## Facts

- Boston Post Road Limited Partnership (BPR) owned and operated a residential and office complex in Waterford, Connecticut.
- In 1988, BPR mortgaged the property to Connecticut Bank and Trust Company to secure an approximately $1.6 million loan.
- BPR defaulted, and a Connecticut state court entered a judgment of strict foreclosure, setting October 28, 1991 as BPR’s last day to redeem.
- The bank later became insolvent, and the FDIC succeeded to the mortgage and related claims.
- On the redemption date, BPR filed a voluntary Chapter 11 petition, staying the foreclosure.
- BPR proposed a Chapter 11 plan that (among other classifications) placed (i) the FDIC’s unsecured deficiency claim in a separate unsecured class from (ii) other general unsecured creditors, and also created a class of residential tenants with security deposits held by BPR.
- The bankruptcy court denied confirmation, concluding BPR (i) improperly separated substantially similar unsecured claims to manufacture an accepting impaired class and (ii) improperly treated the tenant security-deposit class as impaired despite plan treatment that benefitted that class.
- The district court affirmed, and BPR appealed.

## Issues

1. Whether a Chapter 11 plan may separately classify an undersecured creditor’s unsecured deficiency claim from other general unsecured claims when the separation serves only to obtain an accepting impaired class for confirmation.
2. Whether a class of tenant security-deposit claims is “impaired” under 11 U.S.C. § 1124 when the plan leaves those claimants at least as well off (or better off) than before, and whether such a class may satisfy 11 U.S.C. § 1129(a)(10).

## Decision

- The Second Circuit affirmed the order denying confirmation.
- The court held that separating the FDIC’s unsecured deficiency claim from other general unsecured claims was impermissible where the claims were substantially similar and the only apparent purpose was to secure an accepting impaired class.
- The court held that the tenant security-deposit class was not properly treated as impaired because the plan benefitted, rather than diminished or altered, the holders’ relevant rights.
- Because the plan lacked a legitimately impaired accepting class, it could not be confirmed over the FDIC’s objection.

## Legal Principles

- Substantially similar unsecured claims generally may not be classified separately when the separation is used to manipulate voting outcomes and satisfy the accepting-impaired-class requirement.
- Differences in creditor identity, bargaining posture, or claim size do not justify separate classification when creditors share the same legal priority and character as general unsecured claims.
- “Impairment” under 11 U.S.C. § 1124 turns on whether a plan alters the holders’ legal, equitable, or contractual rights in a manner the statute recognizes; a class is not impaired merely because a plan labels it impaired.
- An accepting vote by an unimpaired class cannot satisfy 11 U.S.C. § 1129(a)(10)’s requirement that at least one impaired class accept the plan.

## Conclusion

The court affirmed denial of confirmation because the plan used improper classification to engineer an accepting impaired class and because the tenant security-deposit class was not truly impaired under the Bankruptcy Code, leaving the plan without the acceptance required for confirmation over creditor objection.


Boston Post Rd. Ltd. P’ship v. FDIC, 21 F.3d 477 (2d Cir. 1994)