Opinion ID: 548396
Heading Depth: 1
Heading Rank: 2

Heading: The Proper Classification of Classic's Claim

Text: 11 Bustop initially argues that the Bankruptcy Court's refusal to allow the plan to classify Classic in a class separate from the other unsecured creditors is a legal question that should be reviewed de novo. We disagree. We have noted before the difficulty of determining whether a debtor has used its power to classify claims improperly. In re U.S. Truck Co. (Teamsters National Freight Industry Negotiating Committee v. U.S. Truck Co.), 800 F.2d 581 (6th Cir.1986). Unless there is some requirement of keeping similar claims together, nothing would stand in the way of a debtor seeking out a few impaired creditors (or even one such creditor) who will vote for the plan and placing them in their own class. Id. at 586. In U.S. Truck, we found that the primary limit on a creditor's power to classify claims was the broad discretionary authority vested in the bankruptcy court to reject the classification scheme proposed by the debtor: 12 [T]he legislative history of the Code provides little assistance in determining what limits there are to segregating similar claims. Nevertheless, we do find one common theme in the prior case law that Congress incorporated into section 1122. In those pre-Code cases, the lower courts were given broad discretion to determine proper classification according to the factual circumstances of each individual case. 13 Id. 14 Accordingly, a bankruptcy court's decision to approve or reject the separation of claims proposed by a debtor will only be reversed if the party opposed to the court's decision can demonstrate that the court abused its discretion. 15 Bustop has presented several arguments in favor of placing Classic in a separate classification: (1) Classic is a judgment creditor whose claim remains the subject of ongoing adversarial litigation; (2) any payments Classic receives as a result of the plan must be escrowed pending the final resolution of its claims; (3) Classic obtained involuntary preferential transfers that are the subject of adversarial proceedings; and (4) Classic has attached Bustop's debtor-in-possession account and certain rental payments due Bustop. 16 We need not decide whether any of these arguments provide a sufficient basis for a bankruptcy court to approve the segregation of a plan. We need only decide whether the bankruptcy court abused its discretion in rejecting them as a basis for approving the proposed classification. We find that it did not. 17 The fact that Classic and Bustop are involved in adversarial proceedings concerning Classic's breach of contract claims and Bustop's allegations that Classic received preferential transfers does not require Classic to be placed in a separate classification. Adversarial proceedings on these subjects are a routine part of bankruptcy and do not necessarily support a conclusion that the creditor involved in the adversarial proceedings has a stake in the approval or nonapproval of the plan different from that of other creditors. Although other creditors would receive a larger settlement payment if Bustop prevailed in the adversarial proceedings, approval or nonapproval of the plan by Classic or the other creditors does not affect the outcome of the adversarial proceedings. 6 18 Further, it is within the Bankruptcy Court's discretion to conclude that the necessity of escrowing of payments made to Classic under the plan pending the final resolution of its claims is not a sufficient reason to place Classic in a separate class. Essentially, this is merely a question of administrative convenience. If the Bankruptcy Court believes that escrowing could be accomplished without placing Classic in a separate class--a designation that relates primarily to voting and treatment under the cram-down provisions--then we are not in a position to reject its conclusion absent strong reasons for concluding that the court is incorrect. 7 19 The attachment by Classic of certain assets of the debtor is more troublesome. If Classic is allowed to continue to attach assets and prevails in its assertion that such transfers are not preferential, then it has a strong incentive to reject the plan and continue seizing assets. If other creditors do not seize assets, Classic can essentially place itself in a superior position to other creditors. 8 Nevertheless, Classic's incentive to reject the plan appears to be no different than the incentive of other creditors since the stay was apparently lifted as to all creditors. See Order Modifying Stay, entered December 23, 1987. Although the question would be a close one if the stay had been lifted only as to Classic, we see no basis for classifying Classic differently where the stay has been lifted as to all creditors.