Mabey v. Southwestern Electric Power Co. (In Re Cajun Electric Power Cooperative, Inc.)

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