Revised August 26, 1998
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 98-30683
_____________________
In The Matter Of: CAJUN ELECTRIC POWER COOPERATIVE,
INCORPORATED,
Debtor.
---------------------------
RALPH R. MABEY, Chapter 11 Trustee for Cajun Electric
Power Cooperative Inc; LOUISIANA GENERATING LLC; TRITON
COAL COMPANY; WESTERN FUELS ASSOCIATION, INC; ENRON
CAPITAL AND TRADING RESOURCES INC; AMERICAN COMMERCIAL
MARINE SERVICE COMPANY; UNITED STATES OF AMERICA; RURAL
UTILITIES SERVICE,
Appellees,
v.
SOUTHWESTERN ELECTRIC POWER COMPANY; THE COMMITTEE OF
CERTAIN MEMBERS OF CAJUN ELECTRIC POWER COOPERATIVE,
Appellants.
_________________________________________________________________
Appeal from the United States District Court
for the Middle District of Louisiana
_________________________________________________________________
August 11, 1998
Before KING, SMITH, and PARKER, Circuit Judges.
KING, Circuit Judge:
Appellants Southwestern Electric Power Company and the
Committee of Certain Members of Cajun Electric Power Cooperative,
1
Inc. appeal the district court’s order reversing the bankruptcy
court’s denial of a motion of appellee Ralph R. Mabey, Chapter 11
trustee of Cajun Electric Power Cooperative, Inc., seeking the
disgorgement of certain payments made by Southwestern Electric
Power Company to the Committee of Certain Members and a
declaration that these payments rendered the plan of
reorganization proposed by the appellants unconfirmable as a
matter of law. For the reasons set forth below, we reverse.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. Overview of the Bankruptcy and Proposed Plans
Cajun Electric Power Cooperative, Inc. (Cajun) is a
non-profit rural electrical power cooperative that filed a
petition seeking reorganization under Chapter 11 of the
Bankruptcy Code on December 21, 1994. The Cajun case is a mega-
case with more than $5 billion in debt and over seven hundred
creditors. Cajun has twelve members, all of which are electric
distribution cooperatives serving retail customers in the State
of Louisiana. After extensive litigation regarding the propriety
of the appointment of a bankruptcy trustee, this court approved
the district court’s appointment of Ralph R. Mabey (the Trustee)
as Cajun’s Chapter 11 trustee. See Cajun Elec. Power Coop., Inc.
v. Central La. Elec. Coop., Inc. (In re Cajun Elec. Power Coop.,
Inc.), 74 F.3d 599 (5th Cir. 1996).
With the approval of the bankruptcy court, the Trustee
2
conducted a remarkably fruitful “auction” that led to the
submission of three competing plans of reorganization: one
proposed by the Trustee, incorporating an offer to purchase
Cajun’s non-nuclear assets by Louisiana Generating LLC
(Generating)1; another proposed by Enron Capital & Trade
Resources Corp. (Enron) and the Official Committee of Unsecured
Creditors; and another proposed by Southwestern Electric Power
Company (SWEPCO) and the Committee of Certain Members (CCM), an
unofficial committee which initially included ten of Cajun’s
twelve member cooperatives. We refer to these plans as the
Trustee’s Plan, the Enron Plan, and the SWEPCO Plan,
respectively.
Each of the three plans before the bankruptcy court requires
the sale of Cajun’s non-nuclear assets to one of the respective
proponent-bidders and the continued retention of Cajun’s members
as customers. The Trustee’s Plan and the Enron Plan propose to
retain Cajun’s members as customers through assumption of the
existing power-supply agreements between the members and Cajun
(the All-Requirements Contracts) pursuant to 11 U.S.C. § 365.
The SWEPCO Plan proposes to retain Cajun’s members as customers
through voluntarily negotiated new power-supply agreements.
1
Generating is jointly owned by Zenergy, Inc.; NRG Energy,
Inc.; and Southern Energy-Cajun, Inc. Zenergy, Inc. is a wholly-
owned subsidiary of Zeigler Coal Holding Company, which is also
the parent of Triton Coal Company, one of Cajun’s major creditors
and suppliers.
3
Significant for this appeal, all three of the plans also provide
for reimbursement of certain of the members’ expenses in
connection with the bankruptcy case.
B. Payments by SWEPCO to the CCM
Sometime prior to November 12, 1996, the date that the
bankruptcy court approved all disclosure statements of the plan
proponents, SWEPCO offered to pay certain legal fees of the CCM
in connection with pursuing the SWEPCO Plan and in connection
with an adversary proceeding initiated by the CCM in which it
sought a declaration that the All-Requirements Contracts are void
or assignable only to a party of the CCM members’ choosing. This
offer is evidenced by a memorandum written by David Kleiman, who
at the time was the CCM’s attorney, to the CCM members, which
provides as follows:
I previously advised you that SWEPCO had offered to
subvent certain expenses of the Members Committee.
Attached is their formal proposal to do so. The only
condition is that the members will reimburse SWEPCO if
we support another Plan. This seems fair. If we
decide to support another Plan, we can negotiate for
that Plan proponent to reimburse our expenses. Please
indicate your acceptance or rejection of this proposal.
Attached to the memorandum was an unsigned draft letter from
SWEPCO’s counsel dated November 12, 1996, stating the following:
. . . [T]he Members Committee (hereinafter
referred to as “Members”) and SWEPCO have mutual and
joint interests in pursuing the Joint Plan of
Reorganization and Members’ adversary proceeding. The
pertinent contract issues . . . will be prominent
issues throughout the confirmation process. Based upon
the significance of these legal issues to our Joint
4
Plan and in light of the substantial costs continuing
to accrue as a result of the Members pursuing these
legal issues, SWEPCO is prepared to assist the Members
by subvention of certain costs associated with these
efforts. The following is a suggested approach,
subject to our joint approval.
First, SWEPCO has previously offered to reimburse
the Members for expenses in the reorganization of up to
$1 million, payable solely in the event our Plan of
Reorganization is successful. This offer remains in
force and effect.
On a monthly basis, SWEPCO also offers to pay the
percentage set forth below of specified reasonable fees
and expenses incurred by the Members Committee in
connection with the confirmation and adversary
proceeding. SWEPCO suggests that the payment be
limited to 50% of the reasonable expenses of [the CCM’s
legal fees incurred beginning in September 1996]. In
addition to these costs and expenses, SWEPCO would
agree to pay for any expert witnesses jointly approved
in advance. The Members may retain any expert they
desire, at the Members’ expense.
This agreement recognizes that the Joint Plan is
in the best interest of the Members, SWEPCO and the
ratepayers and the purpose of this agreement is to
jointly support our Plan of Reorganization. In the
event the Members abandon the exclusive support of the
Joint SWEPCO/Members[] Plan, then the Members will
reimburse SWEPCO all of said costs paid by SWEPCO
pursuant to our agreement within 30 days of written
notice from SWEPCO. SWEPCO’s commitment may be
terminated in SWEPCO’s sole discretion by SWEPCO
providing the Members written notice and SWEPCO’s
obligation to pay shall continue up to the date of
written notice. The Members have no reimbursement
obligation in the event of termination by SWEPCO, other
than the obligation to reimburse SWEPCO in the event of
abandonment of the exclusive support of the
Members/SWEPCO[] Plan.
The record does not reflect that any of the CCM members accepted
this offer.
On November 12, 1996, the bankruptcy court approved a master
5
disclosure statement drafted by the Trustee discussing Cajun and
the reorganization in general as well as a supplemental
disclosure statement from each plan proponent. SWEPCO’s
supplemental disclosure statement contains a section styled
“Summary of Transactions to Occur Outside the Plan,” which
provides in pertinent part as follows:
In addition, SWEPCO and the Members have agreed
that, in the event the Plan is confirmed and
consummated, as soon as practicable after the closing
of the transaction whereby [SWEPCO’s affiliate]
acquires the Acquired Assets, SWEPCO shall reimburse
the Members that are constituents of the Members’
Committee for their reasonable attorneys fees and
expenses incurred in this bankruptcy proceeding, not to
exceed $1 million in the aggregate. In addition,
SWEPCO may agree to pay certain expenses of the Members
Committee in regard to certain litigation and the plan
confirmation process.
By the December 6, 1996 voting deadline, the CCM members had
voted overwhelmingly for the SWEPCO Plan and the Enron Plan and
overwhelmingly against the Trustee’s Plan. The vast majority of
the CCM members listed the SWEPCO Plan as their first preference
and the Enron Plan as their second preference; the Trustee’s Plan
received no preferential support from the CCM members.
Confirmation hearings before the bankruptcy court began on
December 16, 1996. That week, Southwest Louisiana Electric
Membership Corporation (SLEMCO) and Pointe Coupee Electric
Membership Corporation (Pointe Coupee), two members of the CCM,
announced in open court that they wished to withdraw their
support of the SWEPCO Plan and to change their vote and
6
preference to the Trustee’s Plan. Concordia Electric
Cooperative, Inc., another CCM member, shortly followed suit.
Thereafter, the CCM was reconstituted to include only seven
members.
On January 2, 1997, SLEMCO filed a motion to disqualify
David Kleiman and his law firm, which had represented the CCM
members throughout the bankruptcy, because of a conflict of
interest based upon Kleiman’s prior representation of SLEMCO. On
January 7, 1997, the bankruptcy court granted SLEMCO’s motion.
On the evening of January 7, 1997, SWEPCO’s president, Mike
Smith, met with the CCM members who had not withdrawn support for
the SWEPCO Plan and offered to pay them $1 million in two
$500,000 installments, one of which was payable immediately. The
terms of the payments were set forth in a letter dated January 9,
1997 from SWEPCO’s counsel to David Kleiman that provided in
relevant part as follows:
In light of the action by SLEMCO wherein the
Members must now seek other bankruptcy counsel, the
Members and the Members’ Committee will incur very
substantial transition costs. This will not only
require that new bankruptcy counsel spend substantial
time in reviewing this long-standing and complicated
case, but that your firm take all steps necessary for
there to be an orderly and effective transition. These
additional costs impose an even greater burden on the
cooperatives. In order to assist the Members in paying
expenses previously incurred in this bankruptcy
proceeding and particularly, for expenses to be
incurred during the transition, SWEPCO has agreed to
pay and/or reimburse the Members $1 million. These
funds will be provided in two equal payments with the
first payment provided immediately after receipt of the
required agreements by the participating cooperatives
7
and the second payment within approximately one month.
These funds will be provided to the Members’ Committee
and the Members’ Committees [sic] will distribute the
funds as determined appropriate by the Committee.
One other proponent has offered to reimburse each
of the Member cooperatives expenses. In the event any
Member supports another plan or receives reimbursement
from any other proponent, then the Member cooperative
agrees to promptly reimburse SWEPCO for the respective
expenses paid by SWEPCO and received by such Member.
The cooperative also agrees to use its best efforts to
obtain reimbursement from any other proponent, in the
event the said cooperative elects to endorse another
plan.
SWEPCO acknowledges and agrees that the Members
and SWEPCO must and will continue to act in the best
interest of their respective ratepayers and Members.
We recognize the ongoing financial pressure that has
been applied to the Members, particularly in light of
the removal of counsel and the incurrence of transition
costs, and this offer is intended to address these
concerns and allow the parties to continue to pursue
the serious bankruptcy issues.
I would appreciate it if each Member would
acknowledge their agreement to the terms and provisions
contained herein in writing via separate
correspondence. This agreement is confidential and
shall not be disclosed to any third parties without the
mutual consent of the parties or as required by law.
Some, but not all, of the letters sent out to the CCM members
contained a footnote, added at the direction of Kleiman, at the
end of the second paragraph quoted above that provided as
follows:
However, in the event of an adverse court ruling such
that the SWEPCO/[]Members Committee Plan is not
selected, but rather a different Plan is selected and
that Plan proponent does not reimburse the Members’
attorneys’ fees and expert fees, the Members will not
have to reimburse SWEPCO.
On January 9, 1997, Kleiman also sent a memorandum to the
8
CCM members stating the following:
You will recall that [SWEPCO] committed to a payment to
the seven (7) Members that continue to support SWEPCO
in the total sum of $1 million. The only condition is
that the Members will use their best efforts to have
that amount repaid in the event that they support a
different plan proponent at some date in the future.
On January 16, 1997, Kleiman faxed to SWEPCO’s counsel the
consent forms whereby the CCM members accepted the terms of the
January 9, 1997 letter. The consent forms were accompanied by a
letter from Kleiman to SWEPCO’s counsel stating Kleiman’s
understanding that the January 9, 1997 letter agreement was to be
modified by adding the following text to the end of the paragraph
in the letter where Kleiman had previously requested the addition
of the footnote discussed above:
In the event of an adverse court ruling such that the
SWEPCO/[]Members Committee Plan is not approved by the
court, but rather a different plan is approved by the
court, and the plan proponent does not reimburse the
Members’ attorneys fees and expert fees, the Members
will have no obligation to reimburse SWEPCO. Likewise,
in the event that no plan is confirmed, then in such
event the Members shall have no obligation to reimburse
SWEPCO.
David Shaw, the president of the board of Washington-St.
Tammany Electric Cooperative, Inc., one of the remaining CCM
members, later informed Jimmy Ewing, Pointe Coupee’s president,
about the payments. Thereafter, on April 17, 1997, SWEPCO and
the CCM filed with the bankruptcy court a “Joint Report on
Certain Transition Payments to the Committee of Certain Members”
stating that the payments were made to defray certain legal
9
expenses, particularly in light of Kleiman’s disqualification,
and indicating that the payments were “essentially [an]
accelerat[ion]” of the $1 million post-confirmation payment
described in SWEPCO’s supplemental disclosure statement.
On April 21, 1997, SWEPCO filed with the bankruptcy court
term sheets signed by SWEPCO and the CCM members setting out the
terms and provisions to be included in a wholesale power-supply
agreement between Southwestern Wholesale Electric Company
(SWECO), an affiliate of SWEPCO, and the CCM members. Paragraph
VI.A of the term sheets provided as follows:
SWEPCO agrees to support the Joint Member/SWEPCO Plan,
as the same may be modified or amended by mutually
agreeable changes that do not alter the Joint
Members/SWEPCO Plan in material respects (“Joint
Plan”), through the confirmation hearing process and to
provide wholesale power to the Members pursuant to the
terms and provisions set forth hereinabove upon
confirmation and the effective date of the Joint Plan,
subject to the terms and conditions set forth in the
Asset Purchase Agreement and Joint Plan, as long as a
majority of the Members (measured by numbers of
customers) support the Joint Plan. The members agree
to continue to exclusively support the Joint Plan,
subject to the Bankruptcy Code and Rules, through the
confirmation hearing process and, if the Joint Plan is
confirmed, then, at the effective date of the Joint
Plan, to enter into a Power Supply Agreement with
SWECO, pursuant to the terms and conditions set forth
hereinabove, as such terms may be modified or amended,
and including other conditions and terms agreed to by
the parties. The members may elect to discuss
provisions of a wholesale power supply agreement with
third parties; however, the Members, subject to the
Bankruptcy Code and Rules, shall not agree to enter
into a Power Supply Agreement with any other person or
persons unless or until an order is issued i) denying
confirmation of the Joint Plan; ii) confirming a plan
proposed by another plan proponent; or iii) expressly
authorizing support of another plan that has been
10
materially amended from its current version.
Additionally, Paragraph V.C of the term sheets set forth the
following agreement regarding cost reimbursement:
SWEPCO and the Members have reached an agreement on
certain transitional cost reimbursement provisions as
set forth in [the letter of SWEPCO’s counsel] to Mr.
Kleiman dated January 9, 1997; and this agreement is
currently being implemented. SWEPCO will reimburse the
Members fifty (50%) of reasonable bankruptcy counsel
litigation expenses (expenses of Altheimer & Gray and
Dann, Pecar, Newman & Kleiman) and expert expenses
incurred in support of the Joint Plan, on a monthly
basis, beginning January 1, 1997. In the event the
SWEPCO Plan is confirmed, SWEPCO also agrees to
reimburse the cooperatives for reasonable outstanding
bankruptcy litigation and expert expenses incurred in
support of the Joint Plan up to the total cumulative
sum (for all past or future payments) of $5,000,000,
which sum may be increased pursuant to mutual
agreement.
C. Litigation Regarding the Payments
On April 18, 1997, the Trustee filed a response to the Joint
Report and a combined motion and memorandum seeking denial of
confirmation of the SWEPCO Plan and/or disgorgement of the
payments that SWEPCO made to the CCM. In his motion, the Trustee
claimed that SWEPCO’s payments to the CCM were not adequately
disclosed prior to being made and violated 11 U.S.C.
§ 1129(a)(4)’s requirement that
[a]ny payment made . . . by the proponent [of a plan of
reorganization] . . . for services or for costs and
expenses in or in connection with the case, or in
connection with the plan and incident to the case, [be]
. . . approved by, or subject to the approval of, the
court as reasonable.
11 U.S.C. § 1129(a)(4). The Trustee additionally argued that the
11
payments violated § 1129(a)(1), (2), and (3) of the Bankruptcy
Code because they resulted in discrimination amongst creditors
and circumvented the “Bankruptcy Code’s provision respecting the
rights of secured creditors and the priority of payments to
creditors established by the Code.”
The bankruptcy court conducted a hearing on the Trustee’s
motion during which it heard six days of testimony from sixteen
witnesses and received eighty exhibits into evidence.
Representatives of the remaining CCM members, as well as SWEPCO’s
president, testified that, as they understood the agreement
between SWEPCO and the CCM members, the only condition that
SWEPCO placed upon the two $500,000 transition payments was that
the CCM members would be required to return the funds in the
event that another plan was confirmed and they received
reimbursement from the proponent of the confirmed plan.
On September 3, 1997, the bankruptcy court issued a detailed
oral ruling denying the Trustee’s motion. The bankruptcy court
made the following findings of fact that are germane to this
appeal:
As early as November 16, 1996, SWEPCO and the
committee were conducting negotiations with respect to
reimbursement of fees and expenses, which negotiations
the Court found within the certain expenses referred to
in the second sentence of the disclosure statement. I
believe this was of the subject of Mr. Klieman’s [sic]
memorandum to the Members on that date,2 which
2
The bankruptcy court’s reference to the date of this
memorandum indicates that it intended to say that SWEPCO and the
12
transmitted SWEPCO’s offer with respect to fees.
At the Hilton meeting on January 7, Mr. Smith,
SWEPCO’s president, for the first time suggested an
immediate $1 million payment. He testified that the
payment was made to assist the members in their ongoing
struggle for confirmation of the SWEPCO and Members
plan. The evidence is overwhelming that the $1 million
payment, by whatever name you choose to call it, was
generally made without strings attached. There is no
credible evidence which suggests otherwise. The only
requirement was that the funds would be repaid to
SWEPCO in the event that the following happened,
another plan was confirmed and the Members received
reimbursement under the confirmed plan. The members
also agreed to use their best effort to negotiate
expense reimbursement, as a successful plan proponent.
The question was asked of several witnesses,
including Mr. Smith, what did SWEPCO get for their $1
million. The answer was generally uniform, nothing.
The Court believes, though, that while there was
nothing specific that SWEPCO either asked for or was
promised, surely they anticipated that the money would
not be used in order to benefit either of the competing
plans of Enron or Louisiana Generating, but would, in
some way, further SWEPCO’s chances of success. I do
not find this to be inappropriate. The fact is that
SWEPCO was and is a major player in this Chapter 11
case. Mr. Smith was in court when the Dan Pecar firm
[Kleiman’s firm] was disqualified, and he saw the
impact of the decision on the joint confirmation effort
of SWEPCO and the Committee. There was no testimony
whatsoever that the payment had been discussed or even
contemplated prior to January 7. The Court finds the
payment to be as characterized by SWEPCO, and that is a
transition assistance payment.
To be sure, allegations of vote buying have
surfaced with respect to this payment. At the time the
payment was conceived and when it was made, however,
the votes were already in. The ballots were filed in
early December 1996. Each member had already voted for
the SWEPCO plan. As stated earlier in the terms of the
letter of Mr. Gilliam [SWEPCO’s counsel] of January 9,
CCM had been conducting negotiations regarding reimbursement of
fees and expenses as early as November 13 rather than 16.
13
clearly indicate that the payment did not lock in any
of the members. They were free to meet and negotiate.
In fact, they did.
A complaint was further made that SWEPCO did not
disclose the payment to the Court until the Trustee
learned of the payment in early April and forced SWEPCO
to make the disclosure. The Court finds that while the
negotiations between SWEPCO and the committee were
deemed confidential at the time, there was at all times
an intent to make disclosure of the payment at an
appropriate time. This is clearly borne out by
reference to the draft of the term sheet originally
dated in February 1997. The Court further concludes
that the second sentence in the SWEPCO disclosure
statement placed all parties on notice of the
possibility of the payment of additional funds may be
negotiated. And I do not believe that this second
sentence of the disclosure statement should be narrowly
construed.
In late April 1997, SWEPCO and the committee, the
reconstituted committee, caused to be filed with the
court a term sheet executed by the parties. There was,
in Paragraph 5, language under the phrase “additional
terms,” additional language with respect to fee and
expense reimbursement. And I believe that the
inclusion of this language in that agreement was merely
the culmination of the months of negotiation between
SWEPCO and the committee.
The Trustee and others point to a lock-in which
was contained in Paragraph 6 of the term sheet,
entitled “Agreement and Obligations of the Parties,”
requiring Members to exclusively support the joint
plan. . . . I do not find, however, that the
provisions of Paragraph 6 of the term sheet suggest
that any violations or any lock-in has occurred.
The bankruptcy court went on to hold that the payments were
subject to § 1129(a)(4) but that § 1129(a)(4) did not require the
court’s approval of the payments prior to their being made. It
therefore ordered SWEPCO and the CCM to file an application
“seeking nunc pro tunc approval of the payment[s].” It further
14
ordered SWEPCO to make no further payments to the CCM or its
members unless and until the court found the previously made
payments reasonable. Pursuant to the bankruptcy court’s
instructions, on October 2, 1997, SWEPCO and the CCM filed such
an application. The bankruptcy court denied the application
without prejudice on March 17, 1998. On April 15, 1998, SWEPCO
and the CCM filed a renewed application, which remains pending
before the bankruptcy court.
The Trustee sought leave of the district court to appeal the
bankruptcy court’s denial of his motion, and the district court
granted permission to appeal. On appeal, the district court held
that the bankruptcy court erred in concluding that (1) SWEPCO’s
supplemental disclosure statement adequately disclosed its
payments to the CCM and (2) the payments were not conditioned
upon the CCM’s exclusive support of the SWEPCO Plan. On this
basis, the district court concluded that the payments violated 11
U.S.C. § 1129(a)(4) because SWEPCO failed to obtain prior
approval of the payments from the bankruptcy court and the
payments were made to lock in votes, § 1125 because SWEPCO had
failed to fully disclose the payments, § 1123(a)(4) because the
payments constituted discriminatory treatment of creditors within
the same class, § 1129(b)(2)(B) because the payments violated the
absolute priority rule, and § 1129(a)(3) because the payments and
their concealment were improper and constituted bad faith. The
district court therefore ordered “disqualification” of the SWEPCO
15
Plan on the ground that it is unconfirmable as a matter of law3
and ordered disgorgement of the funds paid by SWEPCO to the CCM
members. SWEPCO and the CCM appeal these orders. On July 10,
1998, we stayed the district court’s orders. Convinced that
prompt confirmation of a plan by the bankruptcy court is of
utmost importance to all parties in interest, we expedited this
appeal, obtained full briefing, heard extended oral argument by
the parties on August 4, and now render our decision.
II. STANDARD OF REVIEW
This case revolves around whether SWEPCO’s payments to the
CCM violated various provisions of the Bankruptcy Code. Based on
a series of findings of fact and conclusions of law, the
bankruptcy court decided that they did not. In holding that the
3
We presume that, in determining that SWEPCO’s purported
violation of § 1125 barred confirmation of the SWEPCO Plan, the
district court was relying upon either § 1129(a)(1), which
provides that a plan may not be confirmed unless “[t]he plan
complies with the applicable provisions of [Title 11],” or
§ 1129(a)(2), which provides that a plan may not be confirmed
unless “[t]he proponent of the plan complies with the applicable
provisions of [Title 11].” See Mickey’s Enters., Inc. v.
Saturday Sales, Inc. (In re Mickey’s Enters., Inc.), 165 B.R.
188, 193 (Bankr. W.D. Tex. 1994) (“In order to confirm a plan the
court must find that the plan and its proponent have complied
with the applicable provisions of Title 11. One of those
applicable provisions is § 1125 which requires disclosure of
‘adequate information’.” (citations omitted)). We likewise
presume that, in determining that SWEPCO’s purported violation of
§ 1123(a)(4) barred confirmation of the SWEPCO Plan, the district
court was relying upon § 1129(a)(1). See H.R. REP. NO. 95-595, at
412 (1977) (“Paragraph (1) [of § 1129(a)] requires that the plan
comply with the applicable provisions of chapter 11, such as
section 1122 and 1123, governing classification and contents of
plan.”), reprinted in 1978 U.S.C.C.A.N. 5963, 6368.
16
bankruptcy court erred in so deciding, the district court made a
series of legal conclusions which we review de novo. In
addition, the district court, either explicitly or implicitly,
determined that certain of the bankruptcy court’s fact-findings
were clearly erroneous. The district court’s determination that
certain fact-findings of the bankruptcy court were clearly
erroneous itself constitutes a conclusion of law which we also
review de novo. See Anderson v. City of Bessemer City, 470 U.S.
564, 577-78 (1985); In re Sublett, 895 F.2d 1381, 1384 n.5 (11th
Cir. 1990). That is, we make an independent assessment of
whether the bankruptcy court’s fact-findings are clearly
erroneous. United States Abatement Corp. v. Mobil Exploration
and Producing U.S., Inc. (In re United States Abatement Corp.),
79 F.3d 393, 397 (5th Cir. 1996). We may conclude that a fact-
finding of the bankruptcy court is clearly erroneous only if “we
are left with the definite and firm conviction that a mistake has
been made.” Chamberlain v. Commissioner, 66 F.3d 729, 732 (5th
Cir. 1995).
III. DISCUSSION
SWEPCO and the CCM (collectively, the Appellants) contend
that the district court erred by usurping the bankruptcy court’s
fact-finding role and subsequently determining that the payments
from SWEPCO to the CCM violated the Bankruptcy Code and rendered
the SWEPCO Plan unconfirmable as a matter of law. We address in
17
turn each of the sections of the Bankruptcy Code upon which the
district court predicated its determination that SWEPCO’s
payments to the CCM rendered the SWEPCO Plan unconfirmable as a
matter of law and that disgorgement of the payments was required.
A. Section 1129(a)(4)
The district court concluded that SWEPCO’s payment to the
CCM violated 11 U.S.C. § 1129(a)(4). Section 1129(a)(4) provides
that a court shall not confirm a Chapter 11 plan of
reorganization unless
[a]ny payment made or to be made by the proponent, by
the debtor, or by a person issuing securities or
acquiring property under the plan, for services or for
costs and expenses in or in connection with the case,
or in connection with the plan and incident to the
case, has been approved by, or is subject to the
approval of, the court as reasonable.
11 U.S.C. § 1129(a)(4). Both the bankruptcy court and the
district court rejected the Appellants’ contention that
§ 1129(a)(4) is entirely inapplicable to SWEPCO’s payments to the
CCM. We agree.
In determining a statute’s meaning, “the beginning point
must be the language of the statute.” Estate of Cowart v.
Nicklos Drilling Co., 505 U.S. 469, 474 (1992); see also Chair
King, Inc. v. Houston Cellular Corp., 131 F.3d 507, 511 (5th Cir.
1997). Section 1129(a)(4) by its terms requires court approval
of “[a]ny payment made or to be made by the proponent . . . for
services or for costs and expenses in or in connection with the
18
case.” 11 U.S.C. § 1129(a)(4) (emphasis added). The bankruptcy
court’s findings of fact indicate that this language covers the
payments at issue here.
The bankruptcy court found that the payments were the
culmination of negotiations that began in November 1996. The
November 12, 1996 letter from SWEPCO’s counsel to the CCM’s
counsel, attached to the November 13, 1996 memorandum from
Kleiman to the CCM members, indicates that the payments
contemplated by these negotiations were to be for “fees and
expenses incurred by the Members Committee in connection with the
confirmation and adversary proceeding.” Further, SWEPCO’s
January 9, 1997 letter, which described the terms surrounding the
payments, states that the payments were “intended to address
the[] concerns [of increased financial pressure on the CCM caused
by the disqualification of its counsel] and allow the parties to
continue to pursue the serious bankruptcy issues.” SWEPCO and
the CCM can hardly argue that the payments were not “for services
or for costs and expenses in or in connection with the
[bankruptcy] case.” 11 U.S.C. § 1129(a)(4); see also Leiman v.
Guttman, 336 U.S. 1, 5, 8 (1949) (noting that “all payments,” “in
connection with,” and “incident to,” as used in section 221(4) of
the Bankruptcy Act, the statutory precursor to § 1129(a)(4),
constituted “pervasive terms” that rendered the statute
applicable to a broad array of payments not limited to those
payable out of the bankruptcy estate); In re Talley, 97 B.R. 312,
19
315 (Bankr. W.D. La. 1989) (indicating that Leiman warrants a
broad reading of § 1129(a)(4)). While a strong argument might be
made that payments that are not made to fiduciaries and that do
not deplete the bankruptcy estate need not be subject to court
approval, this is simply not the decision that Congress has
chosen to make. See In re Hendrick, 45 B.R. 976, 985 (M.D. La.
1985) (noting the compelling nature of a plan proponent’s
contention that judicial scrutiny of its payment of legal fees
that did not deplete the bankruptcy estate was unnecessary but
concluding that the plain language of § 1129(a)(4) rendered the
payments subject to review by the bankruptcy court); Kenneth M.
Klee, Adjusting Chapter 11: Fine Tuning the Plan Process, 69 AM.
BANKR. L.J. 551, 567 (1995) (noting that “[s]ection 1129(a)(4) . .
. has been interpreted literally to require court approval of
payment of professional fees from assets of third parties, even
in the context of a creditor’s plan” and contending that “[t]his
paragraph of § 1129(a) should be amended to apply only to
payments made from estate funds.”). The plain language of
§ 1129(a)(4) compels us to conclude that SWEPCO’s payments to the
CCM were subject to bankruptcy court approval.
The plain language of § 1129(a)(4), however, likewise leads
us to reject the district court’s construction of § 1129(a)(4) as
requiring in all circumstances that the bankruptcy court review a
payment subject to § 1129(a)(4) for reasonableness prior to the
making of the payment. The language of the statute merely states
20
that, as a condition precedent to plan confirmation, any payment
“made or to be made by the proponent . . . for services or for
costs and expenses in or in connection with the case, or in
connection with the plan and incident to the case” must “ha[ve]
been approved by, or [be] subject to the approval of, the court
as reasonable.” 11 U.S.C. § 1129(a)(4). Nothing in this
language purports to require that the bankruptcy court review a
pre-confirmation payment prior to its being made.
Furthermore, the legislative history of the statute provides
no indication that Congress intended to impose such a
requirement. See Ashland Chem. Inc. v. Barco Inc., 123 F.3d 261,
266 (5th Cir. 1997) (“Where a statute is silent or ambiguous as
to an issue, we next look to the legislative history for guidance
as to the intent of the legislators.”). The House Report
addressing § 1129(a)(4) provides as follows:
Paragraph (4) is derived from section 221 of present
law. It requires that any payment made or promised by
the proponent . . . for services or for costs and
expenses in, or in connection with, the case, or in
connection with the plan and incident to the case, be
disclosed to the court. In addition, any payment made
before confirmation must have been reasonable, and any
payment to be fixed after confirmation must be subject
to the approval of the court as reasonable.
H.R. REP. 95-595, at 412 (1977), reprinted in 1978 U.S.C.C.A.N.
5963, 6368. It does not logically follow from the fact that a
pre-confirmation payment “must have been reasonable” that the
determination that the payment was reasonable must have preceded
the payment.
21
Additionally, it is noteworthy that other sections of the
Bankruptcy Code demonstrate that, when Congress wishes to impose
a requirement of pre-payment judicial approval, it knows how to
say so. Section 330, for example, provides for the award of
“reasonable compensation” to “a trustee, an examiner, [or] a
professional person employed under section 327 or 1103” only
“[a]fter notice to the parties in interest and the United States
Trustee and a hearing.” 11 U.S.C. § 330(a). Similarly, § 331
provides that “[a] trustee, an examiner, a debtor’s attorney, or
any professional person employed under section 327 or 1103” may
apply for interim compensation or reimbursement, and that the
court may award such compensation or reimbursement “[a]fter
notice and a hearing.” Id. § 331. We conclude that Congress’s
express provision for pre-payment judicial review of payments in
other sections of the Code renders its silence with respect to
the timing of the judicial determination of the reasonableness of
a payment subject to § 1129(a)(4) meaningful.
We decline to impose a requirement that the bankruptcy court
determine the reasonableness of pre-confirmation payments by a
plan proponent prior to the making of the payments in the absence
of any manifestation of congressional intent to create such a
requirement. At most, the statute, informed by other provisions
of the Code and its legislative history, can be read to require
that pre-confirmation payments “ha[ve] been approved by . . . the
court as reasonable” prior to confirmation. 11 U.S.C.
22
§ 1129(a)(4). In this regard, the bankruptcy court correctly
concluded that the SWEPCO Plan cannot be approved unless and
until it reviews SWEPCO’s payments to the CCM and concludes that
they were reasonable. Assuming that this review takes place and
the bankruptcy court concludes that the payments were reasonable
(and such determination is not clearly erroneous), § 1129(a)(4)
poses no barrier to the confirmation of the SWEPCO Plan.4 We
therefore conclude that the district court erred in holding that
§ 1129(a)(4) bars confirmation of the SWEPCO Plan solely because
SWEPCO did not obtain a determination from the bankruptcy court
that its payments to the CCM were reasonable prior to making
them.
The district court went on to conclude that the payments
could not comply with § 1129(a)(4) because they were made for an
improper purpose, i.e., to buy the votes of the CCM members for
the SWEPCO Plan, and thereby concluded that the bankruptcy
court’s conclusion to the contrary was clearly erroneous.
However, the Trustee and the Appellants both agree that the CCM
members’ votes were, as a practical matter, “not worth buying”5
4
In the event that the bankruptcy court determines that
the payments were, in whole or in part, unreasonable, it will
doubtless order the disgorgement of the unreasonable portion of
the payments. Assuming that the CCM were to comply with such an
order--we were advised at oral argument that the CCM has
expressly agreed to do so--§ 1129(a)(4) would in all probability
pose no barrier to confirmation of the SWEPCO Plan.
5
In his brief, the Trustee states, “Appellants cheapen the
Members’ critical role in this case by deeming their votes ‘not
23
because, to say the least, they did not control the class of
unsecured creditors containing their claims and, in their
capacity as equity interest holders in Cajun,6 were deemed to
have voted against all three proposed plans because they received
no property under any of them. Under the circumstances, the
district court’s conclusion that the bankruptcy court clearly
erred in deciding that the payments at issue here did not
constitute vote-buying was itself erroneous.
The Trustee argues, however, that the payments were
nonetheless unreasonable because they were made to buy the CCM
members’ support for the SWEPCO Plan in the specific form of an
exclusive agreement to enter into power-supply agreements with
SWEPCO (as set out in the SWEPCO/CCM term sheets filed with the
bankruptcy court), thereby impeding the efforts of the proponents
of the other two plans to negotiate voluntary power-supply
worth buying.’ . . . Literally, this is true.”
6
We note that there may be some question as to whether the
members’ interests in Cajun constitute “equity interests” in the
strict sense of the term. Cf. In re Wabash Valley Power Ass’n,
72 F.3d 1305, 1313 (7th Cir. 1995) (noting that members of a
cooperative organized under Indiana law “are not owners in any
usual sense of the term” and that, “[b]y design, in a
co-operative association the concept of profit is inappropriate,
because profit, in its recognized economic sense, is the wage of
the entrepreneur, and in a co-operative there is no
entrepreneur”). However, as indicated infra, our decision hinges
in no way upon the characterization of the members’ various
interests in Cajun as debt or equity-based. For purposes of this
appeal, we therefore accept the parties’ characterization of
Cajun’s members as possessing both debt claims and equity
interests.
24
agreements with the CCM members. The term sheets reflect that
the CCM members have agreed, expressly subject to the Bankruptcy
Code, to enter into power-supply agreements with SWEPCO and no
other party “unless or until an order is issued i) denying
confirmation of the [SWEPCO] Plan; ii) confirming a plan proposed
by another plan proponent; or iii) expressly authorizing support
of another plan that has been materially amended from its current
version.” As counsel for the Trustee indicated in argument
before the district court, it is this agreement that the Trustee
challenges as unreasonable and unlawful under the Bankruptcy
Code.
Even if we assume, strictly for purposes of argument, that
the SWEPCO/CCM term sheets contain provisions that render the
SWEPCO Plan unconfirmable, it does not follow inexorably that
SWEPCO’s payments to the CCM served as consideration for such
provisions. Because the only issue litigated before the
bankruptcy court and the district court was the propriety of
SWEPCO’s payments to the CCM (and not the propriety of the
SWEPCO/CCM term sheets in a more general sense), the potential
viability of the Trustee’s argument on appeal hinges upon a
factual determination that SWEPCO conditioned the CCM members’
retention of the payments upon their consent to the agreements
reflected in the SWEPCO/CCM term sheets. It is in this regard
that the Trustee’s argument fails because the bankruptcy court
made a fact-finding that the payments were not so conditioned.
25
Specifically, the bankruptcy court concluded that the payments
were “generally made without strings attached,” and that “[t]he
only requirement was that the funds would be repaid to SWEPCO in
the event that . . . another plan was confirmed and the Members
received reimbursement under the confirmed plan.” We cannot say
that this fact-finding is clearly erroneous.
During the six-day hearing that the bankruptcy court
conducted on the Trustee’s motion, it heard the testimony of
numerous witnesses, including SWEPCO’s president and
representatives of the CCM members who were involved in the
negotiations surrounding SWEPCO’s payments to the CCM. The
parties involved in these negotiations testified uniformly that
the only circumstance in which SWEPCO would require the CCM
members to repay the funds was if another plan was confirmed and
another plan proponent reimbursed the CCM members’ legal
expenses. The bankruptcy court was free to, and did, credit this
testimony.
The Trustee capitalizes upon the fact that the January 9,
1997 letter from SWEPCO’s counsel states that, “[i]n the event
any Member supports another plan or receives reimbursement from
any other proponent, then the Member cooperative agrees to
promptly reimburse SWEPCO for the respective expenses paid by
SWEPCO and received by such Member.” (emphasis added).
Admittedly, this sentence, considered in a vacuum, indicates that
the CCM members must return the funds in the event that they
26
simply support another plan. However, the letter does not
specify what the phrase “supports another plan” means, and it is
unclear whether simply entering into a power-supply agreement
with another plan proponent would of itself constitute “support”
for another plan as that term is used in the letter. Moreover,
the very next sentence of the letter states that “[t]he
cooperative also agrees to use its best efforts to obtain
reimbursement from any other proponent, in the event the said
cooperative elects to endorse another plan.” If the CCM members
had an absolute obligation to return SWEPCO’s payments in the
event that they simply chose to support another plan, SWEPCO
would likely have little, if any, interest in ensuring that the
CCM members obtained reimbursement for their legal expenses from
another plan proponent. So long as SWEPCO is repaid, it is
doubtful that SWEPCO would care one way or the other whether the
CCM members obtain reimbursement as well.
Moreover, the January 9, 1997 letter, as modified by
Kleiman’s January 16, 1997 letter, provided that, “[i]n the event
of an adverse court ruling such that the SWEPCO/[]Members
Committee Plan is not approved by the court, but rather a
different plan is approved by the court, and the plan proponent
does not reimburse the Members’ attorneys fees and expert fees,
the Members will have no obligation to reimburse SWEPCO,” and,
“in the event that no plan is confirmed, then in such event the
Members shall have no obligation to reimburse SWEPCO.”
27
Additionally, the memorandum that Kleiman sent the CCM members on
the same date as the January 9, 1997 letter states that the “only
condition [on the CCM members’ retention of the $1 million paid
by SWEPCO] is that the Members will use their best efforts to
have that amount repaid in the event that they support a
different plan proponent at some date in the future.”
In light of this testimonial and documentary evidence, we
are not left with the firm and definite conviction that the
bankruptcy court made a mistake in determining that SWEPCO did
not condition the CCM members’ retention of its payments upon
their agreeing to the terms set forth in Paragraph VI.A of the
SWEPCO/CCM term sheets. The bankruptcy court’s fact-finding in
this regard is therefore not clearly erroneous. See Chamberlain,
66 F.3d at 732. As stated earlier, we therefore have no occasion
to determine whether the provisions of this paragraph in the term
sheets in any way render the SWEPCO Plan unconfirmable. It is
for the bankruptcy court to determine in the first instance
during the confirmation process whether any portion of the
SWEPCO/CCM term sheets renders the SWEPCO Plan unconfirmable.7
7
We note that the bankruptcy court concluded that the
SWEPCO/CCM term sheets did not create an impermissible lock-in
between SWEPCO and the CCM members. We have declined to address
the correctness of this conclusion solely because it is
unnecessary to our disposition of this appeal, which involves
only the propriety of SWEPCO’s payments to the CCM. Our failure
to address the bankruptcy court’s conclusion that no
impermissible lock-in exists should in no way be construed as
implying that this conclusion is problematic.
28
We likewise do not decide whether the payments at issue are
otherwise reasonable. The ultimate determination of the
reasonableness of the payments is a matter to be decided in the
first instance by the bankruptcy court, and it will take up this
matter on disposition of the pending application for nunc pro
tunc approval of payments filed by SWEPCO and the CCM members.
We note that § 1129(a)(4)’s requirement that the bankruptcy
court determine whether payments subject to the subsection are
“reasonable” creates a “relatively open-ended standard [that] is
potentially ambiguous.” See 7 COLLIER ON BANKRUPTCY ¶ 1129.03[4],
at 1129-39 (Lawrence P. King ed., 15th ed. rev. 1998). What
constitutes a reasonable payment will clearly vary from case to
case and, among other things, will hinge to some degree upon who
makes the payments at issue, who receives those payments, and
whether the payments are made from assets of the estate. In the
typical case, payments that are not payable from, or reimbursable
by, the bankruptcy estate should not engender anything like the
judicial scrutiny devoted to those that are payable out of the
bankruptcy estate. Where the bankruptcy court has determined
that the payment at issue was for an expense that is routine in
the confection and confirmation of a plan (e.g., for legal or
accounting services, expert witness fees, printing, etc.) and
that the payment has not been made from and will not be
reimbursed by the bankruptcy estate, the court will ordinarily
have little reason to inquire further with respect to the amount
29
charged. Bankruptcy courts in general, and this one in
particular, are sufficiently overburdened that they and we should
be chary about succumbing to the exhortations of litigants to
turn § 1129(a)(4) into a mandate for an expensive and unnecessary
inquiry.
B. Section 1125
The district court also concluded that SWEPCO’s payments to
the CCM violated 11 U.S.C. § 1125 because the payments were not
adequately disclosed. Section 1125(b) provides as follows:
An acceptance or rejection of a plan may not be
solicited after the commencement of the case under this
title from a holder of a claim or interest with respect
to such claim or interest, unless, at the time of or
before such solicitation, there is transmitted to such
holder the plan or a summary of the plan, and a written
disclosure statement approved, after notice and a
hearing, by the court as containing adequate
information. The court may approve a disclosure
statement without a valuation of the debtor or an
appraisal of the debtor’s assets.
11 U.S.C. § 1125(b). Section 1125(a)(1) defines “adequate
information” as that term is used in subsection (b) to include
“information of a kind, and in sufficient detail, as far as is
reasonably practicable . . . that would enable a hypothetical
reasonable investor typical of holders of claims or interests of
the relevant class to make an informed judgment about the plan.”
Id. § 1125(a)(1).
The legislative history of § 1125 indicates that, in
determining what constitutes “adequate information” with respect
30
to a particular disclosure statement, “[b]oth the kind and form
of information are left essentially to the judicial discretion of
the court” and that “[t]he information required will necessarily
be governed by the circumstances of the case.” S. REP. NO. 95-
989, at 121 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5907;
see also Texas Extrusion Corp. v. Lockheed Corp. (In re Texas
Extrusion Corp.), 844 F.2d 1142, 1157 (5th Cir. 1988) (“The
determination of what is adequate information is subjective and
made on a case by case basis. This determination is largely
within the discretion of the bankruptcy court.”), vacated on
other grounds, Adams v. First Fin. Dev. Corp. (In re First Fin.
Dev. Corp.), 960 F.2d 23 (5th Cir. 1992).
Assuming without deciding that a reasonable investor would
consider information regarding SWEPCO’s payments to the CCM,
which were not made out of the bankruptcy estate’s assets,
material to an informed judgment about the SWEPCO Plan, we
conclude that the bankruptcy court did not abuse its discretion
in determining that SWEPCO’s supplemental disclosure statement
adequately disclosed the possibility of the payments by SWEPCO to
the CCM. The supplemental disclosure statement provided that
“SWEPCO may agree to pay certain expenses of the Members
Committee in regard to certain litigation and the plan
confirmation process.” This statement is not limited to post-
confirmation payments and thus covers the payments at issue here.
While it is true that the statement is quite general, “we find
31
that the bankruptcy court did not abuse its discretion in holding
that the [supplemental disclosure statement] nevertheless was
adequate to enable a reasonable creditor to make an informed
judgment about the [SWEPCO] Plan.” Id. The district court
therefore erred in reversing the bankruptcy court’s determination
that SWEPCO’s supplemental disclosure statement contained
adequate information with respect to the payments by SWEPCO to
the CCM.
C. Section 1123(a)(4)
The district court also concluded that SWEPCO’s payments to
the CCM constituted a violation of 11 U.S.C. § 1123(a)(4), which
provides that, “[n]otwithstanding any otherwise applicable
nonbankruptcy law, a plan shall . . . provide the same treatment
for each claim or interest of a particular class, unless the
holder of a particular claim or interest agrees to a less
favorable treatment of such particular claim or interest.” 11
U.S.C. § 1123(a)(4). However, SWEPCO’s payments to the CCM did
not constitute discrimination amongst claims of the same class as
contemplated by this section because the payments were not
derived, directly or on this record indirectly, from assets of
the bankruptcy estate, a fact that the district court
acknowledged when it ordered the payments returned to SWEPCO
rather than added to the bankruptcy estate. Moreover, as the
bankruptcy court found, the payments were not made in
32
satisfaction of the CCM members’ claims against Cajun, but rather
as reimbursement for plan and litigation expenses incurred in the
bankruptcy case. Accordingly, the payments did not violate
§ 1123(a)(4).
D. Section 1129(b)
The district court also concluded that SWEPCO’s payments to
the CCM violated 11 U.S.C. § 1129(b). Section 1129(b) allows
confirmation of a plan upon request of the proponent despite the
rejection of the plan by one or more classes “if the plan does
not discriminate unfairly, and is fair and equitable, with
respect to each class of claims or interests that is impaired
under, and has not accepted, the plan.” 11 U.S.C. § 1129(b)(1);
3 DAVID G. EPSTEIN ET AL., BANKRUPTCY § 10-19, at 35 (1992). The
subsection provides that, “[w]ith respect to a class of unsecured
claims,” a plan is “fair and equitable” only if “the holder of
any claim or interest that is junior to the claims of such class
will not receive or retain under the plan on account of such
junior claim or interest any property.” 11 U.S.C.
§ 1129(b)(2)(B)(ii). This is known as the absolute priority
rule. See Phoenix Mut. Life Ins. Co. v. Greystone III Joint
Venture (In re Greystone III Joint Venture), 995 F.2d 1274, 1276
(5th Cir. 1991).
The district court’s conclusion that SWEPCO’s payments to
the CCM violated the absolute priority rule is problematic for
33
the same reasons that led us to reject the district court’s
conclusion that the payments violated § 1123(a)(4). In
particular, the payments were not made “on account of [the CCM
members’] [unsecured] claim[s] or [their equity] interest[s].”
11 U.S.C. § 1129(b)(2)(B)(ii). Accordingly, the district court
erred in concluding that § 1129(b) precluded confirmation of the
SWEPCO Plan by reason of SWEPCO’s payments to the CCM.
E. Section 1129(a)(3)
The district court also concluded that, in light of SWEPCO’s
payments to the CCM, 11 U.S.C. § 1129(a)(3) precluded
confirmation of the SWEPCO plan as a matter of law because the
payments were themselves improper and SWEPCO further improperly
concealed them. Section 1129(a)(3) provides that a plan may not
be confirmed unless “[t]he plan has been proposed in good faith
and not by any means forbidden by law.”
In construing § 1129(a)(3), we have noted that “[t]he
requirement of good faith must be viewed in light of the totality
of the circumstances surrounding establishment of a Chapter 11
plan, keeping in mind the purpose of the Bankruptcy Code is to
give debtors a reasonable opportunity to make a fresh start.”
Financial Sec. Assurance Inc. v. T-H New Orleans Ltd. Partnership
(In re T-H New Orleans Ltd. Partnership), 116 F.3d 790, 802 (5th
Cir. 1997); see also Jasik v. Conrad (In re Jasik), 727 F.2d
1379, 1383 (5th Cir. 1984) (“The ‘good faith’ of a reorganization
34
plan must be ‘viewed in light of the totality of the
circumstances surrounding confection’ of the plan.” (quoting
Public Fin. Corp. v. Freeman, 712 F.2d 219, 221 (5th Cir.
1983))). We have also observed that “[t]he bankruptcy judge is
in the best position to assess the good faith of the parties’
proposals.” Id.
The bankruptcy court made a factual determination that the
payments were not made in bad faith and that SWEPCO and the CCM
at all times intended to make appropriate disclosures. We cannot
say that this fact-finding was clearly erroneous. Additionally,
neither the district court nor the Trustee has demonstrated any
independent illegality that would implicate § 1129(a)(3)’s
requirement that a plan proponent not propose a plan “by any
means forbidden by law.” See 11 U.S.C. § 1129(a)(3). As such,
the district court erred in concluding that § 1129(a)(3) rendered
the SWEPCO Plan unconfirmable as a matter of law by reason of
SWEPCO’s payments to the CCM.
IV. CONCLUSION
The district court erred in “disqualifying” the SWEPCO Plan
on the ground that it is unconfirmable as a matter of law by
reason of SWEPCO’s payments to the CCM. Because the bankruptcy
court has not yet determined the reasonableness of these
payments, the district court likewise erred in ordering their
disgorgement. We therefore REVERSE the district court’s orders
35
disqualifying the SWEPCO Plan and requiring disgorgement of the
payments from SWEPCO to the CCM. The stay entered by this court
on July 10, 1998 is vacated. The costs of this appeal shall be
borne by the appellees. The mandate shall issue forthwith.
36