Issue link: https://mbozikis.ufcontent.com/i/1422521
170 pertinent inquiry is not whether the plan discriminates, but whether the proposed discrimination is 'unfair."' Ownby v. Jim Beck, Inc. (In re Jim Beck, Inc.), 214 B.R. 305, 307 (W.D. Va. 1997). Although the Bankruptcy Code does not define when differing treatment of similarly situated creditors is deemed to be "unfair," courts generally consider (i) whether a rationale justifies the discrimination and (ii) whether the extent of the discrimination is narrowly tailored in light of the stated rationale. 92 See In re 203 N. LaSalle St. Ltd. P'shp., 190 B.R. 567, 585–86 (Bankr. N.D. Ill. 1995), rev'd on other grounds, 526 U.S. 434 (1999). In a recent decision, the Third Circuit encouraged bankruptcy courts to be flexible in applying the unfair discrimination test and provided priniciples to aid such analyses. 93 See In re Trib. Co., 972 F.3d 228, 242-44 (3d Cir. 2020) (enumerating eight factors in which courts should look to when conducting an unfair discrimination analysis). Examples of scenarios that justified discrimination of similarly situated creditors have included (i) protecting the credit-worthiness of the debtor, see In re Creekstone Apartments Assocs., L.P., 168 B.R. 639, 644 (Bankr. M.D. Tenn. 1994), (ii) satisfying other requirements of a Chapter 11 confirmation, such as the best 92 However, other courts have applied a rebuttable presumption test in which there is deemed to be unfair discrimination when there is '"(1) a dissenting class; (2) another class of the same priority; and (3) a difference in the plan's treatment of the two classes that results in either (a) a materially lower percentage recovery for the dissenting class (measured in terms of the net present value of all payments), or (b) regardless of percentage recovery, an allocation under the plan of materially greater risk to the dissenting class in connection with its proposed distribution.' If there is an allegation of a materially lower percentage recovery, the presumption can be rebutted 'by showing that, outside of bankruptcy, the dissenting class would similarly receive less than the class receiving a greater recovery, or that the alleged preferred class had infused new value into the reorganization which offset its gain.' A demonstration that the risk allocation was similar to the risk assumed by the parties prior to bankruptcy can rebut the presumption that a discriminatory risk allocation was unfair." See, e.g., In re Armstrong World Indus., 348 B.R. 111, 121 (D. Del. 2006) (internal citation omitted). 93 Notably, the Third Circuit held that subordination agreements need not be strictly enforced when confirming a "cramdown" Chapter 11 plan pursuant to Section 1129(b)(1). Id. at 242 ("A subordination agreement does not need to be enforced to the letter in the case of a cramdown . . ..").