Friendly Creditor: On What Basis Can A Plan Vote Be Disregarded?

In re Marble Cliff Crossing Apartments, LLC, 485 B.R. 849 (Bankr. S.D. Ohio 2013) -

A secured creditor (MTGLQ) challenged the votes of another creditor that purchased claims on the grounds that either (1) the creditor should be treated as an insider or (2) it cast its votes in bad faith. The votes were important because the debtor wanted to count them in meeting a requirement under the Bankruptcy Code that its plan of reorganization be accepted by at least one impaired class without counting votes of insiders.

MTGLQ itself attempted to buy the claims of a creditor (Bresco) that had installed a wireless internet system and security cameras at the debtor's apartment complex. It got as far as sending a check to Bresco for full payment of its claim. However, Bresco's principal became uncomfortable with what he perceived to be inconsistencies in MTGLQ's offer. So he voided and returned the check, stating that he wasn't interested in selling. MTGLQ then filed an adversary proceeding to contest the validity and priority of the Bresco claims. Another company, The Security Network (TSN), subsequently contacted Bresco and acquired the claims.

Key facts include the following:

The owner of TSN (Mr. Alexander) said that he bought the claims in the hope that TSN would obtain future work from the debtor. Mr. Alexander was familiar with the equipment that secured the Bresco claims and had inspected it prior to payment for the claims. He was aware of the MTGLQ litigation challenging the purchased claims. He also considered members of the debtor to be friends - having known one member (Mr. Chester) since childhood and a second member (Mr. Armstrong) since high school. Mr. Chester personally offered to reimburse any attorney fees incurred by TSN in the bankruptcy case. TSN was not required to vote the claims in any particular manner. As summarized by the court: "In constructing and obtaining acceptance of a plan, debtors can negotiate, compromise and pursue settlement offers. Debtors, however, cannot solicit votes, either formally or informally, prior to the publication of a disclosure statement and plan. ... Further, debtors cannot ask creditors to vote in favor of a plan."

MTGLQ made...