Chrome Holding Co.

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
In re:
CHROME HOLDING CO. (f/k/a
23ANDME HOLDING CO.), et al.,
Debtors.
Case No. 25-40976-357
Chapter 11
Jointly Administered
MEMORANDUM OPINION
Debtor ChromeCo, Inc., formerly known as 23andMe, Inc., sold its assets under
Section 363 of the Bankruptcy Code earlier in this case. It then rejected its lease of a building
in San Francisco owned by KR OP Tech, LLC (the “Landlord”). The Landlord filed a proof
of claim for rejection damages of approximately $9.7 million.
The Landlord has now objected to the Fourth Amended Joint Plan of Chrome Holding
Co. and its Debtor Affiliates Pursuant to Chapter 11 of the Bankruptcy Code (the “Plan”). Its
objections raise several issues, but all derive from a single fact: if Section 502(b)(6) of the
Bankruptcy Code applies here, the Landlord’s allowed claim in this case will be limited to
about $5.6 million. 1
For the reasons discussed below, I will overrule the Landlord’s objections to
confirmation of the Plan, but I will include language in the confirmation order protecting the
Landlord’s rights against what may remain of the Debtor after confirmation.
I. 	Jurisdiction
The 	Court 	has 	subject-matter 	jurisdiction 	of 	the 	Debtor’s 	case 	and 	the 	plan-
confirmation proceedings under 28 U.S.C. § 1334(a)-(b). This is a core proceeding under 28
U.S.C. § 157(b)(2)(L).
1 The Debtor has not agreed to either of these calculations, but it has not disputed them
for purposes of the legal issues raised by the Landlord. I will take the same approach.
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II. 	Background
A. 	The Debtors’ Business and History
Before filing for bankruptcy relief, the Debtors in these cases operated a direct-to-
consumer genetic-testing business.2 Customers could send the company saliva samples in
exchange for extensive information about their personal genomes, including ancestry and
susceptibility to certain illnesses. In operating this business, the Debtors stored highly sensitive
personal information, including saliva samples, DNA testing results, and other customer
information such as names and email addresses.
In 2023, the company announced that it had suffered a data breach, during which
hackers accessed the personal data of approximately seven million customers. Extensive
litigation and threats of legal action ensued after the data breach. The fallout from the data
breach strained the Debtors’ resources and, along with other economic factors, led the
Debtors to file for Chapter 11 relief.
In March 2025, the Debtors filed a motion to establish bidding procedures and to set
certain deadlines for the sale of their assets, and I granted that motion. A lengthy sale process
followed, culminating in a two-day evidentiary hearing on the Debtors’ motion to sell
substantially all of their assets, except the Lemonaid telehealth business, for a purchase price
of $302.5 million. I entered an order approving the sale on June 27, 2025, and the sale closed
on July 14, 2025. See In re 23andMe Holding Co., --- B.R. ----, 2025 WL 1791166 (Bankr. E.D.
Mo. June 27, 2025).
The Debtors filed their original Chapter 11 plan and disclosure statement on August
15, 2025. I entered an order approving the adequacy of the disclosure statement and the
confirmation 	procedures 	on 	October 	1, 	2025. 	The 	Debtors 	have 	since 	filed 	various
supplements and amended plans, with the most recent being the Plan.
On September 11, 2025, the Debtors filed a Notice of Lemonaid Stock Purchase
Agreement, which indicated an intent to consummate the sale of the Lemonaid telehealth
business through the Plan. Pursuant to this agreement, Bambumeta Ventures, LLC will
acquire 100% of the outstanding capital stock of Debtors Lemonaid Health, Inc. and Chrome
Pharmacy Holdings, and thus obtain indirect ownership of several other subsidiaries
(collectively, the “Lemonaid Debtors”) for $10 million. No party objected to the related plan
2 Although the dispute with the Landlord involves only Debtor ChromeCo, Inc., I
discuss that company and its affiliated debtors collectively in this background section.
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provisions. With the sale of the Lemonaid Debtors, the Debtors will no longer have any
business operations.
B. 	Key Terms of the Plan
Classes 3, 4, 5, and 14 under the Plan address three class actions that have been
preliminarily certified for settlement purposes, as well as a large group of claimants with
pending arbitration claims. Claimants who opt out of the class actions or do not participate
in the arbitration settlement will join other general unsecured creditors of the genomics
business in Class 7 or general unsecured creditors of the Lemonaid business in Class 9.
Creditors in these classes will receive pro rata distributions from a liquidating trust known as
the Plan Administration Trust. If the trust has sufficient assets, allowed claims of general
unsecured creditors will be paid in full.
Classes 6 and 8 include commercial creditors of the genomics and Lemonaid
businesses, 	respectively. 	These 	creditors 	also 	will 	be 	paid 	pro 	rata 	from 	the 	Plan
Administration Trust. If sufficient assets are available in the trust, they will have their allowed
claims paid in full and will receive post-petition interest.
Class 12 consists of holders of stock in the Debtors’ publicly traded parent company.
If there are funds remaining in the trust after all allowed claims are paid in full, the equity
holders will receive a pro rata share of the remaining proceeds.
The liquidation analysis attached to the disclosure statement suggests that the Debtors
are solvent and that there may be a substantial distribution to equity holders. As the Debtors
noted at the confirmation hearing, however, it is too soon to know whether the Debtors are
solvent. Creditors have filed proofs of claim with an aggregate face value in the trillions of
dollars against the Debtors, but they have only approximately $200 million to distribute.
Whether and to what extent equity holders will receive a distribution will be uncertain until
the Debtors complete the claims reconciliation process.
All eligible classes voted to accept the plan except for Classes 6, 7, and 12.
As discussed previously, the Debtors will sell the stock of the Lemonaid Debtors
through the Plan. The Debtors intend to close that sale on the effective date of the Plan. The
Debtors intend to wind-down their remaining entities (the “Wind-Down Debtors”). The
Wind-Down Debtors will not “engage in business after consummation of the plan” and
therefore are ineligible to receive discharges. 11 U.S.C. § 1141(d)(3)(B). The Lemonaid
Debtors, however, will receive discharges.
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III. 	Analysis
The Landlord objects to confirmation of the Plan on three principal grounds. First, it
argues that Section 502(b)(6) should not operate to cap a landlord’s claim for rejection
damages if the debtor is solvent. 3 Second, the Landlord argues that the Plan violates the best-
interests-of-creditors test of 11 U.S.C. § 1129(a)(7) because the Landlord would recover more
in a hypothetical Chapter 7 liquidation than it will under the Plan. And third, the Landlord
argues that the Plan indirectly discharges its debt even though the Debtor is not eligible for a
discharge.
I will address each of these arguments, along with two related ones, in turn.
A. 	Section 502(b)(6) and Solvent Debtors
Courts have been nearly unanimous in their rejection of the Landlord’s argument that
Section 502(b)(6) does not apply to a solvent debtor. See, e.g., In re Federated Department Stores,
Inc., 131 B.R. 808, 817 (S.D. Ohio 1991) (“There is simply nothing in the plain language of
§ 502(b)(6) to suggest that a bankruptcy court may depart from the application of the cap on
a lessor’s claim any time the debtor is solvent or the court otherwise believes the equities of
the case might warrant such a departure.”); 1500 Mineral Spring Associates, LP v. Gencarelli, 353
B.R. 771, 785 (D.R.I. 2006) (discussing “overwhelming weight of authority” favoring
debtors); In re Farley, Inc., 146 B.R. 739, 748 (Bankr. N.D. Ill. 1992) (“[T]he solvency question
is not a material issue of fact which would have any effect on determination of the statutory
cap under § 502(b)(6).”); In re PPI Enterprises (U.S.), Inc., 228 B.R. 339, 346 (Bankr. D. Del.
1998) (“The Code allows for no such distinction between value for creditors involving the
application 	of 	§ 502(b)(6) 	and 	value 	for 	equity 	holders 	excluding 	the 	application 	of
§ 502(b)(6).”), aff’d, 324 F.3d 197 (3d Cir. 2003).4
3 Section 502(b)(6) provides that “the claim of a lessor for damages resulting from the
termination of a lease of real property” is disallowed to the extent that it exceeds “the rent
reserved by such lease, without acceleration, for the greater of one year, or 15 percent, not to
exceed three years, of the remaining term of such lease,” plus accrued unpaid rent. 11 U.S.C.
§ 502(b)(6).
4 The Landlord argues that the debtor in PPI was not solvent. That is arguably correct,
because the plan in that case included a large class of insider claims that would not be paid in
full. See 324 F.3d at 201 n.6. But the landlord in PPI presented his argument that the cap
should not apply on the premise that the debtor was solvent, and the bankruptcy court rejected
that argument. See 228 B.R. at 346. As discussed above, it is not clear whether the Debtor in
(footnote continued)
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In the leading case to the contrary, the court relied on equitable principles because it
concluded that Section 502(b)(6) did not clearly include or exclude a landlord’s claim against
a debtor-guarantor, as opposed to a debtor-tenant. See In re Danrik, Ltd., 92 B.R. 964, 967
(Bankr. N.D. Ga. 1988). Many courts have disagreed with this initial premise of Danrik,
concluding that the plain language of the statute covers guarantors as well. See, e.g., In re Interco
Inc., 137 B.R. 1003, 1006 (Bankr. E.D. Mo. 1992) (§ 502(b)(6) “is applicable whether the
debtor is the tenant or the guarantor”); In re Arden, 176 F.3d 1226, 1229 (9th Cir. 1999)
(criticizing bankruptcy court for relying on Danrik in case of solvent debtor-guarantor). See
also In re Wigley, 951 F.3d 967, 971 (8th Cir. 2020) (cap applies to landlord’s claim against
debtor that received fraudulent transfer). And there is no ambiguity in this case; the Debtor
was a tenant, not a guarantor. Because Congress has clearly specified that the Section
502(b)(6) cap applies in the situation before me, I cannot deploy equitable principles to reach
the opposite conclusion. See, e.g., United States v. Noland, 517 U.S. 535, 543 (1996) (bankruptcy
court cannot make equitable “categorical determination” about priority of claims).
But even if I had a completely free hand in the matter, I would not adopt the
Landlord’s preferred construction of Section 502(b)(6). The statute has its roots in a 1934
amendment to the Bankruptcy Act of 1898. See Act of June 7, 1934, ch. 424, § 1, 48 Stat. 911,
915 (enacting § 77B(b) of Bankruptcy Act). The Second Circuit described the provisions of
this legislation relating to landlords as “an obvious compromise . . . reached only after serious
research and study on the part of the legislators.” Oldden v. Tonto Realty Corp., 143 F.2d 916,
920 (2d Cir. 1944). See also S. Rep. No. 95-989, at 63-64 (1978), reprinted in 1978 U.S.C.C.A.N.
5787, 5849-50 (citing Oldden and describing compromises in similar 1978 legislation); Kuehner
v. Irving Trust Co., 299 U.S. 445, 453 (1937) (describing “the diverse views entertained in
Congress as to the amount for which a claim should be allowed”). The amendment provided
a limited remedy to landlords, whose claims for rejection damages had not previously been
considered provable. See City Bank Farmers Trust Co. v. Irving Trust Co., 299 U.S. 433, 437
(1937). And it was promptly challenged, on both statutory and constitutional grounds, as it
applied to solvent debtors and their shareholders. The Second Circuit rejected such a
challenge in Kuhner v. Irving Trust Co., 85 F.2d 35 (2d Cir. 1936), aff’d sub nom. Kuehner v. Irving
Trust Co., 299 U.S. 445 (1937). Judge Learned Hand explained:
The appraisal of realty at a distant time is the merest guess; nobody can possibly
know anything about it, and one man’s guess is nearly as good as another’s.
For this reason Congress might circumscribe its use to the near future, not only
this case is solvent, but that does not preclude the Landlord from raising objections to
confirmation because of how the Plan would work should the Debtor turn out to be solvent.
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as against creditors, but against the lessee itself. That would be no more drastic
or unfair than the common law had been again and again.
Kuhner, 85 F.2d at 38. The Supreme Court agreed that the statute disallowed claims in excess
of the limit that it set forth; it did not merely subordinate the excess for payment before
distributions to shareholders. See Kuehner, 299 U.S. at 449-50. It rejected the constitutional
challenge as well:
Whatever courts, in the absence of a statutory formula, might feel compelled
to adopt as the measure of damage in such a case, we cannot hold that Congress
could not reasonably find that an award of the full difference between rental
value and rent reserved for the remainder of the term smacks too much of
speculation and that a uniform limit upon landlords’ claims will, in the long
run, be fairer to them, to other creditors, and to the debtor.
Id. at 454.
The Landlord points out that an important consequence of the 1934 legislation
allowing landlords’ claims for rejection damages was that debtors could, for the first time,
discharge those debts. See id. at 453 (“Congress obviously attempted to award landlords an
equitable share in the debtor’s assets . . . since the purpose was to discharge the debtor from
liability to future suits based upon the lease.”). Although that is correct, nothing in the statute
or the Kuehner opinion limits the application of the cap to situations in which the debtor
receives a discharge of its debts generally or of the landlord’s claim in particular. The statute
and the case concern “the creditor’s remedy for [contract] enforcement against the debtor’s
assets, or the measure of the creditor’s participation therein,” not what might happen after the
assets have been distributed, or if the debtor is reconstituted as a going concern, or when the
landlord pursues a non-debtor. Id. at 452. See also In re Wigley, 15 F.4th 1208, 1212 (8th Cir.
2021) (§ 502(b)(6) “established the amount allowed to be paid from the bankruptcy estate,”
as distinguished from what creditor might recover if debt were excepted from discharge).
The Landlord also argues that two changes in the law in 1978 render Kuehner
inapplicable today. The first is that liquidating corporations were eligible to receive discharges
under the Bankruptcy Act of 1898 but are not under the Bankruptcy Code. See 11 U.S.C.
§ 1141(d)(3). And the second is that the 1934 statute stated that a landlord’s claim “shall be
limited,” while Section 502(b)(6) says that a landlord’s claim is allowed “except to the extent
that” it “exceeds” the cap. Compare 48 Stat. at 915 with 11 U.S.C. § 502(b)(6). I do not agree
that either of these changes is meaningful. As just discussed, the statute, and its interpretation
in Kuehner, concern what happens during the distribution of the debtor’s assets among
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creditors and shareholders, not what may happen afterwards. And the distinction between
limiting a claim and disallowing the portion of a claim above a threshold is not material.5
Against this historical backdrop, there is no room for me to decide that it would be
preferable for the Landlord to recover in full before shareholders may receive distributions.
Congress has made its decision—in 1934 and again in 1978—about what a landlord may
recover in the bankruptcy case of its tenant, and the Supreme Court has determined that
Congress may do so, even if the tenant is solvent. 6
The Landlord also relies on 21st-century cases interpreting a different disallowance
statute, Section 502(b)(2) of the Bankruptcy Code. That subsection generally disallows claims
for unmatured interest, but under what is known as the “solvent-debtor exception,” a debtor
must nevertheless pay interest to creditors before making distributions to shareholders. See,
e.g., In re Ultra Petroleum Corp., 51 F.4th 138, 150 (5th Cir. 2022); In re PG&E Corp., 46 F.4th
1047, 1057 (9th Cir. 2022). But these cases depend significantly on the longstanding, pre-Code
practice of requiring solvent debtors to pay interest. See Ultra, 51 F.4th at 150 (noting that the
solvent-debtor exception has existed for “some three centuries of bankruptcy law”); PG&E,
46 F.4th at 1059 (noting that “the equitable solvent-debtor exception was widely applied”);
American Iron & Steel Manufacturing Co. v. Seaboard Air Line Ry., 233 U.S. 261, 267 (1914)
(discussing exception); United States v. Kalishman, 346 F.2d 514, 518 (8th Cir. 1965) (same).
See also 11 U.S.C. § 726(a)(5) (requiring Chapter 7 trustee to pay interest if all allowed claims
have been paid).
The Landlord’s claim to compensation above the Section 502(b)(6) cap has no such
pedigree. As discussed above, before 1934, landlords could not recover rejection damages at
all, and the cap imposed at that time applied to both solvent and insolvent debtors. Thus, to
5 Another provision of the 1934 legislation amended Section 63(a) of the Bankruptcy
Act to include a similar limit on landlords’ claims. It provided that the claim “shall in no event
be allowed in an amount exceeding” the cap. 48 Stat. at 924. This formulation is similar to
Section 502(b)(6), and Section 63(a) was cross-referenced in Section 77B(b). See id. at 915.
The use of both phrases to describe the same concept in a single piece of legislation suggests
that they are fundamentally equivalent.
6 The Landlord insists in its supplemental brief that Kuehner is “devoid of any reference
to [the debtor’s] solvency.” But the first question presented to the Court was whether the
landlord’s claim in excess of the statutory cap had “priority over the interests of stockholders.”
Kuehner, 299 U.S. at 447. It is irrelevant whether the debtor in that case had been determined
to be solvent or whether, as in this case, the parties were disputing what would happen if the
debtor should turn out to be solvent.
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the extent that there is a role here for the principle that courts “will not read the Bankruptcy
Code to erode past bankruptcy practice absent a clear indication that Congress intended such
a departure,” it favors the Debtors’ position, not the Landlord’s. Cohen v. de la Cruz, 523 U.S.
213, 221 (1998) (cleaned up).
B. 	Best-Interests-of-Creditors Objection
The Landlord’s second argument is more complicated. It involves six steps.
One: Section 1129(a)(7) of the Bankruptcy Code, known as the best-interests-of-
creditors test, requires that each holder of a claim in an impaired class either accept the plan
or “receive or retain under the plan on account of such claim . . . property of a value, as of
the effective date of the plan, that is not less than the amount that such holder would so receive
or retain if the debtor were liquidated under chapter 7 of [the Code] on such date.” 11 U.S.C.
§ 1129(a)(7)(A)(ii).
Two: although the Section 502(b)(6) cap limits the amount that a landlord may recover
from the bankruptcy estate, it does not extinguish liability for the excess. See, e.g., In re Modern
Textile, Inc., 900 F.2d 1184, 1191 (8th Cir. 1990) (landlord may pursue non-debtor guarantor);
Wigley, 15 F.4th at 1212 (landlord may pursue full claim if it is excepted from discharge).
Three: when a solvent debtor liquidates in Chapter 7, the trustee makes distributions
to creditors and returns the excess to the debtor. See 11 U.S.C. § 726(a).
Four: a corporate debtor does not receive a discharge in Chapter 7. See 11 U.S.C.
§ 727(a)(1). When a solvent corporate debtor receives the surplus of the bankruptcy estate
from the trustee under Section 726(a)(6), it remains liable for any debts the trustee has not
satisfied.
Five: under general principles of corporate law, and in particular in Delaware, where
the Debtor is incorporated, a company must pay its creditors before its shareholders. See 8
Del. Code § 281 (requiring dissolved corporation to pay or make provision for debts before
distributing assets to shareholders). If the Debtor received assets that remained after a
hypothetical Chapter 7 liquidation, it would need to pay the balance of the Landlord’s claim
before making distributions to its shareholders.
Six: because the Landlord would recover the full, uncapped amount of its claim in a
hypothetical Chapter 7 liquidation, it must recover the full, uncapped amount under the Plan
as well.
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The Landlord has not cited any decisions adopting its interpretation of Section
1129(a)(7).7 Assuming for the sake of analysis that the preliminary points above are sound, I
nevertheless disagree with the conclusions the Landlord draws, for two principal reasons.
First, the plain language of Section 1129(a)(7) requires a comparison of apples to
apples. The question is whether a creditor will “receive or retain under the plan on account
of such claim . . . 	property of a value” that at least equals “the amount that [the creditor]
would so receive or retain if the debtor were liquidated under chapter 7.” 11 U.S.C.
§ 1129(a)(7)(A)(ii) (emphasis added). The word “so” calls for a parallel structure here: it
initially suggests that we must compare what the creditor recovers “under the plan on account
of such claim” in Chapter 11 to what the creditor would recover “under the plan on account
of such claim” in Chapter 7. The comparison cannot be quite so literal, because there is no
plan in a Chapter 7 case, but it is just as straightforward to interpret the statute to require an
analysis of what the creditor would recover from the bankruptcy estate in each chapter. See Dow
Corning, 237 B.R. at 411 (“[C]ourts look at the dividend the creditor would receive from the
chapter 7 trustee—and only that amount—for comparison with the dividend available under
the plan.”). And by the Landlord’s own analysis, it would receive only the capped amount
from the estate in either scenario.
7 The Landlord argues that the case most favorable to its position is In re Liberate
Technologies, 314 B.R. 206 (Bankr. N.D. Cal. 2004), but it acknowledges that the context is
different. Liberate involved a landlord’s motion to dismiss the Chapter 11 case of a solvent
debtor as a bad-faith filing. See id. at 209. Although much of the court’s opinion discussed the
Section 502(b)(6) cap as though it would be enforceable if the case proceeded, the court stated
in a footnote near the end that if the debtor did not continue in business, it would not receive
a discharge, and the debtor “would then remain liable to [the landlord] for the full amount
due under state law.” Id. at 218 n.9. The Liberate court did not hold that the cap does not apply
to a solvent debtor or that the best-interests test requires payment of a landlord’s claim in full.
A closer case, though not cited by the Landlord, is In re Dow Corning Corp., 237 B.R.
380 (Bankr. E.D. Mich. 1999). The court in Dow Corning contemplated but rejected a
“decidedly novel” argument that echoes the Landlord’s: the best-interests test “should
account for the value of any cause of action that a creditor would retain against a chapter 7
corporate debtor.” Id. at 411. It recognized that no court had ever discussed or decided the
question and that the Collier treatise did not support it. See id. at 411 n.20. Twenty-six years
later, the situation appears to be much the same. See 7 Collier on Bankruptcy ¶ 1129.02[7][b]
& n.84a (16th ed. 2025) (stating that test measures creditor’s “hypothetical chapter 7
distribution” and not “potential receipt of recoveries from those co-liable with the debtor”).
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Second, Section 1129(a)(7) applies only to a class of impaired claims. See 11 U.S.C.
§ 1129(a)(7). The Debtor has classified the Landlord’s class as impaired, apparently because
of uncertainty about whether and when the claims of unsecured creditors may be paid in full.
But in a case involving fewer creditors and a debtor that is unquestionably solvent, the debtor
might classify a landlord separately, commit to paying its capped claim in full upon plan
confirmation, and thus treat the landlord as unimpaired. 8 The landlord in that hypothetical
case, with an obviously solvent debtor, would not be able to invoke the best-interests test,
while the Landlord in this case, with a potentially solvent debtor, claims that the best-interests
test requires payment of its claim in full, without regard to the cap. That is an absurd result.
C. 	De Facto Discharge and Related Arguments
Although the Debtor is not entitled to a discharge, and the Plan states as much in
Article VIII, Section A, the Landlord argues that a number of provisions in the Plan have the
effect of awarding the Debtor a discharge anyway.
1. 	Section 1141 arguments
The Landlord first takes issue with language providing that all creditors are bound by
the Plan and that the Debtor’s assets will vest in the Plan Administration Trust free and clear
of creditors’ claims. This language does not enjoin the Landlord from commencing or
continuing an action to recover from the Debtor, which is what a discharge would do. See 11
U.S.C. § 524(a)(2). But the Landlord contends that it has the same effect and, moreover, that
it is inconsistent with Sections 1141(a) and (c) of the Bankruptcy Code.
These statutes describe the effect of plan confirmation, and their general substance is
consistent with the Plan. Section 1141(a), for example, states that “the provisions of a
confirmed plan bind … any creditor.” And Section 1141(c) says that “the property dealt with
by the plan is free and clear of all claims and interests of creditors,” unless the plan or the
confirmation order states otherwise. But each section also includes this introductory language:
“Except as provided in subsections (d)(2) and (d)(3) of this section.” 11 U.S.C. §§ 1141(a), (c).
Because Section 1141(d)(3) is the Code provision that denies a discharge to a liquidating
8 Courts generally conclude that a claim is not impaired if it receives the treatment
provided by the Bankruptcy Code, such as the Section 502(b)(6) cap. See, e.g., PPI, 228 B.R.
at 353 (distinguishing between “plan impairment” and “statutory impairment”); In re K Lunde,
LLC, 513 B.R. 587, 597 (Bankr. D. Colo. 2014); In re American Solar King Corp., 90 B.R. 808,
820 (Bankr. W.D. Tex. 1988).
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corporate debtor, the Landlord argues that such a debtor cannot bind creditors to the terms of
a plan or have its assets emerge from Chapter 11 free and clear of claims.
Some courts have used sweeping language when describing the binding effect of a plan
on a debt excepted from discharge, which is the subject of the related cross-reference to
Section 1141(d)(2). For example, the Tenth Circuit stated, “Although a confirmed plan
generally binds any creditor regardless of whether the creditor’s claim is impaired by the plan
or whether the creditor accepted the plan, the same is not true of a creditor whose claim is
nondischargeable.” In re DePaolo, 45 F.3d 373, 375 (10th Cir. 1995) (cleaned up). The question
in that case, however, was not whether the creditor was free to ignore every aspect of the
confirmed plan; it was whether the creditor was bound by language generally discharging all
of the debtor’s debts when its claim was not dischargeable as a matter of law. See id. at 374.
Similarly, another court stated boldly that “the holders of the nondischargeable claims are not
bound by the provisions of a confirmed plan.” In re Adelman, 90 B.R. 1012, 1018 (Bankr.
D.S.D. 1988). But two sentences later, the court reached a conclusion pertinent to the more
limited dispute before it: “[A] holder of a nondischargeable claim may execute or collect on
his nondischargeable debt without regard to the discharge provisions of the plan.” Id.
More recently, the Ninth Circuit Bankruptcy Appellate Panel adopted a narrower
interpretation of Sections 1141(a) and (c). See In re Brotby, 303 B.R. 177 (B.A.P. 9th Cir. 2003).
It concluded that “while all creditors are bound by the provisions of a confirmed plan, this
binding effect cannot operate to discharge an otherwise nondischargeable debt.” Id. at 189.
Similarly, “while confirmation of a plan releases all property dealt with by the plan from the
claims of creditors, the plan cannot release property from § 523 claims.” Id. And thus, in
appropriate circumstances, a Chapter 11 plan may include an injunction limiting the
collection rights of holders of non-dischargeable debts while the debtor makes payments to all
creditors. See id. at 190.
This narrow interpretation is consistent with the plain language, structure, and context
of Section 1141, as well as common sense. The introductory phrase “except as provided in”
suggests that there may be conflicts between two statutes, and if there are, the statute identified
as exceptional should control. As applied to the statutes here, a plan that contains a discharge
is not enforceable to the extent that the discharge is inappropriate, either as to a single debt or
as to all debts of a liquidating corporation. But that does not mean that no aspect of the plan
is enforceable. Chapter 11 plans often contain provisions having little to do with the discharge
of debts—such as approval of the sale of remaining assets and the appointment of persons to
conduct the liquidation—and nothing in the statute suggests that Congress believed that
creditors with non-dischargeable debts should be able to ignore them.
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For example, the Plan contemplates the sale of the stock of the Lemonaid Debtors to
a third party for cash. There is no reason why the Landlord or any other creditor should be
permitted to ignore the validity of the sale and pursue the stock in the hands of the purchaser,
nor should the cash proceeds be distributed to whichever creditor obtains an execution
warrant first. Even though the Debtor is not receiving a discharge, the Plan provides for the
orderly distribution of its assets, and creditors must comply with its requirements. See In re AB
Liquidation Corp., No. 06-1024, 2006 WL 6810956, at *6 (B.A.P. 9th Cir. Dec. 22, 2006) (lack
of discharge “does not . . . allow [creditor] to pursue its claim against the plan proceeds”).
The holder of a claim that is not discharged must find another path to payment in full.
Congress clearly contemplated that corporate debtors could confirm liquidating plans
in Chapter 11. See, e.g., 11 U.S.C. §§ 1123(b)(4) (authorizing sale of all debtor’s property and
distribution of proceeds among creditors and shareholders); 1129(a)(11) (recognizing that
liquidation may be proposed in a plan); 1141(d)(3)(A) (same). But if the Landlord’s
interpretation of Section 1141 were correct, there would be little—perhaps nothing—for a
liquidating debtor to gain from confirmation of a plan, because creditors could ignore the plan
and pick the debtor’s assets apart at will. If this were the result that Congress intended, it
would have been simpler for it to preclude liquidating corporations from confirming Chapter
11 plans in the first place.9
2. 	Other arguments
The Landlord also objects to eight provisions of the plan that, in its view, attempt to
deem its rejection-damages claim to be fully satisfied, purport to impose on the Landlord a
settlement to which it has not agreed, or otherwise are inconsistent with the lack of a discharge
for a liquidating corporate debtor.
Two of the challenged provisions include the word “discharge.” For example, Article
III, Section D of the Plan states that the treatment provided in the Plan is “in full and final
satisfaction, compromise, settlement, release, and discharge of and in exchange for [a
creditor’s] Allowed Claim.” Article IV, Section I provides that “all agreements . . . evidencing
Claims or Interests . . . shall automatically be deemed discharged, cancelled, and of no further
force and effect, and the obligations of the Debtors . . . 	shall be deemed satisfied in full,
9 A liquidating corporation is denied a discharge to prevent “trafficking in corporate
shells and bankrupt partnerships.” H.R. Rep. No. 95-595, at 384 (1977), reprinted in 1978
U.S.C.C.A.N. 5963, 6340; see also In re Fairchild Aircraft Corp., 128 B.R. 976, 982 (Bankr. W.D.
Tex. 1991) (same). For the reasons discussed here, the Landlord will have the right to pursue
the Debtor if, for some reason, it is reanimated and holds assets.
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cancelled, discharged, release, and of no force and effect.” In context, it is clear that both of
these excerpts use the term “discharged” in the sense of “satisfied” rather than the Bankruptcy
Code’s sense of “not collectible as a personal liability.” See 11 U.S.C. § 524(a). Nevertheless,
it is possible to construe these phrases broadly to mean that the Landlord retains no recourse
after confirmation against the Debtor or any other person who may be liable for the Debtor’s
obligations, such as a guarantor. That would be inconsistent with a discharge under Section
524(a), even if the Debtor were entitled to receive one. See Zavelo v. Reeves, 227 U.S. 625, 629
(1913) (“[T]he discharge destroys the remedy, but not the indebtedness.”); 11 U.S.C. § 524(e).
Another provision in Article IV, Section E does not use the word “discharge,” but it
comes even closer to the bankruptcy-law meaning of that term. It says that “Holders of Claims
or Interests are enjoined from asserting against any Debtor or any Wind-Down Debtor any
Claims or Interests and may not proceed in any manner against any Debtor or Wind-Down
Debtor on account of any Claim or Interests in any other forum whatsoever.” Although this
language can be read as a sensible warning to creditors that they should not waste their time
and money suing entities that have no remaining assets, it also can be construed as essentially
a discharge injunction.
By contrast, another challenged provision is not a problem at all. Located in Article
III, Section F, it states that “in no case shall the aggregate value of all property received or
retained under the Plan on account of any Allowed Claim exceed the amount of the Allowed
Claim.” No creditor is entitled to more under the Plan than full satisfaction of its allowed
claim, even if that claim is capped under Section 502(b)(6), as discussed above.
The remainder of the Landlord’s objections to what it contends are discharge-like
elements of the Plan are generally similar to those discussed above. I will therefore address
all of these objections en masse by including language in the confirmation order clarifying
(1) that the Landlord’s claim is not discharged; (2) that nothing in the Plan extinguishes any
liability of the Debtor (including in its capacity as a Wind-Down Debtor) to the Landlord
under the terms of the parties’ lease, nor any related or derivative liability of any non-debtor
to the Landlord; and (3) that the Landlord nevertheless is not entitled to any greater recovery
under the Plan or from the Plan Administration Trust than that set forth in the Plan. See In re
Midway Gold US, Inc., 575 B.R. 475, 515 (Bankr. D. Colo. 2017) (noting that similar language
in plan was sufficient to overcome other plan provisions that might have been impermissible
in liquidating corporate Chapter 11 case).
D. 	Absolute Priority
At the confirmation hearing, the Landlord argued that the Plan does not comply with
the absolute-priority rule of Section 1129(b)(2)(B) of the Bankruptcy Code because it does not
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specifically adopt one of the two options set forth there: payment in full of allowed claims of
unsecured creditors or elimination of the interests of shareholders. The Landlord did not
include this argument in its written objection to confirmation, but it argues—correctly—that
the ballot report showing that the Landlord’s class of creditors voted to reject the Plan was
not filed until after the objection deadline. Because only a rejecting class may invoke the
absolute-priority rule, see 11 U.S.C. § 1129(b)(1), I will treat the Landlord’s argument as
timely.10
Nevertheless, the objection is not sound. The absolute-priority rule requires one of two
outcomes in this case, and the Plan will yield one or the other. Many Chapter 11 debtors
know at the time of confirmation that they are insolvent, and an occasional debtor is confident
of its solvency. These debtors typically propose plans, respectively, that eliminate equity or
guarantee payment in full of allowed claims. But nothing requires a debtor with assets or
liabilities of uncertain value to commit preemptively to one of the two absolute-priority
outcomes before it administers its assets and reconciles its liabilities. See In re Introgen
Therapeutics, Inc., 429 B.R. 570, 585 (Bankr. W.D. Tex. 2010) (rejecting absolute-priority
objection because “[t]he only way Class 4 [equity] will receive anything is if Class 3 in fact
gets paid in full”).
The waterfall built into the Plan ensures that shareholders will not be paid before
allowed claims of creditors are satisfied. Section 1129(b)(2)(B) requires no more than that.
E. 	Third-Party Releases
The Landlord’s written objection to confirmation includes a short objection to the
third-party releases in the Plan. The Landlord did not press this objection at the confirmation
hearing after other parties announced a consensual resolution of their similar objections. But,
in any event, the Landlord opted out of the third-party releases and lacks standing to challenge
10 In its supplemental brief, the Landlord expands its absolute-priority argument to
include other, uncodified aspects of the requirement that a plan be “fair and equitable” to an
impaired, non-accepting class of creditors. 11 U.S.C. § 1129(b)(1). This argument is not
timely. But in any event, for the reasons explained above, Congress has determined how a
debtor’s assets should be distributed, and there is no basis for me to determine that some other
result would be more fair.
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them. See Mercy Health Network, Inc. v. Mercy Hospital, 671 B.R. 499, 507 (N.D. Iowa 2025); In
re Indianapolis Downs, LLC, 486 B.R. 286, 304 (Bankr. D. Del. 2013).
IV. 	Conclusion
For these reasons, I will enter a separate order that confirms the Plan, makes
appropriate findings of fact and conclusions of law, and includes language addressing the
discharge-related issues discussed above.
Dated: November 26, 2025 	_______
St. Louis, Missouri
cjs 	United States Bankruptcy Judge
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