## Facts

- Bernhard Steiner Pianos USA, Inc. (debtor) operated a piano dealership selling new pianos and pianos received on consignment.
- Ivan Kahn, the debtor’s founder and principal, personally guaranteed certain debts owed to floor-plan lenders.
- The debtor filed for Chapter 11 reorganization and continued operating during the case.
- The debtor proposed a plan that placed two types of general unsecured creditors into separate classes: (1) piano consignors and (2) floor-plan lenders holding unsecured deficiency-type claims.
- The plan provided more favorable payment to the consignor class than to the floor-plan lenders’ class.
- Floor-plan lenders objected, arguing the consignors and lenders were both general unsecured creditors and therefore had to be classified together; they also challenged the plan’s better treatment of consignors.
- The debtor defended the separate classification and payment priority by offering a business explanation: Kahn testified that consignment inventory and consignor relationships were necessary for future operations, that prior nonpayment damaged the debtor’s reputation among consignors, and that paying consignors sooner was needed to rebuild that reputation and secure future consignments.
- The plan also included a provision (as modified) staying lawsuits against Kahn on his guaranties while the debtor performed under the plan; the provision tolled statutes of limitations during the stay and did not release or discharge Kahn.

## Issues

1. Whether a Chapter 11 plan may separately classify consignors’ general unsecured claims from other general unsecured claims (including floor-plan lenders) and pay consignors more favorably based on a legitimate business reason rather than vote manipulation.
2. Whether a plan may temporarily stay actions against a nondebtor insider/guarantor and toll limitations periods—without releasing liability—consistent with the Bankruptcy Code, including 11 U.S.C. § 524(e).

## Decision

- The court overruled the floor-plan lenders’ objections and confirmed the plan as modified.
- The court held that separate classification and more favorable treatment of the consignor class were permissible because the debtor showed a sound business reason tied to the reorganization’s feasibility (restoring consignor confidence and obtaining future consignments).
- The court held the plan’s limited stay and tolling provision protecting Kahn was permissible because it did not discharge or release Kahn, was temporary and conditional on plan performance, and preserved creditors’ rights by tolling limitations.

## Legal Principles

- Under 11 U.S.C. § 1122, claims placed in the same class must be “substantially similar,” but substantially similar unsecured claims may be classified separately when supported by a legitimate business or economic reason.
- Separate classification cannot be used solely to manipulate voting on plan confirmation; courts examine whether the debtor’s justification relates to the debtor’s operations and the plan’s feasibility.
- A plan may treat different unsecured classes differently if the disparate treatment is supported by a valid reorganization reason and is not simply an effort to favor one group without justification.
- Section 524(e) prevents a debtor’s discharge from operating as a discharge of a nondebtor’s liability, but it does not bar a narrowly drawn, temporary injunction that delays enforcement against a nondebtor when needed to carry out the reorganization and when creditor rights are preserved.
- A temporary stay of actions against a nondebtor guarantor that (1) ends upon plan default or completion, (2) does not extinguish liability, and (3) tolls limitations to prevent prejudice may be approved under the bankruptcy court’s equitable authority in unusual circumstances.

## Conclusion

In re Bernhard Steiner Pianos USA, Inc. upheld confirmation of a Chapter 11 plan that separately classified and paid consignor unsecured claims more favorably than floor-plan lenders’ unsecured claims based on evidence that consignor goodwill and future consignments were necessary for the debtor’s post-confirmation business, and it also approved a temporary, conditional stay and tolling provision protecting the debtor’s nondebtor guarantor without releasing his liability.


In re Bernhard Steiner Pianos USA, Inc., 292 B.R. 109 (2002)