Vi cto ry: Gre enbl att Pursues Sui t Agai nst Chi cago Exchange, ” Chic ago Tri b une, N ov . 15, 19 98 , p. 1 ; B u r n s, “T h e ‘B ad B oy s’ o f C h ic a g o Arb i t r a g e , ” B usin ess Week A rch ives , A ug. 5, 1996, ww w . businessweek. com /1 996/32 /b 3487 6. htm ( vi si ted Feb. 19 , 20 10)

— S ca tt er ed ac hi ev ed no to r i ety s o m e y ears a g o b y s e l l i n gs h o r tmo r e s h a r e s o fL T V th a n e x i s t e d

. We he l d tha tthi s t a c t i c di d notvio l ate the secur i ti es l aw s. Su lliv a n & Lo ng, Inc. v. Sca ttered C o rp . , 47 F. 3d 857 ( 7th Cir
. 19 95)
. B u t the Chic ago S toc k Exchange, o fwh i ch Sca tte re d w as a m em ber, tooka dim m ervi ew o f S ca tt er ed’ s co nduc t, ac cus i ng i t o f f r au d an d pr ec i pi ta ting l i ti gat i on e ventual l y r eso l ved in the c om pany’s f avo r but notbefor e it ha d been dri ven o ut o fthe secur i ti es b u sin es s. In re S ca t t e r e d Corp. , 53 S
. E.C. 94 8 ( 1998 ) ; “S catter ed Corp. Final l y Ends I ts Long Battl e with CH X w i th Se ttl em ent Vi nd i cating F i rm ’s Posi ti on, ” Secu rities Week, A p r. 19 , 199 9; “S c at te re d Sells C H X Sea t a n d E x its Sec u riti es In d ustr y, ” Secu rities Week, Dec. 8, 19 97; “S EC Grants S ca tt er ed Pa r ti alS ta y i n CHX F i ndi ngo fF i rm ’ s F r au d and M ani pu l ati on, ” Secu rities Week, M ay 19, 19 97. W hat it does n ow i s un clear.N os. 09

- 3079 , 09

- 3177 3 So uth Beach, the debtor in the bankr up tcy proce edi ng, als o i s co nt r o l l ed byGr ee nb l at t. I t i s no t par ti ci pat i ng acti vel y in thi s a pp eal( i t h as m er el y, as we sai d, adopted Sca tte re d' s br i ef ) , but the U.S. Truste e

— a Depart m ent o f J usti ce o ffi ci alwh ose r ol e i s t o be a watchd og i n bankruptcy proce edi ngs, 28 U
. S. C. § 5 86( a) ( 3)

— i s. H e o pp ose d the c o nfi r m at i o n o fthe pl ano fr eo r g an i za ti o n in the b a nk r up t c y c o ur ta nd the di s t r i c tc o ur ta nd de fe nd s th eir ru lin gs in t h is c ou rt . H e a rg u es th at th e o n ly pur po se o fS o uth Be ac h’ s dec l ar at i on o fb an k r upt cy, a nd ofthe pla n ofr eor gani zati on, i s t o avo i d t axes, and a pl an ofr eor gani zati on c annot be c onfi rm ed “i fthe pri nci pal pu r po s e o fth e p l a n i s th e a v o i d a n c e o ft a x e s . ” 1 1 U. S
. C. § 11 29 ( d)

. The U. S
. Tr us te e’ s r o l e was es pec i al l y i m po r ta nt in th is c as e b ec au se t h e b an kr u p tc y w as n on ad ve rs ar ial, and, i nd eed, as we shal l se e, phon y. W er e i t no t for h is p ar tic ip at ion , Sca tt er ed w ou ld h a ve n o op p on en t in thi s co urt. S c a t t e r e d a r g ue s tha tthe U. S
. T r us t e e i s n o ta utho r i z ed to obj ect to a p lan o fr eor gani zati on o n the gr ound that th e pl an ' s pr i m ar y p ur po se i s to a vo i d t ax es . And i nd eed i t i s no t obvi ous that the U
. S. Truste e’ s wri t r uns to po licin g a gainst t ax ev asi on

— one m i ght thi nk the pro per w atchdog w oul d be th e Inter nal Reve nue Se rv i ce, wh i ch co ul d ha ve o bj ec te d t o c o nfi r m at i o n o fthe pl ana t th e o ut se t, o r c o ul d st ep i n l at erb y inv o k i ngs ec ti o n 2 69 o fthe ta x c o de ( di sc us se d b el o w) when an d if a p ar tyt o the b a n k r u p t c y p r o c e e d i n g c l a i me d a t a x b e n e fi t
. 2 6 C. F
. R. § 1
. 269- 3(e)
. A nd ther e a re o bj ecti ons base d on the text of th e B a n k r u p t c y C o d e t o th e U. S
. T r u s t e e ’ s p l a y i n gt he ro le of t ax w atchdog i n bankr up tcy proce edi ngs, tho ugh n otco m p ellin g ob j ec tio n s.4 N os. 09

- 3079 , 09

- 3177 The Code perm i ts onl y a “ p ar ty i n i nter estthati s a gov er nm entaluni t” to oppose a pla n of re or gani zati on o n the g ro und thatt h e p l an’ s pri m ar y purpose i s t o beat ta x es . 11 U .S.C . § 11 29 (d ); In re Tr a n s M a x Tech no lo gies, Inc. , 3 49 B .R
. 80 , 91 ( Bankr. D. N ev. 20 06) ; 7 C o llier on B ank ruptcy¶ 1 129.07 , p . 11 29- 176 ( A l an N
. Resni ck & H enryJ
. S om m ereds. , 16 th ed. 20 09)
. A U
. S. Trust ee is d ee m ed n otto be “a gov er n m e n t a l u n it” on ly “ w h ile ser v i nga s a t r us t e e i n a ” b a nk r up t c y c a s e . 1 1 U. S
. C. § 1 01( 27)
. T he U

. S. T rust ee i s no t the tr ustee i n bankr up tcy i n thi s ca se. T h er e is no tr ustee ; S outh Beach i s a debto r i n posse ssi on. The N i nth Cir cui t has r ule d, h ow eve r, that th e U. S
. Tr us te e ca n nev erbe “a gov er nm entaluni t, ” e ven w h en n otse rv in g a s a tru st ee in b an kr u p tc y. Bals e rv. D epart m entof Just ice, 327 F. 3d 903, 908 (9th Cir
. 2003)
. I n so rul i ng, the cour t ove rl oo ked sect i on 101( 27) of the Bankruptcy C od e, the sect i on we j ust quot ed that m ake s c lea r th at th e U .S
. T ru st ee is n ota go ve rn m en ta l un it onl y when he i s a cti ng as a tr ustee i n bankr up tcy. B a lser w as not actua lly add re ssi ng the questi on wh ether the U. S
. Tr us t e e i s a utho r i z e d b y 1 1 U. S
. C. § 1 1 2 9 ( d) to parti ci pate in a b ankr up tcy. Yet In reTr ans M ax Te ch no l ogies, Inc. , sup ra , 3 49 B. R. a t 91, r el i ed o n B a lser to c o nc l ud e tha tthe U. S
. T r us t e e wa s n o ta utho r i zed

— w h ile q u es tio n in g t h e o ve rs igh t t h at h ad led th e N in th C irc u it to th at err on eo u s c on c lu sio n . Id

. at91 n. 12
. Bu t there is a n other gr ound on w hi ch to questi on the U. S. Trust ee’ s a uthority t o chal l enge the pl an o f re or gani zati on. Rem em berthato nl y a “ pa rty in in terestthat i s a go ver nm entaluni t” ( em phasi s a dd ed) c an o b j ect to a p lan on ta x gr ou n d s. N ow it is tr u e t h at th e t er m “p ar ty inN os. 09

- 3079 , 09

- 3177 5 i nter est ” i s defi ned nonexcl usi vel y a s “ i nc l udi ngthe debtor, the tr ustee , a cre dit or s’ com m i tte e, an equ i ty secur i ty hol ders’ com m i tte e, a cre dit or, an equi ty secur i ty hol der, o r any ind enture tr ustee
. ” 11 U .S. C. § 1 109(b) ( emp h a s i s a d d e d )
. T h e U. S
. T r u s t e e i s n o t e x c l u d e d

. And anyway “al l thi s s ecti on m eans i s t h at a n yone wh o has a l ega l l y pr ote cted i nter est t h at coul d be a ffecte d by a bankr up tcy proce edi ng i s e nti tl ed to a sse rtthati nter est w i th re spect to any i ssue to w hi ch it p er tains. ” In re Jam es Wi l s o n A ssoc ia tes , 965 F.2d 16 0, 16 9 (7 th C ir. 19 92 ). Th is i m pli es that th e U .S. Tr ustee can be a “par ty i n i nter est ” w hen he see ks to prot ect the rul es and pr oced u re s of b an kr u p tc y, o ve r w h ich h e is th e c on gr es sio n ally or daine d w atchdog

— he ha s a st atut o r y i nt er es t i n mak i ng s ur e tha tb a nk r up t c y l a w i s n’ tab us e d. Bute l se wher e i n th e C o de “pa r tyi n int er es t” a nd “U n ite d S ta te s tr u st ee ” ar e tr ea te d d isju n c tiv ely . See , e.g., 11 U. S
. C. § 7 07 ( b) ( 1) ( “a fte r no ti ce a nd a he ar i ng, the cour t, o n i ts own m oti on o r on a m oti on bythe U ni ted St at es tru st ee , tru st ee . . . or a n y p ar ty in int er es t .
. . ”); id ., § 1 104 ( “on re quest o fa partyi n i nter est o r the Unite d S ta te s trus te e” )
. Ye t when we tur n t o s ec ti o n 3 07o fthe Code w e di sco verthat“the U ni ted St ate s t rust ee m ay ra i se and m ay appear a nd be hear d on a n y iss u e in any case o r p ro c e ed in g u n d er th is t itle .” T h is lan gu ag e, ex ac tly paral l elto the authori ty gr anted part i es i n i nter estby sect i on 1 109(b) ( “a partyin int er est
. . . m ay ra i se and m ay ap p ea r an d be h e a r d on an y iss u e in a c as e u n d er th is chapter ”) , suggest s that the U

. S. Trust ee can o bj ect to a pl an o fr eor gani zati on a fteral l, i n hi s r ol e a s guardi an o f6 N os. 09

- 3079 , 09

- 3177 th e p u b l i c i n te re st in b an kr u p tc y p ro c ee d in gs . See , e.g. In re U ni t e d Ar t i s t s The at r eCo. , 3 15 F.3d 217, 225 (3d C ir. 2003). The pu bl i c has an i nter est i n l i m i ti ng the use o fbank ruptcy to the purpos es f orwh i ch i t i s intended rather than per m i tti ng i t t o b e us e d a s a v e hi c l e b y whi c h s o l v e nt fi rm s ca n beatta xes. Court s often have d eem ed the U

. S. Trust ee to be a “p ar ty in in te re st ” in r ela te d co n te x ts . E .g., In reA -1 Trash P ickup, Inc. , 80 2 F .2d 774 ( 4th Ci r. 19 86) ( m oving f or c on ve rs ion or d ism iss al of C h ap te r 11 ca se ); In re M iles , 33 0 B.R. 84 8, 84 9- 51 ( Bankr. M

. D. Ga. 20 04) ( m oving f or d ism issal or transfer of case becau se of i m p rop er ven ue ). T he statu te is a m ishm ash bu t th e view th at th e U
. S. Truste e ca n be a par ty i n i nter estm ake s be tte r sense , as thi s ca se i l l ustr at es ; w e’ l l se e that the cas e re allyneeded a watchdog, and w e ca nnot s ee w hat would be ga i ned bye ve r y o ne ha vingt o wai t f o r the I nt erna l Re ve nue Se rv i ce t o tak e acti on agai nst Gre enbl att ’ s t ax shenani gans. The I RS di d rec ei ve a copy o fthe pla n and didn’to bj ect to i t, b u t m ay h av e t h ou gh t t h at sin c e itco u ld alw ay s d isa llow th e de duct i o ns l at eri fthe pl ang o t co nfi r m ed an d si nce i t i sn’ t i n the busi ness of preve nti ng abuse of b ankr uptcy pers e, the r e was no ne ed f o r i t to i nt er ve ne i n the bankr up tcy. A nd ev en i fthe U
. S. Truste e was nota partyi n i nter est, the b a nk r up t c y o r di s t r i c t c o ur t, s i nc e i t c a n ha r dly be thought required to ap p ro ve an u n law fu l p lan of re or ga n izati on, need nottur n a deafea r w h en t he U

. S. Trust ee, o r a n y o n e e l s e f o r th a t ma t t e r, a r g u e s th e p l a n ’ s u n l a wfulne ss. I f in d oing so the U. S. Trust ee i s a cti ng ultra vires , as we ver y m uch dou b t, h is superi or s in the J usti ceN os. 09

- 3079 , 09

- 3177 7 Dep ar tm ent c an r ei n hi m in ; b ut ev en i fhe s houl d be th o ughta n o ffi c i o us i nt e r med dl e r, thi s wo ul d n o ta uthori ze Sca tte re d to fl out bankr up tcy l aw . Congr ess has author i zed the federa l co urts to “i ssue any or der, pro cess , or j ud gm e n t that i s nec essary or ap p rop riate to carry o utthe p r o v i s i o ns o f thi s t i t l e [ the Ba nk r up t c y Co de ] , ” a nd , eve n m or e pointedl y, has decl ar ed t h at “no prov i si on o f th is t itle p ro vid in g for th e ra isin g of an is su e b y a p ar ty in i nt er es t sh al l b e co ns true d t o pr ec l ude the c o ur t f r o m , s ua sponte, ta ki ng any a c tion orm aking anydeter m i nati on ne cess ary or app rop r iate to enforce or i m p lem en t cou rt or ders orr ule s, or to p re vent an abuse o fpro cess . ” 1 1 U
. S. C. § 105( a)
. Consi ste nt w i th thi s l anguage , bank ruptcy ju d g e s h av e c on sid er ed iss u es of ta x av oid an c e o n th eir ownin itia tiv e. In re Hartm an M ater ial Handling Syste m s, Inc. , 14 1 B .R . 8 02 , 8 08 -09 a n d n . 1 0 (B an kr . S.D .N .Y . 199 2); In re M axim Industr ie s, Inc. , 22 B
. R
. 611 (Ba nk r. D. M ass. 1982 ); cf. In r e Ec on omy Cas t S t on e Co
. , 1 6 B. R. 6 4 7, 6 5 0 ( Ba nk r . E. D. Va. 1981 )
. A s Har t m an e x p lain ed , “ th is C ou rtca n n otfairly consi der pl an co nfi rm ati on . . . and ignor e the obvi ous t ax avo i dance question . C ongr ess has gi ven the bank ruptcy cour ts the res ponsibi l i ty f ordeter m i ni ng wh ethera re or gani zati on pl an i s pro per, i ncl ud i ng tax consi derat i ons. ” 1 41 B.R. at80 9. A nd gi ve n the bre adth ofthe sta tutor y defi ni ti on o f “pa r tyi n int er es t, ” ho w ca n the U
. S
. Tr us te e ha ve s ta ndi ng to make mot i o ns a nd b e he ar d i n bank r upt cyc as es ( as he is e x p re ss ly a u th or ize d to d o, 11 U .S.C . §§ 3 07, 707 (b )(1) ) if h e h as n o “ in te re st ” in s u c h c as es ? W e c on c lu d e th at h e is a par tyi n int er es t, a nd com e atl as t to the mer i ts o fthe ap p ea l.8 N os. 09

- 3079 , 09

- 3177 So uth Beach was once a r egi ste re d s ec u rit i es bro

ke r/d eal er, but by the t i m e i t decl ar ed bankr up tcy i t had beco m e a shel l

. I t had no em plo yee s or busi ness acti vi ti es, an d i ts only “asse ts” w ere net ope r a t in g l osses. Th ese are bett er descr ibed as pot e nt i al as set s, bec ause they can som eti m es, but by no m eans al w ays , as w e’ re abo u t to see , be seto ffag ai nst t axabl e incom e a nd thus r educe a c om p an y’s ta x es . 26 U .S.C . § 17 2; U nited D o m in i o n Ind ustries, Inc . v. U nited Sta tes , 532 U .S
. 82 2, 82 5 (2 00 1); In re C om disc o, Inc. , 434 F.3d 96 3 , 9 6 5 (7 th C ir. 20 06 ); In re H a rvard Industr ie s, Inc. , 5 68 F
. 3d 44 4, 4 45

- 46 n. 2 ( 3d Ci r. 20 09 ); 1 B o r i s I. B itt ke r & Jam es S. E u st ice , F e d e r a l In c o me Ta xa tio n o

f C o rpo rati o ns a nd Sh a reho lders , ¶ 5
. 03[ 4] , p. 5- 17 ( 7 th e d

. 2 0 0 9 )
. We do n’ tkn o w h o w S o u th B e a c h c a me to ha ve the se l o ss es ; i ts onl y re ce ntact i vi tyw as pr epa r i ng i ts bankr up tcy fi l i ng. So uth Beach i s wholly o w ned by NO LA , LLC , wh i ch ha s no b us i ne ss o per at i o ns e i th er ; i ts s o l e as se t i s th e sto ck ofS outh B ea c h. N OL A , a l i m i ted l i abi l i ty com pany, ha s three m em bers. On e is G reenblatt’s father; the others ar e the f ather s o fS catt er ed ’ s o thertwo offi cer s a nd di re ctor s. N OL A i s m an aged by a co m pany nam ed Tel ete ch wh o s e p r e s i de n ta n d s o l e e mp l o y e e a tth e r e l e v a n tt i me w a s Gr e e nb l a t ta nd wh o s e s o l e fun c t i o n i s t o manage NO L A. Thr o u g h T e l e t e c h, a n d th u s th r o u g h NO L A, Gr ee nb l at t co nt r o l s S o uth Be ac h. I n 200 1 Greenbl attdi re cted ano therco rpor ati on that he co ntro l s, Loop Cor pora tio n , to l end So uth Beach $2. 2 m illi on f orfi ve yea rs atan a nnual i nter estr ate o f 1 2 p e r c e nt
. He the n ha d S o uth Be a c h l e nd NOLAN os. 09

- 3079 , 09

- 3177 9 $3. 2 m i l l i on. The purpos e of the l oan to N OL A was to en ab le i t t o pu rchas e the st ocko fa com pany cal l ed H e a l th Ri s kMan a g e men t, I nc( HRM)
. We do n o tkno w wher e S o uth Bea ch o bt aine d $1 m i l l i o n to m ak e up the differ ence between the $2. 2 m i l l i on that i t r ec eived fr om Loop and the $ 3. 2 m i l lion t h at i t l ent t o N OL A
. I t m ay ha ve h ad asse t s l e ft ove r from i ts tim e as a broker/d ealer; as we sa i d, i t ha s no a ss et s no w oth er tha n n eto per at i ng l oss es. Lo o p the n s o l d t o S ca tt er ed, f o r $100, 00 0, the $2 .2 m illion loa n th at it ha d m ad e to So u th B ea c h . T h is m ade S catt er ed a cre dit oro fS outh Beach, bec ause So uth Beach w as Loop’s debto r and now S c atter ed had ste pp ed i nto Loop’s sho es. S catt er ed cl ai m s t o be owed $3

. 3 m i l l i on by S o u th B e a c h, th o u g h i t h a s n o t e x p l a i n e d why t he $2 .2 m illion loan th at it bo u gh t f r o m L oo p sh ou ld giv e it a $ 3
. 3 mi l l i o n c l a i m a g a i ns t S o uth Be a c h, the de b t o r o n that l oan; co ncei vabl y the e xplanat i on i s the hi gh i nter estr ate
. Gr ee nb l at t i s ano ffi ce r a nd d irec to r o fS ca tt er ed, a l o ng w i ththe s o ns o fNOLA ’ s o th ero wner s, a nd i t appe ar s th at h e n eg ot iat ed all th e t ra n sa c tio n s re la t i n g t o t h is c a s e b o th wi th a n d o n b e h a l fo fS o u th B e a c h

. He a l s o s i g n e d S o u th B e a c h ’ s C h a p t e r 1 1 p e t i t i o n . A l l th e c o mpa n i e s th a t we h a v e me n t i o n e d e x c e p t HR M h a v e t he sam e o ffi ce a d d re ss. I t i s a pp ar ent that Gre enbl attcause d Sca tte re d to beco m e S outh Beach’s c redito r and caused So uth Beach to decl ar e ba nkruptcy. S o uth Be ac h’ s ba nk r upt cyf i l i ng s l i st, as i ts s o l e as se t, the sto ck i n H RM , an d assi gn to thatst ocka val ue o fze ro .10 N os. 09

- 3079 , 09

- 3177 H ow Sou th B ea c h en d ed u p w i t h H R M ’s s to c k, w h ich it h ad len t N O L A th e m on ey to bu y, is u n ex p lain ed , bu t it confi rm s the o b vious: al l thes e co m panie s a re co ntro l l ed b y G re enb lat t. N OL A , h avi ng used the m oneyit bor ro w ed f ro m S outh Bea ch to buy st o ck i n H RM th at be ca m e wor th less, a nd havi ng no othe r ass ets , went bro ke too , j ust l i ke So uth B e a c h

. I t s b a n k r u p t c y p r o c e e d i n gb e g a n a tth e s a me t i me as So uth Beach’ s, but i s no t be f or e us. So uth Beach di d not l i st its net oper ati ng l oss es as an as se t. Buti ts di sc l o su r e s ta te m en t, c o ns i st en t wi ththe re quir em ent that m ate ri alta x conse quences be descr ibed i n i t, does st ate th at the purpose ofthe bankr up tcy i s t o mon e t i z e S o uth Be a c h’ s n e to pe r ati ng l o s s e s . ( Am e nd

m ents m ade to the Bankruptcy Cod e in 200 5

— w hi ch don’tapplyto thi s ca se, fi led in Ap ri l 20 05

— m ak e t h is d isclosure req u ir e m en t exp li cit. 11 U
. S. C
. § 1125(a)(1) ; 5 Bankr upt cySe r vi ce, La wye r ’s Edi t i on § 44 : 35 3 ( 20 10 )
. But the r equi re m ent has been hel d t o be i m pli ci t i n the pr e- 2005 ver si on o fse cti on 1 125 appli cable t o thi s ca se. S ee Hall v. Va nce, 88 7 F .2d 10 41 , 104 3 (1 0t h C ir. 19 89 ); In re M et rocraft P ublishi ng Service s, Inc. , 39 B
. R
. 567, 571 (B an kr. N .D . G a. 19 84 ).) The pl anofre o r g an i za ti o n pro po se d by S o uth Bea cha nd tu rn ed dow n by the b ankr up tcy j ud ge and the di str i ct j u d ge w oul d have g i ven S catt er ed al l the sto ck ofS outh Bea ch

. A co ur t ca n’ t co nfi rm a p la n o fr eo r g an i za ti o n, h o we v e r, u n l e s s th e o wn e r s o fa tl e a s t o ne c l a s s o f“ i mpai re d cl ai m s” ( a t erm b roadl y defi ned to encom pass c laim s a lt e r e d by th e p lan , 11 U .S.C . § 11 24 ; In re Wa ba sh Va ll ey Pow erAss’ n, Inc. , 72 F. 3d 1305, 1 3 2 1 (7th C ir. 1995);N os. 09

- 3079 , 09

- 3177 11 In re L & J A na heim A ssoc ia tes , 9 95 F.2d 940 , 942-43 (9th C ir. 1 9 9 3 ) ; W. Ho merDr a k e , J r . & Ch r i s t o ph e r S
. S t r i c kl a nd , Chapt e r11 Re organizat i ons § 1 2:14, p p . 6 27-28 (2d ed

. 2009)), othe r than “a n i nsi der” m em bero fthe cl ass , vo te to approve i t, 11 U
. S. C. § 1 129( a) ( 10) , and al so unle ss either the o wne rs ofa l l o the r c l a s s e s o fi mpa i r e d c l a i ms a c c e pt th e plan , or th e ot h e r cond iti ons i n th at su bsec tion for a cr amdown ( appr o va l o fa pl ano ve r the o bj ec ti o n o fo ne or som e of th e cred itors) are m et. 11 U
. S. C
. §§ 1129(a)(8), ( b )
. A c l a s s o fc l a i ms i s de e med t o h a v e a c c e pt e d a plan if cre dit or s ( othe r than the i nsi ders that sect i on 11 29 ( a) ( 10 ) e xc l ude s f r o m the e l i g ibl e vote r s f o r a pl an ) vo te f o r i t w ho o wn atl ea stt wo- th i r ds i n a m o unt, a nd m o r e th ana ha l fi n n um be r, o fa l l o wed clai m s o f th e cl as s. 1 1 U. S
. C. § 1 12 6( c)
. Scattere d v o te d f o r the pl an ; So uth Beach had no othercr edi tor s; we defe r the questi on wh ether in the abse nce o fo thercr edi tor s S catter ed’s co nsent w as effecti ve. H ad the pl an been confi rm ed, Sca tte re d, as sol e cr edi tor ofthe debtor, would h ave ended up o w ni ng S outh Beach’s net oper ati ng l oss es. S outh B each coul d not hav e off settho se l oss es aga i nst i ts own i ncom e si nce i t has no i nc o m e o r a ss et s ( as i de from the po te nt i ala ss et s co nsi sting o fthe l oss es th em sel ves) and no pr ospect s o f obt ai ni ng any ; i t i s no t engag ed i n any busi ness ori nvest
m en t ac ti vi ti es a nd i n f ac t i s defunc t, tho ug h i t r emai ns a co rpor ati on i n go od st and in g. Consi ste nt with the l aw o f M i ss i ss i ppi ( wher e i t i s i nc o r po r at ed) f o r m aintai ni ng i ts cor pora te sta tus in the abse nce o fan a gr eem ent b y th e sh ar ehol ders to el i m i nate the b oar d ofdi re cto rs , So uth Beach has a si ngl e dir ecto r. M i ss. Code A nn. §§ 79

- 4-12 N os. 09

- 3079 , 09

- 3177 8. 01 ( a) , - 8. 03 ( b)

. He i s unpa i d a nd i na ct i ve , s i nc e he do e s no thing . Bu t he do e s ha v e , Gr e e nb l a t t t e s t i fi e d, “a b e a t i ngh e a r t, ” a nd n o mo r e i s r e qu i r e d. Out si de o fb an k rup tcy, S o uth Be ac h’ s ne t o per at i ng l o ss es c o ul d b e us ed to o bt ain a t ax b en efi t o nl y i fthe com pany r ecei ved a c api tali nfusi on that e nabl ed i t t o obt ain i ncom e a gainst which t o off setthe l oss es, o r i fi ts asset s (o t h e r than the n et op erating losses) w ere acqui re d by a c om pany thathad i ncom e o r ass ets
. Fo r the g ener alr ule i s that t axpa yers m ay not tr ansfernet op er at in g los se s t o ot h er ta x p ay er s. In re Lu ster, 9 81 F. 2d 27 7, 2 78

- 79 ( 7th Ci r . 1 99 2) ; I RS Pr i vate L ett erRul i ng 9622 026 (M ay 31, 1996). I f th e p lan of r eorgan ization w ere approve d, Sca tte re d w oul d becom e the o w ner ofS outh Beach and, wanting to extr act a t ax bene fi t fro m S outh Beach’s net oper ati ng l oss es, would t ra nsfercapi talto So uth Beach to enable that co m pany to ge nera te i ncom e a gainst which t o off setthe net op er ati ng l oss es. The re sul t would be to shie l d i ncom e o fS catt er ed fro m federa l ta x, bec ause So uth Beach’ s incom e would be Sca tte re d’s i ncom e s in c e Sca tte re d w oul d be S outh B each ’s sol e ow ne r. Con si st en t wi ththe ge ner alr ul e th atwe j us t m en ti oned, bo th the Inte rnalReve nue Code and the j ud gem a de t a x do c t r i ne o f“ s ub s t a nc e o v e r f o r m” ( o n which se e, e.g ., Gregory v . He l ve r i ng, 2 9 3 U .S. 46 5 (1 93 5); In re C o m d is co, Inc. , sup ra , 434 F.3d at96 5; Yo s h a v. C o m m ission er, 861 F.2d 49 4, 49 7 (7 th C ir. 1 9 88 ); In reCM H oldings, Inc. , 301 F.3d 96 , 102 (3d C ir. 20 02 ); St e wartv. C o m m i s sio ner, 714 F.2d 977, 987-88 (9th C ir. 1983))N os. 09

- 3079 , 09

- 3177 13 i m po se l i m i ta ti o ns o n usi ngthe pur ch as e o fa c o m pan y as the b as i s f o r de duct i ngthe c o m pan y ’ s ne t op erati ng los se s fro m th e p u rc h as er ’s t ax ab le in c om e. ( C om disc o a p p l i e d th e d o c t r i n e t o a n e to p e r a t i n gl o s s . ) I f, f o r e x a mple , the ow n ero fthe cor pora ti on that has the l oss es sel ls hi s s toc k, the cor pora ti on i s no t per m i tte d to off set th o se l o ss es a g ains t i ts futur e i ncom e b y m o r e th anthe incom e the c o r p o r ation w ou ld h ave earn ed i f its ow ne rsh i p ha d no t ch an g ed an d i t ha d i nv es te d i ts c api ta l i n t ax ex em p t b on d s. 26 U .S.C . § 38 2(a ); Garb e rIndu stries, Inc . v. C o m m ission er, 43 5 F. 3d 555, 55 7 ( 5th Ci r. 20 06) ; 2 Bit tke r & E u st i c e, sup ra , ¶¶ 1 4. 42[ 3] , 14
. 44[ 1] [ b] , pp. 14- 63, 14

- 92 to 1 4- 93
. Tha t r ul e i s des i g ne d t o min i m i ze th e ta x i nc en tive for th e ch an g e i n o wner sh i p, l es t th e ch an g e co nfer a ta x b en efi t o n so m eo ne ( th e buy er ) o th ertha n the pr ev i o us o wner, who ha d b o r ne the b r unt of the ne t o per at i ng l oss es. Butthe st atut e t r ea ts f ami l y mem be r s ( spo us es , c hi l dr en, g r an dchi l dr en, pa r en ts ) a s a sing l e o wner, co r po r at i o ns as bei ng o w ned by thei r shar ehol ders , a n d trust s a s being ow ne d by th eir ben efi ciaries, 26 U
. S. C
. §§ 3 1 8(a)( 1), (a)( 2)(B ), 382 (l)(3)(A ); 2 6 C .F.R . §§ 1 .38 2-2 T (h )(2) , (6), 2 B itt ke r & E u st ice , sup ra , ¶ 1 4. 43[ 2] [d ], p p . 1 4- 71 to 14- 72, and these att ributi on r ule s m i ght a l l ow the purchase b y S c a t t e r e d o f S o uth Be a c h wi tho ut t r i g g e r i ng the a ppli cati on o fse cti on 38 2(a ), tho ugh the re cor d i s t oo sk et ch y f o r us t o b e co nfi den t o ftha t co nc l us i o n. C orp orations in C ha p ter 11 b a nk rup tcy, m oreover, are a l l o we d t o ma t c h n e to p e r a t i n gl o s s e s a g a i n s ti n c o me b ey on d w h at is p er m itt ed by se c tio n 38 2(a ) if i m m ed iately after the reorgan ization the de bt o r ’s shareh olders14 N os. 09

- 3079 , 09

- 3177 and i ts “qual i fi ed cr edi tor s” ( w hi ch incl ud e credi tor s, l i ke S ca tt e r e d , wh o h a v e h e l d d e b tf o r a tl e a s t1 8 mo nt hs pri orto the filing ofthe bankr up tcy proce edi ng) o w n at l e a s th a l fthe s t o c kb y v i r t ue o fth e i r pr i o r s t a t us . 2 6 U. S
. C. § 3 82( l )(5) ; 2 B itt ke r & E u st ice , sup ra , ¶ 1 4. 44[ 6] , pp. 14- 102 to 14- 106. T h e th i nki ng be hi nd se cti on 3 82( l ) ( 5) i s that in ban krup tcy th e cred itors ra t he r than the sh areh olders ar e th e true o wner s o fthe c orp ora ti o n, s o the r e’ s no r ea l o wner sh i p c ha ng e when th e cr edi to r s r ec ei ve the sto ck ofthe co rp or ati on. 7 Me r t e n s L a w o f F e d e r a l In c o me Taxat i on , § 29: 158 ( 2010 )
. Con sis tent w i th thi s thi nki ng, the s tatute i m poses cer tai n re str i cti ons on the deducti on ofnet oper ati ng l oss es. S ee 26 U
. S. C. § 3 82( l )(5) (B ); 7 M e r t e ns , s upra , § 29 :15 8; 2 B itt ke r & E u st ice , sup ra , ¶ 1 4
. 4 4 [ 6 ] [ a ] , p . 1 4

- 1 0 3
. B u twe n e e d n ’ t g eti n t o th e s e ; we c an j u st as su m e t h at Sc at te re d ’s p lan is n otvu ln er a b le und erse cti on 3 82. Section 269(a)(1) of th e I nt erna l R even ue Cod e, how ever, whi cho ve r l aps the do ct r i ne o fs ubs ta nc e o ve r f o r m a nd i m poses r estric ti ons on o btaini ng ta x benefi ts f ro m net oper ati ng l oss es b eyo nd the re str i cti ons i m posed by sect i on 3 82, di sal l ow s d educti ons and otherta x benefi ts, in cl ud i ng neto perat i ng l oss es, 7 M e r t e ns , sup ra , § 3 8 : 97, w hen the pri nci pal purpose of acq uir i ng co rpor ate contr ol, o r ofcer tai n other i nter cor pora te tr ansact i ons, o n whi chthe c l ai m o fb en efi ts i s ba se d i s to a vo i d t ax . To prese rv e the ta x benefi ts ofthe tr ansaction the ta xpayer m u st dem onst ra te that busi ness re aso ns unrel ate d to ta x a vo i dan ce wer e th e pr i m ar y purpo se ofthe t r an sa ct i o n. The att ributi on r ule s o f26 U
. S. C. § 31 8 don’ t a pp l y t o se c tio n 26 9; for se c tio n 31 8 a p p lies on ly w h e n ex p re ss lyN os. 09

- 3079 , 09

- 3177 15

m ade appli cabl e t o othe r p ro visi ons i n subchapterC of the t ax co de, and i t has n’tbee n m ade exp re ss ly ap p li cabl e t o sect i on 2 69, wh i ch anyway i s no t in su b c h ap te r C . B u t a be n efic ial ow n er of a c om p an y is dee m ed to c o nt r o l i t f o r s ec ti o n 2 69 pur po se s; s o i fhe su b se q u en tly be c om es its lega l ow n er , t h er e is n o a c q u isitio n of co rp or at e c on tr ol a n d s o t h e c h an ge in o w n er sh ip do es no t tr i g g erthe r es tr i ct i o ns i m po se d b y the s ec ti o n. Se e A ch v. C o m m iss i o ner, 358 F.2d 342 , 345-46 (6th C ir. 196 6) ; Re v. Rul

. 7 0- 63 8 ( 19 70 ) ; I RS F i el d S er vi ce Advi sor y 2002 0205 7 (J an. 11 , 20 02) ; 7 M e r t e ns , sup ra , § 38: 89 n. 5. Greenbl att m aybe the b en efi ci alo w ner ofbo th Sca tte re d and So uth Beach, though thi s is uncer tai n, since Sca tte re d i s o w ned by tw o othe r com panie s a nd a tr ust set up f or Greenbl att ’ s f ather and c hi l dren, w hi le South Bea chi s o wned b y N O L A , whi chi s o wned b y Gr ee nbl att ’ s f atherand the f athe rs o fthe tw o othe r dir ecto rs . B ut be c a u se th e attribu tion rules of section 318 d on’t apply to sect i on 269, the own er shi p ofS outh Beach c an’ t be ascr ibed to S catt er ed eve n i fGree nbl att is the benefi ci al ow n e r ofboth corp orations; and since Scat tered therefore is not the be nefi ci alo w ner ofS outh Beach, i ts acqui si ti on of S ou th Be ach can ’t escap e the b a r of section 269(a)(1)
. B rick M illin g C o . v. Co m m ission er, T. C. M emo 19 63

- 30 5; I RS R ev . Ru l. 80 -46 (Fe b . 25, 19 80 ); 2 B itt ke r & E u st ice , sup ra , ¶ 14
. 41[ 3] [ d], p. 14

- 51. So it look s a s if th e p lan of re or ga n iza tio n , e v en if appr o ve d, woul d n’ t co nferthe t ax b en efi t th atGr ee nbl attso ught. But that doesn’ t a ffect w hetherthe pla n w as ri ghtl y r ej ecte d ; for So uth Beach’ s di scl osur e s tat e-16 N os. 09

- 3079 , 09

- 3177

m en t su g g es ts no pur po se othe r tha n t o b ea t ta xe s, a nd we k no w tha t a pl an o f r eo r g an i za ti o n m ay no t be confi r m ed i ftha t i s i ts pr i nc ipal pur po se , whethe r o r no t th e pu rpos e wil l actual l y b e a ccom pli sh ed o r w i l l be ni xed l ate r by the Inter nal Reve nue Se rv i ce. The o bj ec t o fbank

r up t c y i s t o a dj us t the r i g ht s o f the c r e di t o r s o fa b a nk r up t com p an y; it i s no t t o a ll ow a sol ven t com p an y to try to l i g ht eni ts t ax b ur den

. The pl an o fr eo r g an i za ti o n a l so ha d t o b e r ej ec te d o n the c l ose l y re l ate d g ro und that i t hadn ’ t been propos ed in g o o d f ai th

. 1 1 U
. S. C. § 1 12 9( a) ( 3)
. To b e i n g o o d f ai tha pla n ofr eor gani zati on m ust hav e a tr ue purpose and f actbased hope ofei ther“pre ser vi ng [ a] go i ng co ncer n” o r “m axi m i zi ng pro perty avai l abl e t o sat i sfy c re dit or s. ” Bank of A m er ica N ational Trus t & Savings A ss ’n v. 203 N o rth L aSa ll e Stree t P artne rs hip , 5 2 6 U. S
. 4 3 4 , 4 5 3 ( 1 9 9 9 ) ; s e e al so In r e M a diso n H o tel A ssoc ia tes , 749 F.2d 410 , 425 (7th C ir. 19 84 )
. At the o ns eto fthe se r i es o ft r an sa ct i o ns a m o ng Gr e e nb l a t t ’ s p u p p e tfi r ms , S o ut h B e a c h wa s s o l v e n t
. At the e nd i t was i nsol vent as a r esult of h aving been dir ecte d by G reenbl attto bo rr ow m oneyfro m ano ther Greenbl attco m pany, m oneythatS ou th Beach co uld not r epa y to S ca tt er ed ( th e co m pan y c o nt r o l l ed byGr ee nbl att to w hi ch the l oan had b een ass i gned ), be cause S o u th B e a c h h a d l e n tth e b o r r o wed mo n e y t o NO L A, whi chwentb r o k e. The s er i es o ft r an sa ct i o ns s etthe sta ge f orSc at tered, as so l e cr edi toro fa bankr up t fi rm , to acq uire Sout h B each in a C ha p ter 1 1 reorgan ization. T he re wer e no o ut si de cr edi tor s. The i r abs en ce , a nd thus the abse nce o fany re aldebt orr ealcr edi tor s, s h ow s that th is c as e d oe sn ’t b elo n g in b a n k r u p tc y c ou rt
. In reN os. 09

- 3079 , 09

- 3177 17 C oastal Cable T V, Inc. , 709 F.2d 762 , 7 6 4 -65 (1st Cir. 1983); Furness v . Lil ie nfie ld, 35 B
. R
. 1006, 1012 (D. M d

. 1983); In re Stern , 50 B .R . 285 , 288 (B an k r . E .D .N .Y . 198 5); In re Setz er, 47 B .R
. 34 0, 34 6 (B an kr

. E .D .N .Y . 1 9 8 5 ) ; In re M axim Industr ie s, Inc. , sup ra , 22 B. R. at61 3. Sc at tered co ntends thatther e was ano therm oti ve f or the b ankr up tcy besi des the tax m oti ve, and that w as to shi el d South Beach fro m sui ts. T h e ar gu m ent i s bo gus. So uth Beach’ s ba nkruptcy schedule l i ste d no cl ai m s o ther th an S ca tt er ed’ s, a nd the de l ibe r at e o m i ss i o n o fc r edi tor s fro m th e list su b m itt ed by th e d eb to r is u n l a w fu l an d is gr ounds f ordi sm i ssa l o fthe bankr up tcy proce ed ing. 11 U .S.C . §§ 5 21 (a)( 1), 11 12 (e); In reSe am an , 34 0 B. R. 698, 70 2- 03 ( Bankr. E. D.N.Y. 20 06) ; se e a l so In reHaga , 13 1 B. R. 32 0, 325- 26 ( Bankr. W
. D. Tex. 19 91)
. S catt er ed a rgues that bankr up tcy w oul d shi el d South Beach fr om being sued by cre dit ors ofi ts parent, N OL A , such a s W achovi a, Pru d en tial Secu riti es, an d the ba nk rup tcy tru stee of M JK Cl e a r i n g, I n c . , r a th e r th a n b y i t s “ o wn ” c r e d i t o r s. But c r e d i t o r s in ba n kr u p tc y in c lu d e a n yo n e w h o h as a c laim ag ains t the de bt o r, whi chi s defi ne d b r o adl y a s an y r i g ht to pa y m en t; i t ne edn ’ t be a c l ai m a r i sing from a c o ntr actualr el ati on with the debtor . 11 U
. S. C
. §§ 101(5), ( 10); Johns on v. Hom eSt at eBank, 50 1 U.S
. 78 , 83

- 84 ( 1991); F o g el v. Z el l, 22 1 F
. 3d 955, 96 0 ( 7th Ci r. 20 00) ; I n r e Wo r l d C o m, Inc. , 5 46 F. 3d 21 1, 21 6 ( 2d Ci r . 2 00 8)
. And i t’ s o dd t o thi nk that So uth Beach would eve r be the ta rg et ofa sui t, since i t’ s a sh el l

. I t do es ha ve the ne t o per at i ngl o ss es , b ut we c anno t see how the y c o ul d b e us ed bya j udg m en t cr edi to r t o o bt ain a t ax b en efi t, f o r tha t woul d b e atthe18 N os. 09

- 3079 , 09

- 3177

ex pen se o fthe Tr ea su r y D ep ar tmentr athe r tha n o fthe w rongd oer. Greenbl att ’s o therente rpri ses ar e t ar get s o fa num ber of s u its , see , e.g., Wa ch o via Secu r ities, LLC v. Neuh a user, N o. 04 C 3082, 2004 W L 25263 90 (N
. D
. I ll

. N ov . 5 , 2004); In re MJK C le aring, Inc. , 408 F.3d 51 2 (8 th C ir. 20 05 ); In reMJK C le aring, Inc. , 241 F.R.D. 491 ( N .D . I ll

. 2007), unsurpri si ngl y g i ven Greenbl att ’ s w el l

- ear ned re pu tat i on f orsa i l i ng cl ose to the w i nd ; and i fhe t ra n sfe rr ed m oney f rom Sc atte r ed to S o uth Be ach t o t ak e adv an ta g e o fthe l a t t e r ’ s n e to p e r a t i n gl o s s e s , S o u th B e a c h mi g h tb e c o me a s e c o nd a r y t a r g e t o f the s ui t s . I n the 20 07 MJK Cle ar i ng case , the tr ustee in bankruptcy soughtan o rderthat N OLA tur n o ve r t o hi m i ts s to cki n S o uth Be ac h. But Sca tte re d i s no t about to fu n d S ou th Beach s o that i t ca n pay j ud gm ents. I t wil l r ecei ve no ca pit ali n fu sio n fro m Sca tte re d unles s a nd u nti l it has em er ged fro m bank ruptcy. Bankruptcy i s there f or e no t r equi re d fo r the prote cti on o f So uth Beach fro m l i ti gat i on

— not to m enti on the f act that to m ake a fi rm thato ne co ntro l s insol vent i n or der t o m ake i t j ud gm ent proo f, o r to othe rwis e s hi el d asse ts f ro m j ud gm ent cre dit or s, i s not a proper i nvocat i on of bankruptcy l aw . S ee Shap i r o v. Wi lgus , 28 7 U.S
. 34 8, 35 5 ( 1932 ) ( Ca r do z o , J
. ) ; 7 C olli eron B ank ruptcy, sup ra , ¶ 11 12. 07; se e al so In re15 375 M e m or i al Corp. , 589 F.3d 605, 625-26 (3d Cir. 20 09 ); In re D ixieBroa dcasti ng, Inc. , 871 F. 2d 1023 , 10 26- 28 (11th Cir. 1989). T h e b an kr u p tc y jud ge an d th e d ist ric t jud ge h ad st ill anothe r gr ound fo r denyi ng co nfi rm ati on o fthe proposed pl an o fr eor gani zati on, i l l ustr ati ng wh at a t ra vestyN os. 09

- 3079 , 09

- 3177 19 th is b an kr u p tc y p ro c ee d in g is: So u t h B e ac h ’s s ole cre dit or

— Sca tte re d

— i s an i nsi der of So uth Beach. Rem embe r tha t a pl ano fr eo r g an i za ti o n ca n’tb e co nfi rm ed unle ss “at l eas t o ne cl ass of cl ai m s that i s i m pai re d unde r the pl anhas acc ept ed the pl an, de te r m i ne d wi th o ut in c lu d in g a n y a c c ep ta n c e o f th e p l a n b y a n y in sid er .” 11 U .S. C. § 1 129( a) ( 10)
. The o nl y c l ai m al l ege d to be im p air ed by th e p lan is Sc at te re d ’ s c l a im to th e m on ey it i s o w ed by vi rtu e of havi ng bo ught Loop’ s l oan to So uth Beach. S catt er ed vot ed to acc ept the pl an b u t was an i nsi der o fthe debtorwh en i t di d so, bec ause Greenbl att c on tr ols Sou th B ea c h, L oo p , an d Sc at te r ed . A n d w h ile “i nsi der” i ncl ud es a “ perso n i n cont ro l ofthe debtor, ” 1 1 U
. S. C. § 1 01( 31)(B )(i i i ) , i t i s no t l i m i ted to such per sons; i t incl ud es any e nti ty so cl ose l y re l ate d t o the debt oras to “su ggest th at an y tran sact ions w ere not con d uc ted at arm ’s l ength. ” In re Wins tar C om m unica ti ons, Inc. , 55 4 F
. 3d 382, 396- 97 ( 3d Cir

. 2 00 9); see al so In reKr e hl, 86 F. 3d 737, 74 2- 43 (7t h C i r . 199 6); In re U
. S. M edic al, Inc. , 53 1 F
. 3d 1272 , 12 77 -78 a n d n . 5 (1 0t h C ir. 20 08 ); In re A FI Holding, Inc. , 35 5 F. R. 13 9, 15 2- 53 ( B.A. P. 9th Cir. 20 06)
. That co nd i ti on obvi ousl y i s s ati sfi ed her e. W e r ecal l t h at accepta nce bya cl ass o fcl ai m s r equi re s approvalbytwo- thi rds ( i n am ou n t) and m or e than onehal f(in n um ber ) o fthe cl ai m ants, excl ud i ng i nsi ders. 11 U
. S. C. §§ 112 6(c), 11 29( a) ( 10)
. W i th S catt er ed excl ud ed because o fi ts i nsi der s tatus, ther e a re no el i gibl e v ote rs . The excl usi on o fi nsi ders i n deci ding w hethera pla n has be en acc epted by i m pai re d cre dit or s i s intended to pr e v e n t c o n fl i c t s o f i n t e r e s t th a t c a n a r i s e wh e n a20 N os. 09

- 3079 , 09

- 3177

cre dit orhas substa nti ali nfl u en c e o verthe debtor beyo nd wh at i s i m plic i t in bei ng a cre dit or . S ee In reU
. S. M edic al, Inc. , sup ra , 531 F.3d at12 77 -78 ; In reFr i e dm an , 12 6 B. R. 6 3, 6 9- 70 ( B. A. P. 9 thCi r . 1 99 1)
. It b r ak es c r amdowns b y e nsur i ngtha ts o me di s i nt e r e s t e d c r e di t o r s h a v e a pp ro ve d th e p lan . See , e.g., In reCom b us t i on Engi ne e r i ng, Inc. , 391 F.3d 19 0, 2 4 3

- 4 4 ( 3 d C ir. 20 04 ); In reWi nds oron t heRi ve rAs s oc i at e s , Lt d. , 7 F.3 d 127, 131 (8th Cir. 1993); 7 C olli eron B ank ruptcy, sup ra , ¶ 1 129. 02[ 10 ][a] , p. 11 29- 50 and n. 17 8. Thi s can n ot b e a co ncer n i n the prese nt cas e, how eve r, bec ause the onl y c r e d ito r is a nins id er . Th er e is no r i sko fcoll us i o n b etwee n a n ins i derc r edi to r a nd the debtoratthe expense o fo ther cr edi tor s, and that tak es th e c a s e out of th e inten d ed scop e of sect ion 1129(a)(10), though no t o ut o fthe ap p ro va l r equi re m ent. But eve n though the purpose o fse cti on 1 129( a) ( 10) i s no t e ngage d he r e, the f ac t th ato nl y i ns i der s are i nv o l ve d o r i ntereste d i n th e ban krup tcy (ap art from the U

. S. Tru stee!) he lps sh ow w hy this ban krup tcy d oesn ’t serve the p urposes of bankr up tcy l aw

— an d w h y n o a lte rn at ive p lan is co nc ei vabl e. F o r w hi l e th e que st i o n pr es en te d b y the ap peali s whether the pl an te nd er ed by So uth Beach shoul d have be en c onfi rm ed, the bankr up tcy j ud ge w as ri ght t o dism i ss the b ankr up tcy proce edi ng r atherthan gi ve So uth Be ach ( re al i sti cal l y, S catt er ed) a chance to propos e a n al ternative pl an. N o confi rm abl e a l ternati ve pla n i s co ncei vabl e. S ee 11 U
. S. C. § 1 112 (b ); In re Hedqu ist, 450 F.3d 80 1, 80 4 ( 8 t h C ir. 20 06 ); In reAm e r i ca n C apital Equipm ent, Inc. , 4 0 5 B. R. 415, 4 2 6

- 2 7( Ba nk r . W. D. Pa . 2009) ; 7 C olli eron B ank ruptcy, sup ra , ¶¶ 111 2.04[5][ a], [ c] , 11 12. 07, pp. 1112

- 23 to 11 12- 24, 11 12- 26, 11 12- 49 to 1112

- 62.N os. 09

- 3079 , 09

- 3177 21 I t i s t rue that at an ea rlier stage o fthe bankr up tcy proce edi ng the di str i ct c ourtr eve rs ed the bankr up tcy j ud ge’ s r ulin g th at the pet i ti on f orbank ruptcy had been fi l ed i n b ad f ai tha nd s ho ul d there fore b e di smi ss ed. The re ver salwas not necess ar i l y e rr or, bec ause all th e fa cts w er e no t yet be f or e the bank ruptcy cour t o r the di str i ct co u r t
. Scattered ’s argum en t tha t the district cou rt’s fi nd i ng tha t the peti ti on had notb ee n fi l ed i n bad f ai th is “ law of th e c as e” an d ca n n ot b e ree x am in ed by u s is f ri vol ou s, b ecause the doctr i ne o fl aw o fthe case l i m i ts re exam i na ti on o fa rul i ng i n an e ar l i erst age o fa l i ti gatio n by th e s am e c ou r t, n o t b y a h igh er co u rt
. Lujan v. N at i onal Wild lifeFe de r at i on , 497 U
. S. 871, 881 n
. 1 ( 1990 ); H igginbotham v. Ba xterInt’l, Inc. , 495 F. 3d 753, 761 (7th Ci r . 2 00 7)
. And a ny way the do ct r ine d o es n’ t ba r r ee xam in at ion of a r u l i n g e ve nby th e s am e c ou rtif th er e is a c om p ellin g re as on for re ex am in at ion , Agos t i niv. Fe l t on , 52 1 U .S. 20 3, 23 6 (1 99 7); S an t amar i n a v. S e ars , Ro e b u c k & Co ., 466 F
. 3d 57 0, 57 1- 72 ( 7th Ci r . 20 06 ) , as th er e was here be c a u s e th e f a c t s b r o u g h to u ti n th e c o n fi r ma t i o nh e ar i ng sh o wed tha t th e ba nk r upt cyha d b ee n fi l ed i n b ad f ai th

. Greenbl att ’ s e vasi ve and at t i m es i ncre dibl e t est im ony, an d h i s o r c h es tr at ion of a s c h em e a im ed ata p alp ab le mi s us e o fb a nk r up t c y, r a i s e s e ri ou s e thi c a l a nd p e r ha ps l ega l co ncer ns. The appealto the di str i ct c ourtand now to our cour t was fri vol ous, and w e in vit e the U.S

. Trust ee to co ns i dera ppl y i ngf o r s an ct i o ns a g ains t S ca ttered a nd S o uth Be ac h, Gr ee nb l at t, th e appe l l an ts ’ l aw fi r m s, a nd the firm s’ la w ye rs w h o w or ke d o n t h e c as e, for m isc on d u c t in th e ba nk r upt cya nd di st r i ctc ou rts. And we o r derthe appell a nt s , a nd the l a w fi r ms a nd l a wy e r s tha ta pp e a r ed22 N os. 09

- 3079 , 09

- 3177 f orthem i n thi s co urt, to sho w cause w hy the y s houl d not be s ancti oned f orthei r conduct her e.

A FF I R MED AND S H OW -C AUSE O RD ER I S S UED .

5- 19- 10