Opinion ID: 3062086
Heading Depth: 5
Heading Rank: 1

Heading: The Definition of Good Faith

Text: Section 1129(a)(3) provides that a Chapter 11 plan can only be confirmed if it was “proposed in good faith and not by any means forbidden by law.” The Code does not explain what “good faith” means in this context. See 6 Norton Bankr. L. & Prac. § 112:10 (3d ed. 2012). “Case law under the Code, however, has tended to define the good-faith requirement as requiring only that there is a reasonable likelihood that the plan will achieve a result consistent with the standards prescribed under the Code.” Id. In Travelers Ins. Co. v. Pikes Peak Water Co. (In re Pikes Peak Water Co.), 779 F.2d 1456 (10th Cir. 1985), we quoted the bankruptcy court’s articulation of the standard: The test of good faith is met if there is a reasonable likelihood that the plan will achieve its intended results which are consistent with the purposes of the Bankruptcy Code, that is, is the plan feasible, practical, and would it enable the 32 company to continue its business and pay its debts in accordance with the plan provisions. Id. at 1459. We noted that “[i]n finding a lack of good faith, courts have looked to whether the debtor intended to abuse the judicial process and the purposes of the reorganization provisions.” Id. at 1460. “Not confirming the plan for lack of good faith is appropriate particularly when there is no realistic possibility of an effective reorganization and it is evident that the debtor seeks merely to delay or frustrate the legitimate efforts of secured creditors to enforce their rights.” Id. We reaffirm today that the test of good faith under § 1129(a)(3) focuses on whether a plan is likely to achieve its goals and whether those goals are consistent with the Code’s purposes. ConsumerInfo argues, and we agree, that a plan proponent’s selfinterested motive does not necessarily indicate a lack of good faith. But SMDI does not take issue with ConsumerInfo’s motivations in proposing the Joint Plan. Indeed, it is surely beyond dispute that both parties proposed their plans in pursuit of their own selfinterested goal. Rather, we understand SMDI’s arguments to be that the Joint Plan was not proposed in good faith because ConsumerInfo’s co-proponent, the Trustee, was corrupted by a conflict of interest of ConsumerInfo’s creation, and because ConsumerInfo had taken unethical steps to prevent SMDI from jointly proposing a competing plan with the debtor. Applying Pikes Peak, the bankruptcy court concluded that the Joint Plan was proposed in good faith because it was both feasible and workable and sought to achieve results consistent with the purposes of the Bankruptcy Code. Paige, 2007 WL 4143212, 33 at . The bankruptcy court did not err. A plan may, in light of its proponent’s actions or relationships, be incapable of achieving goals consistent with the Code. The bankruptcy court in In re Fiesta Homes of Ga., Inc., 125 B.R. 321, 325 (Bankr. S.D. Ga. 1990), for instance, recognized that the proponent’s conflicts of interest made diligent pursuit of certain preference actions unlikely and made an appearance of impropriety inevitable. Accordingly, the proposed plan was not likely to achieve a result consistent with the Code—namely, “maximum recovery by and fair distribution to creditors.” Id.; see also In re Coram Healthcare Corp., 271 B.R. 228, 240 (Bankr. D. Del. 2001) (“We easily conclude from the totality of circumstances . . . that a continuous conflict of interest by the CEO of the Debtor precludes the Debtors from proposing a plan in good faith under 1129(a)(3).”). In In re Unichem Corp., 72 B.R. 95, 100 (Bankr. N.D. Ill. 1987), the court concluded that the plan at issue was designed to reward its proponent, an individual whose “inequitable conduct was the cause of [the debtor’s] financial distress.” Such a result was inherently “in conflict with the objectives and purposes of the Bankruptcy Code.” Id. Thus, we do not rule out the possibility that a plan could be unconfirmable under § 1129(a)(3) because of the proponent’s conflicts of interest or improper conduct. Nonetheless, we affirm the bankruptcy court’s decision because no conflict of interest or unethical action on the part of ConsumerInfo or the Trustee demonstrated a lack of good faith in this case.