## Facts

- Connecticut General Life Insurance Company (Connecticut General) held a secured lien against Hotel Associates of Tucson (Hotel Associates), an Arizona limited partnership whose sole asset was a 204-room hotel in Tucson.
- Hotel Associates’ debt to Connecticut General arose from a promissory note secured by a deed of trust and security agreement; the debtor later defaulted and stopped making principal and interest payments.
- Hotel Associates filed for Chapter 11 relief, and two competing reorganization plans were proposed by insiders/partners:
  - The Paragon Group (a group of general partners) proposed the “Paragon Plan.”
  - C.R.H.C. of Tucson, Inc. (CRHC), another partner, proposed the “CRHC Plan.”
- Under the Paragon Plan, all creditors other than Connecticut General were to be paid in full; Connecticut General’s secured claim would be restructured and paid over time on terms different from the original loan.
- The Paragon Plan delayed payment to a class of general unsecured claims by 30 days (with interest during the delay), thereby treating that class as “impaired” under the plan.
- The general unsecured class voted to accept the Paragon Plan; Connecticut General voted to reject it.
- The bankruptcy court confirmed the Paragon Plan and denied confirmation of the CRHC Plan.
- Connecticut General appealed to the Ninth Circuit Bankruptcy Appellate Panel (BAP), challenging confirmation and arguing, among other things, that the Paragon Plan’s 30-day delay was a manufactured impairment used to satisfy § 1129(a)(10).
- The debtor argued the appeal was moot because the plan had been substantially consummated through payments to several classes before a stay was obtained, though Connecticut General’s multi-million dollar claim had not been paid.

## Issues

1. Whether the appeal should be dismissed as moot because the confirmed plan was substantially consummated before a stay pending appeal was entered.
2. Whether the Paragon Plan satisfied 11 U.S.C. § 1129(a)(10) by obtaining acceptance from an “impaired” class when the asserted impairment was a 30-day payment delay to unsecured creditors with interest.
3. Whether the Paragon Plan was proposed in good faith and satisfied confirmation standards governing treatment of a dissenting secured creditor, including whether the plan’s terms (such as the interest rate and repayment structure) were fair and equitable.
4. When two competing plans were presented, whether the bankruptcy court properly evaluated the competing plans and creditor preferences as required by 11 U.S.C. § 1129(c).

## Decision

- The BAP declined to dismiss the appeal as moot, concluding the plan had not been consummated to a degree that made effective judicial relief unavailable, especially because Connecticut General’s claim remained unpaid and many paid creditors would be paid under either plan.
- The BAP vacated the bankruptcy court’s orders confirming the Paragon Plan and denying confirmation of the CRHC Plan.
- The BAP remanded for additional findings and reconsideration, including findings on whether the plan was proposed in good faith, whether the accepting class was properly impaired for § 1129(a)(10), whether the plan satisfied cramdown requirements as to Connecticut General, and how the competing plan should be weighed under § 1129(c).

## Legal Principles

- A Chapter 11 confirmation appeal is not moot merely because some plan payments have been made; mootness turns on whether the plan has progressed so far that effective relief is no longer available.
- “Substantial consummation” is a fact-based inquiry; paying certain classes may be insufficient to moot an appeal when a large disputed secured claim remains unresolved and plan relief can still be reshaped.
- Under § 1129(a)(10), confirmation over dissenting classes requires acceptance by at least one impaired, non-insider class; whether a small change (such as a short payment delay with interest) should count for this purpose may require factual findings on the reason for the impairment and its economic substance.
- Although § 1124 defines impairment broadly as any alteration of rights, a plan proponent’s reasons for creating an impaired accepting class may bear on confirmation requirements such as § 1129(a)(3) (good faith) and the overall confirmation analysis.
- When confirming a plan over a dissenting secured creditor, the court must ensure cramdown standards are met, including that the treatment provides the required present value and complies with the fair-and-equitable standard.
- When more than one plan is before the court, § 1129(c) requires the court to consider the competing plans and creditor preferences and to explain why one confirmable plan should be confirmed over another.
- If the bankruptcy court’s findings are insufficient to permit review on key confirmation elements, an appellate court may vacate and remand for additional findings rather than finally resolving disputed confirmation questions.

## Conclusion

The Ninth Circuit BAP held the appeal was not moot despite partial plan performance, vacated confirmation of the Paragon Plan (and the denial of the competing CRHC Plan), and remanded for further findings on impairment under § 1129(a)(10), good faith and cramdown treatment of Connecticut General, and the required comparison of competing plans under § 1129(c).


Connecticut General Life Insurance Company v. Hotel Associates of Tucson (In re Hotel Associates of Tucson), 165 B.R. 470 (1994)