## Facts

- DBSD North America, Inc., a satellite/terrestrial communications company, filed for Chapter 11 reorganization in 2009 with a capital structure that included first-lien debt, second-lien convertible notes, and general unsecured claims.
- DISH Network Corp., a competitor, acquired a large position in DBSD’s first-lien debt during the case, voted against the plan, and sought to block confirmation.
- Sprint Nextel Corp. held an unsecured litigation-based claim; for voting, the bankruptcy court temporarily valued Sprint’s claim at $2 million, though Sprint asserted substantially higher damages.
- The confirmed plan paid first-lien lenders in full over time, gave second-lien noteholders essentially all new equity, and provided general unsecured creditors a small equity interest.
- The plan also granted the prepetition equity holder (ICO) new shares and warrants, characterized by proponents as a “gift” from the second-lien noteholders, even though unsecured creditors were not paid in full.
- The bankruptcy court confirmed the plan, designated DISH’s votes as not cast in good faith, overruled Sprint’s objections, and found the plan feasible; the district court affirmed.

## Issues

1. Whether Sprint had appellate standing to challenge confirmation under the bankruptcy “person aggrieved” standard.
2. Whether a cramdown plan violates the absolute priority rule by distributing shares and warrants to old equity while a dissenting impaired class of unsecured creditors is not paid in full, even if the distribution is styled as a senior-class “gift.”
3. Whether DISH’s votes were properly designated for lack of good faith under 11 U.S.C. § 1126(e) based on a creditor’s competitive motives.
4. Whether, after designation of all votes in a class, the class should be disregarded for purposes of § 1129(a)(8) impaired-class acceptance.
5. Whether the plan satisfied feasibility under 11 U.S.C. § 1129(a)(11).

## Decision

- The Second Circuit affirmed in part, reversed in part, and remanded.
- Sprint had standing to appeal because a successful appeal presented a realistic possibility of improving its recovery.
- The plan violated the absolute priority rule by granting “property” to old equity while a dissenting impaired class of unsecured creditors was not paid in full.
- DISH’s votes were properly designated as not cast in good faith under § 1126(e) where DISH purchased a blocking position primarily to obtain competitive advantage rather than to maximize value as a creditor.
- After designation left no remaining votes in DISH’s class, the bankruptcy court properly treated the class as not voting (and thus not rejecting) for § 1129(a)(8).
- The feasibility finding was affirmed as not clearly erroneous.

## Legal Principles

- Appellate standing in bankruptcy requires a direct, pecuniary effect; a creditor may appeal confirmation if it faces a realistic possibility of benefiting from reversal, even without certainty of improved recovery.
- Under 11 U.S.C. § 1129(b)(2)(B)(ii), a cramdown plan may not distribute or allow retention of “any property” by junior interests “under the plan” when a dissenting impaired unsecured class is not paid in full.
- A plan cannot avoid the absolute priority rule by characterizing junior distributions as a voluntary “gift” from a senior class; property distributed under a plan remains subject to the Code’s priority scheme.
- Votes may be designated under 11 U.S.C. § 1126(e) when cast without good faith; creditor self-interest is permitted only to the extent it is tied to creditor recoveries rather than non-creditor strategic objectives.
- When all votes in a class are designated, the court may disregard that class for § 1129(a)(8) acceptance calculations rather than treating it as a rejecting class.
- Feasibility under § 1129(a)(11) is a fact-intensive inquiry; appellate review is deferential where the bankruptcy court’s findings are supported by evidence such as projections and expert testimony.

## Conclusion

The Second Circuit required strict compliance with the absolute priority rule by rejecting cramdown “gifting” of plan value to old equity over a dissenting unpaid unsecured class, while also affirming the designation of a competitor’s strategically motivated votes and sustaining the bankruptcy court’s feasibility determination.


In re DBSD N. Am., Inc., 634 F.3d 79 (2d Cir. 2011)