Nature of the Case
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Facts
P's only shareholders are Owen and Linda Cowing. P's business consists of the rental of large earth-moving equipment. P's business model is to purchase and rent out older, used equipment but to maintain it extremely well according to regular maintenance schedules. P has maintenance staff that can respond quickly if a machine breaks down on the job, either to repair it or to substitute replacement equipment. P has built a reputation for reliability and minimal downtime, and because it does not buy or use new equipment it can charge lower rental rates than its principal competitor. By 2001, P produced annual gross revenues in excess of $43 million. In 2007, its annual revenues declined to $10 million for 2008. P has been financed by a revolving line of credit with Bank. The Comerica debt is approximately $33 million. The debt is guaranteed by Owen and Linda Cowing. In the spring of 2008, the decline in revenues caused non-monetary defaults in the Comerica debt, which led to a series of forbearance agreements and workout negotiations. At about that same time Owen was diagnosed with leukemia, and then-Chief Financial Officer Darren Dierich was put in charge. In June 2009, Owen discovered that Bank had published a notice of the UCC sale of P. Owen discovered secret e-mails between Bank and his CFO Dierich that revealed a plan for Bank to sell P's assets to an entity owned and controlled by Dierich, with the purchase to be financed by Bank so that Dierich could take over P's business for his own benefit. Bank and Dierich had agreed to keep their plan secret from the Cowings. P filed Chapter 11 on August 11, 2009. P filed an adversary proceeding asserting claims against Bank arising from the secret sale scheme, including equitable subordination and damages for aiding and abetting breaches of fiduciary duty. Bank argues that there was no damage because the scheme was discovered before the sale could be concluded. (We couldn’t stop laughing at this strategy. We’re guilty as sin and conspired to ruin you but there are no damages. Bank admitted to a whole slew of crimes.) After a sale, P's remaining equipment was approximately 83 pieces of major equipment along with approximately 50 attachments and tools. P filed its plan in December 2009, and filed its first amended plan in October 2010. In November, Bank filed an election pursuant to section 1111(b), seeking to have its approximate $25 million claim treated as fully secured. The Court held that when there is a sale of only a portion of the property there must be a pro rata exclusion from the election. The parties have stipulated that the value of Bank's collateral is $10 million and that Comerica's total claim pursuant to § 1111(b) is $15.9 million. Class 10 consists of the equity ownership of Owen and Linda Cowing. Class 10 consists of the equity ownership of Owen and Linda Cowing. Their equity ownership shall be extinguished and they shall contribute the $480,000 cash payable on their administrative claim in exchange for 100% of the equity of the reorganized debtor. There is also an exit loan facility in the amount of $1.25 million to be funded by the Cowings. It is claimed that this will be more than sufficient to pay all administrative claims, including the Cowings', which will enable them to make their cash contribution to P, and also fund a capital reserve. Bank objected. Bank, in part, objects that the plan violates the absolute priority rule and its new value corollary that both the Supreme Court and the Ninth Circuit have recognized and defined.
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