PUBLISH

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE TENTH CIRCUIT

_________________________________

IN RE NOVINDA CORP.,

 Debtor.

__________________________________

MINERALS TECHNOLOGIES, INC., 

COLLOID ENVIRONMENTAL 

TECHNOLOGIES COMPANY, LLC, and 

AMCOL INTERNATIONAL CORP.,

 Appellants,

v.

NOVINDA CORP.,

 Appellee.

BAP No. CO-17-004

BAP No. CO-17-005

Bankr. No. 16-13083

Chapter 11

OPINION

_________________________________

Appeal from the United States Bankruptcy Court

for the District of Colorado

_________________________________

Aaron A. Boschee (Christopher Meyer of Squire Patton Boggs LLP, Cleveland, Ohio & 

Daniel Slifkin of Cravath, Swaine & Moore LLP, New York, New York, with him on the 

brief) of Squire Patton Boggs LLP, Denver, Colorado for Appellants.

Joshua M. Hantman, (Samuel M. Kidder with him on the brief) of Brownstein Hyatt 

Farber Schreck, LLP, Denver, Colorado for Appellee.

Before KARLIN, Chief Judge, NUGENT, and MOSIER, Bankruptcy Judges.

_________________________________

MOSIER, Bankruptcy Judge.

_________________________________

FILED

U.S. Bankruptcy Appellate Panel

of the Tenth Circuit

May 16, 2018

Blaine F. Bates

Clerk
2

Appellants Minerals Technologies, Inc., Colloid Environmental Technologies 

Company, LLC, and AMCOL International Corp. were unsuccessful in their efforts to 

prevent confirmation of Novinda Corp.’s Chapter 11 plan of liquidation. They have

appealed two Bankruptcy Court orders on plan confirmation: (1) the Order Overruling 

Objections to Confirmation, Finally Approving Disclosure Statement, and Denying Motion 

to Convert (Order Overruling Objections); and (2) the Order Confirming Second Amended 

Plan of Reorganization (Confirmation Order).1 The Appellants contend that the 

Bankruptcy Court committed reversible error when it confirmed the Chapter 11 plan,

which separately classified their claims, and that the Bankruptcy Court also erred when it 

found that the Chapter 11 plan is feasible. We find that the Bankruptcy Court did not

commit any reversible error when it confirmed Novinda Corp.’s Chapter 11 plan and we 

therefore affirm.

I. FACTUAL AND PROCEDURAL HISTORY

Novinda Corp. (Debtor) was an advanced air quality technology company that

developed and produced a product to remove mercury from coal ash waste generated by 

coal-fired power plants (Product).2 The Debtor financed the development and production 

of the Product through venture capital funding, secured loans, and unsecured loans.3 The

 1 Although the plan was a liquidating plan, see Appellants’ App. at 725, the 

Confirmation Order referred to it as one of reorganization. 

2 Order Overruling Objections at 1, in Appellants’ App. at 751. The Debtor’s product 

allowed plant operators to comply with air quality requirements set by the EPA and 

Department of Energy. 

3 Id., in Appellants’ App. at 751. 
3

Appellants were creditors of, and 18% equity holders in, the Debtor.4 The Appellants claim

that by January 2015 they had invested a total of $7.2 million in the Debtor.5 As a

condition of additional funding from the Appellants, Colloid became the exclusive 

manufacturer of the Product.6 The Debtor paid Colloid one hundred percent of the actual 

manufacturing costs plus an agreed upon profit.7 Colloid manufactured the Product and

then invoiced the Debtor for its costs. In some instances, Colloid converted its receivables 

into promissory notes due to the Debtor’s inability to pay.8

The Debtor also received substantial equity from certain investment firms that help 

capitalize struggling businesses. These investment firms included Altira Technology Fund 

V, LP, NV Partners IV LP, and NV Partners IV-C, LP (Funds). As of the petition date, the 

Funds held $654,986 in secured claims and $800,342 in unsecured claims. 

The Debtor’s contract with Colloid required the Debtor to pay any increase in 

manufacturing costs after Colloid provided a thirty-day notice and supporting 

documentation. On February 2, 2016, Colloid gave the Debtor notice of an immediate fifty 

percent increase in manufacturing costs and demanded advance payment before 

manufacturing any more of the Product.9

 4 Id. at 2, in Appellants’ App. at 752. 

5 Verified Complaint at 10, in Appellants’ App. at 62. 

6 Tr. of Dec. 12, 2016 Hearing at 69-70, in Appellants’ App. at 623-24. 

7 Order Overruling Objections at 2, in Appellants’ App. at 752. 

8 Tr. of Dec. 12, 2016 Hearing at 95, in Appellants’ App. at 649. 

9 Id. at 71-72, in Appellants’ App. at 625-26; Order Overruling Objections at 2, in

Appellants’ App. at 752. 
4

The Debtor filed a Chapter 11 petition on April 1, 2016. The parties’

characterizations of the relationship between the Debtor and the Appellants as well as the 

causes of the bankruptcy are dramatically different. The Debtor contends that Colloid 

failed to provide proper notice and documentation and that the manufacturing cost increase 

was fabricated in order to drive the Debtor out of business and usurp its business. The 

Debtor maintains it has claims against the Appellants for breach of contract, aiding and 

abetting a breach of fiduciary duty, and fraud.10 The Appellants claim that the Debtor 

could not operate profitably in the face of a recent Supreme Court decision overturning 

EPA regulations on mercury pollution, and therefore the Debtor’s failure was marketdriven.11

Not long after it filed bankruptcy, the Debtor auctioned substantially all of its 

assets, including intellectual property, leases, equipment, and accounts receivable. The 

only bidder was the Funds, and the assets were assigned to a new entity named Novinda 

Holdings, Inc.

12 After the sale, the only other material asset of the estate was the potential 

litigation against the Appellants (Litigation Claims).13 Without any realistic prospect for 

rehabilitation, the Debtor filed a liquidating plan.14 The Appellants objected to 

confirmation of the plan and filed a motion to convert the case to one under Chapter 7

 10 Appellee’s Br. 4-6.

11 Verified Complaint at 14, in Appellants’ App. at 66-67; Appellants’ Reply Br. 4-5.

12 Order Authorizing and Approving (I) the Sale of Certain Assets Free and Clear and 

(II) the Assumption and Assignment of Certain Executory Contracts and Waiving the 14-

Day Stay of Fed. Bankr. P. 6004(h) and 6006(d), in Appellants’ App. at 133. 

13 Amended Plan at 5, in Appellants’ App. at 732. 

14 Novinda Corp.’s Chapter 11 Plan of Liquidation, in Appellants’ App. at 295. 
5

(Motion to Convert).15 The Debtor then amended the proposed plan twice (Amended 

Plan).16

The Amended Plan contained twelve different classes of claims, which are 

summarized as follows: 

Class 1: Class 1 consisted of the priority claims of eight former employees pursuant 

to § 507(a)(4) for accrued vacation leave. Class 1 claimants would be paid in full 

through 4 quarterly payments. This class was deemed “impaired” because claimants 

would not receive interest on the deferred payment of their claims.

Class 2: Class 2 consisted of secured creditors, who would receive the value of the 

property securing their claim, with any deficiency treated in Class 3.

Class 3: Class 3 consisted of unsecured trade claims (other than the Appellants) and 

the Funds’ unsecured claims. The claims would be paid a pro rata distribution along 

with the Class 4 claims of the Appellants from any remaining funds left in the estate 

after payment of Classes 1 and 2 and satisfaction of estate expenses. The Funds’

unsecured claims in this class were subordinated to the other Class 3 claims. Once 

all non-Funds unsecured trade claims were paid in full, the Funds would receive pro 

rata distributions along with Class 4 claims. 

Class 4: Class 4 contained the Appellants’ unsecured claims, which were to be paid 

a pro rata distribution as determined by the aggregate amount of Classes 3 and 4, 

but would not benefit from the Funds’ voluntary subordination to the other claims 

in Class 3. 

Class 5: Class 5 was the administrative convenience class and consisted of 

unsecured claims of $1000 or less, which would be paid at 70% shortly after the 

effective date of the Amended Plan. Any Class 3 or 4 claims could have elected to 

reduce their claim to $1000 and receive treatment pursuant to Class 5.

Classes 6 – 12: The remaining classes consisted of equity holders, which would be 

paid at different rates per share from any remaining funds available after payment 

of Classes 3 through 5.17

 15 Motion to Convert Proceeding to a Liquidation Under Chapter 7 of the Bankruptcy 

Code, in Appellants’ App. at 387. 

16 Novinda Corp.’s Second Amended Chapter 11 Plan of Liquidation, in Appellants’ 

App. at 725. 

17 Id. at 9-12, in Appellants’ App. at 736-39. 
6

The Amended Plan provided for the appointment of an administrator (Plan 

Administrator) to make distributions and investigate and pursue the Litigation Claims.18

The Amended Plan further provided that the Funds would contribute $400,000 to the 

estate, which would be used for distributions under the Amended Plan. Up to $25,000 of

the $400,000 could also be used to finance investigation of the Litigation Claims.19

Essentially, Classes 3 and 4 were not guaranteed any distribution and would only recover 

meaningfully if the Plan Administrator prevailed on the Litigation Claims.

The Appellants objected to confirmation, arguing that (1) the Plan Administrator 

was biased in favor of the Funds; (2) the Plan was not feasible as creditor recovery was 

based on the outcome of speculative litigation; (3) Classes 3, 4, and 5 were unfairly 

discriminatory and were improperly classified for purposes of gerrymandering; and (4) the 

Amended Plan was not proposed in good faith.20 The Bankruptcy Court overruled the 

Appellants’ objections to the Amended Plan, denied the Motion to Convert in the Order 

Overruling Objections,

21 and confirmed the Amended Plan in the Confirmation Order.22

The Appellants timely appealed both the Order Overruling Objections and the 

Confirmation Order, which were joined for purposes of briefing and argument.

23 The 

Appellants sought a stay pending appeal in the Bankruptcy Court, which the Bankruptcy 

 18 Id. at 1, in Appellants’ App. at 728. 

19 Id. at 15, in Appellants’ App. at 742; Tr. of Dec. 12, 2016 Hearing at 102, in 

Appellants’ App. at 656.

20 Order Overruling Objections at 4-7, in Appellants’ App. at 754-57. 

21 Id. at 1, in Appellants’ App. at 751. 

22 Confirmation Order, in Appellants’ App. at 764. 

23 Order Joining Appeals, BAP ECF No. 11. 
7

Court denied.24 The Appellants also filed a motion for a stay pending appeal before the 

Bankruptcy Appellate Panel and that motion was denied.

25

II. JURISDICTION AND STANDARD OF REVIEW

This Court has jurisdiction to hear appeals of final orders.26 An order overruling 

objections to confirmation and confirming a Chapter 11 plan is a final order for purposes 

of 28 U.S.C. § 158(a).27 This appeal raises four issues: (1) claims classification; (2) good 

faith; (3) feasibility: and (4) unfair discrimination.

A. Claim Classification and Designation

There is no clear Tenth Circuit authority on the appropriate standard of review for 

claims classification. Other circuits appear to have reached divergent conclusions on this 

point.

28 The determination of the factors that justify separate classification of claims is a 

 24 Order Denying Stay Pending Appeal, Bankr. ECF No. 368. 

25 Order Denying Motion for Stay Pending Appeal, BAP ECF No. 31 (denying motion 

for stay pending appeal finding Appellants made no showing that irreparable harm would 

occur absent a stay). 

26 28 U.S.C. § 158(a)(1), (b)(1), and (c)(1).

27 Interwest Bus. Equip., Inc. v. U.S. Trustee (In re Interwest Bus. Equip., Inc.), 23 

F.3d 311, 315 (10th Cir. 1994) (quoting Kham & Nate’s Shoes No. 2, Inc. v. First Bank of 

Whiting, 908 F.2d 1351, 1355 (7th Cir. 1990)).

28 Compare Steelcase Inc., v. Johnson (In re Johnston), 21 F.3d 323, 327 (9th Cir. 

1994) (“We thus reaffirm our rule that a bankruptcy court’s finding that a claim is or is not 

substantially similar to other claims, constitutes a finding of fact reviewable under the 

clearly erroneous standard.”), with Phoenix Mut. Life Ins. Co. v. Greystone III Joint 

Venture (In re Greystone III Joint Venture), 995 F.2d 1274, 1281 n.7 (5th Cir. 1991) 

(“Issues such as the similarity in priority and legal attributes and the ultimate question 

whether treatment in the same or separate classes is necessary, are legal issues reviewable 

by our court de novo.”). 
8

question of law reviewed de novo, but whether the requisite factors have been established

is a question of fact reviewed for clear error.29

B. Good Faith

Whether a plan has been proposed in good faith under § 1129(a)(3) is a factual 

finding that this Court reviews for clear error.30

C. Feasibility

“Whether a plan is feasible is a question of fact, subject to the clearly erroneous 

standard on appeal from an order confirming the plan.”31

D. Unfair Discrimination

The Bankruptcy Court’s factual findings on the issue of unfair discrimination are 

reviewed for clear error, but if those “factual findings are premised on improper legal 

standards or on proper ones improperly applied, they are not entitled to the protection of 

the clearly erroneous standard, but are subject to de novo review.”32

 29 Lenox MacLaren Surgical Corp. v. Medtronic, Inc., 847 F.3d 1221, 1230 (10th Cir. 

(2017) (reviewing de novo trial court’s determination of the correct legal standard); Jobin 

v. McKay (In re M & L Business Mach. Co., Inc.), 84 F.3d 1330, 1338 (10th Cir. 1996) 

(reviewing for clear error whether facts satisfy proper legal standard).

30 Search Mkt. Direct, Inc. v. Jubber (In re Paige), 685 F.3d 1160, 1178 (10th Cir. 

2012) (citing In re 203 N. LaSalle St. P'ship, 126 F.3d 955, 969 (7th Cir.1997)).

31 F.H. Partners, L.P. v. Inv. Co. of the Sw., Inc. (In re Inv. Co. of the Sw., Inc.), 341 

B.R. 298, 310 (10th Cir. BAP 2006) (citing In re Pine Mountain, Ltd., 80 B.R. 171, 172 

(9th Cir. BAP 1987)). 

32 Osborn v. Durant Bank & Tr. Co. (In re Osborn), 24 F.3d 1199, 1203 (10th Cir. 

1994), abrogated in part on other grounds by Eastman v. Union Pac. R.R., 493 F.3d 1151 

(10th Cir. 2007).
9

III. PRELIMINARY MATTERS

A. Equitable Mootness

The Debtor has not filed a separate motion to dismiss the appeal, but in its brief, the 

Debtor argues this appeal is equitably moot and should be dismissed.33 Although the Tenth 

Circuit has articulated a standard for application of the equitable mootness doctrine,

34 none 

of the Debtor’s arguments are particularly compelling. More importantly, the Debtor has 

failed to properly place the issue before this Court. There is no motion to dismiss this

appeal on equitable mootness grounds, and we will not address the issue further.

B. Attempts to Supplement to the Record on Appeal

The Appellants filed a supplemental appendix which contains, in part, a Motion for 

Stay Pending Appeal Pursuant to Bankruptcy Rule 8007 and a Post Confirmation 

Quarterly Report, which are not properly part of the record on appeal.35 The Debtor has not 

requested that these documents be stricken from the record.

After this appeal was fully briefed and taken under submission after oral argument, 

the Appellants filed a Motion to Supplement the Appendix (Motion),

36 requesting that the 

Court include in the record on appeal the Debtor’s January 30, 2018 Post Confirmation 

Quarterly Report. The Debtor subsequently filed its objection to the Motion,37 which 

 33 Appellee’s Br. 10. 

34 See Search Mkt. Direct, Inc. v. Jubber (In re Paige), 584 F.3d 1327, 1339 (10th Cir. 

2009).

35 Appellants’ Supp. App. at 883, 894.

36 BAP ECF No. 69. 

37 BAP ECF No. 72. 
10

requested that the Court deny the Motion or, if the Court granted the Motion, allow the 

Debtor to also supplement the record with an affidavit from the Plan Administrator. 

None of the documents in the supplemental appendixes existed at the time the 

Bankruptcy Court entered the Confirmation Order, which is on appeal, and therefore those 

documents could not have been considered by the Bankruptcy Court in issuing that 

decision. BAP Local Rule 8018-1(g) provides that “[o]nly documents properly before the 

bankruptcy court may be included in the appendix and considered by this Court.”38 The 

Tenth Circuit has made it clear that appellate courts should not review documents that 

were not before the trial court when the rulings at issue were made.39 Accordingly, it is 

improper for this Court to review the documents supplementing the appendixes on appeal

and the requests to supplement the appendix will be denied.

IV. DISCUSSION

The Appellants assert that the Bankruptcy Court committed a number of errors 

when it confirmed the Amended Plan in the hope that this Court will find at least one of 

those asserted errors necessitates a reversal of the Bankruptcy Court’s order. The 

Appellants assert that the Bankruptcy Court erred by permitting the separate classification 

of their claims, and argue that their treatment under the Amended Plan constitutes unfair 

discrimination prohibited by § 1129(b)(1).40 They also contend that the Bankruptcy Court 

erred in finding the Amended Plan was feasible. 

 38 10th Cir. BAP L.R. 8018-1(g). 

39 Boone v. Carlsbad Bancorporation, Inc., 972 F.2d 1545, 1549 n.1 (10th Cir. 1992). 40 Section 1129(b)(1) requires a bankruptcy court to confirm a Chapter 11 plan with 

non-accepting, impaired classes as long as the plan “does not discriminate unfairly, and is 
11

A. Classification of Claims – § 1122(a)

The Appellants maintain that “[t]he Bankruptcy Court erred in holding that a 

chapter 11 liquidating plan that separately classifies one unsecured trade creditor from all 

others in order to facilitate an intra-class gift that excludes that unsecured trade creditor 

does not unfairly discriminate.”41 In so arguing, the Appellants conflate claims 

classification issues with unfair discrimination issues and mistakenly characterize the 

separate classification of their claims as unfair discrimination under § 1129(b). The 

Appellants mistakenly argue that before a court approves a classification scheme it must 

consider whether the classification complies with § 1129(b). But § 1129(b) does not 

address classification of claims; it focuses instead on whether a plan unfairly discriminates 

and is fair and equitable with respect to each “class of claims.”42 By contrast, claim 

classification is addressed in § 1122. In other words, § 1122 deals with the creation of 

classes of claims, while § 1129(b) deals with the treatment of those classes. While 

§ 1123(a)(4) requires each creditor in a class to receive the same treatment—unless a 

creditor agrees to less favorable treatment—there is no requirement that creditors in 

different classes receive the same treatment.

In reviewing classification schemes, bankruptcy judges are given limited guidance 

from the Bankruptcy Code itself. Section 1122(a) provides that “a plan may place a claim 

or an interest in a particular class only if such claim or interest is substantially similar to 

 

fair and equitable, with respect to each class of claims . . . that is impaired under, and has 

not accepted, the plan.” 

41 Appellants’ Br. 1.

42 11 U.S.C. § 1129(b)(1).
12

the other claims or interests of such class.”43 As a result, a plan proponent cannot place 

dissimilar claims together in the same class, such as secured claims with unsecured claims, 

or priority unsecured claims with non-priority unsecured claims. But § 1122(a) does not 

require the converse—that similar claims be placed in the same class.44 Accordingly, 

courts generally permit separate classification of similar claims, subject to certain caveats, 

the most prominent of which is the axiom that separate classification may not be used to 

gerrymander the vote on plan confirmation. Bankruptcy courts have consistently adhered 

to this “one clear rule,”45 i.e., debtors may not separately classify claims under § 1122 for 

the purposes of obtaining an impaired consenting class under § 1129(a)(10).

46 Some courts 

have reasoned that once a plan proponent has shown that substantially similar claims were 

not separately classified to gerrymander a consenting class of impaired claims, the court 

need not make any further inquiry into whether the separate classification of similar claims 

violates § 1122(a) and the remaining confirmation issues should be addressed under 

 43 11 U.S.C. § 1122(a).

44 In re City of Colo. Springs Spring Creek Gen. Improvement Dist., 187 B.R 683, 687 

(Bankr. D. Colo. 1995) (“There is no requirement that all substantially similar claims be 

placed in the same class nor is there a prohibition against classifying substantially similar 

claims separately.”). 

45 Phoenix Mut. Life Ins. Co. v. Greystone III Joint Venture (In re Greystone III Joint 

Venture), 995 F.2d 1274, 1279 (5th Cir. 1991) (holding that one clear rule has emerged 

from § 1122(a) case law).

46 In re Autterson, 547 B.R. 372, 397-98 (Bankr. D. Colo. 2016); see also CRE/ADC 

Venture 2013, LLC v. Rocky Mountain Land Co. (In re Rocky Mountain Land Co.), No. 

12-21643, 2014 WL 1338292, at *15 (Bankr. D. Colo. Apr. 3, 2014). But see In re City of 

Colo. Springs Spring Creek Gen. Improvement Dist., 187 B.R at 689 (explaining that 

gerrymandering is an issue addressed under the unfair discrimination analysis 

of § 1129(b)). A prerequisite to plan confirmation, § 1129(a)(10) requires that if there is an 

impaired class, at least one non-insider impaired class must accept the plan. 
13

§ 1129. 47 But most courts impose the additional requirement that there be a reasonable 

basis or legitimate business or economic justification for the separate classification of 

similar claims.

48 There is no controlling Tenth Circuit law on this issue, but that is not 

critical to our decision because the Debtor has shown a reasonable basis to separately 

classify the Appellants’ claims.

1. The Debtor Has Shown That Unsecured Claims Were Not Separately 

Classified to Gerrymander an Impaired Consenting Class

The Appellants contend that the Debtor gerrymandered voting on the Amended 

Plan by separately classifying their claims. They object to both the establishment of an 

administrative convenience class in Class 5 and the separate classification of their claims 

in Class 4. They further contend that the creditors in Classes 3, 4, and 5 should all be 

placed into the same class and that they have been separated only to manipulate voting 

results. The Bankruptcy Court was not persuaded by this argument. It instead correctly 

concluded that the Debtor did not have to separately classify the claims in Classes 3, 4, and 

5 in order to satisfy § 1129(a)(10) because the Debtor was reasonably certain it could 

fulfill this requirement through an affirmative vote of Class 1. 

The separate classification of the priority wage claims in Class 1 was completely 

appropriate—even necessary—because the wage claims were not substantially similar to 

other claims. Since Class 1’s claims, consisting of employee priority claims pursuant to 

 47 In re Deming Hospitality, LLC, No. 11-12-13377TA, 2013 WL 1397458, at *3 

(Bankr. D.N.M. Apr. 5, 2013); see also In re Rocky Mountain Land Co., 2014 WL 

1338292, at *15 (agreeing with Deming).

48 See In re Hyatt, 509 B.R. 707, 715 n.8 (Bankr. D.N.M. 2014) (collecting cases). 
14

§ 507(a)(4), should not be classified with general unsecured claims, the Appellants cannot 

seriously contend that Class 1 was created to gerrymander voting on the plan. The 

Bankruptcy Court found that Class 1 served as the impaired consenting class for purposes 

of § 1129(a)(10).49 It also determined the employees in the class were not insiders.50

Evidence in the record supports this finding.51 In fact, the Appellants even stipulated that 

the Debtor’s evidence met § 1129(a)(10)’s burden to obtain the accepting vote of at least 

one impaired class.

52 Once a plan has been accepted by an impaired class of claims that 

was not created for gerrymandering purposes, any claims of gerrymandered voting have 

little relevance under § 1129(a)(10).

2. The Administrative Convenience Claims Are Properly Classified in a 

Separate Class

Section 1122(b) expressly permits a plan proponent to “designate a separate class of 

claims consisting only of every unsecured claim that is less than or reduced to an amount 

that the court approves as reasonable and necessary for administrative convenience.”53 The 

Amended Plan designated Class 5 as the administrative convenience class. 

Notwithstanding the Bankruptcy Code’s express authorization of convenience class claims, 

the Appellants contend that Class 5 was established for vote manipulation purposes rather 

than to serve a legitimate need for administrative convenience. 

 49 Order Overruling Objections at 9, in Appellants’ App. at 779. 

50 Id., in Appellants’ App. at 779. 

51 Tr. of Dec. 12, 2016 Hearing at 49-51, in Appellants’ App. at 603-05. 

52 Id. at 124, in Appellant’s App. at 678. 

53 11 U.S.C. § 1122(b). 
15

While the Bankruptcy Court acknowledged that nine creditors is a relatively small 

number and understood why the Appellants questioned whether this separate class was 

truly necessary, it expressly found that there was no gerrymandering purpose behind the 

Debtor’s creation of this separate class. After considering the testimony of the Debtor’s 

witnesses, the Bankruptcy Court was convinced that a separate class would be beneficial to 

the estate, if for no other reason than to eliminate meddlesome interference absorbing the 

Plan Administrator’s time. The Bankruptcy Court concluded that the record established 

that the Plan Administrator agreed to his compensation structure based in part on the 

understanding that the small claims would be repaid quickly. Moreover, although Class 5 

voted in favor of the Amended Plan, the Debtor did not need the class to satisfy the

requirement of an impaired accepting class. The Debtor was reasonably certain that it 

could fulfill this requirement with the Class 1 vote. The record supports the conclusion that 

Class 5’s creation did not violate the one clear rule prohibiting gerrymandering. 

3. There Is a Reasonable Basis for the Classification of Claims in Class 3 and 

Class 4

After finding that the Debtor did not separately classify Classes 1 or 5 to obtain an 

impaired accepting class, the Bankruptcy Court also determined there were sound business 

reasons to separately classify Classes 3 and 4.

a. The Appellants’ Non-Creditor Interest Justified Separate Classification

The Appellants argue that the Bankruptcy Court erred in allowing the separate 

classification of Class 4 as a “bypass”54 of designation under § 1126(e), which permits a 

 54 Appellants’ Br. 7.
16

bankruptcy court “to disqualify . . . any acceptance or rejection that was not made in good 

faith.”55 Essentially, the Appellants contend that the Debtor was first required to classify 

their claims with the other unsecured creditors and then had to separately move to 

designate their votes, with the attendant evidentiary hearing such a motion would require. 

The Debtor argues that it is the Appellants’ “non-creditor”56 interest that justifies the 

separate classification of their claims and the Debtor did not rely on a bypass of § 1126(e) 

to justify the separate classification of those claims. We agree with the Debtor. 

The Bankruptcy Court did discuss § 1126(e) but did not attempt to apply this 

section as part of the justification for separate classification of the Appellants’ claims. The 

Bankruptcy Court did not make a specific finding that the Appellants’ votes were not cast 

in good faith but simply noted that their actions might provide a basis to seek designation 

of their claims. What the Bankruptcy Court did acknowledge is that “courts have 

recognized that separate classification of a claim [whose holder’s vote] would likely be 

cast for ‘ulterior motives’ is permissible. They have done so specifically when the creditor 

was a litigation target.” 57 The Bankruptcy Court then made specific factual findings of its

definite and firm conviction that [the Appellants’] motivations in this case 

have been two-fold. [They] sought for a long period of time to force the 

 55 7 Collier on Bankruptcy ¶ 1126.06 (Richard Levin & Henry J. Sommer eds., 16th 

ed.). The good faith inquiry asks whether the creditor cast its vote “for the ulterior purpose 

of securing some advantage to which [it] was not otherwise entitled.” Id. at ¶ 1126.06[1].

56 Appellee’s Br. 19.

57 Order Overruling Objections at 10, in Appellants’ App. at 760. (first citing Save 

Our Springs (S.O.S.) Alliance, Inc. v. WSI (II)-COS, L.L.C. (In re Save Our Springs 

(S.O.S.) Alliance, Inc.), 632 F.3d 168, 174-75 (5th Cir. 2011) (acknowledging that the 

desire to avoid litigation can be a non-creditor interest justifying separate classification, 

but finding no evidence that such a motivation existed in that case) and then citing In re 

Heritage Org., L.L.C., 375 B.R. 230, 300 (Bankr. N.D. Tex. 2007)).
17

Debtor into a position where its business would fold and [they] could usurp 

[it]. Most recently, [the Appellants] ha[ve] attempted to thwart the Debtor’s 

reorganization in order to avoid becoming a litigation target.58

The Bankruptcy Court based its conviction on evidence of the Appellants’ dealings with 

the Debtor prepetition, as well as its own observations of their actions in the bankruptcy 

case. The Bankruptcy Court then specifically found that “[the Appellants’] actions in this 

bankruptcy case have demonstrated that [they have] not been pursuing a legitimate interest 

in maximizing [their] recovery as a creditor. Thus, separate classification of [their]

claim[s] was warranted under the circumstances of this case.”59 We find no error in the 

Bankruptcy Court’s legal conclusion that a creditor voting a non-creditor interest may be 

separately classified and its factual finding that the Appellants were not voting their

creditor interests.

b. Preserving the Potential Equitable Subordination of the Appellants’ Claims

Supports Separate Classification

The Debtor articulated a legitimate concern that placing the Appellants in Class 3 

might inadvertently waive any claim the Debtor has for equitable subordination of their

claims. Section 1123(a)(4) states that a plan shall “provide the same treatment for each 

claim or interest of a particular class, unless the holder of a particular claim or interest 

agrees to a less favorable treatment of such particular claim or interest.”60 The Funds have 

agreed to less favorable treatment within Class 3 by means of consensual subordination. 

The Appellants have not agreed to subordination of their claims. If the Appellants’ claims

 58 Id. at 11, in Appellants’ App. at 781.

59 Id., in Appellants’ App. at 781.

60 11 U.S.C. § 1123(a)(4). 
18

were placed in Class 3, § 1123(a)(4) would require the Debtor to provide them with the 

same treatment as the trade debt. If the Debtor did so, the Plan Administrator may later be 

estopped from attempting through litigation to undo the Amended Plan’s binding treatment 

of these claims. 

The Bankruptcy Court considered the potential impact that the precedents of County 

of Orange61 and Chateaugay62 may have on the Debtor’s subordination claims against the 

Appellants. In these cases, the court refused to entertain post-confirmation subordination 

claims where the plan provided for the same treatment for all claims in the class. As the

Appellants argue, County of Orange and Chateaugay may be distinguishable in that the 

debtors there did not mention their intent to pursue equitable subordination claims in the 

plan or disclosure statement. But the Appellants’ argument is of little importance. The 

Bankruptcy Court expressed no opinion as to whether the separate classification of the 

Appellants’ claims would avoid waiver issues. However, the Bankruptcy Court concluded 

that placing the Appellants in the same class would likely create a waiver issue and, thus, 

there was a sufficient justification for the separate classification. In other words, all the 

Bankruptcy Court determined was that these cases create a potential barrier to 

subordinating the Appellants’ claims, which separate classification may avoid, and that 

concern was a reasonable basis to separately classify those claims.

 61 In re Cty. of Orange, 219 B.R. 543 (Bankr. C.D. Cal. 1997).

62 LTV Steel Co. v. Aetna Cas. & Sur. Co. (In re Chateaugay Corp.), No. 93-8444A, 

1993 WL 563068 (Bankr. S.D.N.Y. Dec. 27, 1993). 
19

The Appellants contend that the Bankruptcy Court erred when it found that the 

Funds’ desire to create goodwill with trade creditors was one of the reasons the Debtor 

articulated for separately classifying their claims. The Debtor does not argue that this 

reason supports separate classification of the Appellants’ claims. The Bankruptcy Court 

recognized that this business justification is not akin to those cases in which the debtor 

itself has a strong business reason to provide preferential treatment to certain creditors in 

order to enhance its reorganization prospects.63 The Bankruptcy Court also observed that 

maintaining goodwill was “of vital concern to the Funds[,] and the Debtor needs the Funds 

in order to fund its plan obligations.”64 However, it is not clear that the Bankruptcy Court 

held that this reason, articulated by the Debtor, justified separate classification. Any error 

in the Bankruptcy Court’s ruling on this issue is harmless error because the Debtor had 

already demonstrated other reasonable grounds for separately classifying the Appellants’

claims.

B. The Amended Plan Does Not Unfairly Discriminate Against the Appellants’

Claims

Although the Appellants have raised several issues, the overarching complaint that 

they have with the Amended Plan is that they don’t like their treatment and believe it is 

unfair. In their appellate brief, the Appellants have misstated the Bankruptcy Court’s 

ruling. They accuse the Bankruptcy Court of bypassing the prohibition against unfair 

discrimination in § 1129(b)(1) by “reading language into [§] 1123(a)(4) . . . that a creditor 

 63 See, e.g., In re Bernhard Steiner Pianos USA, Inc., 292 B.R. 109, 114 (Bankr. N.D. 

Tex. 2002). 

64 Order Overruling Objections at 10, in Appellants’ App. at 760.
20

who agrees to less favorable treatment can dictate the beneficiaries of that treatment.”65 It 

appears that the Appellants’ position is that a creditor’s agreement to less favorable 

treatment, as permitted by § 1123(a)(4), necessarily requires an analysis of unfair 

discrimination under § 1129(b)(1). The record shows that the Amended Plan is consistent 

with § 1123(a)(4), which requires a plan to “provide the same treatment for each claim . . . 

of a particular class, unless the holder of a particular claim . . . agrees to a less favorable 

treatment.”66 A creditor’s agreement to less favorable treatment pursuant to § 1123(a)(4) 

necessarily results in more favorable treatment of other creditors in the class, but that does 

not necessarily implicate § 1129(b)(1).

Even so, the Amended Plan is also consistent with § 1129(b)(1). Section 1129(b) 

states that “the court . . . shall confirm the plan notwithstanding the requirements of 

[§ 1129(a)(8)] if the plan does not discriminate unfairly, . . . with respect to each class . . . 

that is impaired under, and has not accepted, the plan.”67 The Code does not define unfair 

discrimination, and the Tenth Circuit has not spoken on what constitutes unfair 

discrimination, but the language of the Code dictates that unfair discrimination is more 

than simply making a distinction between claims. As a general rule, the unfair 

discrimination standard “ensures that a dissenting class will receive relative value equal to 

 65 Appellants’ Br. 7.

66 11 U.S.C. § 1123(a)(4).

67 11 U.S.C. § 1129(b).
21

the value given to all other similarly situated classes.”68 Several courts have adopted a test 

that creates a rebuttable presumption of unfair discrimination when there is:

(1) a dissenting class; (2) another class of the same priority; and (3) a 

difference in the plan’s treatment of the two classes that results in either (a) 

a materially lower percentage recovery for the dissenting class (measured in 

terms of the net present value of all payments), or (b) regardless of 

percentage recovery, an allocation under the plan of materially greater risk 

to the dissenting class in connection with its proposed distribution.69

The Bankruptcy Court found that the Funds’ agreement to subordinate payment of 

its claim may allow the other Class 3 claimants to be paid sooner than they would be 

absent subordination, but also found that the Appellants’ distribution would not be 

diminished or delayed by this provision. In other words, Class 4’s percentage recovery will 

not be lower than Class 3’s, and Class 4 does not bear a materially greater risk than Class 

3. Class 4 will receive the same pro rata distribution that Class 3 will receive at the same 

time. Both classes must still be paid in full before any equity interest classes will receive 

anything. The Appellants will not receive the same treatment that Class 3 trade creditors 

will receive, but that is not inequitable or unfair to Class 4, and the Amended Plan does not 

unfairly discriminate between Class 3 and Class 4. 

The Appellants have also argued that the Amended Plan was not proposed in good 

faith. They assert that the separate classification and the different treatment of their claims 

 68 In re Armstrong World Indus., Inc., 348 B.R. 111, 121 (D. Del. 2006) (quoting In re

Johns–Manville Corp., 68 B.R. 618, 636 (Bankr. S.D.N.Y. 1986) (emphasis added); see 

also In re Stratford Assocs. Ltd. P’Ship, 145 B.R. 689, 700 (Bankr. D. Kan. 1992) (“While 

the Plan discriminates, to violate § 1129(b)(1), the discrimination must be unfair.”). 

69 In re Armstrong World Indus., Inc., 348 B.R. at 121 (quoting In re Dow Corning 

Corp., 244 B.R. 696, 702 (Bankr. E.D. Mich. 1999)). 
22

establish a lack of good faith. But the separate classification of the Appellants’ claims was 

appropriate and there was no unfair discrimination with respect to Class 4. The Appellants

cannot rely solely on these arguments to establish that the Amended Plan was not proposed 

in good faith and they have not advanced any other arguments on this issue. The 

Bankruptcy Court found that the Amended Plan was proposed in good faith, and we do not 

find clear error in that finding.

C. The Bankruptcy Court Properly Determined That the Amended Plan Is 

Feasible 

Section 1129(a)(11) requires a finding that confirmation “is not likely to be 

followed by the liquidation, or the need for further financial reorganization, . . . unless such 

liquidation or reorganization is proposed in the plan.”70 “In determining whether a plan is 

feasible, the Bankruptcy Court has an obligation to scrutinize the plan carefully to 

determine whether it offers a reasonable prospect of success and is workable.”71 “The 

purpose of the feasibility test is to determine whether there is a reasonable probability that 

creditors will receive the payments provided for in the plan.”72 One school of thought is 

that feasibility need not be established whenever liquidation is proposed in the plan.73

“Other courts take a broader approach and apply the feasibility test to plans of liquidation, 

focusing their analysis on whether the liquidation itself, as proposed in the plan, is 

 70 11 U.S.C. § 1129(a)(11). 

71 Travelers Ins. Co. v. Pikes Peak Water Co. (In re Pikes Peak Water Co.), 779 F.2d 

1456, 1460 (10th Cir. 1985) (quoting Prudential Ins. Co. of Am. v. Monnier (In re Monnier 

Bros.), 755 F.2d 1336, 1341 (8th Cir. 1985)).

72 In re Trenton Ridge Inv’rs., LLC, 461 B.R. 440, 478 (Bankr. S.D. Ohio 2011) 

(citing In re G-I Holdings Inc., 420 B.R. 216, 267 (D.N.J. 2009)). 

73 In re Heritage Org., L.L.C., 375 B.R. 230, 311 (Bankr. N.D. Tex. 2007).
23

feasible.”74 The Bankruptcy Court determined that the Amended Plan proposed liquidation 

and, despite noting case law suggesting that a feasibility inquiry is unnecessary for a 

liquidating plan, considered whether the proposed liquidation was feasible. 

The Appellants assign error based on the speculative nature of recovery on the 

Litigation Claims, relying on the Third Circuit’s In re American Capital Equipment, 

LLC.

75 The Appellants contend that creditor recovery is based on litigation outcomes and, 

as a result, the Amended Plan is per se too speculative to be confirmed. Although 

American Capital was similar to this case in that the plan included sum certain sources of 

funding, American Capital involved more moving parts than just successful litigation—it 

required asbestos claim litigants to settle their claims and consent to a portion of the 

debtors’ insurance recovery being paid to other creditors, and the debtors admitted that 

they could not fund any repayment of creditors without the imposition of the surcharge. 

The court found such a funding source to be “wholly speculative.”76 

Here, the Bankruptcy Court found that the Amended Plan was feasible because it 

was not contingent on the Plan Administrator bringing the Litigation Claims or the 

outcome of any litigation. As the Bankruptcy Court noted, in this case $400,000 would be 

made available to the Plan Administrator for payment of priority claims. This funding may 

be augmented by recovery of alleged overpayments of sales taxes and certain refunds 

 74 Id. 75 Appellants’ Br. 28 (quoting In re Am. Capital Equip., LLC, 688 F. 3d 145, 156 (3d 

Cir. 2012) (stating “a plan is not ‘feasible if the success hinges on future litigation that is 

uncertain and speculative’”)). 

76 In re Am. Capital Equip., LLC, 688 F.3d at 156. 
24

allegedly due from the Appellants, but whether the Debtor is successful in recovering 

overpayments, it has the certainty of plan funding from the Funds. The only restriction on 

the use of these funds is to limit to $25,000 any investigation of claims against the Funds.

The Bankruptcy Court also relied on In re Heritage Organization, L.L.C.,

77 to reach 

the conclusion that the liquidating Amended Plan is feasible because “the successful 

performance of its terms is not dependent or contingent upon any future, uncertain 

event.”78 This Court holds that the Bankruptcy Court did not commit clear error in 

concluding that the Amended Plan is feasible. While other courts have held that Chapter 

11 plans that rely on litigation settlements or judgments as the primary sources of funding 

are likely not feasible,79 in this case the Bankruptcy Court found the primary source of 

funding was the Funds’ $400,000 contribution. That was not clear error.

V. CONCLUSION

In the end, it is clear that the Appellants’ real complaint is that a plan they did not 

want was confirmed. The Appellants would rather the case be converted to Chapter 7 

where unsecured claims would not receive anything unless the trustee were successful in 

pursuing litigation against them. A Chapter 7 trustee, however, would not have the benefit 

of the $400,000 contribution to fund payment of Classes 1, 2, and 5, nor a war chest for 

 77 375 B.R. 230 (Bankr. N.D. Tex. 2007). 

78 Id. at 311.

79 E.g., In re WR Grace & Co., 729 F.3d 332, 348-49 (3d Cir. 2013) (stating court will 

not find plan feasible if it hinges on speculative litigation); In re Slabbed New Media, LLC, 

557 B.R. 911, 916-17 (Bankr. S.D. Miss. 2016) (citing numerous cases suggesting plans 

relying on litigation proceeds are not feasible); In re Applied Safety, Inc., 200 B.R. 576, 

584 (Bankr. E.D. Penn. 1996) (explaining that plan was likely unconfirmable where debtor 

could not evidence capital to fund litigation).
25

litigation. Perhaps this is why the Appellants so adamantly seek conversion over 

confirmation. As the primary litigation target, they would undoubtedly prefer a trustee 

unfamiliar with the case and without any kitty to pursue litigation.

The record supports the Bankruptcy Court’s findings regarding the separate 

classification of Class 3 and Class 4. The Amended Plan was proposed in good faith, does 

not unfairly discriminate against the Appellants’ claims, and is feasible. Accordingly, the 

Bankruptcy Court did not err. The Bankruptcy Court’s decision is AFFIRMED.