## Facts

- Century Glove, Inc. filed for Chapter 11 reorganization and later proposed a plan and disclosure statement.
- First American Bank of New York (FAB), a secured creditor, opposed Century’s plan and prepared a draft alternative plan.
- After the bankruptcy court approved Century’s disclosure statement and voting materials were circulated, FAB’s counsel called counsel for several unsecured creditors to discuss the proposed plan and to urge rejection.
- During the calls, FAB’s counsel stated no alternative plan had been approved for voting but that FAB had drafted one; at creditors’ request, FAB sent copies of the draft plan.
- FAB also sent Latham Four Partnerships a memorandum from counsel to the unsecured creditors’ committee that was critical of the committee’s support for Century’s plan; Latham Four later voted to reject Century’s plan.
- Bankers Trust New York Corporation (BTNY) had decided months earlier to reject Century’s plan and ultimately voted to reject during the voting period.
- Century sought to “designate” (disqualify) the votes of FAB, Latham Four, and BTNY and sought monetary sanctions, alleging unlawful solicitation and bad faith under 11 U.S.C. § 1125(b).
- The bankruptcy court designated FAB’s and Latham Four’s votes and imposed sanctions on FAB, but declined to designate BTNY’s vote.
- The district court reversed the designations and sanctions as to FAB and Latham Four and affirmed the refusal to designate BTNY’s vote; Century appealed.

## Issues

1. Whether FAB’s post-disclosure-statement communications urging rejection of Century’s plan and circulating an unapproved draft alternative plan constituted unlawful “solicitation” under 11 U.S.C. § 1125(b).
2. Whether the alleged solicitation or related conduct justified designating creditor votes and imposing monetary sanctions for bad faith.

## Decision

- The Third Circuit affirmed the district court.
- FAB’s communications with other creditors did not violate 11 U.S.C. § 1125(b).
- Designation of FAB’s and Latham Four’s votes was improper.
- Monetary sanctions against FAB were improper and could not stand absent unlawful solicitation or bad faith.
- BTNY’s vote remained valid, consistent with the lower courts’ rulings.

## Legal Principles

- “Solicitation” in 11 U.S.C. § 1125(b) is construed narrowly; the provision functions primarily as a disclosure requirement, not a broad restriction on creditor communications.
- Ordinary Chapter 11 negotiations and communications—including advocacy for acceptance or rejection of a plan—generally do not constitute prohibited solicitation where voting is based on a court-approved disclosure statement.
- Sharing or circulating a draft, unapproved alternative plan for discussion or comment is not, without more, a prohibited solicitation under § 1125(b).
- Vote designation and sanctions require a sufficient basis in unlawful solicitation or bad-faith conduct; creditor efforts consistent with self-interest and bargaining, without statutory violation, do not support such remedies.

## Conclusion

The Third Circuit held that creditor communications urging plan rejection and circulating a draft alternative plan after approval of the debtor’s disclosure statement did not amount to prohibited “solicitation” under § 1125(b), so disqualification of votes and sanctions were unwarranted.


Century Glove, Inc. v. First Am. Bank of N.Y., 860 F.2d 94 (3d Cir. 1988)