## Facts

- Gary Perez operated two fast-food franchises and hired contractor Frank Everett to supervise a remodel.
- Perez failed to pay Everett; Everett obtained a state-court judgment of about $30,000.
- Perez filed a Chapter 11 case after the judgment; two earlier reorganization plans were rejected.
- Perez’s third plan placed Everett’s claim in the same class as other general unsecured claims totaling about $20,400, making Everett the majority holder in that class.
- The plan proposed to pay general unsecured creditors 100% over 67 months, without interest.
- The plan allowed Perez to retain possession and control of estate property and continue operating the business during and after the plan.
- Everett voted against the plan; the unsecured class therefore rejected it.
- The bankruptcy court confirmed the plan over the class’s objection by cramdown under 11 U.S.C. § 1129(b); the Bankruptcy Appellate Panel affirmed.

## Issues

1. Whether confirming the plan by cramdown violated the absolute-priority rule in 11 U.S.C. § 1129(b)(2)(B) where Perez retained ownership/control while the dissenting unsecured class was not paid in full in present-value terms at confirmation.
2. Whether the plan’s classification and voting results permitted cramdown despite the unsecured class’s rejection.
3. Whether arguments not raised in the bankruptcy court could be considered on appeal.

## Decision

- The Ninth Circuit reversed the order confirming the plan and remanded.
- The court held the plan was not “fair and equitable” under § 1129(b) because it violated the absolute-priority rule.
- Paying unsecured creditors over 67 months without interest did not constitute payment “in full” for cramdown purposes because it did not provide full present value at confirmation.
- Allowing Perez to retain possession, control, and operation of the business constituted retention of “property” on account of a junior interest while a dissenting unsecured class was not paid in full.
- The court reiterated that arguments generally must be presented to the bankruptcy court to be raised on appeal, but it reached the central absolute-priority challenge.

## Legal Principles

- Under 11 U.S.C. § 1129(b)(2)(B), if an impaired class of unsecured creditors rejects a plan, cramdown requires either (i) full payment to that class (including present value), or (ii) that no junior interest holder receives or retains property under the plan on account of such junior interest.
- A long-term payout to unsecured creditors without interest is not full payment in present-value terms at confirmation for purposes of the absolute-priority rule.
- A debtor’s continued ownership/control and operation of the business can be “property” retained on account of the debtor’s junior interest, triggering the absolute-priority rule in a cramdown contest.
- A debtor in possession owes trustee-like fiduciary duties in administering the estate during Chapter 11.
- Appellate review in bankruptcy follows ordinary preservation rules: issues not raised in the bankruptcy court are generally forfeited.

## Conclusion

The Ninth Circuit ruled that a Chapter 11 plan cannot be confirmed over a dissenting unsecured class when the debtor keeps control and ownership interests while unsecured creditors are paid over time without interest, because that structure violates the absolute-priority rule’s “fair and equitable” requirement.


In re Perez, 30 F.3d 1209 (9th Cir. 1994)