Pacific Western Bank v. Fagerdala USA

Under 11 U.S.C. 1126(e), a bankruptcy court may not designate claims for bad faith simply because (1) a creditor offers to purchase only a subset of available claims in order to block a plan of reorganization, and/or (2) blocking the plan will adversely impact the remaining creditors. At a minimum, there must be some evidence that a creditor is seeking "to secure some untoward advantage over other creditors for some ulterior motive." In this case, the Ninth Circuit reversed the district court's order affirming the bankruptcy court and vacated the bankruptcy court's order granting a chapter 11 debtor's motion to designate claims for bad faith and preclude the claims from being voted against a plan of reorganization. The panel held that the bankruptcy court erred when it refused to analyze whether Pacific Western acted under an "ulterior motive," beyond its "mere enlightened self interest" in protecting its secured claim. The panel remanded for further proceedings. View "Pacific Western Bank v. Fagerdala USA" on Justia Law