A.   Not A Class

            Led by the Fourth Circuit,[1]a number of courts have rejected the idea that a secured tax claim should have the ability to vote on a reorganization plan.[2]Not only is the claim secured, but it also has statutory protection providing the minimum treatment.[3]Due to this, the courts opposed to allowing voting status see it as an unfair treatment of the other truly impaired classes, and a danger when it comes to the ability of cram down.[4]

            1.   Perdido Motel

            In Perdido Motel, the court found the unsecure tax claims were not a class for the purposed of § 1129(a).[5]In this case, the debtor is a corporation organized to build and operate a motel.[6]During the bankruptcy proceedings, the corporation filed a plan in which it would transfer the sole asset to a new corporation for a promise to perform the obligations of the plan.[7]Florida National Bank, as the primary creditor, voted against the plan, resulting in more than one-third of the claims voting against the plan.[8]Despite this, the debtor requested that the court confirm the plan under § 1129(b), [9]which requires the plan to treat each class of impaired claims fair and equitably.[10]During its analysis, the court had to determine if the unsecured tax claims that the plan assigned to Class III actually deserved the status of a class.[11]

The court’s analysis revolved around an integrated reading of § 1129, § 1123, and § 507.[12]According to the court, the “purpose of classification is to state the treatment by the terms of the plan of a particular claim or association of claims.”[13]Therefore, there is no need to classify tax claims—tax claims’ treatment is already set forth by statute.[14]If the court or the statute required classification of tax claims, the classification would make § 507 “so lukewarm as to be no requirement at all.”[15]Rather than determining that § 507 was a useless remnant of the bankruptcy code, the court determined that if a claim was governed by § 507, it did not need the protection of § 1123.[16]

While the court dealt with the issue of an unsecured tax claim, the reasoning used by the court—if § 507 governs the claim, then by necessity it is not a class—would be used again by bankruptcy and district courts alike.

            2.   Mangia Pizza

            Mangia Pizza was a chain of pizza restaurants that had fallen on hard times, and wanted to go through a reorganization.[17]During the process, a creditor proposed a second plan for consideration.[18]This second plan required that the court consider IRS’s claims not only a voting class, but also impaired.[19]

            The creditor relied exclusively on In re Greenwood Point[20]and the language of § 1129(a)(9)(D).[21]Section 1129 allows a claim to be impaired even if it impaired due to an agreement made by the creditor.[22]According to the creditor, Greenwood Point stands for the proposition that § 1123(a)(1) does not prohibit classification of secured tax claims, and such claims may be an impaired accepting class.[23]

            In contrast, the debtor argued against both the class and impaired status of the IRS’s claim.[24]To support its claim opposing class status, the debtor turns to In re Bridgeview Plaza, Inc.[25]In that case, the court proposed that a secured claim could be treated as impaired, if the treatment offered was worse than what the claim was entitled to under § 1129(a)(9)(c).[26]According to the debtor, the IRS accepted the proposed treatment, and therefore, it was not offered. Since it was not offered, it could not be a class under the logic of Bridgeview.[27]

            The court walked through the reasoning in both Greenwood and Perdido.[28]In Greenwood, the court found support for the secured tax claims having class status, because § 507(a)(8) only deals with unsecured claims.[29]In contrast, the court recognized Perdidoas denying class status because a secured tax claim would already receive preferential treatment under § 1129(a)(9)(C).[30]While the court conceded that this was far from a settled issue, it ultimately sided with the Perdido court, and stated that the better reasoning resulted in a denial of class status.[31]The preferential treatment already allowed under § 1129 was too great to justify additional class treatment.[32]Allowing a secured tax claim the ability to vote would also work to unjustly dilute the votes of other classes.[33]

            3.   Bryson Properties

            In re Bryson Properties XVIIis case appeal to the Fourth Circuit.[34]While the case does not directly deal with the issue of secured tax claims,[35]it does approve of the denial of class status to secured tax claims in order to reach its ultimate decision.[36]Because this is one of the few appeals decisions to address the issue,[37]even by way of a footnote,[38]the facts are set forth here.

            The debtor, Bryson Properties (“Bryson”), had filed a plan of reorganization that was approved by the bankruptcy court.[39]However, one of the undersecured creditors, Travelers Insurance Company (“Travelers”), appealed the decision for being unfair and non-equitable.[40]One of Travellers’ arguments dealt with the availability of the cram down provision.[41]Bryson split the unsecured claims into three classes, providing it with three opportunities to solicit the required vote for the cram down provision.[42]The court not only rejected such an arbitrary split of the claims, but also rejected the allowance of the tax claim as a voting class.[43]In agreement with In re Perdido Motel, the court refused to allow a secured tax claim the ability to vote in bind other impaired credits to a cram down provision.[44]

[1]           See generally In re Bryson Properties, XVIII, 961 F.2d 496 (4th Cir., 1992).

[2]           See Bryson, 961 F.2d 496; Mangia Pizza, 480 B.R. 669; In re Perdido Motel Group, Inc., 101 B.R. 289 (N.D. Ala. 1989).

[3]           § 1129(a)(9)(D).

[4]           Bryson, 961 F.2d at 502.

[5]           Mangia Pizza, 480 B.R. at 4.

[6]           Perdido Motel, 101 B.R. at 291.

[7]           Id. at 291.

[8]           Id.

[9]           *Id.*

[10]          11 USC § 1129(b)(1) (2012).

[11]          Perdido Motel, 101 B.R. at 292–93. While the court does not explicitly state the claims are unsecured in this opinion, they are noted as being unsecured in the Mangia opinion, Mangia Pizza, 480 at 4, and the Perdido court states that the claims are governed by 507(a)(8). Perdido Motel, 101 B.R. at 292.

[12]          Perdido Motel, 101 B.R. at 293–94.

[13]          Id. at 294.

[14]          *Id.*

[15]          *Id.*

[16]          *Id.*

[17]          Mangia Pizza, 480 B.R. at 675.

[18]          Id. The creditor, Cloud Cap, purchased a claim, and then presented an alternate plan to the remaining creditor. *Id.*

[19]          *Id.*

[20]          In re Greenwood Point is analyzed in greater detail infra Part I.B.1.

[21]          11 U.S.C. 1129(a)(9)(D) (2012).

[22]          Mangia Pizza, 480 B.R. at 677. Section 1129(a)(9)(D) reads:

[W]ith respect to a secured claim which would otherwise meet the description of an unsecured claim of a governmental unit under section 507(a)(8), but for the secured status of that claim, the holder of that claim will receive on account of that claim, cash payments, in the same manner and over the same period, as prescribed in subparagraph (C).

11 U.S.C. 1129(a)(9)(D).

[23]          Mangia Pizza, 480 B.R. at 676–77.

[24]          Id. at 667.

[25]          *Id.*

[26]          *Id.*

[27]          *Id.*

[28]          Id. at 677–79.

[29]          Mangia Pizza, 480 B.R. at 678. See also 11 U.S.C 507(a)(8) (2012).

[30]          Mangia Pizza, 480 B.R. at 678.

[31]          Id. at 678–79.

[32]          *Id.*

[33]          Id. at 679.

[34]          In re Bryson Properties, XVIII, 961 F.2d 496 (4th Cir. 1992).

[35]          See generally id. Most of this discussion will focus on the facts and a footnote to the opinion.

[36]          Id. at 500.

[37]          The remaining decisions discussed in this paper are decisions by the bankruptcy court.

[38]          While it is dicta that is set forth in a footnote, it has been relied upon by other decisions. SeeIn re Mangia Pizza Investments, LP., 480 B.R. 669, 678 (W.D. Tex. 2012).

[39]          Bryson, 961 F.2d at 498.

[40]          Id. The plan is required to be “fair and equitable, with respect to each class of claims or interests that are impaired” under § 1129(b)(1). 11 U.S.C. 1129(b)(1) (2012).

[41]          *Id.*

[42]          Id. at 501.

[43]          Id. at 502.

[44]          *Id.*