## Facts

- Mangia Pizza Investments, LP operated an Austin-area pizza business that contracted to one location after financial trouble and filed Chapter 11 on November 10, 2010.
- After the debtor’s exclusivity period expired, Cloud Cap Restaurants, LLC purchased a small unsecured claim and proposed a competing Chapter 11 plan.
- The court approved amended disclosure statements for both sides and solicited votes using a combined packet that allowed creditors to vote for either plan (or both with a preference).
- HEB Grocery Company, LP was Mangia’s former landlord and held a prepetition claim for unpaid rent that was fully secured by a security deposit already in HEB’s possession.
- Mangia rejected the lease in Chapter 11; HEB asserted its secured prepetition rent claim against the estate.
- Mangia’s plan treated HEB as unimpaired because HEB could satisfy its claim by applying the security deposit (setoff/economic equivalence to immediate payment).
- Cloud Cap’s plan proposed paying HEB the secured rent claim from other funds within 30 days of the effective date, rather than allowing immediate setoff, to treat HEB as impaired for voting purposes.
- Evidence at confirmation addressed compliance with 11 U.S.C. § 1129, including class acceptance, classification, good faith, and feasibility under each plan.

## Issues

1. Whether Cloud Cap’s 30-day deferral of payment to HEB on a fully secured claim constituted impairment under 11 U.S.C. § 1124 or only artificial impairment to obtain an impaired accepting class under § 1129(a)(10).
2. Whether either competing plan satisfied the confirmation requirements of 11 U.S.C. § 1129(a), including proper classification and treatment, good faith, and feasibility.
3. If statutory requirements were not met, whether confirmation should be denied for one or both plans.

## Decision

- The court denied confirmation of both the debtor’s plan and Cloud Cap’s plan.
- The court held that Cloud Cap’s proposed 30-day payment delay did not meaningfully alter HEB’s legal, equitable, or contractual rights where the claim was fully secured by a deposit already held by HEB.
- The court treated Cloud Cap’s treatment of HEB as artificial impairment and refused to allow that class to supply the impaired accepting class required by § 1129(a)(10).
- The court found additional confirmation deficiencies, including unresolved feasibility and related § 1129 compliance problems, and therefore confirmed neither plan.

## Legal Principles

- A claim is impaired under 11 U.S.C. § 1124 only if the plan alters the creditor’s legal, equitable, or contractual rights in a meaningful way.
- A plan may fail § 1129(a)(10) if the only purportedly impaired accepting class is impaired solely through a trivial or engineered modification designed to manufacture acceptance.
- Courts examine classification and treatment to detect voting manipulation; such tactics can bear on § 1129(a)(3) good faith and the overall confirmability of a plan.
- In competing-plan confirmations, each plan must independently satisfy all applicable requirements of § 1129; if neither does, the court may deny confirmation of both.

## Conclusion

The bankruptcy court denied confirmation of competing Chapter 11 plans for the debtor restaurant business, ruling that a 30-day payment delay to a fully secured landlord creditor was artificial impairment that could not satisfy the impaired accepting class requirement, and concluding that neither plan met the full set of confirmation requirements, including feasibility.


In re Mangia Pizza Investments, LP, 480 B.R. 669 (Bankr. W.D. Tex. 2012)