## Facts

- Nite Lite Inns (Nite Lite) owned and operated hotels in Ontario, San Diego, and National City, California.
- Nite Lite and related individuals and entities controlled by the Grosvenor family (the Grosvenors) filed Chapter 11 petitions in 1979 and 1980.
- The bankruptcy court consolidated Nite Lite’s and the Grosvenors’ bankruptcy cases for administrative purposes.
- The debtors proposed a reorganization plan that contemplated treating the related debtors on a consolidated basis for plan payment purposes, in light of intercompany obligations and guarantees.
- The plan proposed to pay creditors 100% of allowed claims plus interest over 36 months, funded primarily by surplus operating revenues from the hotel businesses and contributions from debtor assets.
- The plan included a built-in remedy on default: the San Diego hotel would be sold, and the parties did not dispute that liquidation of that property would generate enough value to satisfy all outstanding debts.
- After voting, one impaired class did not accept the plan: Class 8, consisting of unsecured creditor Burke Investors.
- The debtors sought confirmation over Burke Investors’ objection under the cramdown provisions of 11 U.S.C. § 1129(b).
- Burke Investors objected that (i) the plan was not feasible because projected operating revenues were unrealistic, and (ii) the plan was not fair and equitable and not in creditors’ best interests because Burke’s tax situation made installment payments less favorable than an immediate liquidation.

## Issues

1. Whether the Chapter 11 plan could be confirmed over the sole rejecting unsecured class under 11 U.S.C. § 1129(b) when the plan depended on operating revenues but required liquidation of a hotel on default that would pay all creditors in full.
2. Whether the plan satisfied the “fair and equitable” and “best interests of creditors” requirements for cramdown of a dissenting unsecured class when the creditor asserted adverse, creditor-specific tax consequences from deferred payments.
3. Whether the bankruptcy court properly approved consolidating treatment of the related debtors’ assets and liabilities for plan purposes.

## Decision

- The Ninth Circuit Bankruptcy Appellate Panel affirmed confirmation of the plan over Burke Investors’ objection.
- The panel agreed that the plan was feasible under § 1129(a)(11) because, even if operating revenues fell short, the plan required sale of the San Diego hotel on default and the sale proceeds would be sufficient to satisfy all debts.
- The panel agreed that the plan met the cramdown standards for the rejecting unsecured class because Burke Investors would receive 100% of its allowed claim plus interest, satisfying the statutory treatment required for unsecured creditors under § 1129(b).
- The panel rejected Burke Investors’ argument that its individual tax position made the plan unfair or contrary to the best-interests test, concluding that creditor-specific tax consequences did not control confirmation where the plan otherwise complied with the Bankruptcy Code’s standards.
- The panel upheld the bankruptcy court’s approval of consolidated treatment of the related debtors in the plan given the interconnected obligations among the debtors and the absence of a showing that consolidation would cause legally cognizable harm to Burke Investors.

## Legal Principles

- A Chapter 11 plan is feasible under § 1129(a)(11) when the record supports a workable means of performance, including an express liquidation-on-default provision that would generate sufficient value to complete promised creditor payments.
- A plan may be confirmed by cramdown under § 1129(b) over a rejecting unsecured class when the plan provides the class treatment required by § 1129(b)(2)(B), including payment in full with appropriate interest for deferred distributions.
- The “best interests of creditors” test compares the plan’s distributions to what creditors would receive in a hypothetical Chapter 7 liquidation; receiving full payment plus interest satisfies that requirement for an unsecured creditor.
- Creditor-specific tax consequences from the timing or form of payment do not, by themselves, defeat confirmation when the plan satisfies the Bankruptcy Code’s confirmation standards for claim treatment.
- Consolidated treatment of related debtors for plan purposes may be approved where debtor affairs and obligations are interrelated and the objecting creditor does not demonstrate concrete prejudice from consolidation.

## Conclusion

In *In re Nite Lite Inns*, the Ninth Circuit B.A.P. affirmed confirmation of a Chapter 11 plan crammed down over the sole dissenting unsecured creditor because the plan promised full payment plus interest, was feasible due to a mandatory sale of the San Diego hotel on default that would cover all debts, and was not rendered unfair by the creditor’s individual tax concerns; the panel also upheld consolidated plan treatment of the related debtor estates.


In re Nite Lite Inns, 17 B.R. 367 (1982)