Opinion ID: 77241
Heading Depth: 2
Heading Rank: 1

Heading: Material and Adverse Modifications

Text: 17 Enron first argues that the bankruptcy court lacked the statutory authority to confirm the Second Amended Plan because the modifications were material and adverse with respect to Enron's interests. A determination of materiality is a mixed question of law and fact, and is, therefore, reviewed de novo.  See United States v. Miranda, 348 F.3d 1322, 1334 n. 15 (11th Cir.2003) (per curiam). An adversity determination is similarly a mixed question of law and fact, and we will review it de novo as well. 18 The Bankruptcy Code requires that every holder of a claim or interest receive a court-approved written disclosure statement containing adequate information about a proposed plan before its vote on that plan may be solicited. 11 U.S.C. § 1126(b)(2). Even after the vote, a plan proponent may modify a plan before confirmation as long as the plan still satisfies all requirements concerning plan contents and the classification of claims and interests. 11 U.S.C. §§ 1127, 1122, 1123. After notice and a hearing, the bankruptcy court may deem a claim or interest holder's vote for or against a plan as a corresponding vote in relation to a modified plan unless the modification materially and adversely changes the way that claim or interest holder is treated. Id. § 1127(d); Fed. R. Bankr.P. 3019; see also In re Am. Solar King Corp., 90 B.R. 808, 825 (Bankr. W.D.Tex.1988). If it does, the claim or interest holder is entitled to a new disclosure statement and another vote. Solar King, 90 B.R. at 823. 19 The adverse effects Enron alleges it suffers by virtue of the Second Amended Plan include: (1) an extension of the examiner's investigation and any resulting recharacterization action in relation to Enron's secured claim beyond the end of the preconfirmation period which, Enron argues, serves to disturb its certainty regarding its claims and interests; (2) a redefinition of the plan term Allowed which destroys a previous presumption that Enron's claims and interests were allowed; and (3) the addition of an interim distributions provision, which, Enron argues, will jeopardize its own potential distributions or at least cause it to receive them later than other members of Class 9. In each case, as an initial matter, we consider whether there was any material and adverse modification from the First Amended Plan. We then review for clear error the bankruptcy court's factual determination that the disclosure statement submitted in connection with the First Amended Plan provided adequate information for purposes of the Second Amended Plan. 20 For the purposes of a plan's disclosure statement, `adequate information' means information of a kind, and in sufficient detail, as far as is reasonably practicable in light of the nature and history of the debtor and the condition of the debtor's books and records, that would enable a hypothetical reasonable investor typical of holders of claims or interests of the relevant class to make an informed judgment about the plan. 11 U.S.C. § 1125(a)(1). It is presumed that such an investor will have the ability to obtain such information from sources other than the disclosure required by this section as holders of claims or interests in such class generally have. Id. § 1125(a)(2)(c).
21 Despite the assurances by both New Power and the Creditors' Committee that neither intended to challenge Enron's claims or interests, other equity holders and the Trustee resurrected the question of their validity in December 2002 after it became clear that all creditors' claims would be paid in full with interest but well before any plan was confirmed. 4 Enron participated in the briefing concerning Riverside's motion for the appointment of an equity committee and the Trustee's motion for the appointment of an examiner. One of the specific purposes for each of these motions was to ensure further investigation of Enron's claims and interests. Enron was also represented at the 17 December hearing at which the court denied the motion for appointment of an equity committee and granted the motion for appointment of an examiner. No temporal limitations on the scope of the examiner's investigatory powers were imposed at this hearing. 22 Further, in the disclosure statement filed in connection with the First Amended Plan, New Power described the bankruptcy court's intention to appoint an examiner to investigate, file a report and take other appropriate actions regarding whether any of Enron's claims should be recharacterized. R-Exh.3-530 at 21-22. As noted by the district court, the disclosure statement contained no mention of a time limitation on either the examiner's investigation or the commencement of any recharacterization action. At the time of the hearing, Enron did not object to the lack of this specification in the disclosure statement. On the basis of the disclosure statement, it voted its equity interests in favor of the First Amended Plan. 23 Finally, all evidence as to the intentions of the bankruptcy court indicates that the court meant the examiner to pursue his duties without reference to the date of plan confirmation, except to the extent the examiner was originally directed to file an initial report prior to the confirmation hearing. In granting the motion for appointment of an examiner, the court explained that it would ascertain [the duration of the investigation] at a later time. R-Exh.8 at 59. In the order appointing the examiner, the court still made no temporal limitations, requiring only that the examiner file a report with the court prior to initiating any action. 5 R-Exh.3-569 at 3. Then, two days after it had confirmed the plan as to the Operating Company, the court extended the deadline for filing of the examiner's initial report, clearly allowing his activities and investigation to continue post-confirmation. Enron participated in all related hearings and briefing. 24 Accordingly, we agree with the district court that the examiner's powers were not in any way limited by time constraints in the First Amended Plan. R2-21 at 10. The record fully supports the contention that all decisions related to the temporal and substantive scope of the examiner's investigation were made by the bankruptcy court independently of any plan confirmation. 6 Thus, we find that the addition of § 12.1 made absolutely no change to the treatment of Enron's claims or interests. 7 25 Additionally, we find that the bankruptcy court's determination that the disclosure statement produced in connection with the First Amended Plan provided Enron with adequate information as to the risk to which its already paid Class 1 claim and its Class 9 equity interests were subject was not clearly erroneous. The statement disclosed the examiner's pending appointment as well as the precise subject matter of his investigation. Even if that were not sufficient, Enron was an active participant in the hearings and briefing related both to the decision to appoint an examiner and the determination of the timing and scope of his investigations. Enron clearly had access to adequate information regarding the treatment of its claims and interests whether they ultimately fell into Class 1 or Class 9. The bankruptcy court's determination is more than plausible in light of the record viewed in its entirety. See Holton v. City of Thomasville School Dist., 425 F.3d 1325, 1351 (11th Cir.2005). There is no clear error. 26
27 Enron also argues that it has been adversely affected by what it alleges to be the Plan's effective redefinition of the term Allowed in § 1.4 of the Second Amended Plan. Enron argues that the addition of the words subject to the provisions of paragraph 12.1 hereof, to the definition effectively destroys the presumption that its Class 9 and 11 claims will be allowed. Because this is the first time Enron has made this argument, it is not properly before us. See, e.g., Sterling Fin. Inv. Group, Inc. v. Hammer, 393 F.3d 1223, 1226 (11th Cir.2004) (The law in our circuit is clear that arguments not presented in the district court will not be considered for the first time on appeal.). 28 To the extent that this argument is not based on the addition to the definition of Allowed but on the effect of § 12.1 on Enron's claims and interests, it is similar to the argument we addressed in part II.A.1. Enron's argument that the status of its claims was somehow altered from the First to the Second Amended Plan is unavailing. Part V.B of the disclosure statement filed in connection with the First Amended Plan provides that a claim or interest will fall within a particular Class only to the extent that the Claim or Interest qualifies within the description of that Class. R-Exh.3-530 at 27. Part IV.L. explains the court's appointment of an examiner and the subject matter of his investigation. Id. at 21-22. As the bankruptcy court noted, these two sections, read together, put Enron on notice that its claims would be investigated by the examiner and that its secured claim in Operating Company could be recharacterized as an equity interest in Holdings, and, in turn, classified within Class 9. R-Exh.1-931 at 13. Again, because the examiner's powers come not from the Second Amended Plan, but from the bankruptcy court's examiner order, the Second Amended Plan, including the addition to the definition of Allowed, only more clearly laid out what Enron could expect concerning its claims and interests than did the First Amended Plan. 8 The Second Amended Plan itself did nothing to change the status of those claims or interests and § 12.1 has no material or adverse effect thereon. The disclosure statement filed in connection with the First Amended Plan provides adequate information as to Enron's claims and interests.
29 Enron also argues that it is adversely affected by the addition of § 5.20 which provides for interim distributions to equity holders with allowed interests. Enron did not make this particular argument before the bankruptcy court or the district court. To the extent that this is different from the argument concerning unequal treatment violative of § 1123(a)(4), we will not consider it for the first time on appeal. 9 See Sterling Fin. Inv. Group, 393 F.3d at 1226. 30