Michael A. Gbadebo

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
1One of the Debtor’s secured creditors, Wachovia Commercial
Mortgage, Inc. (“Wachovia”), also filed an objection to
confirmation of the Plan and voted against it. 	However, at the
preliminary confirmation hearing, counsel for Wachovia stated that
Wachovia and the Debtor were close to resolving their differences
and that the Court could treat its objection as withdrawn and its
negative vote changed to an affirmative one if counsel did not
appear at the evidentiary hearing. 	Counsel for Wachovia did not
appear at the evidentiary hearing. 	As a result, the Court finds
that Wachovia has withdrawn its objection and voted in favor of the
Plan. 	Thus, the Debtor has satisfied the requirement that at least
one impaired class of creditors affirmatively vote in favor of the
Plan. 	See 11 U.S.C. § 1129(a)(10).
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	No. 09-42526 T
Chapter 11
MICHAEL A. GBADEBO,
Debtor-in-Possession.
_______________________________/
MEMORANDUM OF DECISION RE CONFIRMATION OF PLAN
The Modified First Amended Plan of Reorganization (the “Plan”)
of 	the 	above-captioned 	debtor 	(the 	“Debtor”) 	came 	on 	for 	an
evidentiary 	confirmation 	hearing. 	The 	hearing 	was 	necessitated 	by
the 	objection 	and 	negative 	vote 	on 	the 	Plan 	by 	Abraham 	Oshuntola
(“Oshuntola”), 	a 	judgment 	creditor. 1 	At 	the 	conclusion 	of 	the
Signed: April 15, 2010
________________________________________
LESLIE TCHAIKOVSKY
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
April 16, 2010
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 09-42526 Doc# 67 Filed: 04/15/10 Entered: 04/16/10 15:43:05 Page 1 of
15

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
2
hearing, the Court took the matter under submission. 	For the reasons
stated 	below, 	the 	Court 	now 	concludes 	that 	the 	Plan 	may 	not 	be
confirmed.
A. 	BACKGROUND
The Debtor is a licensed professional engineer. 	He is the sole
shareholder and Chief Executive Officer of ITC Engineering Services,
Inc. (“ITC”), which 	operates an electrical engineering and testing
and consulting laboratory located in Sunol, California. 	The Debtor
owns the real property on which ITC operates (the “Sunol Property”).
He 	also 	owns 	a 	residence 	in 	Dublin, 	California 	(the 	“Debtor’s
House”).
According to the Debtor’s Disclosure Statement, the Debtor filed
the chapter 11 case after Oshuntola obtained a judgment against him
and attempted to levy a writ of execution against his stock in ITC.
Oshuntola has also recorded an abstract of judgment in Contra Costa
County, creating junior liens against the Debtor’s real property (the
“Real Property Judgment Liens”).
The 	Plan 	proposes 	that 	the 	Debtor 	will 	retain 	his 	equity
interest 	in 	the 	estate 	unaltered. 	It 	proposes 	to 	strip 	the 	Real
Property Judgment Liens off his real property on the ground that they
are 	unsupported 	by 	any 	value 	and 	to 	treat 	the 	underlying 	debt 	as 	a
general, unsecured claim. 	It proposes to pay the holders of general,
unsecured claims $100 per month for 60 months for a total of $6,000.
The Disclosure Statement estimates that this will provide the holders
of general, unsecured claims with approximately 2.6 percent of their
claim 	amounts. 	The 	size 	of 	Oshuntola’s 	claim, 	as 	compared 	to 	the
Case: 09-42526 Doc# 67 Filed: 04/15/10 Entered: 04/16/10 15:43:05 Page 2 of
15

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
2Oshuntola filed an objection to confirmation on October 26,
2009. 	Thereafter, the Debtor amended both the Plan and Disclosure
Statement. 	Oshuntola filed a supplemental objection to
confirmation on January 15, 2010. 	Some of the original objections
went to the adequacy of the disclosure. 	The amendments to the
Disclosure Statement may have resolved these objections. 	In any
event, the Court is satisfied with the adequacy of disclosure and
overrules any remaining objections on that count.
3Oshuntola also contended that the Plan was not feasible and
was likely to be followed by a liquidation. 	He noted that the
Debtor’s projected disposable income was only $100 per month. 	He
argued that this was too small a “cushion to survive the
vicissitudes of the economy.” 	This objection is not persuasive.
Based on the evidence presented at the evidentiary hearing, the
Court is persuaded that the Plan is feasible. 	Moreover, under the
present law, the Debtor will not receive a discharge unless he
completes performance of the Plan. 	11 U.S.C. § 1141(d)(5). 	Thus,
if the Debtor were unable to perform the Plan, Oshuntola would
suffer little prejudice from its having been confirmed.
3
holders 	of 	other 	general, 	unsecured 	claims, 	makes 	Oshuntola’s 	vote
on the Plan determinative of the class vote. 	Oshuntola, and thus the
class 	of 	general, 	unsecured 	claims, 	Class 	8, 	voted 	against
confirmation of the Plan. 	As stated above, Oshuntola also filed an
objection to the Plan.
B. 	OSHUNTOLA’S OBJECTIONS2
Oshuntola’s raises four principal objections to confirmation. 3
First, 	he 	contends 	that 	the 	Debtor 	has 	undervalued 	the 	Sunol
Property. 	He 	contends 	that, 	if 	the 	Sunol 	Property 	were 	properly
valued, 	the 	Real 	Property 	Judgment 	Lien 	could 	not 	be 	stripped 	off
this 	property, 	at 	least 	not 	in 	its 	entirety. 	Second, 	he 	contends
that, 	in 	any 	event, 	he 	has 	a 	secured 	claim 	against 	the 	Debtor’s
personal property by virtue of his service of an order of examination
on 	the 	Debtor 	on 	March 	30, 	2009. 	See 	Cal. 	Civ. 	Proc. 	Code 	§
Case: 09-42526 Doc# 67 Filed: 04/15/10 Entered: 04/16/10 15:43:05 Page 3 of
15

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
4
708.110(d). 	Third, he contends that the Plan is not being proposed
in 	good 	faith. 	Fourth, 	he 	contends 	that 	the 	Plan 	does 	not 	satisfy
11 U.S.C. § 1129(a)(15). 	For the reasons set forth below, the first
two 	objections 	will 	be 	overruled. 	The 	third 	and 	fourth 	objections
will be sustained.
The 	Debtor 	testified 	that 	the 	value 	of 	the 	Sunol 	Property 	was
approximately 	$850,000. 	He 	based 	this 	opinion 	on 	the 	fact 	that 	a
similar property in the vicinity had been listed for some time at a
price in this range. 	As an owner, he is competent to testify as to
the 	value 	of 	the 	Sunol 	Property. 	Kestenbaum 	v. 	Falstaff 	Brewing
Corp., 514 F.2d 690, 699 (5th Cir. 1975). 	The Court found the basis
for his opinion reasonable.
Oshuntola 	presented 	no 	evidence 	on 	the 	value 	of 	the 	Sunol
Property. 	However, he noted that an appraisal obtained in early 2006
valued the Sunol Property at approximately $1.9 million. 	He argued
that 	it 	was 	not 	credible 	that 	the 	value 	of 	the 	property 	would 	have
declined 	so 	dramatically. 	The 	Court 	does 	not 	agree. 	The 	Court 	is
regularly confronted by comparable declines in value in the last few
years 	on 	its 	relief 	from 	stay 	calendar. 	This 	phenomenon 	is
sufficiently well known and beyond dispute that it is a fact of which
the Court may take judicial notice. 	See Fed. R. Evid. 201(b).
Oshuntola 	also 	objected 	to 	the 	Plan’s 	failure 	to 	classify his
secured 	claim 	against 	the 	Debtor’s 	personal 	property: 	i.e., 	the
Debtor’s stock in ITC and a $700,000 debt owed to the Debtor by ITC.
Oshuntola 	based 	his 	secured 	claim 	against 	the 	Debtor’s 	personal
property on his service of an order of examination on the Debtor on
Case: 09-42526 Doc# 67 Filed: 04/15/10 Entered: 04/16/10 15:43:05 Page 4 of
15

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26 	4The Court does not read 11 U.S.C. § 108 as extending this
period.
5
March 30, 2009. 	See Cal. Civ. Proc. Code § 708.110. 	This objection
may 	have 	had 	merit 	when 	it 	was 	first 	asserted. 	However, 	the 	lien
created 	by 	§ 	708.110(d) 	only 	lasts 	for 	one 	year 	unless 	extended 	by
the court. 	Thus, the lien has now expired. 4
Oshuntola 	also 	contended 	that 	the 	Plan 	was 	not 	filed 	in 	good
faith, because the Debtor proposed to pay over $1,200 per month for
two vehicles and over $6,000 on his home mortgage while paying only
$100 	per 	month 	to 	the 	holders 	of 	general, 	unsecured 	claims. 	This
objection is overruled in part and sustained in part. 	The Court is
persuaded 	that 	the 	payments 	on 	the 	Mercedes 	are 	reasonable. 	The
Debtor 	testified 	persuasively 	that 	he 	maintained 	the 	Mercedes
primarily 	for 	business 	purposes 	and 	that 	it 	generated 	income
substantially in excess of the proposed monthly payment.
However, the Court finds the proposed payments on the Jetta and
the Debtor’s House unreasonable, at least given the minimal payment
proposed to the holders of general, unsecured claims. 	The Debtor’s
House 	is 	a 	four 	bedroom 	house, 	in 	which 	the 	Debtor 	now 	lives 	alone
and in which he has no equity. 	He testified that he would like to
retain it because he has owned it a long time, he raised his children
there, and he finds it useful for entertaining his European clients.
The Court finds these reasons insufficient given the minimal amount
of the proposed payment to the holders of general, unsecured claims.
The 	proposed 	payments 	on 	the 	Jetta 	are 	also 	in 	bad 	faith. 	The
Debtor testified that the Jetta was being driven by his college-age
Case: 09-42526 Doc# 67 Filed: 04/15/10 Entered: 04/16/10 15:43:05 Page 5 of
15

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
6
daughter 	who 	would 	graduate 	soon 	and 	would 	then 	begin 	making 	the
payments herself. 	Yet, the Plan proposed that the Debtor would make
payments on this car for 60 months. 	The Debtor also testified that
he 	had 	been 	paying 	$700 	per 	month 	for 	his 	daughter’s 	apartment 	and
that 	this 	payment 	would 	soon 	cease. 	Presumably, 	this 	expense 	was
used to calculate the Debtor’s disposable income. 	If these payments
were 	eliminated, 	the 	Debtor 	would 	be 	able 	to 	increase 	the 	monthly
payments to the Class 8 creditors to $1,000 per month, resulting in
a 	dividend 	of 	26 	percent, 	rather 	than 	2.6 	percent. 	As 	presently
formulated, the Court finds the Plan in bad faith.
Finally, the Court also finds persuasive Oshuntola’s contention
that the Plan cannot be confirmed because the Debtor has manipulated
his 	reported 	income. 	Section 	1129(a)(15) 	provides 	that, 	if 	the
holder 	of 	a 	general, 	unsecured 	claim 	objects 	to 	the 	plan, 	the 	plan
must either pay the claim holder in full, or the debtor must pay all
creditors 	an 	amount 	equal 	to 	the 	value 	of 	his 	projected 	disposable
income for a five year period.
The 	Debtor 	correctly 	notes 	that 	this 	requirement 	goes 	to 	the
amount 	paid 	to 	all 	creditors 	under 	the 	Plan, 	not 	just 	to 	the 	Class
8 	creditors 	or 	just 	to 	the 	creditor 	who 	objects 	to 	the 	plan. 	He
notes 	that 	his 	statement 	of 	income 	and 	expenses 	showed 	a 	negative
number. 	However, in order to find that 11 U.S.C. § 1129(a)(15) has
been 	satisfied, 	the 	Court 	must 	be 	persuaded 	that 	the 	Debtor’s
financial information is credible. 	The Court is unable to do so.
The 	Debtor’s 	testimony 	at 	trial 	persuaded 	the 	Court 	that 	the
Debtor uses ITC as his personal “piggy bank,” drawing money from it
Case: 09-42526 Doc# 67 Filed: 04/15/10 Entered: 04/16/10 15:43:05 Page 6 of
15

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
5Oshuntola did not object to confirmation on this ground.
However, the Court has an independent duty to confirm a plan only
if satisfies the requirements of the Bankruptcy Code. 	In re Great
Northwest Recreation Center, Inc., 74 B.R. 846, 852 (Bankr. D.
Mont. 1987).
6Courts differed as to whether an individual debtor could
retain exempt property without violating the “absolute priority”
rule. 	See In re Bullard, 358 B.R. 541, 544-45 (Bankr. D. Conn.
2007)(holding that the debtor could retain exempt property because
7
or causing it to pay his personal expenses as needed and failing to
maintain its corporate separateness. 	Thus, the Court believes that
the Debtor’s calculation of his income and expenses is unreliable at
best. 	The 	Debtor 	bears 	the 	burden 	of 	proof 	on 	this 	issue 	and 	has
failed to satisfy it. 	As a result, for this reason as well, the Plan
may not be confirmed.
C. 	THE “ABSOLUTE PRIORITY” RULE AFTER BAPCPA
The 	Court 	also 	concludes 	that 	the 	Plan 	may 	not 	be 	confirmed
because it does not satisfy the “absolute priority” rule pursuant to
11 U.S.C. § 1129(b)(2)(B).5 	In reaching this conclusion, the Court
differs with the views expressed in several recent decisions and by
several learned treatises. 	The Court does not do so lightly.
Prior to the enactment of the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005 (“BAPCPA”), 11 U.S.C. § 1129(b)(2)(B)
stated that, if an impaired class of unsecured claims voted against
a plan, the plan could not be confirmed unless the court found that
it 	was 	“fair 	and 	equitable.” 	“Fair 	and 	equitable” 	meant, 	at 	a
minimum, that either the class would receive property with a present
value 	equal 	to 	its 	claim 	or 	no 	one 	with 	a 	claim 	or 	interest 	junior
to 	the 	class 	of 	unsecured 	claims 	would 	retain 	any 	property. 6 	This
Case: 09-42526 Doc# 67 Filed: 04/15/10 Entered: 04/16/10 15:43:05 Page 7 of
15

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
it was not property of the estate).
7The modification concludes with the phrase “subject to the
requirements of subsection (a)(14) of this section.” 	Subsection
(a)(14) deals with domestic support obligations. 	This limitation
has no relevance to the instant case.
8
provision 	applied 	to 	both 	individual 	debtors 	and 	debtors 	that 	were
entities. 	This provision is generally referred to as the “absolute
priority” rule.
BAPCPA 	modified 	the 	“absolute 	priority” 	rule 	as 	applied 	to
individual debtors. 	Section 1129(b)(2)(B)(ii) now states that a plan
may be “fair and equitable” even though the debtor retains “property
included 	in 	the 	estate 	under 	section 	1115....” 7 	11 	U.S.C. 	§
1129(b)(2)(B)(ii)(emphasis added). 	Section 1115 is a new provision,
also added by BAPCPA. 	It states as follows:
(a) 	In 	a 	case 	in 	which 	the 	debtor 	is 	an 	individual,
property 	of 	the 	estate 	includes, 	in 	addition 	to 	the
property specified in section 541–
(1) all property of the kind specified in section
541 	that 	the 	debtor 	acquires 	after 	the 	commencement
of the case but before the case is closed, dismissed,
or 	converted 	to 	a 	case 	under 	chapter 	7, 	12, 	or 	13,
whichever occurs first; and
(2) earnings from services performed by the debtor
after 	the 	commencement 	of 	the 	case 	but 	before 	the
case 	is 	closed, 	dismissed, 	or 	converted 	to 	a 	case
under 	chapter 	7, 	12, 	or 	13, 	whichever 	occurs 	first.
(b) Except as provided in section 1104 or a confirmed
plan 	or 	order 	confirming 	a 	plan, 	the 	debtor 	shall
remain 	in 	possession 	of 	all 	property 	of 	the 	estate.
11 U.S.C. § 1115 (emphasis added).
Three 	bankruptcy 	courts 	have 	issued 	decisions 	concluding 	that
§§ 1129(b)(2)(B)(ii) and 1115 should be read to have eliminated the
“absolute priority” rule for individual chapter 11 debtors. 	See In
Case: 09-42526 Doc# 67 Filed: 04/15/10 Entered: 04/16/10 15:43:05 Page 8 of
15

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
8The commentators cited by the Tegeder court are Hon. William
L. Norton, Jr., 4 Norton Bankruptcy Law & Practice 2d § 84A:1; Hon.
W. Homer Drake, Jr. Bankruptcy Practice for the General
Practitioner § 12:27 n. 28; and Rosemary E. Williams, 3 Bankruptcy
Practice Handbook § 14:152 n. 1 (2d ed.). 	In re Tedgeder, 369 B.R.
at 480.
9
re Tegeder, 369 B.R. 477 (Bankr. D. Neb. 2007); In re Roedemeier, 374
B.R. 264 (Bankr. D. Kan. 2007) and, most recently, In re Shat, 2010
WL 	702443 	(Bankr. 	D. 	Nev.). 	The 	first 	case, 	Tegeder, 	does 	not
contain 	an 	extensive 	analysis 	of 	the 	issue. 	After 	quoting 	the
language 	of 	11 	U.S.C. 	§§ 	1129(b)(2)(B) 	and 	1115, 	the 	Tegeder 	court
merely 	stated 	that, 	because 	§ 	1115 	makes 	reference 	to 	§ 	541, 	§
1129(b)(2)(B) 	clearly 	means 	that 	a 	debtor 	can 	retain 	both 	pre- 	and
post-petition 	property 	under 	a 	plan 	rejected 	by 	his 	unsecured
creditors. 	In 	reaching 	this 	conclusion, 	the 	Tegeder 	court 	appears
to 	have 	relied 	primarily 	on 	the 	conclusions 	espoused 	in 	several
bankruptcy law treatises. 	See In re Tegeder, 369 B.R. at 480. 8
The 	Roedemeier 	court 	found 	the 	language 	of 	11 	U.S.C. 	§ 	1115
ambiguous. 	It 	observed 	that 	the 	statutory 	language 	could 	be
interpreted 	either 	narrowly, 	permitting 	the 	debtor 	to 	retain 	only
property 	acquired 	post-petition 	(the 	“debtor’s 	post-petition
property”), or broadly, to permit the debtor to also retain property
owned 	when 	he 	filed 	his 	bankruptcy 	petition 	(the 	“debtor’s 	pre-
petition 	property”), 	thus 	eliminating 	the 	“absolute 	priority” 	rule
as 	applied 	to 	individual 	debtors. 	To 	resolve 	this 	ambiguity, 	the
Roedemeier court attempted to determine the intent of Congress. 	In
re Roedemeier, 374 B.R. at 274.
Case: 09-42526 Doc# 67 Filed: 04/15/10 Entered: 04/16/10 15:43:05 Page 9 of
15

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
10
The Roedemeier court found no relevant legislative history. 	It
noted that the Supreme Court’s ruling on “new value” in Ahlers made
it 	particularly 	difficult 	for 	an 	individual 	debtor 	to 	confirm 	a
chapter 	11 	plan 	over 	the 	negative 	vote 	of 	its 	unsecured 	creditors.
See Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 202–06 (1988).
It also noted that BAPCPA had made a number of changes to chapter 11
“so that it could function for individual debtors much like Chapter
13 does.” 	Roedemeier, 374 B.R. at 264. 	In chapter 13, there is no
“absolute priority” rule. 	It opined that the other changes made by
BAPCPA would make no sense if 	§ 	1115 	is 	read 	to permit the vote of
unsecured creditors to prevent confirmation of an individual debtor’s
plan. 	For that reason, it concluded that the intent of Congress was
that the statutory language of §§ 1129(b)(2)(B)(ii) and 1115 be read
broadly. 	Id. at 264-65.
The 	Shat 	case 	contained 	an 	even 	lengthier 	analysis. 	It 	began
with 	a 	detailed 	examination 	of 	BAPCPA’s 	legislative 	history. 	Like
the 	Roedemeier 	court, 	it 	found 	nothing 	helpful 	there. 	It 	noted
several 	references 	to 	Congress’s 	intent 	to 	include 	an 	individual
debtor’s 	post-petition 	income 	in 	the 	bankruptcy 	estate, 	but 	no
references 	to 	its 	intent 	to 	eliminate 	the 	“absolute 	priority” 	rule
as applied to individuals. 	In re Shat, at *3-4. 	It then summarized
the changes to chapter 11 made by BAPCPA that were designed to make
an 	individual 	chapter 	11 	case 	more 	like 	a 	chapter 	13 	case. 	Id. 	at
*4-5.
The 	Shat 	court 	then 	turned 	to 	the 	relevant 	statutory 	language
of §§ 1129(b)(2)(B)(ii) and 1115. 	It began by stating that it found
Case: 09-42526 Doc# 67 Filed: 04/15/10 Entered: 04/16/10 15:43:05 Page 10 of
15

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
9The Shat court observed that this narrow reading of §
1129(b)(2)(B)(ii) is even narrower than it first appears. 	While
the debtor is permitted to retain his post-petition income, he is
also required to devote his post-petition income to making plan
payments. 	See 11 U.S.C. § 1123(a)(8); In re Shat, at *6.
10 The Shat court then discusses the “plain meaning” doctrine.
The relevance of this decision is unclear since the Shat court
appears to acknowledge, both before and after this discussion, that
the language is ambiguous.
11
found 	ambiguous 	the 	following 	phrase 	contained 	in 	§
1129(b)(2)(B)(ii): 	i.e., 	“property 	included 	in 	the 	estate 	under
section 	1115.” 	It 	noted 	that, 	if 	“included” 	means 	added 	to 	the
bankruptcy 	estate 	already 	established 	by 	§ 	541, 	then 	§ 	1115 	should
be 	read 	narrowly, 	as 	permitting 	the 	debtor 	only 	to 	retain 	post-
petition 	property. 9 	However, 	it 	opined 	that 	“included” 	could 	also
mean “referenced.” 	Id. at *5. 	Section 1115 references the debtor’s
pre-petition 	property 	in 	the 	phrase 	“in 	addition 	to 	the 	property
specified 	in 	section 	541." 	As 	a 	conceptual 	matter, 	the 	Shat 	court
theorized that § 1115 “absorbed” and then “superseded” section 541,
so that both pre- and post-petition property were “included” in the
bankruptcy estate by § 1115. 	Id. at *7. 	As a result, the “absolute
priority” rule was eliminated for individual chapter 11 debtors. 	Id.
at *5. 10
The 	Shat 	court 	acknowledged 	that 	this 	reading 	of 	§§
1129(a)(2)(B)(ii) 	and 	1115 	was 	convoluted. 	However, 	it 	considered
the argument in favor of this reading to be powerful. 	This argument
was that Congress intended to make individual chapter 11 cases more
like chapter 13 cases and that there is no “absolute priority” rule
in chapter 13 cases.
Case: 09-42526 Doc# 67 Filed: 04/15/10 Entered: 04/16/10 15:43:05 Page 11 of
15

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
12
Notwithstanding the thorough and thoughtful analysis by the Shat
court, 	the 	Court 	is 	unable 	to 	agree 	with 	its 	conclusion. 	If 	the
Court 	were 	writing 	on 	a 	clean 	slate, 	it 	would 	view 	the 	language 	of
§ 1129(b)(2)(B)(ii) as unambiguous. 	The Court would read the phrase
“included 	in 	the 	estate 	under 	section 	1115" 	to 	be 	reasonably
susceptible 	to 	only 	one 	meaning: 	i.e., 	added 	to 	the 	bankruptcy
estate by § 1115.
Section 103(a) provides that § 541 applies in a chapter 11 case,
including an individual chapter 11 case. 	Section 541 provides that,
when a petition is filed, a bankruptcy estate is created, consisting
of the debtor’s pre-petition property. 	Section 1115 provides that,
in 	an 	individual 	chapter 	11 	case, 	in 	addition 	to 	the 	property
specified 	in 	§ 	541, 	the 	estate 	includes 	the 	debtor’s 	post-petition
property. 	If the clause referring to § 541 had not been included in
§ 1115 and if § 1115 had merely stated that an individual chapter 11
debtor’s estate included post-petition property, the argument could
have been made that an individual chapter 11 debtor’s estate did not
include his pre-petition property.
The 	Court 	does 	not 	find 	the 	other 	provisions 	added 	by 	BAPCPA,
designed 	to 	make 	individual 	chapter 	11 	cases 	mores 	like 	chapter 	13
cases, 	persuasive 	evidence 	that 	Congress 	intended 	to 	eliminate 	the
“absolute priority” rule as to individual debtors. 	Each one of these
new 	provisions 	appears 	designed 	to 	impose 	greater 	burdens 	on
individual 	chapter 	11 	debtor’s 	rights 	so 	as 	to 	ensure 	a 	greater
payout to creditors. 	This was a frequently expressed overall purpose
of 	BAPCPA: 	i.e., 	to 	ensure 	that 	debtors 	who 	can 	pay 	back 	a 	portion
Case: 09-42526 Doc# 67 Filed: 04/15/10 Entered: 04/16/10 15:43:05 Page 12 of
15

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
13
of their debts do so. 	H.R. Rep. No. 109-31, pt. 1, at 2 (2005). 	No
one who reads BAPCPA as a whole can reasonably conclude that it was
designed to enhance the individual debtor’s “fresh start.”
The Shat court asserts that the “absolute priority” rule makes
it 	virtually 	impossible 	for 	an 	individual 	chapter 	11 	debtor 	to
confirm 	a 	plan 	that 	does 	not 	provide 	for 	payment 	in 	full 	to 	the
holders 	of 	unsecured 	claims. 	To 	the 	contrary, 	such 	a 	plan 	may 	be
confirmed 	if 	the 	holders 	of 	such 	claims 	vote 	in 	favor 	of 	the 	plan.
They 	are 	likely 	to 	do 	so 	if 	a 	reasonable 	dividend 	is 	proposed, 	and
they conclude that they will receive no dividend in a chapter 7 case.
Finally, if §§ 1129(b)(2)(B)(ii) and 1115 are read to eliminate
the “absolute priority” rule for individual chapter 11 debtors, the
Court 	is 	faced 	with 	a 	procedural 	anomaly. 	If 	the 	plan 	proposes 	to
pay 	them 	anything, 	the 	debtor 	is 	required 	to 	send 	them 	a 	ballot.
Yet, 	their 	vote 	can 	be 	ignored. 	This 	makes 	no 	sense. 	The 	Court
reads 	§§ 	1129(b)(2)(B)(ii) 	and 	1115 	to 	eliminate 	the 	“absolute
priority” 	rule 	only 	as 	to 	an 	individual 	chapter 	11 	debtor’s 	post-
petition property. 	It bases this conclusion on both the language of
the 	statute, 	both 	in 	isolation 	and 	viewed 	in 	the 	context 	of 	the
Bankruptcy 	Code 	as 	a 	whole. 	It 	finds 	this 	reading 	most 	consistent
with the intent of Congress as expressed in the legislative history.
CONCLUSION
The 	Plan 	may 	not 	be 	confirmed. 	Oshuntola’s 	objections 	to
feasibility, 	to 	the 	valuation 	of 	the 	Sunol 	Property, 	and 	to 	the
Debtor’s 	failure 	to 	classify 	his 	claim 	as 	a 	claim 	secured 	by 	the
Debtor’s 	personal 	property 	are 	overruled. 	His 	objection 	to
Case: 09-42526 Doc# 67 Filed: 04/15/10 Entered: 04/16/10 15:43:05 Page 13 of
15

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
14
confirmation on good faith grounds is sustained in part and overruled
in 	part. 	Oshuntola’s 	objection 	to 	the 	Debtor’s 	failure 	to 	satisfy
11 	U.S.C. 	§ 	1129(a)(15) 	is 	also 	sustained. 	Finally, 	the 	Court
concludes that, based on its reading of 11 U.S.C. § 1129(b)(2)(B)(ii)
and 	1115, 	the 	Plan 	does 	not 	satisfy 	the 	“absolute 	priority” 	rule,
which still applies to some extent to individual chapter 11 debtors.
Counsel for Oshuntola is directed to submit a proposed form of order
in accordance with this decision.
END OF DOCUMENT
Case: 09-42526 Doc# 67 Filed: 04/15/10 Entered: 04/16/10 15:43:05 Page 14 of
15

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
15
COURT SERVICE LIST
Michael A. Gbadebo
3229 Colebrook Lane
Dublin, CA 94568
Lawrence L. Szabo
Law Offices of Lawrence L. Szabo
3608 Grand Ave. #1
Oakland, CA 94610-2024
Mark S. Bostick
Wendel, Rosen, Black & Dean LLP
1111 Broadway, 24 th Floor
Oakland, CA 94607-4036
Case: 09-42526 Doc# 67 Filed: 04/15/10 Entered: 04/16/10 15:43:05 Page 15 of
15